SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant [ X ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for
use of the Commission only
(as permitted Rule
14a-6(e)(2)
[ X ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to 240.14a-11(c) or 240.14a-12
(Name of Registrant as Specified in Its Charter)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
(Name of Person(s) Filing Proxy Statement)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2), or Item 22(a)(2) of Schedule 14A..
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and O-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11(Set forth the
amount on which the filing fee is calculated and state how
it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary material.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identifying the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
LOGO
TEMPLETON VARIABLE PRODUCTS SERIES FUND
IMPORTANT INFORMATION FOR
CONTRACT AND POLICYHOLDERS
This document announces the date, time and location of a special meeting of
shareholders, identifies the proposals to be voted on at the meeting, and
contains a proxy statement and voting instruction card. A voting instruction
card is, in essence, a ballot. When you complete your voting instruction card,
it tells your insurance company how to vote its proxy on important issues
relating to the portion of your account that is allocated to your fund(s). If
you complete and sign the voting instruction card, the shares will be voted
exactly as you instruct. If you simply sign and return the voting instruction
card, the shares will be voted in accordance with the Trustees' recommendations.
If you do not return a voting instruction card at all, the shares will be voted
in the same proportion as shares for which instructions have been received from
other Contract Owners.
WE URGE YOU TO SPEND A FEW MINUTES WITH THE PROXY STATEMENT REVIEWING THE
PROPOSALS AT HAND. THEN, FILL OUT YOUR VOTING INSTRUCTION CARD AND RETURN IT. WE
WANT TO KNOW HOW YOU WOULD LIKE TO VOTE AND WELCOME YOUR COMMENTS. PLEASE TAKE A
FEW MINUTES WITH THESE MATERIALS AND RETURN YOUR VOTING INSTRUCTION CARD. IF YOU
HAVE ANY QUESTIONS, PLEASE CALL 1-800/342-FUND.
TABLE OF CONTENTS
PAGE
Notice of Meeting..................................................... 2
Information About Voting.............................................. 3
The Proposals......................................................... 5
1. Electing Trustees........................................... 5
2. Ratifying or Rejecting Independent Auditors................. 11
3. Approving or Disapproving New Investment Management
Agreements.................................................. 12
Information About the Trust and the Funds............................. 19
Additional Information About Voting and The Shareholders
Meeting............................................................ 28
Appendix
PROXY OR VOTING INSTRUCTION CARD ENCLOSED
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Templeton Variable Products Series Fund (the
"Trust"), consisting of the following series: Templeton Stock Fund ("Stock
Fund"); Templeton Bond Fund ("Bond Fund"); Templeton International Fund
("International Fund"); Templeton Asset Allocation Fund ("Asset Allocation
Fund"); Templeton Developing Markets Fund ("Developing Markets"); and Templeton
Money Market Fund ("Money Market Fund") (each a "Fund" and, collectively, the
"Funds"):
A Special Meeting (the "Meeting") of shareholders of each of the Funds will
be held at 500 East Broward Boulevard, 12th Floor, Ft. Lauderdale, Florida, on
Monday, February 10, 1997 at 10:00 A.M. (EST).
During the Meeting, shareholders of the Trust will vote on four proposals:
1. Electing Trustees of the Trust to hold office for the terms specified;
2. Ratifying or rejecting the selection of McGladrey & Pullen, LLP as
independent auditors of the Trust for the fiscal year ending
December 31, 1997; and
3. Approving or disapproving new Investment Management Agreements between
Templeton Investment Counsel, Inc. and the Trust on behalf of Stock
Fund, Asset Allocation Fund and International Fund, respectively, as
described in this proxy statement, which increase the investment
management fee. (Votes of shareholders of each such Fund will be
counted separately for the Investment Management Agreements with their
respective Funds.)
4. Transaction of any other business as may properly come before the
Meeting.
