Registration No. 33-20313
As filed with the Securities and Exchange Commission on December
22, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
----
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 10 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
----
ACT OF 1940
Amendment No. 13 / X /
(Check appropriate box or boxes)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
Thomas M. Mistele
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / on (date) pursuant to paragraph (a)(1)
/X / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
* The Registrant has registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940, and filed its Rule
24f-2 Notice for the fiscal year ended December 31, 1994 on February
28, 1995.
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CROSS-REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933
ITEM NO. CAPTION
PART A (FOR TEMPLETON DEVELOPING MARKETS FUND)
1 Cover Page
2 Synopsis
3 Financial Highlights
4 Investment Objectives and
Policies; Description of
Securities and Investment
Techniques
5 Management of the Trust
6 Dividends and Distributions;
Other Information
7 Purchase of Shares; Net Asset Value
8 Redemption of Shares
9 Not Applicable
The prospectus for the Templeton Money Market Fund, International Fund, Bond
Fund, Stock Fund and Asset Allocation Fund series is not affected by this
Post-Effective Amendment and is included in Templeton Variable Products Series
Fund Post-Effective Amendment
No. 12 filed with the SEC on April 27, 1995.
PART B (STATEMENT OF ADDITIONAL INFORMATION FOR
ALL SERIES)
10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Objectives and
Policies
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Item No. CAPTION
PART B (CONTINUED)
14 Management of the Trust
15 Principal Shareholders
16 Investment Management and
Other Services
17 Brokerage Allocation
18 Description of Shares; Other
Information, Part A
19 Purchase and Redemption of
Shares; Net Asset Value
20 Tax Status
21 Purchase of Shares
(Prospectus)
22 Yield and Performance
Information
23 Not Applicable
- 2 -
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insert logo
Prospectus -- , 1996
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
- --------------------------------------------------------------------------------
Templeton Developing Markets Fund (the 'Fund') is a diversified series of
Templeton Variable Products Series Fund (the 'Trust'), an open-end, management
investment company. Shares of the Fund are currently sold only to insurance
company separate accounts ('Separate Accounts') to serve as the investment
vehicle for Variable Annuity Contracts (the 'Contracts'). The Separate Accounts
invest in shares of the Fund and other series of the Trust in accordance with
allocation instructions received from owners of the Contracts. Such allocation
rights are described further in the accompanying Prospectus for the Separate
Accounts. This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
A STATEMENT OF ADDITIONAL INFORMATION DATED , 1996, HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED IN ITS ENTIRETY BY
REFERENCE IN AND MADE A PART OF THIS PROSPECTUS. THIS STATEMENT IS AVAILABLE
WITHOUT CHARGE UPON REQUEST TO FRANKLIN TEMPLETON DISTRIBUTORS, INC., P.O. BOX
33030, ST. PETERSBURG, FLORIDA 33733-8030 OR BY CALLING THE FUND INFORMATION
DEPARTMENT AT 1-800/DIAL BEN.
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SHARES OF THE FUND ARE AVAILABLE EXCLUSIVELY TO INSURANCE COMPANY SEPARATE
ACCOUNTS AS AN INVESTMENT VEHICLE FOR VARIABLE INSURANCE CONTRACTS. THIS
PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OFFERING THE
VARIABLE INSURANCE CONTRACT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND
RETAINED FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
INVESTMENT OBJECTIVE AND POLICIES......................................................................................... T-3
INVESTMENT TECHNIQUES..................................................................................................... T-4
RISK FACTORS.............................................................................................................. T-6
PURCHASE OF SHARES........................................................................................................ T-7
NET ASSET VALUE........................................................................................................... T-8
REDEMPTION OF SHARES...................................................................................................... T-8
EXCHANGES................................................................................................................. T-9
MANAGEMENT OF THE TRUST................................................................................................... T-9
BROKERAGE COMMISSIONS.....................................................................................................T-10
DIVIDENDS AND DISTRIBUTIONS...............................................................................................T-10
FEDERAL INCOME TAX STATUS.................................................................................................T-10
OTHER INFORMATION.........................................................................................................T-11
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
The Fund is subject to investment restrictions that are described under the
heading 'Investment Restrictions' in the Statement of Additional Information.
Those investment restrictions so designated are 'fundamental policies' of the
Trust, which means that they may not be changed without a majority vote of
Shareholders of the Fund. With the exception of those restrictions specifically
identified as fundamental, all investment policies and practices described in
this Prospectus and in the Statement of Additional Information are not
fundamental, meaning that the Board of Trustees may change them without
Shareholder approval.
Certain types of investments and investment techniques are described in
greater detail under 'Description of Securities and Investment Techniques' in
this Prospectus and also in the Statement of Additional Information.
TEMPLETON DEVELOPING MARKETS FUND
The investment objective of the Fund is long-term capital appreciation. The Fund
seeks to achieve this objective by investing primarily in equity securities of
issuers in countries having developing markets. It is currently expected that
under normal conditions at least 65% of the Fund's total assets will be invested
in developing market equity securities. The Fund and its investment manager,
Templeton Asset Management Ltd. (the 'Investment Manager'), may, from time to
time, use various methods of selecting securities for the Fund's portfolio, and
may also employ and rely on independent or affiliated sources of information and
ideas in connection with management of the Fund's portfolio. There can be no
assurance that the Fund will achieve its investment objective.
The Fund considers countries having developing markets to be all countries
that are generally considered to be developing or emerging countries by the
International Bank for Reconstruction and Development (more commonly referred to
as the World Bank) and the International Finance Corporation, as well as
countries that are classified by the United Nations or otherwise regarded by
their authorities as developing. Currently, the countries not included in this
category are Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy,
the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United
States, Sweden, Finland, Norway, Japan and Switzerland. In addition, as used in
this Prospectus, developing market equity securities means (i) equity securities
of companies the principal securities trading market for which is a developing
market country, as defined above, (ii) equity securities, traded in any market,
of companies that derive 50% or more of their total revenue from either goods or
services produced in such developing market countries or sales made in such
developing market countries or (iii) equity securities of companies organized
under the laws of, and with a principal office in, a developing market country.
'Equity securities,' as used in this Prospectus, refers to common stock,
preferred stock, warrants or rights to subscribe to or purchase such securities
and sponsored or unsponsored American Depositary Receipts ('ADRs'), European
Depositary Receipts ('EDRs'), and Global Depositary Receipts ('GDRs')
(collectively, 'Depositary Receipts'). Determinations as to eligibility will be
made by the Investment Manager based on publicly available information and
inquiries made to the companies. (See 'Risk Factors' for a discussion of the
nature of information publicly available for non-U.S. companies.) The Fund will
at all times, except during defensive periods, maintain investments in at least
three countries having developing markets.
The Fund seeks to benefit from economic and other developments in developing
markets. The investment objective of the Fund reflects the belief that
investment opportunities may result from an evolving long-term international
trend favoring more market-oriented economies, a trend that may especially
benefit certain countries having developing markets. This trend may be
facilitated by local or international political, economic or financial
developments that could benefit the capital markets of such countries. Certain
such countries, particularly the emerging market countries (such as Malaysia,
Mexico and Thailand) which may be in the process of developing more
market-oriented economies, may experience relatively high rates of economic
growth. Other countries (such as Portugal and Hong Kong), although having
relatively mature developing markets, may also be in a position to benefit from
local or international developments encouraging greater market orientation and
diminishing governmental intervention in economic affairs.
For capital appreciation, the Fund may invest up to 35% of its total assets
in debt securities (defined as bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits and bankers' acceptances) which are rated
at least C by Moody's Investors Service, Inc. ('Moody's') or C by Standard &
Poor's Corporation ('S&P') or unrated debt securities deemed to be of comparable
quality by the Investment Manager. See 'Risk Factors.' As an operating policy,
which may be changed by the Board of Trustees, the Fund will not invest more
than 5% of its total assets in debt securities rated lower than Baa by Moody's
or BBB by S&P. Certain debt securities can provide the potential for capital
appreciation based on various factors such as changes in interest rates,
economic and market conditions, improvement in an issuer's ability to repay
principal and pay interest, and ratings upgrades. Additionally, convertible
bonds offer the potential for capital appreciation through the conversion
feature, which enables the holder of the bond to benefit from increases in the
market price of the securities into which they are convertible.
The Fund may also lend its portfolio securities and borrow money for
investment purposes (i.e., 'leverage' its portfolio). In addition, the Fund may
enter into transactions in options on securities, securities indices and foreign
currencies, forward foreign currency contracts, and futures contracts and
related options. When deemed appropriate by the Investment Manager, the Fund may
invest cash balances in repurchase agreements and other money market investments
to
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maintain liquidity in an amount to meet expenses or for day-to-day operating
purposes. These investment techniques are described below and under the heading
'Investment Objective and Policies' in the SAI.
When the Investment Manager believes that market conditions warrant, the
Fund may adopt a temporary defensive position and may invest without limit in
money market securities denominated in U.S. dollars or in the currency of any
foreign country. See 'Investment Techniques--Temporary Investments.'
The Fund does not emphasize short-term trading profits and usually expects
to have an annual portfolio turnover rate not exceeding 50%.
INVESTMENT TECHNIQUES
The fund is authorized to use the various investment techniques described below.
Although these strategies are regularly used by some investment companies and
other institutional investors in various markets, some of these strategies
cannot at the present time be used to a significant extent by the Fund in some
of the markets in which the Fund will invest and may not be available for
extensive use in the future.
TEMPORARY INVESTMENTS
For temporary defensive purposes, the Fund may invest up to 100% of its total
assets in the following money market securities, denominated in U.S. dollars or
in the currency of any foreign country, issued by entities organized in the
United States or any foreign country: short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) obligations
issued or guaranteed by the U.S. Government or the governments of foreign
countries, their agencies or instrumentalities; finance company and corporate
commercial paper, and other short-term corporate obligations, in each case rated
Prime-1 by Moody's or A or better by S&P or, if unrated, of comparable quality
as determined by the Investment Manager; obligations (including certificates of
deposit, time deposits and bankers' acceptances) of banks; and repurchase
agreements with banks and broker-dealers with respect to such securities.
BORROWING
The Fund may borrow up to one-third of the value of its total assets from banks
to increase its holdings of portfolio securities. Under the 1940 Act, the Fund
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value of
portfolio securities on the Fund's net asset value, and money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances) which may or may not exceed
the income received from the securities purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend to broker-dealers and banks portfolio securities with an
aggregate market value of up to one-third of its total assets to generate
income. Such loans must be secured by collateral (consisting of any combination
of cash, U.S. Government securities or irrevocable letters of credit) in an
amount at least equal (on a daily marked-to-market basis) to the current market
value of the securities loaned. The Fund may terminate the loans at any time and
obtain the return of the securities loaned within five business days. The Fund
will continue to receive any interest or dividends paid on the loaned securities
and will continue to retain any voting rights with respect to the securities. In
the event that the borrower defaults on its obligation to return borrowed
securities, because of insolvency or otherwise, the Fund could experience delays
and costs in gaining access to the collateral and could suffer a loss to the
extent that the value of the collateral falls below the market value of the
borrowed securities.
OPTIONS ON SECURITIES OR INDICES
The Fund may write (i.e., sell) covered put and call options and purchase put
and call options on securities or securities indices that are traded on United
States and foreign exchanges or in the over-the-counter markets. An option on a
security is a contract that permits the purchaser of the option, in return for
the premium paid, the right to buy a specified security (in the case of a call
option) or to sell a specified security (in the case of a put option) from or to
the writer of the option at a designated price during the term of the option. An
option on a securities index permits the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option. The Fund may write a call or put option to generate income, and will do
so only if the option is 'covered.' This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the call, or hold a call at the same or lower exercise price, for the
same exercise period, and on the same securities as the written call. A put is
covered if the Fund maintains liquid assets with a value at least equal to the
exercise price in a segregated account, or holds a put on the same underlying
securities at an equal or greater exercise price. The value of the underlying
securities on which options may be written at any one time will not exceed 15%
of the total assets of the Fund. The Fund will not purchase put or call options
if the aggregate premium paid for such options would exceed 5% of its total
assets at the time of purchase.
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FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
The Fund will normally conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies. The Fund will generally not enter into a forward contract
with a term of greater than one year. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and privately traded by currency traders and their
customers.
The Fund will generally enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to 'lock in'
the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed to
settle the transaction. Second, when the Investment Manager believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the former foreign currency (or another currency which acts as a proxy
for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as 'cross-hedging.' The Fund has no
specific limitation on the percentage of assets it may commit to forward
contracts, except the Fund will not enter into a forward contract if the amount
of assets set aside to cover the contract would impede portfolio management or
the ability to meet redemption requests. Although forward contracts will be used
primarily to protect the Fund from adverse currency movements, they also involve
the risk that anticipated currency movements will not be accurately predicted.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter.
CLOSED-END INVESTMENT COMPANIES
Some countries, such as South Korea, Chile and India, have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. In accordance with the 1940 Act, the Fund
may invest in securities of closed-end investment companies. Shares of certain
closed-end investment companies may at times be acquired only at market prices
representing premiums to their net asset values. If the Fund acquires shares of
closed-end investment companies, Shareholders would bear both their
proportionate share of expenses of the Fund (including management and advisory
fees) and, indirectly, the expenses of such closed-end investment companies.
FUTURES CONTRACTS
For hedging purposes only, the Fund may buy and sell financial futures
contracts, stock index futures contracts, foreign currency futures contracts and
options on any of the foregoing. A financial futures contract is an agreement
between two parties to buy or sell a specified debt security at a set price on a
future date. An index futures contract is an agreement to take or make delivery
of an amount of cash based on the difference between the value of the index at
the beginning and at the end of the contract period. A futures contract on a
foreign currency is an agreement to buy or sell a specified amount of a currency
for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial
deposit, known as 'initial margin,' as a partial guarantee of its performance
under the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as 'variation margin,' to cover any additional obligation it may have
under the contract. In addition, when the Fund enters into a futures contract,
it will segregate assets or 'cover' its position in accordance with the 1940
Act. See 'Investment Objective and Policies--Futures Contracts' in the SAI. The
Fund may not commit more than 5% of its total assets to initial margin deposits
on futures contracts and related options. The value of the underlying securities
on which futures contracts will be written at any one time will not exceed 25%
of the total assets of the Fund.
REPURCHASE AGREEMENTS
For temporary defensive purposes and for cash management purposes, the Fund may
enter into repurchase agreements with U.S. banks and broker-dealers. Under a
repurchase agreement the Fund acquires a security from a U.S. bank or a
registered broker-dealer who simultaneously agrees to repurchase the security at
a specified time and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed-upon rate of return, which is not
tied to the coupon rate on the underlying security. Under the 1940 Act,
repurchase agreements are considered to be loans collateralized by the
underlying security and therefore will be fully collateralized. However, if the
seller should default on its obligation to repurchase the underlying security,
the Fund may experience delay or difficulty in exercising its rights to realize
upon the
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security and might incur a loss if the value of the security declines, as well
as incur disposition costs in liquidating the security.
DEPOSITARY RECEIPTS
ADRs are Depositary Receipts typically issued by a U.S. bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States.
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary Receipts
may be issued pursuant to sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of Depositary Receipts. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the Depositary Receipts.
Depositary Receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the Fund's investment policies,
the Fund's investments in Depositary Receipts will be deemed to be investments
in the underlying securities.
RISK FACTORS
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund; nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
Shareholder may anticipate that the value of the Shares of the Fund will
fluctuate with movements in the broader equity and bond markets, as well. A
decline in the stock market of any country in which the Fund is invested in
equity securities may also be reflected in declines in the price of the Shares
of the Fund. Changes in currency valuations will affect the price of the Shares
of the Fund. History reflects both decreases and increases in stock markets and
currency valuations, and these may reoccur unpredictably in the future.
Additionally, investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct. The Fund is not intended as
a complete investment program.
The Fund has an unlimited right to purchase securities in any foreign
country, developed or underdeveloped. An investor should consider carefully the
risks involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. These risks are often heightened for investments in developing
markets, including certain Eastern European countries. See 'Investment
Objectives and Policies--Risk Factors' in the SAI. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations (including, for example, withholding taxes on interest
and dividends) or other taxes imposed with respect to investments in foreign
nations, foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country), foreign investment controls on daily
stock movements, default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in foreign nations. In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the United States. Foreign companies are not
generally subject to uniform accounting and auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to United States companies. Further, the Fund may encounter
difficulties or be unable to vote proxies, exercise shareholder rights, pursue
legal remedies, and obtain judgments in foreign courts. Also, some countries may
withhold portions of interest and dividends at the source. These considerations
generally are more of a concern in developing countries, where the possibility
of political instability (including revolution) and dependence on foreign
economic assistance may be greater than in developed countries. Investments in
companies domiciled in developing countries therefore may be subject to
potentially higher risks than investments in developed countries.
Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the United
States. Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
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In many foreign countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen or counterfeit stock
certificates. In addition, the foreign securities markets of any of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that are
described under 'Investment Objectives and Policies--Risk Factors' in the SAI.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.
The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as C by S&P, and
between Baa and as low as C by Moody's or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Trustees without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. The Board may consider
a change in this operating policy if, in its judgment, economic conditions
change such that a higher level of investment in high-risk, lower quality debt
securities would be consistent with the interests of the Fund and its
Shareholders. See 'Investment Objectives and Policies--Debt Securities' in the
SAI for descriptions of debt securities rated BBB by S&P and Baa by Moody's.
High-risk, lower quality debt securities, commonly referred to as 'junk bonds,'
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and may be in default. Unrated debt securities are not
necessarily of lower quality than rated securities but they may not be
attractive to as many buyers. Regardless of rating levels, all debt securities
considered for purchase (whether rated or unrated) will be carefully analyzed by
the Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Fund may, from time to time, purchase defaulted debt
securities if, in the opinion of the Investment Manager, the issuer may resume
interest payments in the near future. As a fundamental policy, the Fund will not
invest more than 10% of its total assets (at the time of purchase) in defaulted
debt securities, which may be illiquid.
The Fund will usually effect currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market. However,
some price spread on currency exchange (to cover service charges) will be
incurred when the Fund converts assets from one currency to another.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Fund's net asset value,
and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the income received from the securities purchased
with borrowed funds.
Successful use of forward contracts, options and futures contracts are
subject to special risk considerations and transaction costs. A liquid secondary
market for forward contracts, options and futures contracts may not be available
when a position is sought to be closed. In addition, there may be an imperfect
correlation between movements in the securities or foreign currency on which the
contract or option is based and movements in the securities or currency in the
Fund's portfolio. Successful use of forward contracts, options and futures
contracts is further dependent on the ability of the Investment Manager to
correctly predict movements in the securities or foreign currency markets and no
assurance can be given that its judgment will be correct. Successful use of
options on securities or stock indices is subject to similar risk
considerations. In addition, by writing covered call options, the Fund gives up
the opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price.
There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and depositories,
described elsewhere in the Prospectus and in the SAI.
PURCHASE OF SHARES
Shares of the Fund are offered on a continuous basis at the net asset value of
the Fund only to separate accounts of insurance companies to serve as the
underlying investment vehicle for both variable annuity and variable life
insurance contracts. Individuals may not purchase shares directly from the Fund.
Please read the prospectus of the insurance company Separate Account for more
information on the purchase of Fund Shares.
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In the event that the Trust serves as investment vehicle for both variable
annuity and variable life insurance contracts, or for both variable life
insurance contracts of an insurer and other variable contracts of an
unaffiliated insurer, the Trust's Board of Trustees will monitor events in order
to identify any material conflicts between variable annuity contract owners and
variable life policy owners and/or between separate accounts of different
insurers, as the case may be, and will determine what action, if any, should be
taken in the event of such a conflict. Although the Trust does not currently
foresee any disadvantages to contract owners, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Trust due to differences in tax treatment, the
management of investments, or other considerations.
NET ASSET VALUE
The net asset value of the Shares of the Fund is determined as of the scheduled
closing time of the New York Stock Exchange (NYSE) (generally 4:00 p.m., New
York time) on each day the NYSE is open for trading. The net asset value is
computed by dividing the value of the Fund's securities plus any cash and other
assets (including accrued interest and dividends receivable) less all
liabilities (including accrued expenses) by the number of shares outstanding,
adjusted to the nearest whole cent. A security listed or traded on a recognized
stock exchange or NASDAQ is valued at its last sale price on the principal
exchange on which the security is traded. The value of a foreign security is
determined in its national currency as of the close of trading on the foreign
exchange on which it is traded, or as of the scheduled closing time of the NYSE
(generally 4:00 p.m., New York time), if that is earlier, and that value is then
converted into its U.S. dollar equivalent at foreign exchange rates in effect at
noon, New York time, on the day the value of the foreign security is determined.
