AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997.
File Nos.
33-20313
811-5479
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. (X)
Post-Effective Amendment No. 16
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
TEMPLETON VARIABLE PRODUCTS SERIES FUND
(Exact Name of Registrant as Specified in Charter)
500 East Broward Blvd., Suite 2100
Fort Lauderdale, FLORIDA 33396-3091
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:(813) 823-8712
500 East Broward Blvd., Suite 2100
Fort Lauderdale, FLORIDA 33396-3091
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on ____, 1997 pursuant to paragraph (a)(2)of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
No filing fee is due because an indefinite number of shares is deemed to have
been registered in reliance on Section 24(f) of the Investment Company Act of
1940.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(For Templeton Stock Fund Class 1 Shares)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information "Financial Highlights"
4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"
5. Management of the Fund "Management of Trust"
5A. Management's Discussion of Fund Contained in Registrant's
Annual Report to
Shareholders
6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"
7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"
8. Redemption or Repurchase "Redemption of Shares"
9. Pending Legal Proceedings Not Applicable
<PAGE>
This Amendment to the registration statement on Form N-1A ("Registration
Statement") is being filed pursuant to Rule 485(b) under the Securities Act of
1933, as amended, to supplement the Registration Statement with a separate
prospectus describing Class 1 Shares of Templeton Stock Fund, a diversified
series of the Registrant ("Stock Fund Prospectus"). The Stock Fund Prospectus
contains additional expense disclosure not otherwise included in the
Registration Statement and will be used solely to accompany the proxy statement
to be distributed to shareholders of another investment company who will vote on
a proposed merger with Templeton Stock Fund. This Amendment relates only to the
Stock Fund Prospectus included in this Amendment and does not otherwise delete,
amend or supersede any information contained in the Registration Statement,
including the other form of prospectus for the Templeton Stock Fund (Class 1)
contained in Post-Effective Amendment No. 15.
<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON STOCK FUND as amended December 1, 1997
CLASS 1 SHARES
- -------------------------------------------------------------------------------
This Prospectus offers only Class 1 shares of Templeton Stock Fund ("Fund"), a
diversified series of Templeton Variable Products Series Fund (the "Trust"), an
open-end, management investment company. It contains information that a
prospective investor should know before investing.
Shares of the Fund are currently sold only to insurance company separate
accounts ("Separate Accounts") to serve as the investment vehicle for both
variable annuity and variable life insurance contracts (the "Contracts"). The
Contracts involve certain fees and expenses not described in this Prospectus and
also may involve certain restrictions or limitations on the allocation of
purchase payments or Contract values to different investment vehicles. In
particular, certain series or classes of the Trust may not be available in
connection with a particular Contract or in a particular state. See the
applicable Contract prospectus for information regarding fees and expenses of
the Contract and any applicable restrictions or limitations.
The Fund has two classes of shares: Class 1 and Class 2. This prospectus offers
only Class 1 shares and is for use with Contracts that make Class 1-Shares
available. For more information about the Fund's classes, see "Other
Information--Capitalization and Voting Rights," below.
A Statement of Additional Information ("SAI") dated May 1, 1997, 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. The SAI is available without
charge upon request to the Trust, 500 East Broward Blvd., Suite 2100 Fort
Lauderdale, Florida 33396-3091 or by calling 1-800-774-5001 or 1-813-823-8712.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
EXPENSE SUMMARY..................... .T-2
FINANCIAL HIGHLIGHTS..................... T-3
INVESTMENT OBJECTIVE AND POLICIES........ T-4
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-4
RISK FACTORS............................. T-7
PURCHASE OF SHARES....................... T-9
NET ASSET VALUE.......................... T-10
REDEMPTION OF SHARES.................... T-10
EXCHANGES............................... T-10
MANAGEMENT OF THE TRUST................. T-10
DIVIDENDS AND DISTRIBUTIONS............. T-12
FEDERAL INCOME TAX STATUS............... T-12
OTHER INFORMATION....................... T-13
- --------------------------------------------------------------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES OR INSURANCE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES OR INSURANCE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS OFFERING THE VARIABLE INSURANCE CONTRACT. BOTH PROSPECTUSES SHOULD BE
READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
This prospectus is not an offering of the securities herein described in any
state, jurisdiction or country, in which the offering is unauthorized. No sales
representative, dealer, or other person is authorized to give any information or
make any representations other than those contained in this prospectus.