By Order of the Board of Trustees,
Barbara J. Green
Secretary
January 13, 1997
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED VOTING INSTRUCTION
CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED SO YOU WILL BE REPRESENTED AT
THE MEETING.
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
PROXY STATEMENT
O INFORMATION ABOUT VOTING:
WHO IS ASKING FOR MY VOTE?
The enclosed proxy is solicited by and on behalf of the management of
Templeton Variable Products Series Fund (the "Trust") for use at a Meeting of
Shareholders to be held on Monday, February 10, 1997, and, if your Fund's
Meeting is adjourned, at any later meetings, for the purposes stated in the
Notice of Meeting.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on December 9, 1996 are
entitled to be present and to vote at the Meeting or any adjourned Meeting. As
of the record date, certain insurance companies were the shareholders of record
of each of the Funds (collectively the "Insurance Companies"). Each such
Insurance Company will vote shares of the Fund or Funds held by it in accordance
with voting instructions received from variable annuity contract and variable
life insurance policy owners (collectively, the "Contract Owners") for whose
accounts the shares are held. Accordingly, this Proxy Statement is intended to
be used by the Insurance Companies in obtaining such voting instructions from
Contract Owners. The Notice of Meeting, the proxy (or voting instruction card),
and the proxy statement were mailed to shareholders of record and Contract
Owners on or about January 13, 1997.
Each share is entitled to one vote. Shares represented by duly executed
proxies will be voted in accordance with the Insurance Company shareholders'
instructions. If the proxy is signed by the Insurance Company shareholder but no
express voting instructions are given for a proposal, the proxy will be voted in
accordance with the Trustees' recommendations.
In the event that a Contract Owner gives no instructions by not returning
the voting instruction card, the relevant Insurance Company will vote the shares
of the appropriate Funds attributable to the Contract Owner in the same
proportion as shares of each Fund for which it has received instructions. If a
Contract Owner returns the voting instruction card properly executed but with no
express voting instructions indicated on the card, the relevant Insurance
Company will vote the shares in accordance with the Trustees' recommendations.
Voting on Proposals 1 and 2 shall be tabulated on a Trust-wide basis, with
shares of all Funds voting together as a single class, while voting on Proposal
3 shall be tabulated separately for each relevant Fund.
ON WHAT ISSUES AM I BEING ASKED TO VOTE?
You are being asked to vote on four proposals:
1. Electing nominees to the position of Trustee;
2. Ratifying or rejecting the selection of McGladrey & Pullen, LLP
as independent auditors of the Trust for the fiscal year ending
December 31, 1997;
3. Approving or disapproving new Investment Management Agreements
between Templeton Investment Counsel, Inc.("TICI" or "Investment
Manager") and the Trust on behalf of Stock Fund Asset
Allocation Fund and International Fund, respectively, as
described in this proxy statement, which increase the investment
management fee. (Votes of shareholders of each such Fund will
be counted separately for the Investment Management
Agreements for their respective Funds); and
4. Transaction of any other business that may properly come before
the Meeting.
The following table sets forth the proposals that apply to your Fund. On
proposals 1 and 2, all Funds will vote together as a single class. Proposal 3
relates to approval or disapproval of new Investment Management Agreements for
certain Funds:
<TABLE>
<CAPTION>
ASSET DEVELOPING
ALLOCATION BOND INTERNATIONAL STOCK MARKETS
PROPOSAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
1. (Trustees). X X X X X
2. (Auditors). X X X X X
3. (Investment Management
Agreements). X X X
</TABLE>
WHAT VOTE IS REQUIRED?
A plurality of all votes cast at the Meeting is sufficient to approve
Proposal 1. A majority of the shares present in person or by proxy at the
Meeting is sufficient to approve Proposal 2. Approval of Proposal 3 requires the
affirmative vote of the holders of the lesser of (a) 67% of each Fund's shares
present at the Meeting in person or by proxy, or (b) a majority of each Fund's
outstanding shares.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees recommend that you vote:
1. FOR electing all nominees as Trustees of the Trust;
2. FOR ratifying the selection of McGladrey & Pullen, LLP as
independent auditors for the Trust;
3. FOR approving each of the new Investment Management Agreements;
and
4. FOR the proxyholders to vote, in their discretion, on any other
business that may properly come before the Meeting.