If no sale is reported at that time, the mean between the current bid and asked
price is used. Occasionally, events which affect the values of such securities
and such exchanges rates may occur between the times at which they are
determined and the close of the NYSE, and will therefore not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at fair value as determined by the management and approved in good faith
by the Board of Trustees. All other securities for which over-the-counter market
quotations are readily available are valued at the mean between the current bid
and asked price. Securities for which market quotations are not readily
available and other assets are valued at fair value as determined by the
management and approved in good faith by the Board of Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
in New York on each day on which the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every New York business day. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. The Fund calculates net
asset value per Share, and therefore effects sales and redemptions of its
Shares, as of the close of the NYSE once on each day on which the NYSE is open.
Such calculation does not take place contemporaneously with the determination of
the prices of many of the portfolio securities used in such calculation and if
events occur which materially affect the value of these foreign securities, they
will be valued at fair market value as determined by the management and approved
in good faith by the Board of Trustees.
REDEMPTION OF SHARES
The Trust will redeem all full and fractional Shares presented for redemption on
any business day. Redemptions are effected at the per Share net asset value next
determined after receipt of proper notice of the redemption. Redemption proceeds
normally will be paid to the insurance company within seven days following
receipt of instructions in proper form. The right of redemption may be suspended
by the Trust when the NYSE is closed (other than customary weekend and holiday
closings) or for any period during which trading thereon is restricted because
an emergency exists, as determined by the Securities and Exchange Commission,
making disposal of portfolio securities or valuation of net assets not
reasonably practicable, and whenever the Securities and Exchange Commission has
by order permitted such suspension or postponement for the protection of
shareholders. The Trust will redeem Shares of the Fund solely in cash up to the
lesser of $250,000 or 1% of its net assets during any 90-day period for any one
Shareholder. In consideration of the best interests of the remaining
Shareholders, the Trust reserves the right to pay any redemption price exceeding
this amount in whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that Shares would ever be
redeemed in kind. If Shares are redeemed in kind, however, the redeeming
Shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.
Please refer to the prospectus of your insurance company's Separate Account
for information on how to redeem from the Fund.
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EXCHANGES
Shares of the Fund may be exchanged for Shares of any other fund available as an
investment option in a Separate Account. Exchanges are treated as a redemption
of Shares of one fund and a purchase of Shares of the other fund and are
effected at the respective net asset value per Share of each fund on the date of
the exchange. Please refer to the prospectus of your insurance company's
Separate Account for more information concerning exchanges.
MANAGEMENT OF THE TRUST
The Trust is managed by its Board of Trustees and all powers of the Trust are
exercised by or under authority of the Board. Information relating to the
Trustees and Officers is set forth under the heading 'Management of the Trust'
in the Statement of Additional Information.
INVESTMENT MANAGER
The Investment Manager of Templeton Developing Markets Fund is Templeton
Asset Management Ltd., a Singapore corporation with offices at 20 Raffles Place,
Singapore. The Investment Manager manages the investment and reinvestment
of the Fund's assets. The Investment Manager is an indirect wholly owned
subsidiary of Franklin Resources, Inc. ("Franklin"). Through its subsidiaries,
Franklin is engaged in various aspects of the financial services industry. The
Investment Manager and its affiliates serve as advisers for a wide variety of
public investment mutual funds and private clients in many nations. The
Templeton organization has been investing globally over the past 52 years and,
with its affiliates, provides investment management and advisory services to a
worldwide client base, including over 4.3 million mutual fund shareholders,
foundations, endowments, employee benefit plans and individuals. The Investment
Manager and its affiliates have approximately 4,100 employees in the United
States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value
oriented global and international investing. It has an extensive global network
of investment research sources. Securities are selected for the Fund's portfolio
on the basis of fundamental company-by-company analysis. Many different
selection methods are used for different funds and clients and these methods are
changed and improved by the Investment Manager's research on superior selection
methods.
The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Invetment Manager on behalf
of other funds and accounts. Neither the Investment Manager and its affiliates,
its officers, directors or employees, nor the officers and Trustees of the Trust
are prohibited from investing in securities held by the Fund or other funds and
accounts which are managed or administered by the Investment Manager to the
extent such transactions comply with the Trust's Code of Ethics. Please see
'Investment Management and Other Services--Investment Management Agreement,' in
the SAI for further information on securities transactions and a summary of the
Trust's Code of Ethics.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for these services, the Fund pays the
Investment Manager a monthly fee, equal on an annual basis to 1.25% of its
average daily net assets during the year. The fee paid by the Fund is higher
than the advisory fees paid by most other U.S. investment companies primarily
because investing in equity securities in developing markets, which are not
widely followed by professional analysts, requires the Investment Manager to
invest additional time and incur added expense in developing specialized
resources, including research facilities.
Dr. J. Mark Mobius, Managing Director of the Investment Manager, is the
principal portfolio manager of the Fund. Prior to joining the Templeton
organization in 1987, Dr. Mobius was president of the International Investment
Trust Company Limited (investment manager of Taiwan, R.O.C. Fund) (1986-1987)
and a director of Vickers da Costa, Hong Kong (an international securities firm)
(1983-1986). Dr. Mobius began working in Vickers da Costa's Hong Kong office in
1980 and moved to Taiwan in 1983 to open the firm's office there and to direct
operations in India, Indonesia, Thailand, the Philippines, and Korea. Before
joining Vickers da Costa, Dr. Mobius operated his own consulting firm in Hong
Kong from 1970 until 1980. Prior to 1970, Dr. Mobius was a research scientist
for Monsanto Overseas Enterprises Company in Hong Kong and the American
Institute for research in Korea and Thailand. Dr. Mobius holds Bachelors and
Masters degrees from Boston University and received his Ph.D. in economics and
political science in 1964 from Massachusetts Institute of Technology. Messrs.
Allan Lam and Tom Wu, Vice Presidents of the Investment Manager, will exercise
secondary portfolio management responsibilities with respect to the Fund. Prior
to joining the Templeton organization in 1987, Mr. Lam worked as an auditor with
two international accounting firms in Hong Kong: Deloitte Haskins & Sells CPA
and KPMG Peat Marwick CPA. Prior to joining the Templeton organization in 1987,
Mr. Wu worked as an investment analyst, specializing in Hong Kong companies,
with Vickers da Costa.
Further information concerning the Investment Manager, including the
services it renders and its selection of brokers to execute portfolio
transactions, is included under the heading 'Investment Management and Other
Services' in the Statement of Additional Information.
T-9
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BUSINESS MANAGER
Templeton Funds Annuity Company, P.O. Box 33030, St. Petersburg, Florida
33733-8030, telephone (800) 774-5001 or (813) 823-8712, provides certain
administrative facilities and services for the Trust, including payment of
salaries of officers, preparation and maintenance of books and records, daily
pricing of the Fund's investment portfolio, preparation of tax reports,
preparation of financial reports, and monitoring compliance with regulatory
requirements. For its services, the Business Manager receives a fee equivalent
on an annual basis to 0.15% of the combined average daily net assets of the Fund
and other funds of the Trust, reduced to 0.135% of such assets in excess of
$200,000,000, to 0.10% of such assets in excess of $700,000,000, and to 0.075%
of such assets in excess of $1,200,000,000.
DISTRIBUTOR
Shares of the Trust are distributed through Franklin Templeton Distributors,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone
(800) 292-9293.
BROKERAGE COMMISSIONS
The Trust's brokerage policies are described under the heading 'Brokerage
Allocation' in the Statement of Additional Information. The Trust's brokerage
policies provide that the receipt of research services from a broker is a factor
which may be taken into account in allocating securities transactions as long as
the prices and execution provided by the broker equal the best available within
the scope of the Trust's brokerage policies.
DIVIDENDS AND DISTRIBUTIONS
The Fund normally intends to pay annual dividends representing substantially all
of its net investment income and to distribute annually any net realized capital
gains.
Any distributions made by the Fund will be automatically reinvested in
additional Shares of the Fund, unless an election is made on behalf of a
Shareholder to receive distributions in cash. Dividends or distributions by the
Fund will reduce the per share net asset value by the per share amount so paid.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code (the 'Code'). The Fund so qualifying
generally will not be subject to federal income taxes on amounts distributed to
Shareholders. In order to qualify as a regulated investment company, the Fund
must, among other things, meet certain source of income requirements. In
addition, the Fund must diversify its holdings so that, at the end of each
quarter of the taxable year, (a) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (b) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies).
Amounts not distributed by the Fund on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. See the Statement of Additional Information for more information about this
tax and its applicability to the Fund.
Distributions of any net investment income and of any net realized
short-term capital gains in excess of net realized long-term capital losses are
treated as ordinary income for tax purposes in the hands of the Shareholder (the
Separate Account). The excess of any net long-term capital gains over net
short-term capital losses will, to the extent distributed and designated by the
Fund as a capital gain dividend, be treated as long-term capital gains in the
hands of the Separate Account regardless of the length of time the Separate
Account may have held the Shares. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. Reference
is made to the Prospectus for the applicable Contract for information regarding
the federal income tax treatment of distributions to an owner of a Contract.
To comply with regulations under Section 817(h) of the Code the Fund is
required to diversify its investments so that on the last day of each quarter of
a calendar year no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For this purpose, in the case of U.S.
Government securities, each U.S. Government agency or instrumentality is treated
as a separate issuer. Any securities issued, guaranteed, or insured (to the
extent so guaranteed or insured) by the U.S. Government or an instrumentality of
the U.S. Government are treated as a U.S. Government security for this purpose.
T-10
<PAGE>
The Treasury Department has indicated that it may issue future
pronouncements addressing the circumstances in which a variable contract owner's
control of the investments of a separate account may cause the contract owner,
rather than the insurance company, to be treated as the owner of the assets held
by the separate account. If the contract owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income. It
is not known what standards will be set forth in such pronouncements or when, if
at all, these pronouncements may be issued.
In the event that rules or regulations are adopted, there can be no
assurance that the Fund will be able to operate as currently described in the
Prospectus, or that the Trust will not have to change the Fund's investment
objective or investment policies. While the Fund's investment objective is
fundamental and may be changed only by a vote of a majority of its outstanding
Shares, the Trustees have reserved the right to modify the investment policies
of the Fund as necessary to prevent any such prospective rules and regulations
from causing the contract owners to be considered the owners of the Shares of
the Funds underlying the Separate Account.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of six separately managed funds. The Board of Trustees
may establish additional funds in the future. The capitalization of the Trust
consists solely of an unlimited number of Shares of beneficial interest with a
par value of $0.01 each. When issued, Shares of the Trust are fully paid,
non-assessable by the Trust and freely transferable.
Unlike the stockholder of a corporation, Shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust which are
binding only on the assets and property of the Trust. The Declaration of Trust
provides for indemnification out of Trust property for all loss and expense of
any Shareholder held personally liable for the obligations of the Trust. The
risk of a Shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and thus should be considered remote.
VOTING RIGHTS
Shareholders of the Trust are given certain voting rights. Each Share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. In accordance with current
applicable law, the Separate Account, as Shareholder of the Trust, is required
to vote the Shares of the Trust at any regular and special meeting of the
Shareholders of the Trust in accordance with instructions received from owners
of the variable contracts. See the Prospectus for the Variable Contract for more
information regarding the pass-through of these voting rights.
Massachusetts business trust law does not require the Trust to hold annual
shareholder meetings, although special meetings may be called for the Fund, or
for the Trust as a whole, for purposes such as electing or removing Trustees,
changing fundamental policies or approving an investment management contract. In
addition, the Trust will be required to hold a meeting to elect Trustees to fill
any existing vacancies on the Board if, at any time, fewer than a majority of
the Trustees have been elected by the Shareholders of the Trust. In addition,
the holders of not less than two-thirds of the outstanding Shares or other
voting interests of the Trust may remove a person serving as Trustee either by
declaration in writing or at a meeting called for such purpose. The Trustees are
required to call a meeting for the purpose of considering the removal of a
person serving as trustee, if requested in writing to do so by the holders of
not less than 10% of the outstanding Shares or other voting interests of the
Trust. The Trust is required to assist in Shareholders' communications. In
accordance with current laws, an insurance company issuing a variable life
insurance or annuity contract that participates in the Trust will request voting
instructions from contract owners and will vote Shares or other voting interests
in the separate account in proportion to the voting instructions received.
For more information on the Trust, the Fund, and its investment activity and
concurrent risks, a Statement of Additional Information may be obtained without
charge upon request to Franklin Templeton Distributors, Inc., P.O. Box 33030,
St. Petersburg, Florida, 33733-8030 -- toll free telephone (800) 774-5001 or
(813) 823-8712.
PERFORMANCE INFORMATION
The Fund may include its total return in advertisements or reports to
Shareholders or prospective investors. Performance information for the Fund will
not be advertised unless accompanied by comparable performance information for a
separate account to which the Fund offers its Shares.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of 1, 5 and 10 years (or up to the life of
the Fund), will reflect the deduction of the maximum initial sales charge and
deduction of a proportional share of Fund expenses (on an annual basis), and
will assume that all dividends and distributions are reinvested when paid. Total
return may be expressed in terms of the cumulative value of an investment in the
Fund at the end of a defined period of time. Quotations of yield or total
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<PAGE>
return for the Fund will not take into account charges and deductions against
any separate account to which the Fund's Shares are sold or charges and
deductions against variable insurance contracts, although comparable performance
information for a separate account will take such charges into account. For a
description of the methods used to determine total return for the Fund, see
'Performance Information' in the Statement of Additional Information.
STATEMENTS AND REPORTS
The Trust's fiscal year ends on December 31. Annual reports (containing
financial statements audited by independent auditors and additional information
regarding the Fund's performance) and semi-annual reports (containing unaudited
financial statements) will be sent to Shareholders each year. Additional copies
may be obtained, without charge, upon request to the Business Manager.
T-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
THIS STATEMENT OF ADDITIONAL INFORMATION DATED _________, 1996,
IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF TEMPLETON VARIABLE PRODUCTS
SERIES FUND DATED __________, 1996, AS AMENDED FROM TIME TO TIME,
WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST TO
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 292-9293.
TABLE OF CONTENTS
General Information and History........................... 1
Investment Objectives and Policies........................ 1
-Investment Policies..................................... 1
-Debt Securities ......................................... 1
-Futures Contracts....................................... 3
-Foreign Currency Hedging
Transactions .......................................... 4
-Options on Securities or Indices 6
-Stock Index Futures Contracts........................... 8
-Structured Investments................................. 10
-Risk Factors........................................... 10
Investment Restrictions................................... 17
Trading Policies.......................................... 20
-Personal Securities Transactions........................ 20
Management of the Trust................................... 20
Trustee Compensation...................................... 27
Principal Shareholders.................................... 28
Investment Management and Other
Services................................................ 29
-Investment Management Agreements........................ 29
-Management Fees......................................... 32
-The Investment Managers................................. 32
-Business Manager........................................ 32
-Custodian............................................... 34
-Legal Counsel........................................... 34
-Independent Accountants................................. 34
-Reports to Shareholders................................. 34
Brokerage Allocation...................................... 34
-Portfolio Turnover...................................... 37
Purchase, Redemption and Pricing
of Shares............................................... 38
Tax Status................................................ 40
Description of Shares..................................... 44
Yield and Performance
Information............................................. 45
Financial Statements...................................... 50
Appendix - Corporate Bond, Preferred
Stock and Commercial Paper Ratings....................... i
GENERAL INFORMATION AND HISTORY
Templeton Variable Products Series Fund (the "Trust") was organized as
a Massachusetts business trust on February 25, 1988 and is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company. The Trust currently has six series of Shares:
Templeton Money Market Fund, Templeton Bond Fund, Templeton Stock Fund,
Templeton Asset Allocation Fund, Templeton Developing Markets Fund and Templeton
International Fund (collectively, the "Funds").
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES. The investment objective and policies
of each Fund are described in the Prospectus under the heading
"Investment Objectives and Policies."
DEBT SECURITIES. Templeton Developing Markets Fund may invest in debt
securities which are rated at least C by Moody's Investors Service, Inc.
("Moody's") or C by Standard & Poor's Corporation ("S&P") or unrated debt
securities deemed to be of comparable quality by the Fund's Investment Manager.
As an operating policy, the Fund will invest no more than 5% of its assets in
debt securities rate lower than Baa by Moody's or BBB by S&P. The market value
of debt securities generally varies in
<PAGE>
response to changes in interest rates and the financial condition of each
issuer. During periods of declining interest rates, the value of debt securities
general increases. Conversely, during periods of rising interest rates, the
value of such securities generally declines. These changes in market value will
be reflected in the Fund's net asset value.
Bonds which are rated C by Moody's are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated C by S&P are obligations on
which no interest is being paid.
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for the Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising
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<PAGE>
interest rates, for example, could cause a decline in low rated debt securities
prices because the advent of a recession could lessen the ability of a highly
leveraged company to make principal and interest payments on its debt
securities. If the issuer of low rated debt securities defaults, the Fund may
incur additional expenses to seek recovery.
FUTURES CONTRACTS. Templeton Bond, Asset Allocation,
International and Templeton Developing Markets Funds may
purchase and sell financial futures contracts. Currently,
futures contracts are available on several types of fixed-income
securities including: U.S. Treasury bonds, notes and bills,
commercial paper, and certificates of deposit.
As long as required by regulatory authorities, Templeton Bond, Asset
Allocation, International and Developing Markets Funds will limit their use of
futures contracts to hedging transactions in order to avoid being a commodity
pool. For example, they might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Funds' securities or the price of the securities which the Funds intend to
purchase. The Funds' hedging may include sales of futures contracts as an offset
against the effect of expected increases in interest rates and purchases of
futures contracts as an offset against the effect of expected declines in
interest rates. Although other techniques could be used to reduce the Funds'
exposure to interest rate fluctuations, they may be able to hedge their exposure
more effectively and perhaps at a lower cost by using futures contracts.
At the time a Fund purchases or sells a futures contract, it is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities ("initial margin"). The
margin required for a futures contract is set by the exchange or board of trade
on which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Funds expect to earn interest income on initial margin deposits.
A futures contract held by a Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Funds pay or receive
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by a Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In
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<PAGE>
computing daily net asset value, a Fund will mark to market its open futures
positions. In addition, the Fund must deposit in a segregated account additional
cash or high quality debt securities to ensure the futures contracts are
unleveraged. The value of assets held in the segregated account must be equal to
the daily market value of all outstanding futures contracts less any amounts
deposited as margin.
Although some financial futures contracts call for making or taking
delivery of the underlying securities, in most cases these obligations are
closed out before the settlement date. The closing of a contractual obligation
is accomplished by purchasing or selling an identical offsetting futures
contract. Other financial futures contracts by their terms call for cash
settlements.
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against
foreign currency exchange rate risks, Templeton Bond, Asset Allocation and
Developing Markets Funds may enter into forward foreign currency exchange
contracts, as well as purchase put or call options on foreign currencies. In
addition, for hedging purposes only, Templeton Bond, Asset Allocation,
International and Developing Markets Funds may enter into foreign currency
futures contracts, as described below. The Funds may also conduct their foreign
currency exchange transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market.
A Fund may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. A Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when a Fund believes
that a foreign currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when a Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward contract to buy that foreign currency for a fixed
dollar amount. This second investment practice is generally referred to as
"cross-hedging." Because in connection with a Fund's forward foreign currency
transactions an amount of the Fund's assets equal to the amount
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of the purchase will be held aside or segregated to be used to pay for the
commitment, a Fund will always have cash, cash equivalents or high quality debt
securities available sufficient to cover any commitments under these contracts
or to limit any potential risk. The segregated account will be marked-to-market
on a daily basis. While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future assert
authority to regulate forward contracts. In such event, a Fund's ability to
utilize forward contracts in the manner set forth above may be restricted.
Forward contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a Fund
than if it had not engaged in such contracts.
Templeton Bond, Asset Allocation and Developing Markets Funds may
purchase and write put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the dollar cost of foreign securities to be acquired.
As is the case with other kinds of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and a Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuation in exchange rates, although, in the event of rate movements
adverse to a Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by a Fund will be traded on U.S. and foreign exchanges or
over-the-counter.