EXPENSE SUMMARY - CLASS 1 SHARES
This table is designed to help you understand the costs of investing in Class 1
shares of the Fund. Except as indicated below, it is based on the historical
expenses of the Class 1 shares for the fiscal year ended December 31, 1996. The
Fund's actual expenses may vary.
SHARES OF THE FUND ARE SOLD ONLY TO INSURANCE COMPANIES FOR USE IN VARIABLE
ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS ("CONTRACTS"). INVESTORS IN SUCH
CONTRACTS SHOULD CONSIDER THE FUND EXPENSES LISTED BELOW AS WELL AS THE
ADDITIONAL EXPENSES LISTED IN THE CONTRACT PROSPECTUS OR DISCLOSURE DOCUMENT.
A. SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge
(as a percentage of Offering Price)
Paid at time of purchase 0.00%
Paid at redemption 0.00%
B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.70%*
Other Expenses 0.18%
TOTAL FUND OPERATING EXPENSES 0.88%*
C. EXAMPLE
Assume the annual return on the Fund's Class 1 shares is 5%, operating expenses
are as described above, and you sell your shares after the number of years
shown. These are the projected expenses for each $1,000 that you invest in the
Fund.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
$9 $28 $49 $108
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends of Class 1 Shares and are not directly charged
to your account. As noted above, these expenses do not include Contract
expenses.
*Management fees and total operating expenses have been restated to reflect the
management fee schedule approved by shareholders and effective May 1, 1997. See
"Management of the Fund" below for details. Actual management fees and total
fund operating expenses before May 1, 1997 were lower.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED
This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Trust's independent auditors. Their
audit report for each of the last five fiscal years, appears in the financial
statements in the Trust's Annual Report for the fiscal year ended December 31,
1996. The Trust's annual report also includes more information about the Fund's
performance. For a free copy, please call 1-800-774-5001.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (for a
share outstanding
throughout the year)
NET ASSET VALUE,
BEGINNING OF YEAR..... $20.83 $16.94 $17.53 $13.33 $12.72 $10.29 $11.75 $10.25 $10.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .41 .40 .26 .23 .25 .27 .32 .18 .18
Net realized and
unrealized gain
(loss)............... 3.88 3.80 (.64) 4.23 .64 2.49 (1.57) 1.34 .071
-------- -------- -------- -------- -------- -------- ------- ------- -----
TOTAL FROM INVESTMENT
OPERATIONS........... 4.29 4.20 (.38) 4.46 .89 2.76 (1.25) 1.52 .25
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income..... (.40) (.27) (.21) (.25) (.28) (.33) (.19) (.02) --
Distributions from net
realized gains........(1.84) (.04) (.01) (.02)
-------- -------- -------- -------- -------- -------- ------- ------- -----
TOTAL DISTRIBUTIONS.. (2.24) (.31) (.21) (.26) (.28) (.33) (.21)
(.02) --
- ---------------------------------------------------------------------------------------------------------------
Change in net asset
value.................. 2.05 3.89 (.59) 4.20 .61 2.43 (1.46) 1.50 .25
-------- -------- -------- -------- ------ -- -------- ------- ------- -----
NET ASSET VALUE,
END OF YEAR......... $ 22.88 $ 20.83 $ 16.94 $17.53 $13.33 $12.72 $ 10.29 $ 11.00 $10.23
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+........ 22.48% 25.24% (2.20)% 34.00% 7.12% 27.93% (10.23)% 14.85% 2.50%
RATIOS/SUPPLEMENTAL DATA
Net assets
end of year (000)....$644,366 $498,777 $378,849 $298,392 $166,219 $116,943 $74,264 $49,787 $3,037
Ratio of expenses to
average net assets... .65% .66% .73% .73% .75% .82% .85% 1.08% 4.39%**
Ratio of expenses, net
of reimbursement, to
average net assets.... .65% .66% .73% .73% .75% .82% .85% .99% 1.50%**
Ratio of net investment
income to average
net assets........... 2.06% 2.18% 1.81% 1.88% 2.36% 2.82% 3.78% 3.63% 5.55%**
Portfolio turnover rate 23.40% 33.93% 5.10% 4.88% 8.10% 41.24% 17.94% 5.27% --
Average commission rate
paid (per share). $.009
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Period from August 31, 1988 (commencement of operations) to December 31,
1988.