CAN I REVOKE MY VOTING INSTRUCTION?
You may revoke your voting instruction at any time before the proxy is
voted by (1) delivering a written revocation to the Secretary of the Trust, (2)
forwarding to the Trust a later-dated proxy that is received by the Trust at or
prior to the Meeting, or (3) attending the Meeting and voting in person.
O THE PROPOSALS
PROPOSAL 1. ELECTING TRUSTEES
HOW ARE NOMINEES SELECTED?
The Board of Trustees of the Trust (the "Board") has established a
Nominating and Compensation Committee (the "Committee") consisting of Messrs.
Hines and Macklin. The Committee is responsible for the selection, nomination
for appointment and election of candidates to serve as Trustees of the Trust.
The Committee will review shareholders' nominations to fill vacancies on the
Board, if these nominations are in writing and addressed to the Committee at the
Trust's offices. However, the Committee expects to be able to identify from its
own resources an ample number of qualified candidates.
WHO ARE THE NOMINEES?
All of the nominees are currently directors or trustees of other investment
companies in the Franklin Group of Funds(R) and the Templeton Group of Funds
(the "Franklin Templeton Group of Funds"), and all of the nominees except Edith
E. Holiday are currently members of the Board.
Certain nominees hold director and/or officer positions with Franklin
Resources, Inc. ("Resources") and its affiliates. Resources is a publicly owned
holding company, the principal shareholders of which are Charles B. Johnson and
Rupert H. Johnson, Jr., who own approximately 20% and 16%, respectively, of its
outstanding shares. Resources is primarily engaged, through various
subsidiaries, in providing investment management, share distribution, transfer
agent and administrative services to a family of investment companies. Resources
is an NYSE, Inc. listed holding company (NYSE: BEN). The Funds' investment
managers and business manager are indirect wholly owned subsidiaries of
Resources. There are no family relationships among any of the Trustees or
nominees for Trustees.
In order to be elected as Trustees the nominees must receive the vote of a
plurality of the shares of all Funds, voting together as a single class. The
Trustees serve until their successors are elected and qualified.
Each nominee has consented to serve as Trustee if elected. If any of the
nominees should become unavailable, the persons named in the proxy will vote in
their discretion for another person or other persons who may be nominated as
Trustees.
Listed below, for each nominee, is a brief description of recent
professional experience:
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY AND %
NAME AND OFFICES PRINCIPAL OCCUPATION DURING TRUSTEE OF TOTAL
WITH THE TRUST PAST FIVE YEARS AND AGE SINCE OUTSTANDING ON
DECEMBER 9, 1996
<S> <C> <C> <C>
HARRIS J. ASHTON Chairman of the board, president and 1992 -0-
TRUSTEE chief executive officer of General
Host Corporation (nursery and craft
centers); director of RBC Holdings
(U.S.A.) Inc. (a bank holding company)
and Bar-S Foods; and director or
trustee of 56 of the investment
companies in the Franklin Templeton
Group of Funds. Age 64.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY AND %
NAME AND OFFICES PRINCIPAL OCCUPATION DURING TRUSTEE OF TOTAL
WITH THE TRUST PAST FIVE YEARS AND AGE SINCE OUTSTANDING ON
DECEMBER 9, 1996
<S> <C> <C> <C>
NICHOLAS F. BRADY* Chairman of Templeton Emerging Markets 1994 -0-
TRUSTEE Investment Trust PLC; chairman of
Templeton Latin America Investment
Trust PLC; chairman of Darby Overseas
Investments, Ltd. (an investment firm)
(1994-present); chairman and director of
Templeton Central and Eastern European
Fund; director of the Amerada Hess
Corporation, Christiana Companies, and
the H.J. Heinz Company; formerly,
Secretary of the United States
Department of the Treasury (1988-1993)
and chairman of the board of Dillon,
Read & Co. Inc. (investment banking)
prior to 1988; and director or trustee
of 23 of the investment companies in the
Franklin Templeton Group of Funds. Age 66.