Templeton Bond, Asset Allocation, International and Developing Markets
Funds may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of a
Fund's portfolio securities or adversely affect the prices of securities that a
Fund intends to purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of a Fund's Investment Manager to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, a Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
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<PAGE>
OPTIONS ON SECURITIES OR INDICES. Templeton Developing Markets Fund may
write covered call and put options and purchase call and put options on
securities or stock indices that are traded on United States and foreign
exchanges and in the over-the-counter markets.
An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index gives the purchaser of the
option, in return for the premium paid, the right to received from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option.
Templeton Developing Markets Fund may write a call or put option only
if the option is "covered". A call option on a security written by the Fund is
"covered" if the Fund owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security is also "covered" if the Fund holds a
call on the same security and in the same principal amount as the call written
where the exercise price of the call held (1) is equal to or less than the
exercise price of the call written or (2) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash or high
grade U.S. Government securities in a segregated account with its custodian. A
put option on a security written by the Fund is "covered" if the Fund maintains
cash or fixed income securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
Templeton Developing Markets Fund will cover call options on stock
indices that it writes by owning securities whose price changes, in the opinion
of its Investment Manager, are expected to be similar to those of the index, or
in such other manner as may be in accordance with the rule so the exchange on
which the option is traded and applicable laws and regulations. Nevertheless,
where the Fund covers a call option on a stock index through ownership of
securities, such securities may not match the composition of the index. In that
event, the Fund will not be fully covered and could be subject to risk of loss
in the
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event of adverse changes in the value of the index. The Fund will cover put
options on stock indices that it writes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.
Templeton Developing Markets Fund will receive a premium from writing a
put or call option, which increases the Fund's gross income in the event the
option expires unexercised or is closed out at a profit. If the value of a
security or an index on which the Fund has written a call option falls or
remains the same, the Fund will realize a profit in the form of the premium
received (less transaction costs) that could offset all or a portion of any
decline in the value of the portfolio securities being hedged. If the value of
the underlying security or index rises, however, the Fund will realize a loss in
its call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's investments. By writing a put option, the Fund
assumes the risk of a decline in the underlying security or index. To the extent
that the price changes of the portfolio securities being hedged correlate with
changes in the value of the underlying security or index, writing covered put
options on indices or securities will increase the Fund's losses in the event of
a market decline, although such losses will be offset in part by the premium
received for writing the option.
Templeton Developing Markets Fund may also purchase put options to
hedge its investments against a decline in value. By purchasing a put option,
the Fund will seek to offset a decline in the value of the portfolio securities
being hedged through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option does
not increase, the Fund's loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will depend, in
part, on the correlation between the changes in value of the underlying security
or index and the changes in value of the Fund's security holdings being hedged.
- -------------------
1. All option transaction entered into by the Fund will be traded on a
recognized exchange, or will clearly through a recognized formal
clearing arrangement.
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<PAGE>
Templeton Developing Markets Fund may purchase call options on
individual securities to hedge against an increase in the price of securities
that the Fund anticipates purchasing in the future. Similarly, the Fund may
purchase call options on a securities index to attempt to reduce the risk of
missing a broad market advance, or an advance in an industry or market segment,
at a time when the Fund holds uninvested cash or short-term debt securities
awaiting investment. When purchasing call options, the Fund will bear the risk
of losing all or a portion of the premium paid if the value of the underlying
security or index does not rise.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Trading could be interrupted, for
example, because of supply and demand imbalances arising from a lack of wither
buyers or sellers, or the options exchange could suspend trading after the price
has risen or fallen more than the maximum specified by the exchange. Although
the Fund may be able to offset to some extent any adverse effects of being
unable to liquidate an option position, the Fund may experience losses in some
cases as a result of such inability.
STOCK INDEX FUTURES CONTRACTS. Templeton Stock, Asset Allocation,
International Funds may buy and sell index futures contracts with respect to any
stock index, and Templeton Bond Fund may buy and sell index futures contracts
with respect to any bond index traded on a recognized stock exchange or board of
trade. The Funds may invest in index futures contracts for hedging purposes
only, and not for speculation. A Fund may engage in such transactions only to an
extent that the total contract value of the futures contracts do not exceed 20%
of the Fund's total assets at the time when such contracts are entered into.
Successful use of stock index futures is subject to the ability of Templeton
Investment Counsel, Inc. (the Investment Manager of Templeton Stock Fund,
Templeton Asset Allocation Fund, and Templeton International Fund), and the
Templeton Global Bond Managers division of Templeton Investment Counsel, Inc.
(the Investment Manager of Templeton Bond Fund and Templeton Money Market
Fund)(collectively, the "Investment Managers") to predict correctly movements in
the direction of the stock markets. No assurance can be given that the
Investment Manager's judgment in this respect will be correct.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the contract
is made. The value of a unit is the current value of the stock index. For
example, the Standard
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& Poor's Stock Index ("S&P 500 Index" or "Index") is composed of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The S&P
500 Index assigns a relative weighing to the value of one share of each of these
500 common stocks included in the Index, and the Index fluctuates with changes
in the market values of the shares of those common stocks. In the case of the
S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the
S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150).
The stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if a Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If a Fund enters into a futures
contract to sell 500 units of the stock index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on the future date, the
Fund will lose $2,000 (500 units x loss of $4).
During or in anticipation of a period of market appreciation, Templeton
Stock Fund, Templeton Asset Allocation Fund, Templeton International Fund or
Templeton Developing Markets Fund may enter into a "long hedge" of common stock
which it proposes to add to its portfolio by purchasing stock index futures for
the purpose of reducing the effective purchase price of such common stock. To
the extent that the securities which a Fund proposes to purchase change in value
in correlation with the stock index contracted for, the purchase of futures
contracts on that index would result in gains to the Fund which could be offset
against rising prices of such common stock.
During or in anticipation of a period of market decline, Templeton
Stock Fund, Templeton Asset Allocation Fund, Templeton International Fund or
Templeton Developing Markets Fund may "hedge" common stock in its portfolio by
selling stock index futures for the purpose of limiting the exposure of its
portfolio to such decline. To the extent that a Fund's portfolio of securities
changes in value in correlation with a given stock index, the sale of futures
contracts on that index could substantially reduce the risk to the portfolio of
a market decline and, by so doing, provide an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs.
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<PAGE>
STRUCTURED INVESTMENTS. Included among the issuers of debt securities
in which the Funds (except Templeton Money Market Fund) may invest are entities
organized and operated solely for the purpose of restructuring the investment
characteristics of various securities. These entities are typically organized by
investment banking firms which receive fees in connection with establishing each
entity and arranging for the placement of its securities. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments and the issuance by that entity
of one or more classes of securities ("Structured Investments") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. Because Structured
Investments of the type in which such Funds anticipate investing typically
involve no credit enhancement, their credit risk will generally be equivalent to
that of the underlying instruments.
Such Funds are permitted to invest in a class of Structured Investments
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks that unsubordinated Structured Investments. Although a
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing
activities.
Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, a Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act. Structured Investments are typically sold in private
placement transactions, and there currently is not active trading market for
Structured Investments. To the extent such investments are illiquid, they will
be subject to the Fund's restrictions on investments in illiquid securities.
RISK FACTORS. Templeton Bond Fund, Templeton Stock Fund, Templeton
Asset Allocation Fund, Templeton International Fund and Templeton Developing
Markets Fund have an unlimited right to purchase securities in any foreign
country, developed or developing, if they are listed on an exchange, as well as
a limited right to purchase such securities if they are unlisted.
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Investors should consider carefully the risks involved in securities of
companies and governments of foreign nations, which are in addition to the usual
risks inherent in domestic investments.
In addition, many countries in which the Funds may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Funds' investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Funds could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values and may be
adverse to the Funds' Shareholders.
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<PAGE>
Certain Eastern European countries, which do not have market economies,
are characterized by an absence of developed legal structures governing private
and foreign investments and private property. Certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment of foreign persons in a particular company, or limit the
investment of foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
a Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of a Fund's cash and securities, the Fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such countries.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less volume than the New York
Stock Exchange ("NYSE"), and securities of some foreign companies are less
liquid and more volatile than securities of comparable United States companies.
A Fund, therefore, may encounter difficulty in obtaining market quotations for
purposes of valuing its portfolio and calculating its net asset value. Foreign
markets have substantially less volume than the New York Stock Exchange ("NYSE")
and securities of some foreign companies are less and more volatile than
securities of comparable United States companies. Commission rates in foreign
countries, which are generally fixed rather than subject to negotiation as in
the United States, are likely to be higher. In many foreign countries there is
less government supervision and regulation of stock exchanges, brokers and
listed companies than in the United States.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the United
States securities markets, and should be considered highly speculative. Such
risks include: (1) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (2) the
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risk that it may be impossible or more difficult than in other countries to
obtain and/or enforce a judgment; (3) pervasiveness of corruption and crime in
the Russian economic system; (4) currency exchange rate volatility and the lack
of available currency hedging instruments; (5) higher rates of inflation
(including the risk of social unrest associated with periods of
hyper-inflation); (6) controls on foreign investment and local practices
disfavoring foreign investors and limitations on repatriation of invested
capital, profits and dividends, and on a Fund's ability to exchange local
currencies for U.S. dollars; (7) the risk that the government of Russia or other
executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, or a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union; (8) the financial condition of Russian companies, including
large amounts of inter-company debt which may create a payments crisis on a
national scale; (9) dependency on exports and the corresponding importance of
international trade; (10) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation; and
(11) possible difficulty in identifying a purchaser of securities held by a Fund
due to the underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for a Fund to lose its
registration through fraud, negligence or even mere oversight. While each Fund
will endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it
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is possible that subsequent illegal amendment or other fraudulent act may
deprive a Fund of its ownership rights or improperly dilute its interests. In
addition, while applicable Russian regulations impose liability on registrars
for losses resulting from their errors, it may be difficult for a Fund to
enforce any rights it may have against the registrar or issuer of the securities
in the event of loss of share registration. Furthermore, although a Russian
public enterprise with more than 1,000 shareholders is required by law to
contract out the maintenance of its shareholder register to an independent
entity that meets certain criteria, in practice this regulation has not always
been strictly enforced. Because of this lack of independence, management of a
company may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions in the share register. This practice may prevent a Fund from
investing in the securities of certain Russian companies deemed suitable by the
Investment Manager. Further, this also could cause a delay in the sale of
Russian company securities by a Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.
The Funds endeavor to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when a Fund changes investment from one
country to another or when proceeds of the sale of Shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies which would prevent a Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source, or impose
other taxes with respect to a Fund's investments in securities of issuers of
that country. There is the possibility of expropriation, nationalization or
confiscatory taxation, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in those
nations.
Each Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which a Fund may invest may also
have fixed or managed currencies that are free floating against the U.S. dollar.
Further, certain currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which a Fund's securities
are denominated may have
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a detrimental impact on the Fund. Through each Fund's flexible policy, the
Investment Managers endeavor to avoid unfavorable consequences and to take
advantage of favorable developments in particular nations where from time to
time it places a Fund's investments. The exercise of this flexible policy may
include decisions to purchase securities with substantial risk characteristics
and other decisions such as changing the emphasis on investments from one nation
to another and from one type of security to another. Some of these decisions may
later prove profitable and others may not. No assurance can be given that
profits, if any, will exceed losses.
The Trustees consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of the Funds' assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Trustees also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services -- Custodian"). However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Investment Managers, or reckless
disregard of the obligations and duties under the Investment Management
Agreements, any losses resulting from the holding of a Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
risk of the Shareholders. No assurance can be given that the Trustees' appraisal
of the risks will always be correct or that such exchange control restrictions
or political acts of foreign governments might not occur.
There are several risks associated with the use of futures contracts
and stock index futures contracts as hedging techniques. A purchase or sale of a
futures contract may result in losses in excess of the amount invested. There
can be significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures, including technical influences in futures trading, and differences
between the financial instruments being hedged and the instruments underlying
the standard contracts available for trading in such respects as interest rate
levels, maturities, and creditworthiness of issuers. A decision as to whether,
when, and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
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<PAGE>
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and, therefore, does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures position, and it would remain obligated
to meet margin requirements until the position is closed. Templeton Bond, Stock,
Asset Allocation, Developing Markets and International Funds intend to purchase
or sell futures only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. In
addition, many of the futures contracts available may be relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Use of stock index futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by a Fund for hedging purposes also depends upon the Investment
Manager's ability to predict correctly movements in the direction of the market,
as to which no assurance can be given.
Templeton Bond, Asset Allocation, International and Developing Markets
Funds may enter into a contract for the purchase or sale of a security
denominated in a foreign currency and may enter into a forward foreign currency
contract ("forward contract") in order to "lock in" the U.S. dollar price of the
security. In addition, when an Investment Manager believes that the currency of
a particular foreign country may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell or buy the amount
of the former foreign currency, approximating the value of some or all
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of the Fund's portfolio securities denominated in such foreign currency. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for the Funds to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency a Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency a Fund is obligated to
deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between a Fund
entering into a forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the foreign currency,
the Fund will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, a Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
INVESTMENT RESTRICTIONS
The Funds have imposed upon themselves certain investment restrictions
which, together with their investment objectives, are fundamental policies
except as otherwise indicated. No changes in a Fund's investment objectives,
policies or investment restrictions (except those which are not fundamental
policies) can be made without the approval of the Shareholders of that Fund. For
this purpose, the provisions of the 1940 Act require the affirmative vote of the
lesser of either (a) 67% or more of the Fund's Shares present at a Shareholders'
meeting at which the holders more than 50% of the outstanding Shares are present
or represented by proxy or (b) more than 50% of the outstanding Shares of the
Fund.
- 17 -
<PAGE>
In accordance with these restrictions, a Fund will not:
1. Invest in real estate or mortgages on real estate, or
purchase or sell commodity contracts, except that
Templeton Bond, Asset Allocation and Developing
Markets Funds may invest in marketable securities
secured by real estate or interests therein, such as
CMOs, or issued by companies or investment trusts which
invest in real estate or interests therein and
Templeton Bond, Asset Allocation, Developing Markets
and International Funds may purchase and sell foreign
currency futures and financial futures, and Templeton
Stock, Asset Allocation, Developing Markets and
International Funds may purchase and sell stock index
futures contracts, and Templeton Bond Fund may purchase
and sell bond index futures contracts.
2. Purchase or retain securities of any company in which Trustees
or officers of the Trust or of a Fund's Investment Manager,
individually owning more than 1/2 of 1% of the securities of
such company, in the aggregate own more than 5% of the
securities of such company.
3. With respect to 75% of its total assets, invest more
than 5% of the total value of its assets in the
securities of any one issuer, or purchase more than 10%
of any class of securities of any one company,
including more than 10% of its outstanding voting
securities (except for investments in obligations
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities).
4. Act as an underwriter, issue senior securities
except as set forth in Investment Restriction 6 below.
5. Lend money, except that all Funds may purchase publicly
distributed bonds, debentures, notes and other evidences of
indebtedness and may buy from a bank or broker-dealer U.S.
Government obligations with a simultaneous agreement by the
seller to repurchase them at the original purchase price plus
accrued interest, and may lend their portfolio securities.
6. Borrow money for any purpose other than redeeming its Shares
or purchasing its Shares for cancellation, and then only as a
temporary measure up to an amount not exceeding 5% of the
value of its total assets, except that Templeton Bond, Stock,
Asset Allocation and International Funds may borrow money in
amounts up to
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<PAGE>
30% of the value of its net assets. Templeton Developing
Markets Fund may borrow money from banks in an amount up to 33
1/3% of such Fund's total assets (including the amount
borrowed), or pledge, mortgage or hypothecate its assets for
any purpose, except to secure borrowings and then only to an
extent not greater than 15% of the Fund's total assets.
Arrangements with respect to margin for futures contracts,
forward contracts and related options are not deemed to be
pledge of assets.
7. Invest more than 25% of its total assets in a single
industry, except that this limitation will not apply to
investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or
repurchase agreements on such securities, and Templeton
Money Market Fund may invest in obligations issued by
domestic banks (including certificates of deposit,
repurchase agreements, and bankers' acceptances)
without regard to this limitation.
8. Participate on a joint or a joint and several basis in
any trading account in securities. (see "Trading
Policies" as to transaction in the same securities for
the Funds and other Templeton funds and clients.
As non-fundamental investment policies, which may be changed by the
Board of Trustees without Shareholder approval, a Fund will not invest more than
15% of its total assets in securities of foreign issuers which are not listed on
a recognized United States or foreign securities exchange, or more than 15% of
its total assets in (a) securities with a limited trading market, (b) securities
subject to legal or contractual restrictions as to resale, and (c) repurchase
agreements not terminable within seven days. In addition, as non-fundamental
investment policies, Templeton Stock, Asset Allocation, Developing Markets and
International Funds will not invest more than 5% of each Fund's assets in debt
securities rated lower than Baa by Moody's Investors Service, Inc. or BBB by
Standard & Poor's Corporation.
Whenever any investment policy or investment restriction states a
maximum percentage of a Fund's assets which may be invested in any security or
other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of the Fund's acquisition of such
security or property. The investment restrictions do not preclude a Fund from
purchasing the securities of any issuer pursuant to the exercise of subscription
rights distributed to a Fund by the issuer, unless such purchase would result in
a violation of
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<PAGE>
investment restriction number 7, or the non-fundamental
investment policies discussed above.
TRADING POLICIES
The Investment Managers and their affiliated companies serve as
investment manager to other investment companies and private clients.
Accordingly, the respective portfolios of certain of these funds and clients may
contain many or some of the same securities. When certain funds or clients are
engaged simultaneously in the purchase or sale of the same security, the trades
may be aggregated for execution and then allocated in a manner designed to be
equitable to each party. The larger size of the transaction may affect the price
of the security and/or the quantity which may be bought or sold for each party.
If the transaction is large enough, brokerage commissions may be negotiated
below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted pursuant to Rule 17a-7 under
the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin
Templeton Group, as defined in the SEC Rule 17(j) under the 1940 Act, who are
employees of Franklin Resources, Inc. or their subsidiaries, are permitted to
engage in personal securities transactions subject to the following general
restrictions and procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after this clearance;
(2) Copies of all brokerage confirmations must be sent to the Compliance Officer
and within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance Officer; (3) In
addition to items (1) and (2), access persons involved in preparing and making
investment decisions must file annual reports of their securities holdings each
January and also inform the Compliance Officer (or other designated personnel)
if they own a security that is being considered for a fund or other client
transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT OF THE TRUST
The name, address, principal occupation during the past five years and
other information with respect to each of the Trustees and Principal Executive
Officers of the Trust are as follows:
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<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS
HARRIS J. ASHTON
Metro Center
1 Station Place
Stamford, Connecticut
Trustee
Chairman of the Board,
president, and chief executive
officer of General Host
Corporation (nursery and craft
centers); and a director of
RBC Holdings (U.S.A.) Inc. (a
bank holding company) and Bar-
S Foods. Age 63.
NICHOLAS F. BRADY*
102 East Dover Street
Easton, Maryland
Trustee
Chairman of Templeton Emerging Markets Investment Trust PLC; chairman of
Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
Investments, Ltd. (an investment firm) (1994- present); director of the Amerada
Hess Corporation, Capital Cities/ABC, Inc., Christiana Companies, and the H.J.
Heinz Company; Secretary of the United States Department of the Treasury
(1988-January 1993); and chairman of the board of Dillion, Read & Co. Inc.
(investment banking) prior thereto. Age 65.
F. BRUCE CLARKE
19 Vista View Blvd.
Thornhill, Ontario
Trustee Retired; formerly, credit adviser for the National Bank of Canada,
Toronto. Age 85.
HASSO-G VON DIERGARDT-NAGLO
R.R. 3
Stouffville, Ontario
Trustee
Farmer; and president of
Clairhaven Investments, Ltd.
and other private investment
companies. Age 79.
S. JOSEPH FORTUNATO
200 Campus Drive
Florham Park, New Jersey
Trustee Member of the law firm of Pitney, Hardin, Kipp & Szuch; and a director
of General Host Corporation. Age 63.
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<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS
ANDREW H. HINES, JR.
150 2nd Avenue N.
St. Petersburg, Florida
Trustee Consultant for the Triangle Consulting Group; chairman of the board
and chief executive officer of Florida Progress Corporation (1982-February 1990)
and director of various of its subsidiaries; chairman and director of Precise
Power Corporation; executive-in-residence of Eckerd College (1991-present); and
a director of Checkers Drive-In Restaurants, Inc. Age 72.