** Annualized.
+ Total return figures do not include charges applied under the contracts.
Inclusion of such charges would reduce the total return figures for all
periods shown.
T-3
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is capital growth through a policy of investing
primarily in common stocks issued by companies, large and small, in various
nations throughout the world. In the pursuit of its investment objective, the
Fund will normally maintain at least 65% of its assets in common and preferred
stocks. The Fund may also invest in securities convertible into common stocks
rated in any category by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's") and securities which are unrated by any
rating agency. See the Appendix in the Statement of Additional Information for a
description of the S&P and Moody's ratings. Current income will usually be a
less significant factor in selecting investments for the Fund. The Fund will
invest predominantly in equity securities issued by large-cap and mid-cap
companies. Large-cap companies are those which have market capitalizations of $5
billion or more; mid-cap companies are those which have market capitalizations
of $1 billion to $5 billion. It may also invest to a lesser degree in smaller
capitalization companies, which may be subject to different and greater risks.
See "Risk Factors," below.
The Fund and its investment manager, Templeton Investment Counsel, Inc. ("TICI"
or 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.
For temporary defensive purposes, the Fund may invest without limit in
commercial paper, certificates of deposit, bankers' acceptances, U.S. Government
securities, corporate debt obligations, and repurchase agreements with respect
to these securities. The Fund may also enter into firm commitment agreements,
purchase securities on a "when-issued" basis, invest in restricted securities,
such as private placements, borrow money for investment purposes and lend its
portfolio securities. (See "Description of Securities and Investment
Techniques.")
The Fund may also purchase and sell stock index futures contracts for hedging
purposes only and not for speculation. It may engage in such transactions only
if the total contract value of the futures contracts does not exceed 20% of the
Fund's total assets. (See "Description of Securities and Investment
Techniques.")
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 and the investment objective of the
Fund are "fundamental policies" of the Fund, which means that they may not be
changed without a majority vote of Shareholders of the Fund. With the exception
of the Fund's investment objective and those restrictions specifically
identified as fundamental, all investment policies and practices described in
this Prospectus and in the SAI 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 SAI.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The Fund is authorized to invest in securities and 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.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities, which are obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills and bonds, which are direct
obligations of the U.S. Treasury, and Government National Mortgage Association
("GNMA") certificates, the principal and interest of which the Treasury
guarantees, are supported by the full faith and credit of the Treasury; others,
such as those of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others are
supported only by the credit of the instrumentality. GNMA certificates represent
part ownership of a pool of mortgage loans on which interest and principal
payments are guaranteed by the Treasury. Principal is repaid monthly over the
term of the loan. Expected payments may be delayed due to the delays in
registering newly traded certificates. The mortgage loans will be subject to
normal principal amortization and may be prepaid prior to maturity. Reinvestment
of prepayments may occur at higher or lower rates than the original yield on the
certificates.