S. JOSEPH FORTUNATO Member of the law firm of Pitney, 1992 -0
TRUSTEE Hardin, Kipp & Szuch; director of General
Host Corporation (nursery and craft
centers); and director or trustee of
58 of the investment companies in the
Franklin Templeton Group of Funds. Age 64.
ANDREW H. HINES, JR. Consultant for the Triangle Consulting 1992 -0-
TRUSTEE Group; chairman and director of
Precise Power Corporation; executive-in-
residence of Eckerd College (1991-present);
director of Checkers Drive-In Restaurants,
Inc.; formerly, chairman of the board and
chief executive officer of Florida Progress
Corporation (1982-1990) and director of
various of its subsidiaries; and officer
and/or director or trustee of 24 of the
investment companies in he Franklin Templeton
Group of Funds. Age 73.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY AND %
NAME AND OFFICES PRINCIPAL OCCUPATION DURING TRUSTEE OF TOTAL
WITH THE TRUST PAST FIVE YEARS AND AGE SINCE OUTSTANDING ON
DECEMBER 9, 1996
<S> <C> <C> <C>
EDITH E. HOLIDAY Director (1993-present) of Amerada ** -0-0
NOMINEE Hess Corporation and Hercules
Incorporated; director of Beverly
Enterprises, Inc. (1995-present) and
H.J. Heinz Company (1994-present);
chairman (1995-present) and trustee
(1993-present) of National Child
Research Center; formerly, assistant
to the President of the United States
and Secretary of the Cabinet
(1990-1993), general counsel to the
United States Treasury Department
(1989-1990), and counselor to the
Secretary and Assistant Secretary for
Public Affairs and Public
Liaison--United States Treasury
Department (1988-1989); and director
or trustee of 15 of the investment
companies in the Franklin Templeton
Group of Funds. Age 44.
CHARLES B. JOHNSON* President, chief executive officer, 1995 -0-
CHAIRMAN OF THE BOARD and director of Franklin Resources,
AND VICE PRESIDENT Inc.; chairman of the board and
director of Franklin Advisers, Inc.
and Franklin Templeton Distributors,
Inc.; director of General Host
Corporation (nursery and craft
centers) and Franklin Templeton
Services, Inc.; and officer and/or
director, trustee or managing general
partner, as the case may be, of most
other subsidiaries of Franklin
Resources, Inc. and 57 of the
investment companies in the Franklin
Templeton Group of Funds. Age 63.
BETTY P. KRAHMER Director or trustee of various civic 1990 -0-
TRUSTEE associations; formerly, economic
analyst, U.S. government; and director
or trustee of 23 of the investment
companies in the Franklin Templeton
Group of Funds. Age 67.
GORDON S. MACKLIN Chairman of White River Corporation 1994 -0-
TRUSTEE (information services); director of
Fund America Enterprises Holdings,Inc.,
MCI Communications Corporation, Fusion
Systems Corporation, Infovest
Corporation, MedImmune, Inc., Source One
Mortgage Services Corporation, and
Shoppers Express, Inc. (on-line shopping
service); formerly, chairman of Hambrecht
and Quist Group, director of H&Q Healthcare
Investors and Lockheed Martin Corporation,
and president of the National Association
of Securities Dealers, Inc.; and director
or trustee of 53 of the investment
companies in the Franklin Templeton Group of
Funds. Age 68.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY AND %
NAME AND OFFICES PRINCIPAL OCCUPATION DURING TRUSTEE OF TOTAL
WITH THE TRUST PAST FIVE YEARS AND AGE SINCE OUTSTANDING ON
DECEMBER 9, 1996
<S> <C> <C> <C>
FRED R. MILLSAPS Manager of personal investments 1990 **
TRUSTEE (1978-present); director of various
business and nonprofit organizations;
formerly, chairman and chief executive
officer of Landmark Banking Corporation
(1969-1978), financial vice president
of Florida Power and Light (1965-1969),
and vice president of The Federal Reserve
Bank of Atlanta (1958-1965); and director
or trustee of 24 of the investment
companies in the Franklin Templeton
Group ofFunds. Age 67.