CHARLES B. JOHNSON*
777 Mariners Island Blvd.
San Mateo, California
Chairman of the Board
and Vice President
President, chief executive officer, and director of Franklin Resources, Inc.;
chairman of the board and director of Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; director of Franklin Administrative Services,
Inc., General Host Corporation, and Templeton Global Investors, Inc.; and
officer and director, trustee or managing general partner, as the case may be,
of most other subsidiaries of Franklin and of 55 of the investment companies in
the Franklin Templeton Group. Age 62.
BETTY P. KRAHMER
2201 Kentmere Parkway
Wilmington, Delaware
Trustee
Director or trustee of various civic associations; formerly, economic analyst,
U.S.
Government. Age 66.
- 22 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS
GORDON S. MACKLIN
8212 Burning Tree Road
Bethesda, Maryland 20817
Trustee
Chairman of White River
Corporation (information
services); director of Fund
America Enterprises Holdings,
Inc., Lockheed Martin
Corporation, MCI Communications Corporation, Fusion Systems Corporation,
Infovest Corporation, and Medimmune, Inc.; and formerly held the following
positions: chairman of Hambrecht and Quist Group; director, H&Q Healthcare
Investors; and president of the National Association of Securities Dealers, Inc.
Age 67.
FRED R. MILLSAPS
2665 NE 37th Drive
Fort Lauderdale, Florida
Trustee
Manager of personal
investments (1978-present); chairman and chief executive officer of Landmark
Banking Corporation (1969-1978); financial vice president of Florida Power and
Light (1965- 1969); vice president of The Federal Reserve Bank of Atlanta
(1958-1965); and a director of various other business and nonprofit
organizations. Age 66.
- 23 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS
CHARLES E. JOHNSON
777 Mariners Island Blvd.
San Mateo, California
President Senior vice president and director of Franklin Resources, Inc.;
senior vice president of Franklin Templeton Distributors, Inc.; president and
director of Franklin Institutional Service Corporation and Templeton Worldwide,
Inc.; chairman of the board of Templeton Investment Counsel, Inc.; vice
president and/or director, as the case may be, for some of the subsidiaries of
Franklin Resources, Inc.; and an officer and/or director or trustee, as the case
may be, of 24 of the investment companies in the Franklin Templeton Group. Age
39.
MARK G. HOLOWESKO
Lyford Cay
Nassau, Bahamas
Vice President President and director of Templeton, Galbraith & Hansberger
Ltd.; director of global equity research for Templeton Worldwide, Inc.;
president or vice president of the Templeton Funds; formerly, investment
administrator with Roy West Trust Corporation (Bahamas) Limited (1984-1985).
Age 35.
- 24 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS
MARTIN L. FLANAGAN
777 Mariners Island Blvd.
San Mateo, California
Vice President
Senior vice president,
treasurer, and chief financial officer of Franklin Resources, Inc.; executive
vice president and director of Templeton Investment Counsel, Inc.; director,
president and chief executive officer of Templeton Global Investors, Inc.;
director or trustee and president or vice president of various Templeton Funds;
accountant with Arthur Andersen & Company (1982- 1983); and a member of the
International Society of Financial Analysts and the American Institute of
Certified Public Accountants.
Age 35.
SAMUEL J. FORESTER, JR.
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President President of the Templeton Global Bond Managers Division of
Templeton Investment Counsel, Inc.; president or vice president of other
Templeton Funds; founder and partner of Forester, Hairston Investment Management
(1989- 1990); managing director (Mid-East Region) of Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988); and an advisor for Saudi Arabian Monetary
Agency (1982-1987). Age 47.
- 25 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS
JOHN R. KAY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Vice president of the Templeton Funds; vice president and
treasurer of Templeton Global Investors,
Inc. and Templeton Worldwide,
Inc.; assistant vice president
of Franklin Templeton
Distributors, Inc.; formerly,
vice president and controller,
the Keystone Group, Inc.
Age 55.
THOMAS J. LATTA
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Vice president of the
Templeton Global Bond Managers division of Templeton Investment Counsel, Inc.;
vice president of various Templeton Funds; formerly, portfolio manager, Forester
& Hairston (1988-1991); investment adviser, Merrill Lynch, Pierce, Fenner &
Smith Incorporated (1981-1988).
Age 35.
THOMAS M. MISTELE
700 Central Avenue
St. Petersburg, Florida
Secretary Senior vice president of Templeton Global Investors, Inc.; vice
president of Franklin Templeton Distributors, Inc.; secretary of the Templeton
Funds; formerly, attorney, Dechert Price & Rhoads (1985-1988) and Freehill,
Hollingdale & Page (1988); and judicial clerk, U.S. District Court (Eastern
District of Virginia) (1984- 1985). Age 42.
- 26 -
<PAGE>
JAMES R. BAIO
500 East Broward Blvd.
Fort Lauderdale, Florida
Treasurer
Certified public accountant; treasurer of the Templeton Funds; senior vice
president of Templeton Worldwide, Inc., Templeton Global Investors, Inc., and
Templeton Funds Trust Company; formerly, senior tax manager, Ernst & Young
(certified public accountants) (1977-1989).
Age 41.
JEFFREY L. STEELE 1500 K Street, N.W. Washington, D.C.
Assistant Secretary
Partner, Dechert Price &
Rhoads. Age 50.
* These are Trustees who are "interested persons" of the Trust
as that term is defined in the 1940 Act. Mr. Brady and
Franklin Resources, Inc. are limited partners of Darby
Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady
established Darby Overseas in February, 1994, and is
Chairman and a shareholder of the corporate general partner
of Darby Overseas. In addition, Darby Overseas and
Templeton, Galbraith & Hansberger, Ltd. are limited partners
of Darby Emerging Markets Fund, L.P.
There are no family relationships between any of the Trustees.
TRUSTEE COMPENSATION
All of the Trust's Officers and Trustees also hold positions with other
investment companies in the Franklin Templeton Group. No compensation is paid by
the Trust to any officer or trustee who is an officer, trustee or employee of
the Investment Managers or their affiliates. Each Templeton Fund pays its
independent
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<PAGE>
directors and trustees and Mr. Brady an annual retainer and/or fees for
attendance at Board and Committee meetings, the amount of which is based on the
level of assets in each fund. Accordingly, the Trust currently pays the
independent Trustees and Mr. Brady an annual retainer of $6000.00 and a fee of
$500.00 per meeting attended of the Board and its Committees. The independent
Trustees and Mr. Brady are reimbursed for any expenses incurred in attending
meetings, paid pro rata by each Franklin Templeton Fund in which they serve. No
pension or retirement benefits are accrued as part of Trust expenses.
The following table shows the total compensation paid to the Trustees
by the Trust and by all investment companies in the Franklin Templeton Group:
<TABLE>
<CAPTION>
NUMBER OF TOTAL COMPENSATION
NAME AGGREGATE FRANKLIN TEMPLETON FROM ALL FUNDS IN
OF COMPENSATION FUND BOARDS ON FRANKLIN TEMPLETON
TRUSTEE FROM THE TRUST* WHICH TRUSTEE SERVES GROUP*
<S> <C> <C> <C>
Harris J. Ashton $ 57 $
Nicholas F. Brady 24
F. Bruce Clarke 20
Hasso-G von Diergardt 20
-Naglo
S. Joseph Fortunato 59
Andrew H. Hines, Jr. 24
Betty P. Krahmer 24
Gordon S. Macklin 54
Fred R. Millsaps 24
</TABLE>
* For the fiscal year ended December 31, 1995.
PRINCIPAL SHAREHOLDERS
Shares of the Fund are sold to and owned only by insurance company
separate accounts to serve as the investment vehicle for variable annuity
contracts. As of November 30, 1995, there were 16,885,093 Shares of Templeton
Money Market Fund outstanding, of which no Shares were owned by the Trustees and
officers of the Trust; 2,761,054 Shares of Templeton Bond Fund outstanding, of
which no Shares were owned by the Trustees and officers of the Trust; 24,023,230
Shares
- 28 -
<PAGE>
of Templeton Stock Fund outstanding, of which no Shares were owned, by the
Trustees and officers of the Trust; 21,403,808 Shares of Templeton Asset
Allocation Fund outstanding, of which no Shares were owned by the Trustees and
officers of the Trust; and 22,298,050 Shares of Templeton International Fund
outstanding, of which no Shares were owned by the Trustees and officers of the
Trust. As of November 30, 1995, Phoenix Home Mutual Life Insurance Company
("Phoenix Home Life") owned 100% of the outstanding Shares of Templeton Money
Market Fund, 60% of the outstanding Shares of Templeton Bond Fund, 60% of the
outstanding Shares of Templeton Stock Fund, 36% of the outstanding Shares of
Templeton Asset Allocation Fund, and 26% of the outstanding Shares of Templeton
International Fund, including Shares received in return for monies paid in
connection with the initial capital advances made to the Trust. As of November
30, 1995, The Travelers Insurance Company ("The Travelers") owned 40% of the
outstanding Shares of Templeton Bond Fund, 40% of the outstanding Shares of
Templeton Stock Fund, and 42% of the outstanding Shares of Templeton Asset
Allocation Fund. As of November 30, 1995, the Variable Annuity Life Insurance
Company ("VALIC") owned 22% of the outstanding shares of Templeton Asset
Allocation Fund and 70% of Templeton International Fund. However, Phoenix Home
Life, The Travelers and VALIC will exercise voting rights attributable to these
Shares in accordance with voting instructions received by owners of the
contracts issued by Phoenix Home Life, The Travelers, and VALIC. To this extent,
Phoenix Home Life, The Travelers and VALIC do not exercise control over the
Trust by virtue of the voting rights from their ownership of Trust Shares. To
the knowledge of management, as of November 30, 1995, no other person owned of
record or beneficially 5% or more of the Shares of any of the Funds.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENTS. The Investment Manager of Templeton
Money Market Fund and Templeton Bond Fund is the Templeton Global Bond Managers
division ("TGBM") of Templeton Investment Counsel, Inc. ("TICI"), a Florida
corporation with offices in Fort Lauderdale, Florida. The Investment Manager of
Templeton Asset Allocation Fund, Templeton Stock Fund, and Templeton
International Fund is TICI. The Investment Manager of Templeton Developing
Markets Fund is Templeton Asset Management Ltd. ("Templeton Singapore"). The
Investment Management Agreements between TICI and TGBM and the Trust on behalf
of such Funds (the "Management Agreements"), dated October 30, 1992, and amended
and restated on February 25, 1994, were approved by the Shareholders of the
Funds on October 30, 1992, and were last approved by the Board of Trustees,
- 29 -
<PAGE>
including a majority of the Trustees who were not parties to the Agreements or
interested persons of any such party, at a meeting held on February 24, 1995,
and will continue through April 30, 1996. The Investment Management Agreement
between Templeton Singapore and the Trust on behalf of Templeton Developing
Markets Fund, dated ___________, 1996, was approved by the sole shareholder of
the Fund on ____________, 1996 and by the Board of Trustees, including a
majority of the Trustees who were not parties to the Agreement or interested
persons of any such party, at a meeting held on ____________, 1996 and will
continue in effect through ______________, 1997. The Management Agreements will
continue from year to year thereafter subject to approval annually by the Board
of Trustees or by vote of a majority of the outstanding Shares of each Fund (as
defined in the 1940 Act) and also, in either event, the approval of a majority
of those Trustees who are not parties to the Management Agreements or interested
persons of any such party in person at a meeting called for the purpose of
voting on such approval.
The Investment Management Agreements require the Investment Managers to
manage the investment and reinvestment of each Fund's assets. The Investment
Managers are not required to furnish any personnel, overhead items or facilities
for the Funds, including daily pricing or trading desk facilities, although such
expenses are paid by investment advisers of some other investment companies.
The Management Agreements provide that the Investment Managers will
select brokers and dealers for execution of each Fund's portfolio transactions
consistent with the Fund's brokerage policies (see "Brokerage Allocation").
Although the services provided by broker-dealers in accordance with the
brokerage policies incidentally may help reduce the expenses of or otherwise
benefit the Investment Managers and other investment management clients of the
Investment Managers and of their affiliates, as well as the Funds, the value of
such services is indeterminable and the Investment Managers' fee is not reduced
by any offset arrangement by reason thereof.
Under the Management Agreements, the Investment Manager is permitted to
provide investment advisory services to other clients, including clients which
may invest in the same types of securities as the Funds and, in providing such
services, the Investment Managers may use information furnished by others.
Conversely, information furnished by others to the Investment Managers in
providing services to other clients may be useful to the Investment Managers in
providing services to the Funds. When an Investment Manager determines to buy or
sell the same security for a Fund that the Investment Manager or certain of its
affiliates have selected for one or more of the Investment
- 30 -
<PAGE>
Manager's other clients or for clients of its affiliates, the orders for all
such securities trades may be placed for execution by methods determined by the
Investment Manager, with approval by the Board of Trustees, to be impartial and
fair, in order to seek good results for all parties. Records of securities
transactions of persons who know when orders are placed by a Fund are available
for inspection at least four times annually by the compliance officer of the
Trust so that the non-interested Trustees (as defined in the 1940 Act) can be
satisfied that the procedures are generally fair and equitable to all parties.
The Investment Managers also provide management services to numerous
other investment companies or funds pursuant to management agreements with each
fund or account. The Investment Managers may give advice and take action with
respect to any of the other funds and accounts they manage, or for their own
accounts, which may differ from the action taken by an Investment Manager on
behalf of a Fund. Similarly, with respect to a Fund, an Investment Manager is
not obligated to recommend, purchase or sell, or to refrain from recommending,
purchasing or selling any security that the Investment Manager and access
persons, as defined by the 1940 Act, may purchase or sell for their own account
or for the accounts of any other fund or accounts. Furthermore, the Investment
Managers are not obligated to refrain from investing in securities held by a
Fund or other funds which it manages or administers. Any transactions for the
accounts of the Investment Managers and other access persons will be made in
compliance with the Trust's Code of Ethics as described in the section "Trading
Policies - Personal Securities Transaction."
The Management Agreements provide that the Investment Managers shall
have no liability to the Trust, a Fund or any Shareholder of a Fund for any
error of judgment, mistake of law, or any loss arising out of any investment or
other act or omission in the performance by the Investment Manager of its duties
under the Management Agreement, or for any loss or damage resulting from the
imposition by any government of exchange control restrictions which might affect
the liquidity of a Fund's assets, or from acts or omissions of custodians or
securities depositories, or from any wars or political acts of any foreign
governments to which such assets might be exposed, except any liability
resulting from willful misfeasance, bad faith or gross negligence on the
Investment Manager's part, or reckless disregard of its duties under the
Management Agreement. The Management Agreements will terminate automatically in
the event of their assignment, and may be terminated by the Trust on behalf of a
Fund at any time without payment of any penalty on 60 days' written notice, with
the approval of a majority of the Trustees in office at the time or by vote of a
majority of the outstanding voting securities of that Fund (as defined by the
1940 Act).
- 31 -
<PAGE>
MANAGEMENT FEES. For its services, Templeton Money Market Fund pays its
Investment Manager a monthly fee equal on an annual basis to 0.35% of its
average daily net assets up to $200 million, reduced to 0.30% of such net assets
from $200 million up to $1,300 million and further reduced to 0.25% of such net
assets in excess of $1,300 million. Templeton Bond, Stock, Asset Allocation and
International Funds each pay their Investment Manager a monthly fee equal on an
annual basis to 0.50% of its average daily net assets up to $200 million,
reduced to 0.45% of such net assets from $200 million up to $1,300 million and
further reduced to 0.40% of such net assets in excess of $1,300 million.
Templeton Developing Markets Fund pays its Investment Manager a monthly fee
equal on an annual basis to 1.25% of its average daily net assets. During the
fiscal year ended December 31, 1994, Templeton Money Market Fund, Templeton Bond
Fund, Templeton Stock Fund, Templeton Asset Allocation Fund, and Templeton
International Fund paid investment management fees of $, $, $, $, and $,
respectively. During the fiscal year ended December 31, 1993, Templeton Money
Market Fund, Templeton Bond Fund, Templeton Stock Fund, Templeton Asset
Allocation Fund, and Templeton International Fund paid investment management
fees of $, $, $1,089,643, $608,471, and $95,518, respectively. During the fiscal
year ended December 31, 1995, Templeton Money Market Fund, Templeton Bond Fund,
Templeton Stock Fund, Templeton Asset Allocation Fund, and Templeton
International Fund paid investment management fees of $, $, $, $, and $,
respectively.
THE INVESTMENT MANAGERS. The Investment Managers are
indirect wholly owned subsidiaries of Franklin, a publicly traded
company whose shares are listed on the NYSE. Charles B. Johnson
(a Trustee and Vice President of the Trust)and Rupert H.
Johnson, Jr. are principal shareholders
of Franklin and own, respectively, approximately 20%and 16%
of its outstanding shares. Messrs. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Funds Annuity Company performs
certain administrative functions as Business Manager for the
Trust, including:
o providing office space, telephone, office equipment and
supplies for the Trust;
o paying compensation of the Trust's officers for
services rendered as such;
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<PAGE>
o authorizing expenditures and approving bills for
payment on behalf of the Trust;
o supervising preparation of annual and semi-annual
reports, notices of dividends, capital gains
distributions and tax credits;
o daily pricing of the Funds' investment portfolios and
supervising publication of daily quotations of the bid and
asked prices of the Funds' Shares, earnings reports and other
financial data;
o providing trading desk facilities for the Funds;
o monitoring relationships with organizations serving the
Trust, including the Custodian and printers;
o supervising compliance by the Trust with recordkeeping
requirements under the 1940 Act and regulations thereunder,
with state regulatory requirements, maintaining books and
records for the Trust (other than those maintained by the
Custodian and Transfer Agent), and filing of tax reports on
behalf of the Trust other than the Trust's income tax returns;
and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the combined average daily net assets of the Funds,
reduced to 0.135% of the Funds' aggregate net assets in excess of $200 million,
further reduced to 0.10% annually of such net assets in excess of $700 million
and further reduced to 0.075% annually of such net assets in excess of $1,200
million. The fee is allocated among the Funds according to their respective
average daily net assets. Since the Business Manager's fee covers services often
provided by investment advisers to other funds, the Funds' combined expenses for
management and administrative services together may be higher than those of some
other investment companies. During the fiscal years ended December 31, 1995,
1994, and 1993, the Business Manager received fees of $_______, $1,006,867and
$568,481, $339,772, respectively.
The Business Manager is relieved of liability to the Trust for any act
or omission in the course of its performance under the Business Management
Agreement, in the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of its obligations and duties under the Agreement. The
Business Management Agreement may be terminated by a Fund at any time on
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60 days' written notice without payment of penalty, provided that such
termination shall be directed or approved by vote of a majority of the Trustees
of the Trust in office at the time or by vote of a majority of the outstanding
voting securities of that Fund, and shall terminate automatically and
immediately in the event of its assignment.
Templeton Funds Annuity Company is an indirect wholly-owned subsidiary
of Franklin.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as Custodian of the
Trust's assets, which are maintained at the Custodian's principal office,
MetroTech Center, Brooklyn, New York, New York 11245 and at the offices of its
branches and agencies throughout the world. The Custodian has entered into
agreements with foreign sub-custodians approved by the Trustees pursuant to Rule
17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians,
generally domestically and frequently abroad, do not actually hold certificates
for the securities in their custody, but instead have book records with domestic
and foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities. Compensation for the services
of the Custodian is based on a schedule of charges agreed on from time to time.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Trust.
INDEPENDENT ACCOUNTANTS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New
York, New York 10017, serves as independent accountants for the Trust. Its audit
services comprise examination of the Trust's financial statements, review of the
Trust's filings with the Securities and Exchange Commission ("SEC") and
preparation of the Trust's federal and state corporation tax returns.
REPORTS TO SHAREHOLDERS. The Trust's fiscal year ends on December 31.
Shareholders are provided at least semiannually with reports showing the Funds'
portfolios and other information, including an annual report with financial
statements audited by independent accountants. Shareholders who would like to
receive an interim quarterly report may phone the Fund Information Department at
1-800/DIAL BEN.