T-4
BANK OBLIGATIONS
The Fund may invest in certificates of deposit, which are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. The Fund may invest in bankers'
acceptances, which are negotiable drafts or bills of exchange normally drawn by
an importer or exporter to pay for specific merchandise and which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. The Fund may invest in
dollar-denominated certificates of deposit and bankers' acceptances of foreign
and domestic banks having total assets in excess of $1 billion. The Fund may
also invest in certificates of deposit of federally insured savings and loan
associations having total assets in excess of $1 billion.
COMMERCIAL PAPER
The Fund may invest in commercial paper. Investments in commercial paper are
limited to obligations rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P
or, if not rated by Moody's or S&P, issued by companies having an outstanding
debt issue currently rated Aaa or Aa by Moody's or AAA or AA by S&P. See the
Appendix in the SAI for a description of these ratings.
DEBT SECURITIES
Debt securities in which the Fund may invest consistent with its investment
objective and policies may include many types of debt obligations of both
domestic and foreign issuers such as bonds, debentures, notes, commercial paper,
structured investments and obligations issued or guaranteed by governments or
government agencies or instrumentalities. The market value of debt securities
generally varies in response to changes in interest rates and the financial
condition of each issuer. During periods of declining interest rates, the value
of debt securities generally 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.
The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D 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 or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. 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 or other advantageous developments appear
likely in the future. As a fundamental policy, the Fund will not invest more
than 10% of its total assets in defaulted debt securities, which may be
illiquid. Bonds rated BB or lower, commonly referred to as "junk bonds," are
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. Issuers of bonds rated Ca may often be in default. Regardless of rating
levels, all debt securities considered for purchase (whether rated or unrated)
will be carefully analyzed by the Fund's Investment Manager to determine that
the planned investment is sound. Unrated debt securities are not necessarily of
lower quality than rated securities but they may not be attractive to as many
buyers. Many debt obligations of foreign issuers, and especially developing
markets issuers, are either (i) rated below investment grade or (ii) not rated
by U.S. rating agencies so that their selection depends on the Investment
Manager's individual analysis.
Debt securities with similar maturities may have different yields, depending
upon several factors, including the relative financial condition of the issuers.
For example, higher yields are generally available from securities in the lower
rating categories of S&P or Moody's. However, the values of lower rated
securities generally fluctuate more than those of higher rated securities. As a
result, lower rated securities involve greater risk of loss of income and
principal than higher rated securities. A full discussion of the risks of
investing in lower quality debt securities is contained under the caption "Risk
Factors" in the SAI. For a description of debt securities ratings, see the
Appendix to the SAI.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. When the Fund acquires a security
from a bank or a registered broker-dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller 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
T-5
reflects an agreed upon rate of return, which is not tied to the coupon rate on
the underlying security. The term of such an agreement is generally quite short,
possibly overnight or for a few days, although it may extend over a number of
months (up to one year) from the date of delivery. Repurchase agreements 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 security and might incur a loss if
the value of the security should decline, as well as incur disposition costs in
liquidating the security.
BORROWING
The Fund may borrow up to 30% of the value of its net assets to increase its
holdings of portfolio securities. Under federal securities laws, the Fund may
borrow from banks only, and 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 disadvantageous from an
investment standpoint. Leveraging by means of borrowing will 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.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" basis. New issues of certain
debt securities are often offered on a when-issued basis, meaning that the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally takes
place after the date of the commitment to purchase. The value of when-issued
securities may vary prior to and after delivery depending on market conditions
and changes in interest rate levels. However, the Fund will not accrue any
income on these securities prior to delivery. The Fund will maintain in a
segregated account with its Custodian an amount of cash or high quality debt
securities equal (on a daily marked-to-market basis) to the amount of its
commitment to purchase the when-issued securities.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend to broker-dealers or U.S. 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 have 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 collateral falls below the market value of the borrowed
securities.
RESTRICTED SECURITIES
The Fund may invest in restricted securities, which are securities subject to
legal or contractual restrictions on their resale, such as private placements.