</TABLE>
* Nicholas F. Brady and Charles B. Johnson are "interested persons" as
defined by the Investment Company Act of 1940 (the "1940 Act"). The 1940
Act limits the percentage of interested persons that can comprise a
fund's board of directors/trustees. Mr. Johnson is an interested person
due to his ownership interest in Resources. Mr. Brady's status as an
interested person results from his business affiliations with Resources
and Templeton Global Advisors Ltd. Mr.Brady and Resources are both
limited partners of Darby Overseas Partners, L.P. ("Darby Overseas"). Mr.
Brady established Darby Overseas in February 1994, and is Chairman and
shareholder of the corporate general partner of Darby Overseas. In
addition, Darby Overseas and Templeton Global Advisors Ltd. are limited
partners of Darby Emerging Markets Fund, L.P. The remaining nominees and
Trustees of the Trust are not interested persons (the "Independent
Trustees").
** Ms. Holiday is not currently a Trustee of the Trust.
*** Less than 1%. Such Trustees have an interest in shares of one or more Funds
through variable annuity contracts or variable life insurance policies.
HOW OFTEN DO THE TRUSTEES MEET AND WHAT ARE THEY PAID?
The Trustees generally meet quarterly to review the operations of the
Funds and other funds within the Franklin Templeton Group of Funds. Each fund
pays its independent directors/trustees and Mr. Brady an annual retainer and/or
fees for attendance at board and committee meetings. This compensation is based
on the level of assets in the fund. Accordingly, the Trust pays the Independent
Trustees and Mr. Brady an annual retainer of $6,000 and a fee of $500 per
meeting of the Board and its committees attended, including the Audit Committee
and the Nominating and Compensation Committee. Independent Trustees are
reimbursed by the Trust for any expenses incurred in attending Board meetings.
During the fiscal year ended December 31, 1996, there were four meetings of
the Board, one meeting of the Nominating and Compensation Committee, and one
meeting of the Audit Committee. Each of the Trustees then in office attended at
least 75% of the total number of meetings of the Board and the Audit Committee
throughout the year. There was 100% attendance at the meeting of the Nominating
and Compensation Committee.
Certain Trustees and officers of the Trust are shareholders of Resources
and may receive indirect remuneration due to their participation in management
fees and other fees received from the Franklin Templeton Group of Funds by TICI
and its affiliates. TICI or its affiliates pay the salaries and expenses of the
officers.
No pension or retirement benefits are accrued as part of Trust or Fund expenses.
The following table shows the compensation paid to Independent Trustees and
Mr. Brady by the Trust and by the Franklin Templeton Group of Funds:
<TABLE>
<CAPTION>
NUMBER OF BOARDS TOTAL
WITHIN THE FRANKLIN COMPENSATION
AGGREGATE TEMPLETON GROUP FROM THE FRANKLIN
COMPENSATION OF FUNDS ON WHICH TEMPLETON
NAME OF Trustee FROM THE TRUST* TRUSTEE SERVES GROUP OF FUNDS**
- ---------- --------------- -------------- ----------------
<S> <C> <C> <C>
Harris J. Ashton. $7,350 56 $339,592
Nicholas F. Brady. 7,350 23 119,275
F. Bruce Clarke***. 7,697 19 69,500
Hasso-G von Diergardt-Naglo***. 7,697 19 66,375
S. Joseph Fortunato. 7,350 58 356,412
Andrew H. Hines, Jr. 8,027 24 130,525
Edith E. Holiday. 0 15 15,450
Betty P. Krahmer. 7,350 23 119,275
Gordon S. Macklin. 7,680 53 331,542
Fred R. Millsaps. 7,697 24 125,275
</TABLE>
* For the fiscal year ended December 31, 1996.