BROKERAGE ALLOCATION
The Management Agreements provide that the Investment Managers are
responsible for selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to as "brokers")
for the execution of
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a Fund's portfolio transactions, and, when applicable, the negotiation of
commissions in connection therewith. All recommendations, decisions and
placements are made in accordance with the following principles:
1. Purchase and sale orders are usually placed with
brokers who are selected by an Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the
most favorable securities price, taking into account
the other provisions hereinafter set forth. The
determination of what may constitute best execution and
price in the execution of a securities transaction by a
broker involves a number of considerations, including,
without limitation, the overall direct net economic
result to a Fund (involving both price paid or received
and any commissions and other costs paid), the
efficiency with which the transaction is effected, the
ability to effect the transaction at all where a large
block is involved, availability of the broker to stand
ready to execute possibly difficult transactions in the
future, and the financial strength and stability of the
broker. Such considerations are judgmental and are
weighed by an Investment Manager in determining the
overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, the
Investment Managers take into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by a
Fund.
3. The Investment Managers are authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), for a Fund and/or other
accounts, if any, for which an Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to
which fixed minimum commission rates are not
applicable, to cause a Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if an Investment Manager in making
the selection in question determines in good faith that
such amount of commission is reasonable in relation to
the value of the brokerage and research services
provided by such broker, viewed in terms of either that
particular transaction or the Investment Manager's
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overall responsibilities with respect to the Fund and the
other accounts, if any, as to which it exercises investment
discretion. In reaching such determination, an Investment
Manager is not required to place or to attempt to place a
specific dollar value on the research or execution services of
a broker or on the portion of any commission reflecting either
of said services. In demonstrating that such determinations
were made in good faith, the Investment Manager shall be
prepared to show that all commissions were allocated and paid
for purposes contemplated by the Trust's brokerage policy;
that the research services provide lawful and appropriate
assistance to an Investment Manager in the performance of its
investment decision-making responsibilities; and that the
commissions paid were within a reasonable range. The
determination that commissions were within a reasonable range
shall be based on any available information as to the level of
commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the
Trust's policies that (i) obtaining a low commission is deemed
secondary to obtaining a favorable securities price, since it
is recognized that usually it is more beneficial to a Fund to
obtain a favorable price than to pay the lowest commission and
(ii) the quality, comprehensiveness and frequency of research
studies which are provided for an Investment Manager are
useful to the Investment Manager in performing its management
services under its Management Agreement with the Trust.
Research services provided by brokers to an Investment Manager
are considered to be in addition to, and not in lieu of,
services required to be performed by the Investment Manager
under its Management Agreement with the Trust. Research
furnished by brokers through whom a Fund effects securities
transactions may be used by an Investment Manager for any of
its accounts, and not all such research may be used by the
Investment Manager for that Fund. When execution of portfolio
transactions is allocated to brokers trading on exchanges with
fixed brokerage commission rates, account may be taken of
various services provided by the broker, including quotations
outside the United States for daily pricing of foreign
securities held in a Fund's portfolio.
4. Purchases and sales of portfolio securities within the
United States other than on a securities exchange are
executed with primary market makers acting as
principal, except where, in the judgement of an
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Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources.
5. Sales of shares of investment companies registered
under the 1940 Act which have either the same
investment adviser, or an investment adviser affiliated
with an Investment Manager, made by a broker is one
factor among others to be taken into account in
deciding to allocate portfolio transactions (including
agency transactions, principal transactions, purchases
in underwritings or tenders in response to tender
offers) for the account of a Fund to that broker;
provided that the broker shall furnish "best
execution," as defined in paragraph 1 above, and that
such allocation shall be within the scope of the Fund's
other policies as stated above; and provided further,
that in every allocation made to a broker in which such
sale of shares is taken into account there shall be no
increase in the amount of the commissions or other
compensation paid to such broker beyond a reasonable
commission or other compensation determined, as set
forth in paragraph 3 above, on the basis of best
execution alone or best execution plus research
services, without taking account of or placing any
value upon such sale of shares.
Insofar as known to management, no Trustee or officer of the Trust, nor
the Investment Manager or Principal Underwriter or any person affiliated with
any of them, has any material direct or indirect interest in any broker employed
by or on behalf of the Trust. Franklin Templeton Distributors, Inc., the Trust's
Principal Underwriter, is a registered broker-dealer, but it has never executed
any purchase or sale transactions for the Funds' portfolios or participated in
any commissions on any such transactions, and has no intention of doing so in
the future. The total brokerage commissions on the Trust's portfolio
transactions during the fiscal years ended December 31, 1995, 1994, and 1993
were as follows: total commissions (not including any spreads or concessions on
principal transactions) of $_______, $672,000, and $340,552, respectively. All
portfolio transactions are allocated to broker-dealers only when their prices
and execution, in the good faith judgment of management, are equal to the best
available within the scope of the Trust's policies. There is no fixed method
used in determining which broker-dealers receive which order or how many orders.
PORTFOLIO TURNOVER. For reporting purposes, each Fund's
portfolio turnover rate is calculated by dividing the value of
the lesser of purchases or sales of portfolio securities for the
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fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during the fiscal year. In determining such portfolio
turnover, short-term U.S. Government securities and all other securities whose
maturities at the time of acquisition were one year or less are excluded. A 100%
portfolio turnover rate would occur, for example, if all of the securities in
the portfolio (other than short-term securities) were replaced once during the
fiscal year. The portfolio turnover rate for each of the Funds will vary from
year to year, depending on market conditions.
It is anticipated that the rate of portfolio turnover as defined above
for Templeton Stock, Asset Allocation, International and Developing Markets
Funds will be less than 50%, and for Templeton Bond Fund, less than 100%, under
normal market conditions. Portfolio turnover could be greater in periods of
unusual market movement and volatility. Templeton Bond Fund's portfolio turnover
rates for the fiscal years ended December 31, 1995, 1994, and 1993 were ____%,
203.91%, and 170.3%, respectively. The increase in Templeton Bond Fund's
portfolio turnover rate in 1994 was the result of trading by the Investment
Manager to improve the Fund's yield in response to rising interest rates and to
hedge currency exposure. In light of rising interest rates, the Investment
Manager determined to increase the Fund's positions in bonds with shorter
maturities, which resulted in the higher portfolio turnover rate.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which a Fund's Shares
may be purchased and redeemed. See "How to Buy Shares of the
Funds" and "How to Sell Shares of the Funds."
Net asset value per Share is calculated separately for each Fund. Net
asset value per Share is determined as of the scheduled closing time of the NYSE
(generally 4:00 p.m., New York time) every Monday through Friday (exclusive of
national business holidays). The Trust's offices will be closed, and net asset
value will not be calculated, on those days on which the NYSE is closed, which
currently are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Templeton Money Market Fund uses the amortized cost method to determine
the value of its portfolio securities pursuant to Rule 2a-7 under the 1940 Act.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it
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may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price which Templeton Money Market Fund would
receive if the security were sold. During these periods the yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund which utilizes a method of valuation based upon market prices. Thus, during
periods of declining interest rates, if the use of the amortized cost method
resulted in a lower value of the Fund's portfolio on a particular day, a
prospective investor in the Fund would be able to obtain a somewhat higher yield
than would result from investment in a fund utilizing solely market values, and
existing Shareholders would receive corresponding less income. The converse
would apply during periods of rising interest rates.
In accordance with Rule 2a-7, the Fund is required to (i) maintain a
dollar-weighted average portfolio maturity of 90 days or less; (ii) purchase
only instruments having remaining maturities of 397 days or less; and (iii)
invest only in U.S. dollar denominated securities determined in accordance with
procedures established by the Board of Trustees to present minimal credit risks
and which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations (or one rating organization if the instrument was rated by only
one such organization, subject to ratification of the investment by the Board of
Trustees). If a security is unrated, it must be of comparable quality as
determined in accordance with procedures established by the Board of Trustees,
including approval or ratification of the security by the Board except in the
case of U.S. Government securities. Pursuant to the Rule, the Board is required
to establish procedures designed to stabilize, to the extent reasonably
possible, the Fund's price per Share as computed for the purpose of sales and
redemptions at $1.00. Such procedures will include review of the Fund's
portfolio holdings by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per Share based on amortized
cost. The extent of any deviation will be examined by the Board of Trustees. If
such deviation exceeds 1/2 of 1%, the Board will promptly consider what action,
if any, will be initiated. In the event the Board determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing Shareholders, the Board will take such corrective action
as it regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per Share by using available market quotations.
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The Board of Trustees may establish procedures under which a Fund may
suspend the determination of net asset value for the whole or any part of any
period during which (1) the NYSE is closed other than for customary weekend and
holiday closings, (2) trading on the NYSE is restricted, (3) an emergency
exists, as determined by the SEC, as a result of which disposal of securities
owned by the Fund is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (4)
for such other period as the SEC may by order permit for the protection of the
holders of a Fund's Shares.
TAX STATUS
Templeton Money Market Fund intends to declare dividends daily and to
pay dividends monthly. Templeton Stock, Bond, Asset Allocation and International
Funds normally intend to pay an annual dividend representing substantially all
of their net investment income and to distribute annually any net realized
capital gains. By so doing and meeting certain diversification of assets and
other requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), and as described in the Prospectus, each Fund intends to qualify as a
regulated investment company under the Code. The status of the Funds as
regulated investment companies does not involve government supervision or
management of their investment practices or policies. As a regulated investment
company, each Fund will be relieved of liability for United States federal
income tax on that portion of its net investment income and net realized capital
gains which it distributes to its Separate Account Shareholders.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are also subject to a nondeductible 4% excise tax
unless the exception described below applies. To avoid the tax if it otherwise
applies, a Fund must distribute during each calendar year, (i) at least 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (ii) at least 98% of its capital gains in excess of its
capital losses for the twelve-month period ending on October 31 of the calendar
year (adjusted for certain ordinary losses), and (iii) all ordinary income and
capital gains for previous years that were not distributed during such years. To
avoid application of the excise tax, each Fund intends to make its distributions
in accordance with the calendar year distribution requirement. A distribution
will be treated as paid on December 31 of the calendar if it is declared by a
Fund during October, November, or December of that year to Shareholders of
record on a date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will
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be taxable to Shareholders (a Separate Account) in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received. The excise tax provisions described above will not
apply in a given calendar year to a Fund if all of its shareholders at all times
during the calendar year are segregated asset accounts of life insurance
companies where the shares are held in connection with variable contracts. (For
this purpose, any shares of a regulated investment company attributable to an
investment not exceeding $250,000 made in connection with the organization of
the company is not taken into account.) Accordingly, if this condition regarding
the ownership of Shares of each of the Funds is met, the excise tax will be
inapplicable to that Fund even if the calendar year distribution requirement is
not met.
The Funds may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, the Fund itself may be subject to tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to Shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which a Fund held the PFIC shares. A Fund itself will be subject to tax
on the portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Certain distributions from a
PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election may be available
that would involve marking to market the Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized. If this
election were made, tax at the Fund level
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under the PFIC rules would generally be eliminated, but the Fund could, in
limited circumstances, incur nondeductible interest charges. The Fund's
intention to qualify annually as a regulated investment company may limit its
elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject a Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Income received by a Fund from sources within a foreign country may be
subject to withholding taxes and other taxes imposed by that country. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and forward contracts, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Fund's net investment income to be distributed to its Shareholders
as ordinary income.
Debt securities purchased by a Fund may be treated for federal income
tax purposes as having original issue discount. Original issue discount
essentially represents interest for federal income tax purposes and can be
defined generally as the excess of the stated redemption price at maturity over
the issue price. Original issue discount, whether or not any income is actually
received by a Fund, is treated for U.S. federal income tax purposes as ordinary
income earned by the Fund, and therefore is subject to the distribution
requirements of the Code. Generally, the amount of original issue discount
included in the income of a Fund each year is determined on the basis of a
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constant yield to maturity which takes into account the compounding of accrued
but unpaid interest.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semiannual compounding of interest.
Certain options, futures contracts and forward contracts in which the
Templeton Stock, Bond, Asset Allocation and International Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60-40"), except for certain foreign currency gains and losses which will be
treated as ordinary in character. Also, section 1256 contracts held by a Fund at
the end of each taxable year (and, in some cases, for purposes of the 4% excise
tax, on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized.
The hedging transactions undertaken by certain of the Funds may result
in "straddles" for federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Funds which is taxed as ordinary income when
distributed to Shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the
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elections may operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
The requirements under the Code relating to the qualification of a Fund
as a regulated investment company may limit the extent to which a Fund may
engage in futures and forward currency contracts.
Distributions of any net investment income and of any net realized
short term capital gains are treated as ordinary income for tax purposes in the
hands of the Separate Account Shareholder. The excess of any net long-term
capital gains over net short-term capital losses will, to the extent distributed
and designated by the distributing Fund as a capital gain dividend, be treated
as long-term capital gains in the hands of the Shareholder regardless of the
length of time a Separate Account may have held the Shares.
Reference is made to the Prospectus for the applicable Contract for
information regarding the federal income tax treatment of distributions to
owners of contracts.
DESCRIPTION OF SHARES
The Shares of each Fund have the same preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications, and terms and conditions of redemption, except as follows: all
consideration received from the sale of Shares of a Fund, together with all
income, earnings, profits and proceeds thereof, belongs to that Fund and is
charged with liabilities in respect to that Fund and of that Fund's part of
general liabilities of the Trust in the proportion that the total net assets of
the Fund bear to the total net assets of all Funds. The net asset value of a
Share of a Trust is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on Shares of a Fund
only out of lawfully available assets belonging to that Fund. In the event of
liquidation or dissolution of the Trust, the Shareholders of each Fund will be
entitled, out of assets of the Fund available for distributions, to the assets
belonging to that particular Fund.
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Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which,
under the terms of the Declaration of Trust, are binding only on the property of
the Trust, which, under the terms of the Declaration of Trust, are binding only
on the property of the Trust. The Declaration of the Trust provides for
indemnification out of Trust property for all loss and expense of any
Shareholder held personally liable for the obligations of the Trust. The risk of
a Shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations and, thus, should be considered remote.
YIELD AND PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and effective yield
of Templeton Money Market Fund or the total return of all Funds in
advertisements or reports to Shareholders or prospective investors. Performance
information for the Funds will not be advertised unless accompanied by
comparable performance information for a separate account to which the Funds
offer their Shares.
Current yield for Templeton Money Market Fund will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular seven-day period, less a pro-rata share of Templeton Money
Market Fund expenses accrued over that period (the "base period"), and stated as
a percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective Yield" for Templeton Money Market Fund assumes that all
dividends received during an annual period have been reinvested. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
EFFECTIVE YIELD = (1 + Base Period Return) 365/7 - 1
YIELD = 2[(1 + A-B)6 - 1]
cd
WHERE a = dividend and interest earned during the period,
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b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per Share on the last
day of the period.
For the seven-day period ending December 31, 1995, the 7- day
annualized yield of Money Market Fund was % and the effective yield of Money
Market Fund was %.
Quotations of average annual total return for the Funds will be
expressed in terms of the average annual compounded rate of return for periods
in excess of one year or the total return for periods less than one year of a
hypothetical investment in the Funds over periods of one, five, or ten years (up
to the life of a Fund) calculated pursuant to the following formula: P(1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return for periods of one year or more or the total return for periods of
less than one year, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period). All
total return figures reflect the deduction of the maximum initial sales charge
and deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. Templeton
Money Market Fund's average annual total return for the one- and five-year
periods ended December 31, 1995 and from inception on August 31, 1988 through
December 31, 1995, was %, %, and % respectively. Templeton Bond Fund's average
annual total return for the one- and five-year periods ended December 31, 1995
and from inception on August 31, 1988 through December 31, 1995, was %, %, and
%, respectively. Templeton Stock Fund's average annual total return for the one-
and five-year periods ended December 31, 1995 and from inception on August 31,
1988 through December 31, 1995, was %, %, and %, respectively. Templeton Asset
Allocation Fund's average annual total return for the one- and five-year periods
ended December 31, 1995 and from inception on August 31, 1988 through December
31, 1995, was %, %, and %, respectively. Templeton International Fund's average
annual total return for the one-year period ended December 31, 1995 and from
inception on May 1, 1992 through December 31, 1995, was % and %, respectively.
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Performance information for a Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in a Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Quotations of yield or total return for a Fund will not take into
account charges and deductions against any separate account to which the Funds'
Shares are sold or charges and deductions against variable insurance contracts,
although comparable performance information for a separate account will take
such charges into account. Performance information for a Fund reflects only the
performance of a hypothetical investment in a Fund during the particular time
period on which the calculations are based. Performance information should be
considered in light of a Fund's investment objective and policies,
characteristics and quality of the portfolio and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
From time to time, each Fund and the Investment Managers may also refer
to the following information:
(1) The Investment Managers' and their affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.
(2) The performance of U.S. equity and debt markets
relative to foreign markets prepared or published by
Morgan Stanley Capital International or a similar
financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a similar
financial organization.
(4) The geographic distribution of the Fund's portfolio.
- 47 -
<PAGE>
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment
improvements due to a liberalization of securities laws and a
reduction of foreign exchange controls, and improving
communication technology, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different
returns and risk characteristics of various
investments, the Fund may show historical returns of
various investments and published indices (E.G.,
Ibbotson Associates, Inc. Charts and Morgan Stanley
EAFE - Index).
(7) The major industries located in various jurisdictions
as published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual
fund shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking
relative to industry standards as published by Lipper
Analytical Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
(12) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and
long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
- --------
** Sir John Templeton sold the Templeton organization to
Franklin Resources, Inc. in October, 1992 and resigned from
the Trust's Board on April 16, 1995. He in no longer
involved with the investment management process.
- 48 -
<PAGE>
o "Diversify by company, by industry and by
country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help
you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, each Fund and the Investment Managers may also refer to
the number of Shareholders in the Fund or the aggregate number of shareholders
of the Franklin Templeton Funds or the dollar amount of fund and private account
assets under management in advertising materials.
- 49 -
<PAGE>
FINANCIAL STATEMENTS
[To be filed in a subsequent post-effective amendment pursuant to Rule
485(b) on or prior to the effectiveness of this post-effective amendment.]
- 50 -
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE
Aaa: Bonds which are rated Aaa by Moody's Investors Service Inc.
("Moody's") are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with a Aaa group, they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat greater than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, thereby, not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
- i -
<PAGE>
B: Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the security over
any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such
securities may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of
bonds are regarded as having extremely poor prospects of ever
attaining any real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the quality
of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the
issue or issuer.
4. The issue was privately placed, in which case the
rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
ratings classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
- ii -
<PAGE>
STANDARD & POOR'S CORPORATION
AAA: Debt rated "AAA" by Standard & Poor's Corporation
("S&P") has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in a small degree.
A: Debt rated "A" has a very strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the highest rated
categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated "BBB", "B", "CCC", "CC" and "C" are
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of this
obligation. "BB" indicates that the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
- iii -
<PAGE>
CCC: Debt rated "CCC" has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have to capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" is typically applied to debt
subordinated to senior debt that is assigned an actual or implied
"CCC" rating.
C: The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating "CI" is reserved for income bonds on which
no interest is being paid.
D: Debt rated "D" is in payment default. The "D" rating is used when
interest payments are not made on the date due even if the applicable grace
periods has not expired, unless S&P believe that such payments will be made
during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF PREFERRED STOCK RATINGS
MOODY'S INVESTORS SERVICE
aaa: considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the
foreseeable future.
- iv -
<PAGE>
a: considered to be an upper-medium-grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and
aa classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa: considered to be medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length
of time.
ba: considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks
in this class.
b: generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be
small.
caa: likely to be in arrears on dividend payments. This
rating designation does not purport to indicate the future status
of payments.
ca: speculative in a high degree and is likely to be in
arrears on dividends with little likelihood of eventual payments.
c: lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S CORPORATION
"AAA": This is the highest rating that may be assigned by
S&P to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
"AA": A preferred stock issue rated "AA" also qualifies as a
high-quality fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
- v -
<PAGE>
"A": An issue rated "A" is backed by a sound capacity to pay
the preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
"BBB": An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for preferred stock in this category than for issues in the "A" category.
"BB", "B", "CCC": Preferred stock rated "BB", "B", and "CCC" are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
"CC": The rating "CC" is reserved for a preferred stock
issue in arrears on dividends or sinking fund payments but that
is currently paying.
"C": The preferred stock rated "C" is a non-paying issue.
"D": A preferred stock rated "D" is a non-paying issue with
the issuer in default on debt instruments.
NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or Minus(-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months.