Such restrictions might prevent the sale of restricted securities at a time when
sale would otherwise be desirable. No restricted securities and no securities
for which there is not a readily available market ("illiquid assets") will be
acquired by the Fund if such acquisition would cause the aggregate value of
illiquid assets and restricted securities to exceed 15% of the Fund's total
assets. Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933. Where registration is
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at fair
value as determined by the management and approved in good faith by the Board of
Trustees.
T-6
DEPOSITARY RECEIPTS
The Fund may purchase sponsored or unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") (collectively, "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 U.S. 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 each
Fund's investment policies, the Fund's investments in Depositary Receipts will
be deemed to be investments in the underlying securities.
FUTURES CONTRACTS
Also, for hedging purposes only, the Fund may purchase and sell stock index
futures contracts. 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.
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. The Fund may not commit more than 5% of its total assets to initial
margin deposits on futures contracts. 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.
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, the
prevailing rate of interest, 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 is authorized 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
T-7
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. Also, some countries may withhold portions of interest and dividends at
the source. 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. 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.
As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss (including risk of total loss)
arising out of Russia's system of share registration and custody. For more
information on these risks and other risks associated with Russian securities,
please see "Investment Objectives and Policies--Risk Factors" in the SAI.
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 many 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.
Hong Kong reverted to the sovereignty of China on July 1, 1997. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
The Fund may invest in companies with relatively small revenues and limited
product lines. Smaller capitalization companies may lack depth of management,
they may be unable to internally generate funds necessary for growth or
potential development or to generate such funds through external financing on
favorable terms. Due to these and other factors, smaller companies may suffer
significant losses, as well as realize substantial growth.
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 D by S&P, and between
Baa and as low as C by Moody's or, if unrated, are of equivalent
T-8
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. See "Investment
Objectives and Policies--Debt Securities" in the SAI for descriptions of debt
securities rated lower than 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. The market value of junk bonds
tends to reflect individual developments affecting the issuer to a greater
extent than the market value of higher rated obligations, which react primarily
to fluctuations in the general level of interest rates. Lower rated obligations
tend to be more sensitive to economic conditions.
The Fund may have difficulty disposing of certain high yielding obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse impact
on market price, and the Fund's ability to dispose of particular issues, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is required
to seek recovery upon a default in the payment of principal or interest on its
portfolio holdings.
Investments may also be evaluated in the context of economic and political
conditions in the issuer's domicile, such as the inflation rate, growth
prospects, global trade patterns and government policies. In the event the
rating on an issue held in the Fund's portfolio is changed by the rating
service, such change will be considered by the Fund in its evaluation of the
overall investment merits of that security but will not necessarily result in an
automatic sale of the security.
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.
Successful use of stock index futures contracts is subject to special risk
considerations and transaction costs. A liquid secondary market for futures
contracts may not be available when a position is sought to be closed.
Successful use of futures contracts is further dependent on the ability of the
Fund's Investment Manager to correctly predict movements in the securities
markets and no assurance can be given that its judgment will be correct.
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
Class 1 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the Insurance Company Separate Account for more information on
the purchase of the Fund's Class 1 shares.
The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment, the
management of investments, or other considerations. If such a conflict were to
occur, one of the Separate Accounts might withdraw its investment in the Fund.
This might force the Fund to sell portfolio securities at disadvantageous
prices.
Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.
T-9
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a pro
rata basis. It is based on each class' proportionate participation in the Fund,
determined by the value of the shares of each class. To calculate the Net Asset
Value per share of each class, the assets of each class are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares of the class outstanding. The assets in the Fund's
portfolio are valued as described under "Purchase, Redemption and Pricing of
Shares" in the SAI.
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 Shares of the Fund.