** For the calendar year ended December 31, 1996.
*** Messrs. Clarke and von Diergardt-Naglo resigned as Trustees during 1996.
THE TRUSTEES RECOMMEND THAT YOU VOTE FOR THE NOMINEES.
PROPOSAL 2. RATIFYING OR REJECTING INDEPENDENT
AUDITORS
HOW IS AN INDEPENDENT AUDITOR SELECTED?
The Board established a standing Audit Committee consisting of Messrs.
Hines and Millsaps, both of whom are Independent Trustees. The Audit Committee
reviews generally the maintenance of the Trust's records and the safekeeping
arrangements of the Trust's custodian, reviews both the audit and non-audit work
of the Trust's independent auditor, and submits a recommendation to the Board as
to the selection of an independent auditor.
WHICH INDEPENDENT AUDITOR DID THE BOARD OF TRUSTEES SELECT?
For the current fiscal year, the Trustees selected as auditors the firm of
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017. McGladrey &
Pullen, LLP has been the auditor of the Trust since its inception in 1988, and
has examined and reported on the fiscal year-end financial statements, and
certain related Securities and Exchange Commission filings. Neither the firm of
McGladrey & Pullen, LLP nor any of its members have any material direct or
indirect financial interest in the Trust or the Funds.
Representatives of McGladrey & Pullen, LLP are not expected to be present
at the Meeting, but have been given the opportunity to make a statement if they
wish, and will be available by telephone should any matter arise requiring their
presence.
Approval by a majority of the shares of all Funds voting together as a
single class is necessary to ratify the selection of auditors.
THE TRUSTEES RECOMMEND THAT YOU VOTE FOR RATIFYING THE INDEPENDENT AUDITORS
<PAGE>
PROPOSAL 3. APPROVING OR DISAPPROVING NEW INVESTMENT
MANAGEMENT AGREEMENTS
You are being asked to approve new Investment Management Agreements (the
"Proposed Agreements") between TICI and the Trust on behalf of Asset Allocation
Fund, International Fund and Stock Fund. (For the purposes of Proposal 3, the
term "Funds" refers only to Asset Allocation Fund, International Fund and Stock
Fund). The Proposed Agreements would replace each Fund's existing Investment
Management Agreement (the "Current Agreement") between TICI and the Trust on
behalf of such Funds. In order for the Proposed Agreements to become effective,
the Investment Company Act of 1940, as amended (the "1940 Act"), requires that
the Proposed Agreements be approved by the Trust's Board and each such Fund's
shareholders. The Trustees of the Trust, including those Trustees who are not
"interested persons" or affiliates (as defined in the 1940 Act) of any party to
the Proposed Agreements (the "Independent Trustees"), approved the Proposed
Agreements in person at a meeting held on December 3, 1996. The Proposed
Agreements are identical in all material respects to the Current Agreement
except that the Proposed Agreements reflect an increase in the investment
management fee payable to TICI. <TABLE> <CAPTION>
FUND CURRENT FEE (ANNUAL RATE)* PROPOSED FEE (ANNUAL RATE)*
<S> <C> <C>
Asset 0.50% up to $200 million, 0.65% up to $200 million,
Allocation. 0.45% up to $1.3 billion, 0.585% up to $1.3 billion,
0.40% over $1.3 billion. 0.52% over $1.3 billion.
International. 0.50% up to $200 million, 0.75% up to $200 million,
0.45% up to $1.3 billion, 0.675% up to $1.3 billion,
0.40% over $1.3 billion. 0.60% over $1.3 billion.