- vi -
<PAGE>
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
STANDARD & POOR'S CORPORATION
S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories ranging from "A" for the highest quality
obligations to "D" for the lowest. The four categories are as follows:
- vii -
<PAGE>
A: Commercial paper rated "A" is regarded as having the
greatest capacity for timely payment. Issues in this
category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety.
A-1: Commercial paper rated "A-1" is regarded as having a very
strong degree of safety regarding timely payment. A "+"
designation is applied to those issues rated "A- 1" which
possess an overwhelming degree of safety.
A-2: Commercial paper rated "A-2" is regarded as having a strong
capacity for timely payment; however, the relative degree of
safety is not as high as for issues designated "A-1".
A-3: Commercial paper rated "A-3" is regarded as having a
satisfactory capacity for timely payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
B: Commercial paper rated "B" is regarded as having only
an adequate capacity for timely payment and such
capacity may be damaged by changing conditions or
short-term adversities.
C: Commercial paper rated "C" is regarded as having a
doubtful capacity for repayment.
D: Commercial paper rated "D" is for a payment default. The "D"
rating is used when interest payments or principal payments
are not made on the date due even if the applicable grace
period has not expired, unless S&P believes that such payments
will be made during such grace period.
- viii -
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS -- TO BE PROVIDED IN A SUBSEQUENT
POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(b) ON OR PRIOR
TO THE EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT.
Part A:
Financial Highlights
Part B:
To be incorporated by reference to Registrant's 1995 Annual
Report:
(1) Report of Independent Certified Public Accountants
(2) Statement of Assets and Liabilities as of December
31, 1995
(3) Statement of Operations for fiscal period ended
December 31, 1995
(4) Statement of Changes in Net Assets
(5) Investment Portfolio as of December 31, 1995
(6) Notes to Financial Statements
(b) EXHIBITS
(1) Declaration of Trust 1
(2) By-Laws 1
(3) N/A
(4) N/A
- -------------------
1. Reference is made to Registration Statement No. 33-20313, filed on
February 25, 1988.
<PAGE>
(5) (a) Amended and Restated Investment Management
Agreementfor Templeton Stock Fund,
Templeton International Fund and
Templeton Asset Allocation Fund 2
(b) Amended and Restated Investment Management
agreement for Templeton Money Market Fund
and Templeton Bond Fund 2
(c) Form of Investment Management Agreement for
Templeton Developing Markets Fund
(6) Amended and Restated Distribution Agreement
(7) N/A
(8) Amended and Restated Custodian Agreement
(9) Form of Amended and Restated Business Management
Agreement
(10) pinion and consent of counsel - filed with Rule 24f-2
Notice on February 28, 1995
(11) Consent of independent certified public accountants
(12) N/A
(13) Letter concerning initial capital 3
(14) N/A
(15) N/A
(16)
N/A
- -------------------
2. Reference is made to Post-Effective Amendment No. 9 to the Registration
Statement, filed on April 27, 1995.
3. Reference is made to Pre-Effective Amendment No. 2 to the Registration
Statement, filed on August 26, 1988.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of November 30, 1995, Phoenix Home Life Mutual Insurance
Company, a Connecticut corporation ("Phoenix Home Life"), on
its own behalf and on behalf of its Phoenix Variable
Accumulation Account, owned of record 60% of the outstanding
shares of Templeton Stock Fund, 36% of the outstanding shares
of Templeton Asset Allocation Fund, 60% of the outstanding
shares of Templeton Bond Fund, 100% of the outstanding shares
of Templeton Money Market Fund and 26% of the outstanding
shares of Templeton International Fund. As of November 30,
1995, The Travelers Insurance Company ("The Travelers"), on
behalf of The Travelers Fund U for Variable Annuities, owned
of record 40% of the outstanding shares of Templeton Stock
Fund, 42% of the outstanding shares of Templeton Asset
Allocation Fund, and 40% of the outstanding shares of
Templeton Bond Fund. As of November 30, 1995, The Variable
Life Insurance company ("VALIC"), a Texas Corporation, on
behalf of The Variable Life Insurance Company Separate Account
A, owned of record 22% of the outstanding shares of Templeton
Asset Allocation Fund and 70% of Templeton International Fund.
As of November 30, 1995, Nationwide Insurance Company, an Ohio
corporation ("Nationwide"), on behalf of the Nationwide
Multi-Flex Variable Account, owned of record 2% of the
outstanding shares of Templeton International Fund. As of
October 31, 1995, Chubb Life Insurance Company of America, a
New Hampshire corporation ("Chubb"), on behalf of Chubb
Separate Account A, owned of record 2% of the outstanding
shares of Templeton International Fund. Phoenix Home Life, The
Travelers, VALIC, Nationwide and Chubb (the "Participating
Insurance Companies") will vote shares in accordance with the
voting instructions of holders of variable annuity contracts
issued by the Participating Companies for which the Registrant
serves as the investment vehicle.
ITEM 26. NUMBER OF RECORD HOLDERS
Number of Record
Holders as of
TITLE OF CLASS NOVEMBER 30, 1995
-------------- --------------------------
Templeton Stock Fund 2
Templeton Bond Fund 2
Templeton Asset Allocation Fund 3
Templeton Money Market Fund 1
Templeton International Fund 5
ITEM 27. INDEMNIFICATION
Reference is made to Article IV of the Registrant's
Declaration of Trust, which is incorporated herein by
reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by
<PAGE>
trustees, officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND ITS
OFFICERS AND DIRECTORS
The business and other connections of Registrant's Investment
Managers are described in Part B of this Registration
Statement.
For information relating to the Investment Managers' officers
and directors, reference is made to Form ADV filed under the
Investment Advisers Act of 1940 by Templeton Investment
Counsel, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS
Franklin Templeton Distributors, Inc. also acts as principal
underwriter of shares of the following investment companies:
AGE High Income Fund, Inc. Franklin Balance Sheet Investment
Fund Franklin California Tax-Free Income Fund, Inc. Franklin
California Tax-Free Trust Franklin Custodian Funds, Inc.
Franklin Equity Fund Franklin Federal Money Fund Franklin
Federal Tax-Free Income Fund Franklin Gold Fund Franklin
International Trust Franklin Investors Securities Trust
Franklin Managed Trust Franklin Money Fund Franklin Municipal
Securities Trust Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust Franklin Premier Return Fund
Franklin Real Estate Securities Trust Franklin Strategic
Series Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton Japan Fund
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
<PAGE>
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Real Estate Securities Fund
Templeton Smaller Companies Growth, Inc.
Templeton Variable Annuity Fund
(b) The directors and officers of FTD, located at 700 Central
Avenue, P.O. Box 33030, St. Petersburg, Florida 33733, are as
follows:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME UNDERWRITER THE REGISTRANT
<S> <C> <C>
Charles B. Johnson Chairman of the Board Chairman, Trustee and
Vice President
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President None
and Director
Harmon E. Burns Executive Vice President None
and Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
Kenneth A. Lewis Treasurer None
William J. Lippman Senior Vice President None
Deborah R. Gatzek Senior Vice President None
and Assistant Secretary
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President President
Loretta Fry Vice President None
James K. Blinn Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Robert N. Geppner Vice President None
Mike Hackett Vice President None
Peter Jones Vice President None
Philip J. Kearns Vice President None
Ken Leder Vice President None
<PAGE>
POSITION WITH POSITION WITH
NAME UNDERWRITER THE REGISTRANT
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President Secretary
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
Leslie M. Kratter Secretary None
John R. Kay Assistant Vice President Vice President
Karen DeBellis Assistant Treasurer None
Philip A. Scatena Assistant Treasurer None
</TABLE>
(c) Not Applicable (Information on unaffiliated underwriters).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Templeton Variable Annuity
Company, 700 Central Avenue, St.
Petersburg, Florida 33733-3080.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to
whom a Prospectus is provided a copy of its latest
Annual Report, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, Florida
on the th day of December, 1995.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By:
Charles E. Johnson*
President
*By:/s/THOMAS M. MISTELE
Thomas M. Mistele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to this Registration Statement has been signed
below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President December___, 1995
Charles E. Johnson* (Chief Executive
Officer)
Trustee December ___, 1995
Hasso-G von Diergardt-Naglo*
Trustee December ___, 1995
Fred R. Millsaps*
Trustee December ___, 1995
F. Bruce Clarke*
Trustee December ___, 1995
Betty P. Krahmer*
<PAGE>
Trustee December ___, 1995
Charles B. Johnson*
Trustee December ___, 1995
Harris J. Ashton*
Trustee December ___, 1995
S. Joseph Fortunato*
Trustee December ___, 1995
Andrew H. Hines, Jr.*
Trustee December ___, 1995
Gordon S. Macklin*
Trustee December ___, 1995
Nicholas F. Brady*
Treasurer December ___, 1995
James R. Baio* (Principal
Financial
Officer)
</TABLE>
*By:/s/THOMAS M. MISTELE
Thomas M. Mistele**
as attorney-in-fact
** Powers of Attorney were previously filed with Registration
Statement No. 33-20313 and are incorporated by reference or
filed herewith.
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of the ___th day of ________, 1996, between
TEMPLETON VARIABLE PRODUCTS SERIES FUND, a Massachusetts business trust
(hereinafter referred to as the "Trust"), on behalf of Templeton Developing
Markets Fund, a series of the Trust (hereinafter referred to as the "Fund"), and
TEMPLETON ASSET MANAGEMENT Ltd. (hereinafter referred to as the "Investment
Manager").
In consideration of the mutual agreements herein made, the Trust and
the Investment Manager understand and agree as follows:
(1) The Investment Manager agrees, during the life of this Agreement,
to manage the investment and reinvestment of the Fund's assets consistent with
the provisions of the Declaration of Trust of the Trust and the investment
policies adopted and declared by the Trust's Board of Trustees. In pursuance of
the foregoing, the Investment Manager shall make all determinations with respect
to the investment of the Fund's assets and the purchase and sale of its
investment securities, and shall take all such steps as may be necessary to
implement those determinations. It is understood that all acts of the Investment
Manager in performing this Agreement are performed by it outside the United
States.
(2) The Investment Manager is not required to furnish any personnel,
overhead items or facilities for the Fund, including trading desk facilities or
daily pricing of the Fund's portfolio.
(3) The Investment Manager shall be responsible for selecting members
of securities exchanges, brokers and dealers (such members, brokers and dealers
being hereinafter referred to as "brokers") for the execution of the Fund's
portfolio transactions consistent with the Fund's brokerage policies and, when
applicable, the negotiation of commissions in connection therewith.
All decisions and placements shall be made in accordance with the
following principles:
A. Purchase and sale orders will usually be placed with
brokers which are selected by the Investment Manager as able to achieve
"best execution" of such orders. "Best execution" shall mean prompt and
reliable execution at the most favorable security price, taking into
account the other provisions hereinafter set forth. The determination
of what may constitute best execution and price in the execution of a
securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result
to the Fund (involving both price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large
block is involved, availability of the broker to stand ready to execute
possibly difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are
judgmental and are weighed by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
B. In selecting brokers for portfolio transactions, the
Investment Manager shall take into account its past experience as to
brokers qualified to achieve "best execution," including brokers who
specialize in any foreign securities held by the Fund.
C. The Investment Manager is authorized to allocate brokerage
business to brokers who have provided brokerage and research services,
as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "1934 Act"), for the Fund and/or other
accounts, if any, for which the Investment Manager exercises investment
discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as to
transactions for which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for effecting a
securities transaction in excess of the amount another broker would
have charged for effecting that transaction, if the Investment Manager
determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular
transaction or the Investment Manager's overall responsibilities with
respect to the Trust and the other accounts, if any, as to which it
exercises investment discretion. In reaching such determination, the
Investment Manager will not be required to place or attempt to place a
specific dollar value on the research or execution services of a broker
or on the portion of any commission reflecting either of said services.
In demonstrating that such determinations were made in good faith, the
Investment Manager shall be prepared to show that all commissions were
allocated and paid for purposes contemplated by the Trust's brokerage
policy; that the research services provide lawful and appropriate
assistance to the Investment Manager in the performance of its
investment decision-making responsibilities; and that the commissions
paid were within a reasonable range. Whether commissions were within a
reasonable range shall be based on any available information as to the
level of commission known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Trust's
policies that (i) obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is recognized that
usually it is more beneficial to the Fund to obtain a favorable price
than to pay the lowest commission; and (ii) the quality,
comprehensiveness and frequency of research studies that are provided
for the Investment Manager are useful to the Investment Manager in
performing its advisory services under this Agreement. Research
services provided by brokers to the Investment Manager are considered
to be in addition to, and not in lieu of, services required to be
performed by the Investment Manager under this Agreement. Research
furnished by brokers through which the Fund effects securities
transactions may be used by the Investment Manager for any of its
accounts, and not all research may be used by the Investment Manager
for the Fund. When execution of portfolio transactions is allocated to
brokers trading on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by the broker.
D. Purchases and sales of portfolio securities within the
United States other than on a securities exchange shall be executed
with primary market makers acting as principal, except where, in the
judgment of the Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources.
E. Sales of the Fund's shares (which shall be deemed to
include also shares of other registered investment companies which have
either the same adviser or an investment adviser affiliated with the
Investment Manager) by a broker are one factor among others to be taken
into account in deciding to allocate portfolio transactions (including
agency transactions, principal transactions, purchases in underwritings
or tenders in response to tender offers) for the account of the Fund to
that broker; provided that the broker shall furnish "best execution,"
as defined in subparagraph A above, and that such allocation shall be
within the scope of the Trust's policies as stated above; provided
further, that in every allocation made to a broker in which the sale of
Fund shares is taken into account, there shall be no increase in the
amount of the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation determined, as set
forth in subparagraph C above, on the basis of best execution alone or
best execution plus research services, without taking account of or
placing any value upon such sale of the Fund's shares. (4) The Fund
agrees to pay to the Investment Manager a monthly fee in dollars at an
annual rate of 1.25% of
the Fund's average daily net assets, payable at the end of each calendar month.
Notwithstanding the foregoing, if the total expenses of the Fund (including the
fee to the Investment Manager) in any fiscal year of the Trust exceed any
expense limitation imposed by applicable State law, the Investment Manager shall
reimburse the Fund for such excess in the manner and to the extent required by
applicable State law. The term "total expenses," as used in this paragraph, does
not include interest, taxes, litigation expenses, distribution expenses,
brokerage commissions or other costs of acquiring or disposing of any of the
Fund's portfolio securities or any costs or expenses incurred or arising other
than in the ordinary and necessary course of the Fund's business. When the
accrued amount of such expenses exceeds this limit, the monthly payment of the
Investment Manager's fee will be reduced by the amount of such excess, subject
to adjustment month by month during the balance of the Trust's fiscal year if
accrued expenses thereafter fall below the limit.
(5) This Agreement shall become effective on __________, 1996 and shall
continue in effect until _________, 1997. If not sooner terminated, this
Agreement shall continue in effect for successive periods of 12 months each
thereafter, provided that each such continuance shall be specifically approved
annually by the vote of a majority of the Trust's Board of Trustees who are not
parties to this Agreement or "interested persons" (as defined in Investment
Company Act of 1940 (the "1940 Act")) of any such party, cast in person at a
meeting called for the purpose of voting on such approval and either the vote of
(a) a majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act, or (b) a majority of the Trust's Board of Trustees as a whole.
(6) Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time, without the payment of any penalty, on sixty (60)
days' written notice to the other party, provided that termination by the Trust
is approved by vote of a majority of the Trust's Board of Trustees in office at
the time or by vote of a majority of the outstanding voting securities of the
Fund (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and immediately in
the event of its assignment (as defined in the 1940 Act).
(8) In the event this Agreement is terminated and the Investment
Manager no longer acts as Investment Manager to the Fund, the Investment Manager
reserves the right to withdraw from the Fund the use of the name "Templeton" or
any name misleadingly implying a continuing relationship between the Fund and
the Investment Manager or any of its affiliates.
(9) Except as may otherwise be provided by the 1940 Act, neither the
Investment Manager nor its officers, directors, employees or agents shall be
subject to any liability for any error of judgment, mistake of law, or any loss
arising out of any investment or other act or omission in the performance by the
Investment Manager of its duties under the Agreement or for any loss or damage
resulting from the imposition by any government of exchange control restrictions
which might affect the liquidity of the Trust's assets, or from acts or
omissions of custodians, or securities depositories, or from any war or
political act of any foreign government to which such assets might be exposed,
or failure, on the part of the custodian or otherwise, timely to collect
payments, except for any liability, loss or damage resulting from willful
misfeasance, bad faith or gross on the Investment Manager's part or by reason of
disregard of the Investment Manager's duties under this Agreement. It is hereby
understood and acknowledged by the Trust that the value of the investments made
for the Fund may increase as well as decrease and are not guaranteed by the
Investment Manager. It is further understood and acknowledged by the Trust that
investment decisions made on behalf of the Fund by the Investment Manager are
subject to a variety of factors which may affect the values and income generated
by the Fund's portfolio securities, including general economic conditions,
market factors and currency exchange rates, and that investment decisions made
by the Investment Manager will not always be profitable or prove to have been
correct.
(10) It is understood that the services of Investment Manager are not
deemed to be exclusive, and nothing in this Agreement shall prevent the
Investment Manager, or any affiliate thereof, from providing similar services to
other investment companies and other clients, including clients which may invest
in the same types of securities as the Fund, or, in providing such services,
from using information furnished by others. When the Investment Manager
determines to buy or sell the same security for the Fund that the Investment
Manager or one or more of its affiliates has selected for clients of the
Investment Manager or its affiliates, the orders for all such security
transactions shall be placed for execution by methods determined by the
Investment Manager, with approval by the Trust's Board of Trustees, to be
impartial and fair.
(11) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, provided that nothing herein shall be
construed as being inconsistent with applicable Federal and state securities
laws and any rules, regulations and orders thereunder.
(12) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(13) Nothing herein shall be construed as constituting the Investment
Manager an agent of the Trust.
(14) It is understood and expressly stipulated that neither the
holders of shares of the Fund nor any Trustee, officer, agent or employee of
the Trust shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective corporate
seals to be hereunto duly affixed and attested.
TEMPLETON VARIABLE PRODUCTS SERIES
FUND
By:_______________________________
John R. Kay
Vice President
TEMPLETON ASSET MANAGEMENT Ltd.
By:_________________________________
TEMPLETON VARIABLE PRODUCTS SERIES FUND
700 Central Avenue
St. Petersburg, Florida 33701-3628
Franklin Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Re: Amended and Restated Distribution Agreement
Gentlemen:
We, TEMPLETON VARIABLE PRODUCTS SERIES FUND, (the "Trust"), comprised of six
series (Templeton Money Market Fund, Templeton Bond Fund, Templeton Stock Fund,
Templeton Asset Allocation Fund, Templeton International Fund and Templeton
Developing Markets Fund) (each a "Fund", and collectively, the "Funds"), are a
Massachusetts business trust operating as an open-end management investment
company or "mutual fund", which is registered under the Investment Company Act
of 1940 (the "1940 Act") and whose shares are registered under the Securities
Act of 1933 (the "1933 Act"). We desire to issue one or more series or classes
of our authorized but unissued shares of capital stock or beneficial interest
(the "Shares") to authorized persons in accordance with applicable Federal and
State securities laws. The Funds' Shares may be made available in one or more
separate series, each of which may have one or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Trustees
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Trust and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of Shares, but are
not obligated to sell any specific number of Shares.
However, the Trust and each series retain the right to make direct
sales of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Trust or any series or class and its shareholders only,
transactions involving the reorganization of the Trust or any series, and
transactions involving the merger or combination of the Trust or any series with
another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you with
the net asset value of the Shares of each available series and class which shall
be determined in accordance with our then effective prospectus. All Shares will
be sold in the manner set forth in our then effective prospectus and statement
of additional information, and in compliance with applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of the Trust's shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against a Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled
to compensation for your services as provided in any Distribution Plan adopted
as to any series and class of any Fund's Shares pursuant to Rule 12b-1
under the 1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale only
in those jurisdictions where they have been properly registered or are exempt
from registration, and only to those groups of people which the Board may from
time to time determine to be eligible to purchase such Shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be directed
to the Trust's shareholder services agent, for acceptance on behalf of the
Trust. At or prior to the time of delivery of any of our Shares you will pay or
cause to be paid to the custodian of the Trust's assets, for our account, an
amount in cash equal to the net asset value of such Shares. Sales of Shares
shall be deemed to be made when and where accepted by the Trust's shareholder
services agent. The Trust's custodian and shareholder services agent shall be
identified in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares
for your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included in
any Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940
Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and
printing of all Amendments or supplements filed with
the Securities and Exchange Commission, including the
copies of the prospectuses included in the Amendments
and the first 10 copies of the definitive
prospectuses or supplements thereto, other than those
necessitated by your (including your "Parent's")
activities or Rules and Regulations related to your
activities where such Amendments or supplements
result in expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and distribution of
any reports or communications which we send to our
existing shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer
our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional information
if the Amendment or supplement arises from your
(including your "Parent's") activities or Rules and
Regulations related to your activities and those
expenses would not otherwise have been incurred by
us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other communications
which we have prepared for distribution to our
existing shareholders; and
(d) Incurred by you in advertising, promoting and selling
our Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws
and regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are tendered
to us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services
and act as an underwriter, distributor or dealer for other investment
companies in the offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2) years.