EXCHANGES
Class 1 shares of the Fund may be exchanged for shares of other funds or classes
available as investment options under the Contracts subject to the terms of the
Contract prospectus. Exchanges are treated as a redemption of shares of one
class or fund and a purchase of shares of one or more of the other classes or
funds and are effected at the respective net asset value per share of the class
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 BOARD
The Board oversees the management of the Fund and elects its officers. The
officers are responsible for the Fund's day-to-day operations. The Board also
monitors the Fund to ensure no material conflicts exist among the classes of
shares. While none is expected, the Board will act appropriately to resolve any
material conflict that may arise.
INVESTMENT MANAGER
Templeton Investment Counsel, Inc., is a Florida corporation with offices at
Broward Financial Centre, Fort Lauderdale, Florida 33394-3091. TICI manages the
Fund's assets and makes its investment decisions. TICI also performs similar
services for other funds. TICI is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together TICI and its affiliates manage over $179 billion in assets.
The Templeton organization has been investing globally since 1940. TICI and its
affiliates have offices in Argentina, Australia, Bahamas, Canada, France,
Germany, Hong Kong, India, Italy, Luxembourg, Poland, Russia, Scotland,
Singapore, South Africa, U.S., and Vietnam. Please see "Investment Management
and Other Services" and "Brokerage Allocation" in the SAI for information on
securities transactions and a summary of the Fund's Code of Ethics.
T-10
PORTFOLIO MANAGEMENT
The lead portfolio manager for the Fund since 1995 is Mark R. Beveridge. Mr.
Beveridge, Vice President of TICI, joined the Templeton organization in 1985. He
has responsibility for the industrial component appliances/ household durables
industries, and has market coverage of Argentina, Denmark and Thailand. Prior to
joining the Templeton organization, Mr. Beveridge was a principal with a
financial accounting software firm based in Miami, Florida. He has a Bachelors
Degree in Business Administration with emphasis in finance from the University
of Miami.
William T. Howard Jr., Vice President of TICI and Howard J. Leonard, Senior Vice
President of TICI, exercise secondary portfolio management responsibilities. Mr.
Howard holds a BA in international studies from Rhodes College and an MBA in
finance from Emory University. He is a Chartered Financial Analyst and a member
of the Financial Analyst Society. Before joining the Templeton Organization in
1993, Mr. Howard was a portfolio manager and analyst with the Tennessee
Consolidated Retirement System in Nashville, Tennessee, where he was responsible
for research and management of the international equity portfolio, and
specialized in the Japanese equity market. As a portfolio manager and research
analyst with Templeton, Mr. Howard's research responsibilities include the
transportation, shipping, machinery and engineering industries worldwide. He is
also responsible for country coverage of both Japan and New Zealand. He has
managed the Fund since June 1996. Mr. Leonard has research responsibilities for
the global forest products, money management and airline industries, and
coverage of Indonesia, Switzerland, Brazil and India. Prior to joining the
Templeton organization in 1989, Mr. Leonard was director of investment research
at First Pennsylvania Bank, where he was responsible for equity and fixed income
research activities and its proxy voting service for large pension plan
sponsors. He also previously worked at Provident National Bank as a security
analyst. Mr. Leonard holds a B.B.A. in Finance and Economics from Temple
University.
MANAGEMENT FEES
Effective May 1, 1997 a new investment management agreement, approved by
shareholders at a special meeting held on February 10, 1997, provides that the
Fund will pay its Investment Manager a monthly fee equal on an annual basis to
0.75% of the Fund's average daily net assets up to $200 million, 0.675% of such
net assets up to $1.3 billion, and 0.60% of such net assets over $1.3 billion.
For the fiscal year ended December 31, 1996, the Fund paid 0.47% of its average
daily net assets in management fees.
PORTFOLIO TRANSACTIONS
TICI tries to obtain the best execution on all transactions. If TICI believes
more than one broker or dealer can provide the best execution, consistent with
internal policies it may consider research and related services and the sale of
Fund shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, when selecting a broker or dealer. Please see "Brokerage Allocation" in
the SAI for more information.