The Agreement is renewable annually thereafter, with respect to the Trust or, if
the Trust has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Trust or, if the Trust has more than one
series, of each series, or (b) by a vote of the Board, AND (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Trust or by any
series without the payment of any penalty, (i) either by vote of the Board or by
vote of a majority of the outstanding voting securities of the Trust or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Trust; and shall immediately terminate with respect to the Trust
and each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice to
you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Trust as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
Templeton Variable Products Series Fund
By:
Accepted:
Franklin Templeton Distributors, Inc.
By:
DATED: , 1996
CUSTODY AGREEMENT
AGREEMENT dated as of August 31, 1988, as amended and restated
__________, 1996 between THE CHASE MANHATTAN BANK, N.A. ("Chase"), having its
principal place of business at 1 Chase Manhattan Plaza, New York, New York
10081, and TEMPLETON VARIABLE PRODUCTS SERIES FUND, a Massachusetts business
trust, (the "Trust") and an investment company registered under the Investment
Company Act of 1940 ("Act of 1940"), having its principal place of business at
700 Central Avenue, St. Petersburg, Florida 33701-3628.
WHEREAS, the Trust, on behalf of Templeton Money Market Fund,
Templeton Bond Fund, Templeton Stock Fund, Templeton Asset Allocation Fund,
Templeton International Fund and Templeton Developing Markets Fund (each a
"Fund", and collectively, the "Funds"), wishes to appoint Chase as custodian to
the securities and assets of each Fund and Chase is willing to act as custodian
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Trust and its successors and assigns and
Chase and its successors and assigns, hereby agree as follows:
1. APPOINTMENT AS CUSTODIAN. Chase agrees to act as custodian
for the Funds, as provided herein, in connection with (a) cash ("Cash") received
from time to time from, or for the account of, each Fund for credit to each
Fund's deposit account or accounts administered by Chase, Chase Branches and
Domestic Securities Depositories (as hereinafter defined), and/or Foreign Banks
and Foreign Securities Depositories (as hereinafter defined) (the "Deposit
Account"); (b) all stocks, shares, bonds, debentures, notes, mortgages, or other
obligations for the payment of money and any certificates, receipts, warrants,
or other instruments representing rights to receive, purchase, or subscribe for
the same or evidencing or representing any other rights or interests therein and
other similar property ("Securities") from time to time received by Chase and/or
any Chase Branch, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository for the account of the Trust (the "Custody Account"); and
(c) original margin and variation margin payments in a segregated account for
futures contracts (the "Segregated Account").
All Cash held in the Deposit Account or in the Segregated
Account in connection with which Chase agrees to act as custodian is hereby
denominated as a special deposit which shall be held in trust for the benefit of
each Fund and to which Chase, Chase Branches and Domestic Securities
Depositories and/or Foreign Banks and Foreign Securities Depositories shall have
no ownership rights, and Chase will so indicate on its books and records
pertaining to the Deposit Account and the Segregated Account. All cash held in
auxiliary accounts that may be carried for the Funds with Chase (including a
Money Market Account, Redemption Account, Distribution Account and Imprest
Account) is not so denominated as a special deposit and title thereto is held by
Chase subject to the claims of creditors.
2. AUTHORIZATION TO USE BOOK-ENTRY SYSTEM, DOMESTIC
SECURITIES DEPOSITORIES, BRANCH OFFICES, FOREIGN BANKS AND FOREIGN SECURITIES
DEPOSITORIES. Chase is hereby authorized to appoint and utilize, subject to
the provisions of Sections 4 and 5 hereof:
The Book Entry System and The Depository Trust Fund;
and also such other Domestic Securities Depositories selected
by Chase and as to which Chase has received a certified copy
of a resolution of the Trust's Board of Trustees authorizing
deposits therein;
Chase's foreign branch offices in the United Kingdom,
Hong Kong, Singapore, and Tokyo, and such other foreign branch
offices of Chase located in countries approved by the Board of
Trustees of the Trust as to which Chase shall have given prior
notice to the Trust;
Foreign Banks which Chase shall have selected, which are
located in countries approved by the Board of Trustees of the
Trust, and as to which banks Chase shall have given prior
notice to the Trust; and
Foreign Securities Depositories which Chase shall have
selected and as to which Chase has received a certified copy
of a resolution of the Trust's Board of Trustees authorizing
deposits therein;
to hold Securities and Cash at any time owned by each Fund, it being understood
that no such appointment or utilization shall in any way relieve Chase of its
responsibilities as provided for in this Agreement. Foreign branch offices of
Chase appointed and utilized by Chase are herein referred to as "Chase
Branches." Unless otherwise agreed to in writing, (a) each Chase Branch, each
Foreign Bank and each Foreign Securities Depository shall be selected by Chase
to hold only Securities as to which the principal trading market or principal
location as to which such Securities are to be presented for payment is located
outside the United States; and (b) Chase and each Chase Branch, Foreign Bank and
Foreign Securities Depository will promptly transfer or cause to be transferred
to Chase, to be held in the United States, Securities and/or Cash that are then
being held outside the United States upon request of each Fund and/or of the
Securities and Exchange Commission. Utilization by Chase of Chase Branches,
Domestic Securities Depositories, Foreign Banks and Foreign Securities
Depositories shall be in accordance with provisions as from time to time
amended, of an operating agreement to be entered into between Chase and the
Trust (the "Operating Agreement").
3. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Authorized Persons of the Trust" shall mean such
officers or employees of the Trust or any other person or
persons as shall have been designated by a resolution of the
Board of Trustees of the Trust, a certified copy of which has
been filed with Chase, to act as Authorized Persons hereunder.
Such persons shall continue to be Authorized Persons of the
Trust, authorized to act either singly or together with one or
more other of such persons as provided in such resolution,
until such time as the Trust shall have filed with Chase a
written notice of the Trust supplementing, amending, or
revoking the authority of such persons.
(b) "Book-Entry system" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
(c) "Domestic Securities Depository" shall mean The
Depository Trust Company, a clearing agency registered with
the Securities and Exchange Commission, its successor or
successors and its nominee or nominees; and (subject to the
receipt by Chase of a certified copy of a resolution of the
Trust's Board of Trustees specifically approving deposits
therein as provided in Section 2(a) of this Agreement) any
other person authorized to act as a depository under the Act
of 1940, its successor or successors and its nominee or
nominees.
(d) "Foreign Bank" shall mean any banking institution
organized under the laws of a jurisdiction other than the
United States or of any state thereof.
(e) A "Foreign Securities Depository" shall mean any
system for the central handling of securities abroad where all
securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping without physical
delivery of the securities by any Chase Branch or Foreign
Bank.
(f) "Written Instructions" shall mean instructions
in writing signed by Authorized Persons of the Trust giving
such instructions, and/or such other forms of communications
as from time to time shall be agreed upon in writing between
the Trust and Chase.
4. SELECTION OF COUNTRIES IN WHICH SECURITIES MAY BE HELD.
Chase shall not cause
Securities and Cash to be held in any country outside the United States until
the Trust has directed the holding of each Fund's assets in such country. Chase
will be provided with a copy of a resolution of the Trust's Board of Trustees
authorizing such custody in any country outside of the United States, which
resolution shall be based upon, among other factors, the following:
(a) comparative operational efficiencies of custody;
(b) clearance and settlement and the costs thereof; and
(c) political and other risks, other than those risks
specifically assumed by Chase.
5. RESPONSIBILITY OF CHASE TO SELECT CUSTODIANS IN INDIVIDUAL
FOREIGN COUNTRIES. The responsibility for selecting the Chase Branch,
Foreign Bank or Foreign Securities Depository to hold each Fund's
Securities and Cash in individual countries authorized by the Trust shall be
that of Chase. Chase generally shall utilize Chase Branches where available.
In locations where there are no Chase Branches providing custodial services,
Chase shall select as its agent a Foreign Bank, which may be an affiliate or
subsidiary of Chase. To facilitate the clearance and settlement of
securities transactions, Chase represents that,
subject to the approval of the Trust, it may deposit Securities in a Foreign
Securities Depository in which Chase is a participant. In situations in which
Chase is not a participant in a Foreign Securities Depository, Chase may,
subject to the approval of the Trust, authorize a Foreign Bank acting as its
subcustodian to deposit the Securities in a Foreign Securities Depository in
which the Foreign Bank is a participant. Notwithstanding the foregoing, such
selection by Chase of a Foreign Bank or Foreign Securities Depository shall not
become effective until Chase has been advised by the Trust that a majority of
its Board of Trustees:
(a) Has approved Chase's selection of the particular
Foreign Bank or Foreign Securities Depository, as the case may
be, as consistent with the best interests of the Funds and
their Shareholders; and
(b) Has approved as consistent with the best
interests of the Funds and their Shareholders a written
contract prepared by Chase which will govern the manner in
which such Foreign Bank will maintain each Fund's assets.
6. CONDITIONS ON SELECTION OF FOREIGN BANK OR FOREIGN
SECURITIES DEPOSITORY. Chase shall authorize the holding of Securities and
Cash by a Chase Branch, Foreign Bank or Foreign Securities Depository only:
(a) to the extent that the Securities and Cash are
not subject to any right, charge, security interest, lien or
claim of any kind in favor of any such Foreign Bank or Foreign
Securities Depository, except for their safe custody or
administration; and
(b) to the extent that the beneficial ownership of
Securities is freely transferable without the payment of
money or value other than for safe custody or
administration.
7. CHASE BRANCHES AND FOREIGN BANKS NOT AGENTS OF THE TRUST.
Chase Branches, Foreign Banks and Foreign Securities Depositories shall be
subject to the instructions of Chase and/or the Foreign Bank, and not to those
of the Trust. Chase warrants and represents that all such instructions shall
afford protection to the Trust at least equal to that afforded for Securities
held directly by Chase. Any Chase Branch, Foreign Bank or Foreign Securities
Depository shall act solely as agent of Chase or of such Foreign Bank.
8. CUSTODY ACCOUNT. Securities held in the Custody Account
shall be physically segregated at all times from those of any other person or
persons except that (a) with respect to Securities held by Chase Branches, such
Securities may be placed in an omnibus account for the customers of Chase, and
Chase shall maintain separate book entry records for each such omnibus account,
and such Securities shall be deemed for the purpose of this Agreement to be held
by Chase in the Custody Account; (b) with respect to Securities deposited by
Chase with a Foreign Bank, a Domestic Securities Depository or a Foreign
Securities Depository, Chase shall identify on its books as belonging to the
Trust the Securities shown on Chase's account on the books of the Foreign Bank,
Domestic Securities Depository or Foreign Securities Depository; and (c) with
respect to Securities deposited by a Foreign Bank with a Foreign Securities
Depository, Chase shall cause the Foreign Bank to identify on its books as
belonging to Chase, as agent, the Securities shown on the Foreign Bank's account
on the books of the Foreign Securities Depository. All Securities of the Trust
maintained by Chase pursuant to this Agreement shall be subject only to the
instructions of Chase, Chase Branches or their agents. Chase shall only deposit
Securities with a Foreign Bank in accounts that include only assets held by
Chase for its customers.
8a. SEGREGATED ACCOUNT FOR FUTURES CONTRACTS. With respect to
every futures contract purchased, sold or cleared for the Custody Account,
Chase agrees, pursuant to Written Instructions, to:
(a) deposit original margin and variation margin
payments in a segregated account maintained by Chase; and
(b) perform all other obligations attendant to
transactions or positions in such futures contracts, as such
payments or performance may be required by law or the
executing broker.
8b. SEGREGATED ACCOUNT FOR REPURCHASE AGREEMENTS.
With respect to purchases for the Custody Account from banks (including Chase)
or broker-dealers, of United States or foreign government obligations subject to
repurchase agreements, Chase agrees, pursuant to Written Instructions, to:
(a) deposit such securities and repurchase agreements
in a segregated account maintained by Chase; and
(b) promptly show on Chase's records that such
securities and repurchase agreements are being held on
behalf of a Fund and deliver to that Fund a written
confirmation to that effect.
8c. SEGREGATED ACCOUNTS FOR DEPOSITS OF COLLATERAL.
Chase agrees, with respect to (i) cash or high quality debt securities to
secure each Fund's commitments to purchase new issues of debt obligations
offered on a when-issued basis; (ii) cash, U.S. government securities, or
irrevocable letters of credit of borrowers of each Fund's portfolio
securities to secure the loan to them of such securities; and/or (iii)
cash, securities or any other property delivered to secure any other
obligations; (all of such items being hereinafter referred to as "collateral"),
pursuant to Written Instructions, to:
(a) deposit the collateral for each such obligation
in a separate segregated account maintained by Chase; and
(b) promptly to show on Chase's records that such
collateral is being held on behalf of a Fund and deliver to
that Fund a written confirmation to that effect.
9. DEPOSIT ACCOUNT. Subject to the provisions of this
Agreement, the Trust authorizes Chase to establish and
maintain in each country or other jurisdiction in which
the principal trading market for any Securities is
located or in which any Securities are to be presented for
payment, an account or accounts, which may include nostro
accounts with Chase Branches and omnibus accounts of Chase at
Foreign Banks, for receipt of cash in the Deposit Account, in such currencies as
directed by Written Instructions. For purposes of this Agreement, cash so held
in any such account shall be evidenced by separate book entries maintained by
Chase at its office in London and shall be deemed to be Cash held by Chase in
the Deposit Account. Unless Chase receives Written Instructions to the contrary,
cash received or credited by Chase or any other Chase Branch, Foreign Bank or
Foreign Securities Depository for the Deposit Account in a currency other than
United States dollars shall be converted promptly into United States dollars
whenever it is practicable to do so through customary banking channels
(including without limitation the effecting of such conversions at Chase's
preferred rates through Chase, its affiliates or Chase Branches), and shall be
automatically transmitted back to Chase in the United States.
10. SETTLEMENT PROCEDURES. Settlement procedures for
transactions in Securities delivered to, held in, or to be delivered from the
Custody Account in Chase Branches, Domestic Securities Depositories, Foreign
Banks and Foreign Securities Depositories, including receipts and payments of
cash held in any nostro account or omnibus account for the Deposit Account as
described in Section 9, shall be carried out in accordance with the provisions
of the Operating Agreement. It is understood that such settlement procedures may
vary, as provided in the Operating Agreement, from securities market to
securities market, to reflect particular settlement practices in such markets.
Chase shall make or cause the appropriate Chase Branch or
Foreign Bank to move payments of Cash held in the Deposit Account only:
(a) in connection with the purchase of Securities for
the account of each Fund and only against the receipt of such
Securities by Chase or by another appropriate Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, or otherwise as provided in the
Operating Agreement, each such payment to be made at prices
confirmed by Written Instructions, or
(b) in connection with any dividend, interim
dividend or other distribution declared by the Trust, or
(c) as directed by the Trust by Written
Instructions setting forth the name and address of the
person to whom the payment is to be made and the purpose
for which the payment is to be made.
Upon the receipt by Chase of Written Instructions specifying the Securities
to be so transferred or delivered, which instructions shall name the person or
persons to whom transfers or deliveries of such Securities shall be made and
shall indicate the time(s) for such transfers or deliveries, Securities
held in the Custody Account shall be transferred, exchanged, or delivered
by Chase, any Chase Branch, Domestic Securities Depository, Foreign Bank,
or Foreign Securities Depository, as the case may be, against payment in
Cash or Securities, or otherwise as provided in the Operating Agreement, only:
(a) upon sale of such Securities for the account of a
Fund and receipt of such payment in the amount shown in a
broker's confirmation of sale of the Securities or other
proper authorization received by Chase before such payment is
made, as confirmed by Written Instructions;
(b) in exchange for or upon conversion into other
Securities alone or other Securities and Cash pursuant to any
plan of merger, consolidation, reorganization,
recapitalization, readjustment, or tender offer;
(c) upon exercise of conversion, subscription,
purchase, or other similar rights represented by such
Securities; or
(d) otherwise as directed by the Trust by Written
Instructions which shall set forth the amount and purpose of
such transfer or delivery.
Until Chase receives Written Instructions to the contrary, Chase shall,
and shall cause each Chase Branch, Domestic Securities Depository,
Foreign Bank and Foreign Securities Depository holding Securities or Cash to,
take the following actions in accordance with procedures established in the
Operating Agreement:
(a) collect and timely deposit in the Deposit Account
all income due or payable with respect to any Securities and
take any action which may be necessary and proper in
connection with the collection and receipt of such income;
(b) present timely for payment all Securities in the
Custody Account which are called, redeemed or retired or
otherwise become payable and all coupons and other income
items which call for payment upon presentation and to receive
and credit to the Deposit Account Cash so paid for the account
of each Fund except that, if such Securities are convertible,
such Securities shall not be presented for payment until two
business days preceding the date on which such conversion
rights would expire unless Chase previously shall have
received Written Instructions with respect thereto;
(c) present for exchange all Securities in the
Custody Account converted pursuant to their terms into other
Securities;
(d) in respect of securities in the Custody Account,
execute in the name of the Trust such ownership and other
certificates as may be required to obtain payments in respect
thereto, provided that Chase shall have requested and the
Trust shall have furnished to Chase any information necessary
in connection with such certificates;
(e) exchange interim receipts or temporary
Securities in the Custody Account for definitive
Securities; and
(f) receive and hold in the Custody Account all
Securities received as a distribution on Securities held in
the Custody Account as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or
other rearrangement or distribution of rights or similar
Securities issued with respect to any Securities held in the
Custody Account.
11. RECORDS. Chase hereby agrees that Chase and any
Chase Branch or Foreign Bank shall create, maintain, and retain all records
relating to their activities and obligations as custodian for the Trust
under this Agreement in such manner as will meet the obligations of the
Trust under the Act of 1940, particularly Section 31 thereof and Rules 31a-1
and 31a-2 thereunder, and Federal, state and foreign tax laws and other legal
or administrative rules or procedures, in each case as currently in effect
and applicable to the Trust. All records so maintained in connection with
the performance of its duties under this Agreement shall, in the event of
termination of this Agreement, be preserved and maintained by Chase as
required by regulation, and shall be made available to the Trust or its agent
upon request, in accordance with the provisions of Section 19.
Chase hereby agrees, subject to restrictions under applicable
laws, that the books and records of Chase and any Chase Branch pertaining to
their actions under this Agreement shall be open to the physical, on-premises
inspection and audit at reasonable times by the independent accountants
("Accountants") employed by, or other representatives of, the Trust. Chase
hereby agrees that, subject to restrictions under applicable laws, access shall
be afforded to the Accountants to such of the books and records of any Foreign
Bank, Domestic Securities Depository or Foreign Securities Depository with
respect to Securities and Cash as shall be required by the Accountants in
connection with their examination of the books and records pertaining to the
affairs of the Trust. Chase also agrees that as the Trust may reasonably request
from time to time, Chase shall provide the Accountants with information with
respect to Chase's and Chase Branches' systems of internal accounting controls
as they relate to the services provided under this Agreement, and Chase shall
use its best efforts to obtain and furnish similar information with respect to
each Domestic Securities Depository, Foreign Bank and Foreign Securities
Depository holding Securities and Cash.
12. REPORTS. Chase shall supply periodically, upon the
reasonable request of the Trust, such statements, reports, and advices with
respect to Cash in the Deposit Account and the Securities in the Custody Account
and transactions in Securities from time to time received and/or delivered for
or from the Custody Account, as the case may be, as the Trust shall require.
Such statements, reports and advices shall include an identification of the
Chase Branch, Domestic Securities Depository, Foreign Bank and Foreign
Securities Depository having custody of the Securities and Cash, and
descriptions thereof.
13. REGISTRATION OF SECURITIES. Securities in the Custody
Account which are issued or issuable only in bearer form (except such securities
as are held in the Book-Entry System) shall be held by Chase, Chase Branches,
Domestic Securities Depositories, Foreign Banks or Foreign Securities
Depositories in that form. All other Securities in the Custody Account shall be
held in registered form in the name of Chase, or any Chase Branch, the
Book-Entry System, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository and their nominees, as custodian or nominee.
14. STANDARD OF CARE.
(a) GENERAL. Chase shall assume entire responsibility
for all Securities held in the Custody Account, Cash held in
the Deposit Account, Cash or Securities held in the Segregated
Account and any of the Securities and Cash while in the
possession of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository, or
in the possession or control of any employees, agents or other
personnel of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository; and
shall be liable to the Trust for any loss to the Trust
occasioned by any destruction of the Securities or Cash so
held or while in such possession, by any robbery, burglary,
larceny, theft or embezzlement by any employees, agents or
personnel of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository,
and/or by virtue of the disappearance of any of the Securities
or Cash so held or while in such possession, with or without
any fault attributable to Chase ("fault attributable to Chase"
for the purposes of this Agreement being deemed to mean any
negligent act or omission, robbery, burglary, larceny, theft
or embezzlement by any employees or agents of Chase or any
Chase Branch, Domestic Securities Depository, Foreign Bank or
Foreign Securities Depository). In the event of Chase's
discovery or notification of any such loss of Securities or
Cash, Chase shall promptly notify the Trust and shall
reimburse the Trust to the extent of the market value of the
missing Securities or Cash as at the date of the discovery of
such loss. The Trust shall not be obligated to establish any
negligence, misfeasance or malfeasance on Chase's part from
which such loss resulted, but Chase shall be obligated
hereunder to make such reimbursement to the Trust after the
discovery or notice of such loss, destruction or theft of such
Securities or Cash. Chase may at its option insure itself
against loss from any cause but shall be under no obligation
to insure for the benefit of the Trust.
(b) COLLECTIONS. All collections of funds or other
property paid or distributed in respect of Securities held in
the Custody Account shall be made at the risk of the Trust.
Chase shall have no liability for any loss occasioned by delay
in the actual receipt of notice by Chase (or by any Chase
Branch or Foreign Bank in the case of Securities or Cash held
outside of the United States) of any payment, redemption or
other transaction regarding Securities held in the Custody
Account or Cash held in the Deposit Account in respect of
which Chase has agreed to take action in the absence of
Written Instructions to the contrary as provided in Section 10
of this Agreement, which does not appear in any of the
publications referred to in Section 16 of this Agreement.
(c) EXCLUSIONS. Notwithstanding any other provision
in this Agreement to the contrary, Chase shall not be
responsible for (i) losses resulting from war or from the
imposition of exchange control restrictions, confiscation,
expropriation, or nationalization of any securities or assets
of the issuer of such securities, or (ii) losses resulting
from any negligent act or omission of the Trust or any of its
affiliates, or any robbery, theft, embezzlement or fraudulent
act by any employee or agent of the Trust or any of its
affiliates. Chase shall not be liable for any action taken in
good faith upon Written Instructions of Authorized Persons of
the Trust or upon any certified copy of any resolution of the
Board of Trustees of the Trust, and may rely on the
genuineness of any such documents which it may in good faith
believe to be validly executed.
(d) LIMITATION ON LIABILITY UNDER SECTION 14(A).
Notwithstanding any other provision in this Agreement to the
contrary, it is agreed that Chase's sole responsibility with
respect to losses under Section 14(a) shall be to pay the
Trust the amount of any such loss as provided in Section 14(a)
(subject to the limitation provided in Section 14(e) of this
Agreement). This limitation does not apply to any liability of
Chase under Section 14(f) of this Agreement.
(e) ANNUAL ADJUSTMENT OF LIMITATION OF LIABILITY. As
soon as practicable after June 1 of every year, the Trust
shall provide Chase with the amount of its total net assets as
of the close of business on such date (or if the New York
Stock Exchange is closed on such date, then in that event as
of the close of business on the next day on which the New York
Stock Exchange is open for business).
It is understood by the parties to this Agreement (1)
that Chase has entered into substantially similar custody
agreements with other Templeton Funds, all of which Funds have
as their investment adviser either the Investment Manager of
Templeton Global Rising Dividends Fund, the Investment Manager
of Templeton Global Infrastructure Fund or the Investment
Manager of Templeton Americas Government Securities Fund or
companies which are affiliated with either Investment Manager;
and (2) that Chase may enter into substantially similar
custody agreements with additional mutual funds under
Templeton management which may hereafter be organized. Each of
such custody agreements with each of such other Templeton
Funds contains (or will contain) a "Standard of Care" section
similar to this Section 14, except that the limit of Chase's
liability is (or will be) in varying amounts for each Fund,
with the aggregate limits of liability in all of such
agreements, including this Agreement, amounting to
$150,000,000.
On each June 1, Chase will total the net assets
reported by each one of the Templeton Funds, and will
calculate the percentage of the aggregate net assets of all
the Templeton Funds that is represented by the net asset value
of this Trust. Thereupon Chase shall allocate to this
Agreement with this Trust that proportion of its total of
$150,000,000 responsibility undertaking which is substantially
equal to the proportion which this Trust's net assets bears to
the total net assets of all such Templeton Funds subject to
adjustments for claims paid as follows: all claims previously
paid to this Trust shall first be deducted from its
proportionate allocable share of the $150,000,000 Chase
responsibility, and if the claims paid to this Trust amount to
more than its allocable share of the Chase responsibility,
then the excess of such claims paid to this Trust shall
diminish the balance of the $150,000,000 Chase responsibility
available for the proportionate shares of all of the other
Templeton Funds having similar custody agreements with Chase.
Based on such calculation, and on such adjustment for claims
paid, if any, Chase thereupon shall notify the Trust of such
limit of liability under this Section 14 which will be
available to the Trust with respect to (1) losses in excess of
payment allocations for previous years and (2) losses
discovered during the next year this Agreement remains in
effect and until a new determination of such limit of
responsibility is made on the next succeeding June 1.
(f) OTHER LIABILITY. Independently of Chase's
liability to the Trust as provided in Section 14(a) above (it
being understood that the limitations in Sections 14(d) and
14(e) do not apply to the provisions of this Section 14(f)),
Chase shall be responsible for the performance of only such
duties as are set forth in this Agreement or contained in
express instructions given to Chase which are not contrary to
the provisions of this Agreement. Chase will use and require
the same care with respect to the safekeeping of all
Securities held in the Custody Account, Cash held in the
Deposit Account, and Securities or Cash held in the Segregated
Account as it uses in respect of its own similar property, but
it need not maintain any insurance for the benefit of the
Trust. With respect to Securities and Cash held outside of the
United States, Chase will be liable to the Trust for any loss
to the Trust resulting from any disappearance or destruction
of such Securities or Cash while in the possession of Chase or
any Chase Branch, Foreign Bank or Foreign Securities
Depository, to the same extent it would be liable to the Trust
if Chase had retained physical possession of such Securities
and Cash in New York. It is specifically agreed that Chase's
liability under this Section 14(f) is entirely independent of
Chase's liability under Section 14(a). Notwithstanding any
other provision in this Agreement to the contrary, in the
event of any loss giving rise to liability under this Section
14(f) that would also give rise to liability under Section
14(a), the amount of such liability shall not be charged
against the amount of the limitation on liability provided in
Section 14(d).
(g) COUNSEL; LEGAL EXPENSES. Chase shall be entitled
to the advice of counsel (who may be counsel for the Trust) at
the expense of the Trust, in connection with carrying out
Chase's duties hereunder and in no event shall Chase be liable
for any action taken or omitted to be taken by it in good
faith pursuant to advice of such counsel. If, in the absence
of fault attributable to Chase and in the course of or in
connection with carrying out its duties and obligations
hereunder, any claims or legal proceedings are instituted
against Chase or any Chase Branch by third parties, the Trust
will hold Chase harmless against any claims, liabilities,
costs, damages or expenses incurred in connection therewith
and, if the Trust so elects, the Trust may assume the defense
thereof with counsel satisfactory to Chase, and thereafter
shall not be responsible for any further legal fees that may
be incurred by Chase, provided, however, that all of the
foregoing is conditioned upon the Trust's receipt from Chase
of prompt and due notice of any such claim or proceeding. 15.
EXPROPRIATION INSURANCE. Chase represents that it does not
intend to obtain any
insurance for the benefit of the Trust which protects against the imposition of
exchange control restrictions on the transfer from any foreign jurisdiction of
the proceeds of sale of any Securities or against confiscation, expropriation or
nationalization of any securities or the assets of the issuer of such securities
by a government of any foreign country in which the issuer of such securities is
organized or in which securities are held for safekeeping either by Chase, or
any Chase Branch, Foreign Bank or Foreign Securities Depository in such country.
Chase has discussed the availability of expropriation insurance with the Trust,
and has advised the Trust as to its understanding of the position of the staff
of the Securities and Exchange Commission that any investment company investing
in securities of foreign issuers has the responsibility for reviewing the
possibility of the imposition of exchange control restrictions which would
affect the liquidity of such investment company's assets and the possibility of
exposure to political risk, including the appropriateness of insuring against
such risk. The Trust has acknowledged that it has the responsibility to review
the possibility of such risks and what, if any, action should be taken.
16. PROXY, NOTICES, REPORTS, ETC. Chase shall watch for the
dates of expiration of (a) all purchase or sale rights (including warrants,
puts, calls and the like) attached to or inherent in any of the Securities held
in the Custody Account and (b) conversion rights and conversion price changes
for each convertible Security held in the Custody Account as published in
Telstat Services, Inc., Standard & Poor's Financial Inc. and/or any other
publications listed in the Operating Agreement (it being understood that Chase
may give notice to the Trust as provided in Section 21 as to any change,
addition and/or omission in the publications watched by Chase for these
purposes). If Chase or any Chase Branch, Foreign Bank or Foreign Securities
Depository shall receive any proxies, notices, reports, or other communications
relative to any of the Securities held in the Custody Account, Chase shall, on
its behalf or on behalf of a Chase Branch, Foreign Bank or Foreign Securities
Depository, promptly transmit in writing any such communication to the Trust. In
addition, Chase shall notify the Trust by person-to-person collect telephone
concerning any such notices relating to any matters specified in the first
sentence of this Section 16.
As specifically requested by the Trust, Chase shall execute or
deliver or shall cause the nominee in whose name Securities are registered to
execute and deliver to such person as may be designated by the Trust proxies,
consents, authorizations and any other instruments whereby the authority of the
Trust as owner of any Securities in the Custody Account registered in the name
of Chase or such nominee, as the case may be, may be exercised. Chase shall vote
Securities in accordance with Written Instructions timely received by Chase, or
such other person or persons as designated in or pursuant to the Operating
Agreement.
Chase and any Chase Branch shall have no liability for any
loss or liability occasioned by delay in the actual receipt by them or any
Foreign Bank or Foreign Securities Depository of notice of any payment or
redemption which does not appear in any of the publications referred to in the
first sentence of this Section 16.
17. COMPENSATION. The Trust agrees to pay to Chase from time
to time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and Chase's out-of-pocket or
incidental expenses, as from time to time shall be mutually agreed upon by Chase
and the Trust. The Trust shall have no responsibility for the payment of
services provided by any Domestic Securities Depository, such fees being paid
directly by Chase. In the event of any advance of Cash for any purpose made by
Chase pursuant to any Written Instruction, or in the event that Chase or any
nominee of Chase shall incur or be assessed any taxes in connection with the
performance of this Agreement, the Trust shall indemnify and reimburse Chase
therefor, except such assessment of taxes as results from the negligence, fraud,
or willful misconduct of Chase, any Domestic Securities Depository, Chase
Branch, Foreign Bank or Foreign Securities Depository, or as constitutes a tax
on income, gross receipts or the like of any one or more of them. Chase shall
have a lien on Securities in the Custody Account and on Cash in the Deposit
Account for any amount owing to Chase from time to time under this Agreement
upon due notice to the Trust.
18. AGREEMENT SUBJECT TO APPROVAL OF THE TRUST. It is
understood that this Agreement and any amendments shall be subject to the
approval of the Trust.
19. TERM. This Agreement shall remain in effect until
terminated by either party upon 60 days' written notice to the other, sent by
registered mail. Notwithstanding the preceding sentence, however, if at any time
after the execution of this Agreement Chase shall provide written notice to the
Trust, by registered mail, of the amount needed to meet a substantial increase
in the cost of maintaining its present type and level of bonding and insurance
coverage in connection with Chase's undertakings in Section 14(a), (d) and (e)
of this Agreement, said Section 14(a), (d) and (e) of this Agreement shall cease
to apply 60 days after the providing of such notice by Chase, unless prior to
the expiration of such 60 days the Trust agrees in writing to assume the amount
needed for such purpose. Chase, upon the date this Agreement terminates pursuant
to notice which has been given in a timely fashion, shall, and/or shall cause
each Domestic Securities Depository to, deliver the Securities in the Custody
Account, pay the Cash in the Deposit Account, and deliver and pay Securities and
Cash in the Segregated Account to the Trust unless Chase has received from the
Trust 60 days prior to the date on which this Agreement is to be terminated
Written Instructions specifying the name(s) of the person(s) to whom the
Securities in the Custody Account shall be delivered, the Cash in the Deposit
Account shall be paid, and Securities and Cash in the Segregated Account shall
be delivered and paid. Concurrently with the delivery of such Securities, Chase
shall deliver to the Trust, or such other person as the Trust shall instruct,
the records referred to in Section 11 which are in the possession or control of
Chase, any Chase Branch, or any Domestic Securities Depository, or any Foreign
Bank or Foreign Securities Depository, or in the event that Chase is unable to
obtain such records in their original form Chase shall deliver true copies of
such records.
20. AUTHORIZATION OF CHASE TO EXECUTE NECESSARY DOCUMENTS. In
connection with the performance of its duties hereunder, the Trust hereby
authorizes and directs Chase and each Chase Branch acting on behalf of Chase,
and Chase hereby agrees, to execute and deliver in the name of the Trust, or
cause such other Chase Branch to execute and deliver in the name of the Trust,
such certificates, instruments, and other documents as shall be reasonably
necessary in connection with such performance, provided that the Trust shall
have furnished to Chase any information necessary in connection therewith.
21. NOTICES. Any notice or other communication authorized
or required by this Agreement to be given to the parties shall be sufficiently
given (except to the extent otherwise specifically provided) if addressed and
mailed postage prepaid or delivered to it at its office at the address set forth
below:
If to the Trust, then to
Templeton Variable Products Series Fund
700 Central Avenue
St. Petersburg, Florida 33701-3628
Attention: Thomas M. Mistele, Secretary
If to Chase, then to
The Chase Manhattan Bank, N.A.
MetroTech Center
Brooklyn, New York 11245
Attention: Global Custody Division Executive
or such other person or such other address as any party shall have furnished to
the other party in writing.
22. NON-ASSIGNABILITY OF AGREEMENT. This Agreement shall
not be assignable by either party hereto; provided, however, that any
corporation into which the Trust or Chase, as the case may be, may be merged or
converted or with which it may be consolidated, or any corporation succeeding
to all or substantially all of the trust business of Chase, shall succeed to
the respective rights and shall assume the respective duties of the Trust or
of Chase, as the case may be, hereunder.
23. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York.
THE CHASE MANHATTAN BANK, N.A.
By:__________________________________
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By:__________________________________
AMENDED AND RESTATED
BUSINESS MANAGEMENT AGREEMENT
BETWEEN
TEMPLETON VARIABLE PRODUCTS SERIES FUND
AND
TEMPLETON FUNDS ANNUITY COMPANY
AGREEMENT as of October 30, 1992, as amended and restated
______________, 1996, between Templeton Variable Products Series Fund, a
registered open-end management investment company (the "Trust") comprised of six
series (Templeton Stock Fund, Templeton Bond Fund, Templeton Asset Allocation
Fund, Templeton International Fund, Templeton Money Market Fund and Templeton
Developing Markets Fund) and any additional series that may be created in the
future (the "Funds"), and Templeton Funds Annuity Company ("TFAC").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) TFAC agrees, during the life of this Agreement, to be
responsible for:
(a) providing office space, telephone, office equipment
and supplies for the Trust;
(b) paying compensation of the Trust's officers for
services rendered as such;
(c) authorizing expenditures and approving bills for
payment of behalf of the Trust;
(d) supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends,
capital gains distributions and tax credits;
(e) daily pricing of the Funds' investment portfolios and
preparing and supervising publication of daily
quotations of the bid and asked prices of the Funds'
Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving
the Trust, including custodians, transfer agents
and printers;
(g) providing trading desk facilities for the Funds;
(h) supervising compliance by the Trust with
record-keeping requirements under the Investment
Company Act of 1940, as amended (the "1940 Act") and
the regulations thereunder, with state regulatory
requirements, maintenance of books and records for
the Trust (other than those maintained by the Trust's
custodian and transfer agent), and preparing and
filing of tax reports other than the Trust's income
tax returns; and
(i) providing executive, clerical and secretarial help
needed to carry out the above responsibilities.
(2) The Trust agrees, during the life of this Agreement, to pay to TFAC
as compensation for the foregoing a monthly fee equal on an annual basis to
0.15% of the first $200 million of the aggregate average daily net assets of the
Funds during the month preceding each payment, reduced as follows: on such net
assets in excess of $200 million up to $700 million, a monthly fee equal on an
annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2
billion, a monthly fee equal on an annual basis to 0.1%; and on such net assets
in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through , 1997
and thereafter from year to year to the extent such continuance is approved
annually by the Board of Trustees of the Trust in accordance with the
requirements of applicable law.
(4) This Agreement may be terminated by the Trust at any time on sixty
(60) days' written notice without payment of penalty provided that such
termination by the Trust shall be directed or approved by the vote of a majority
of the Trustees of the Trust in office at the time or by the vote of a majority
of the outstanding voting securities of the Trust (as defined by the 1940 Act);
and shall terminate automatically and immediately in the event of its
assignment.
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of TFAC, or of reckless disregard of its obligations
hereunder, TFAC shall not be subject to liability for any act or omission in the
course of, or connected with, rendering services hereunder.
(6) It is understood and expressly stipulated that neither
the holders of Shares of the Funds nor any Trustee, officer, agent or employee
of the Trust shall be personally liable hereunder, nor shall any resort be had
to other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
By: ___________________________
John R. Kay
Vice President
ATTEST:
Thomas M. Mistele
Secretary
TEMPLETON FUNDS ANNUITY COMPANY
By: __________________________
Richard P. Austin
President
ATTEST:
Thomas M. Mistele
Secretary
December 22, 1995
Securities and Exchange Commission 450 5th Street, N.W.
Washington, DC 20549
RE: Templeton Variable Products Series Fund
(File Nos. 33-20313 and 811-5479)
Dear Sirs:
Attached hereto for electronic filing pursuant to the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 ACT") is Post-Effective Amendment No. 10 to the registration
statement on Form N-1A,for Templeton Variable Products Series Fund (the
"Registrant").
This purpose of this amendment is to add to the registration statement
a new prospectus and additional disclosure to the statement of additional
information regarding Templeton Developing Markets Fund (the "Fund"), a new
series of shares of the Registrant. The Registrant proposes that this
post-effective amendment become effective on March 6, 1996 pursuant to Rule
485(a)(2) or such earlier date as the Commission may declare it effective
pursuant to Rule 485 (a)(3). The Registrant and its principal underwriter intend
to submit requests that the effectiveness of the amendment be accelerated to
March 1, 1996. In this regard, please note that the disclosure regarding the
Fund's investment objective and policies is substantially similar to disclosure
previously reviewed by the staff in connection with the registration of
Templeton Developing Markets Trust (File Nos. 33- 42163, 811-6378). All other
disclosure regarding the Fund and the Registrant is substantially similar to
disclosure previously reviewed by the staff in connection with the registration
of the other series of the Registrant. Accordingly, the Registrant hereby
requests selective review of this Post-Effective amendment.
The Registrant intends to file a further amendment pursuant to Rule 485
(b) before the effectiveness of this amendment, which will include audited
financial statements of the other series of the Registrant, as required by Form
N-1A.
Please direct any comments or questions regarding this filing to the
undersigned at (800) 237-0738, extension 7642.
Sincerely,
/s/ELLEN F. STOUTAMIRE
Ellen F. Stoutamire
Associate Counsel
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