ADMINISTRATIVE SERVICES
Templeton Funds Annuity Company ("Administrator"), 100 Fountain Parkway, St.
Petersburg, Florida 33716-1205, telephone (800) 774-5001 or (813) 823-8712,
provides certain administrative services and facilities for the Fund.
During the fiscal year ended December 31, 1996, administration fees totaling
0.11% of the average daily net assets of the Trust were paid to the
Administrator. Please see "Fund Administrator" in the SAI for more information.
TOTAL EXPENSES
During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.65% of the Fund's daily net assets.
DISTRIBUTOR
The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 100
Fountain Parkway, St. Petersburg, Florida 33716-1205, toll free telephone (800)
292- 9293.
T-11
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. Dividends and capital gains are calculated and distributed the same way
for each class of shares. The amount of any income dividends per share will
differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.
Any distributions made by the Fund will be automatically reinvested in
additional Shares of the same class 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"). If the Fund so
qualifies, it 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 SAI 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.
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 Fund
underlying the Separate Account.
T-12
OTHER INFORMATION
THE FUND'S ORGANIZATION
The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each fund
in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject to
a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes 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. The
Declaration of Trust, however, 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.
Shareholders of the Trust are given certain voting rights. Shares of each class
of a fund represent proportionate interests in the assets of the fund, and have
the same voting and other rights and preferences as any other class of the Fund
for matters that affect the Fund as a whole. For matters that only affect one
class, however, only shareholders of that class may vote. Each class will vote
separately on matters (1) affecting only that class, (2) expressly required to
be voted on separately by state law, or (3) required to be voted on separately
by federal securities law.
Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts. See
the Separate Account prospectus 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 a specific
fund of the Trust, 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, an SAI may be obtained without charge upon request to the
Trust at the telephone number or address listed on the cover page of this
prospectus.
T-13
PERFORMANCE INFORMATION
From time to time, each class of the Fund advertises its performance.
Performance information for a class of the Fund will generally not be advertised
unless accompanied by comparable performance information for a Separate Account
to which the Fund offers shares of that class.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Net Asset Value of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund. Quotations of yield or total return for a class of 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.
The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a description
of the methods used to calculate performance for the Fund, see "Performance
Information" in the SAI.
STATEMENTS AND REPORTS
The Trust's fiscal year ends on December 31. Annual reports containing audited
financial statements of the Fund and semi-annual reports containing unaudited
financial statements, as well as proxy materials are sent to Contract Owners,
annuitants or beneficiaries, as appropriate. Inquires may be directed to the
Fund at the telephone number or address set forth on the cover page of this
prospectus.
T-13
Parts B and C:
Registrant hereby incorporates by reference Parts B and C of the Registrant's
N-1A filing on April 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirement for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this post-effective
amendment to the Registrant's Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of San Mateo and the
State of California, on the 26th day of November, 1997.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By: /s/Charles E. Johnson*
Charles E. Johnson, President
*By:/s/ Karen L. Skidmore
Karen L. Skidmore
as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Charles E. Johnson* Principal Executive Officer and Trustee
Charles E. Johnson Dated: November 26, 1997
Fred R. Millsaps* Trustee
Fred R. Millsaps Dated: November 26, 1997
Edith E. Holiday* Trustee
Edith E. Holiday Dated: November 26, 1997
Betty P. Krahmer* Trustee
Betty P. Krahmer Dated: November 26, 1997
Charles B. Johnson* Trustee
Charles B. Johnson Dated: November 26, 1997
Harris J. Aston* Trustee
Harris J. Ashton Dated: November 26, 1997
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: November 26, 1997
Andrew H. Hines, Jr.* Trustee
Andrew H. Hines, Jr. Dated:November 26, 1997
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: November 26, 1997
Nicholas F. Brady* Trustee
Nicholas F. Brady Dated: November 26, 1997
*By
/s/Karen L. Skidmore, Attorney-in-Fact
(Pursuant to Powers of Attorney listed in item 17)