Stock. 0.50% up to $200 million, 0.75% up to $200 million,
0.45% up to $1.3 billion, 0.675% up to $1.3 billion,
0.40% over $1.3 billion. 0.60% over $1.3 billion.
</TABLE>
* Based upon average daily net assets.
The Trustees believe that as a result of the revised fee schedule, the
Funds' Investment Manager will be better able to continue to provide high
quality services to the Funds and their shareholders.
The Current Agreement and the Proposed Agreements, including the services
to be provided, terms relating to compensation, and procedures for termination
and renewal, are described below under "What are the Terms of the Current and
Proposed Agreements?" The description of the Proposed Agreements is qualified in
its entirety by reference to the form of Proposed Agreements set forth in the
Appendix to this proxy statement. Additional information about TICI is set forth
below under "Other Information."
WHAT ARE THE TERMS OF THE CURRENT AND PROPOSED AGREEMENTS?
THE CURRENT AGREEMENT. The Current Agreement, dated October 30, 1992,
provides that TICI shall render investment management services to each of the
Funds subject to the control and supervision of the Trustees of the Trust. The
shareholders of each Fund approved the Current Agreement on October 30, 1992. By
its terms, the Current Agreement will continue in effect from year to year so
long as it is approved annually by the Trustees (at a meeting called for that
purpose) or by vote of a majority of each Fund's outstanding shares. In either
case, renewal of the Current Agreement must be approved by a majority of the
Trust's Independent Trustees. The Current Agreement is subject to termination
without penalty on 60 days' written notice by either party to the other and will
terminate automatically in the event of assignment. The Board last approved
continuance of the Current Agreement through April 30, 1997, at a meeting held
on February 23, 1996.
Under the Current Agreement, subject to the control and supervision of the
Trustees, TICI manages the investment and reinvestment of each Fund's assets in
accordance with each Fund's investment objectives and policies, makes all
determinations with respect to buying, holding, and selling each Fund's
securities as well as exercising any investment security rights, including
voting rights. The Investment Manager is not required to furnish any personnel,
overhead items or facilities for the Funds, including trading desk facilities or
daily pricing of the Funds' portfolios, although those services are provided for
some other investment companies by their investment managers. In performing
duties under the Current Agreement, TICI is required to comply with the
provisions of the Trust's Agreement and Declaration of Trust and By-Laws and
each Fund's stated investment objective, policies and restrictions.
The Current Agreement provides that TICI will abide by the Funds' brokerage
policies when selecting broker-dealers to execute portfolio transactions for the
Funds. Although the services provided by broker-dealers may incidentally help
TICI reduce its expenses or otherwise benefit TICI, its clients, its affiliates
and the Funds, the value of these services is indeterminable and TICI's fee is
not reduced by any offsetting or compensating arrangement.
The Current Agreement also provides that TICI, its directors, officers,
employees or agents will have no liability to the Funds or any shareholder of
the Funds for any error in judgment, mistake of law, or for loss arising out of
any investment or other act or omission in the performance of its duties, except
for any liability, loss or damage resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard of duty.
For the fiscal year ended December 31, 1995, TICI received the following
fees from the Funds:
<TABLE>
<CAPTION>
TOTAL FEES RECEIVED BY TICI
FUND FISCAL YEAR ENDED 12/31/95
<S> <C>
Asset Allocation. $1,662,023
International. $1,222,834
Stock. $2,102,259
</TABLE>
THE PROPOSED AGREEMENTS. Except for the change in the investment management
fee described above on page 12, the Current Agreement and the Proposed
Agreements are substantially the same. If approved, each of the Proposed
Agreements will become effective May 1, 1997 and continue in effect until
February, 1999, and thereafter from year to year as long as approved annually by
the Trustees at a meeting called for that purpose or by a vote of each Fund's
shareholders, and by a vote of a majority of the Independent Trustees. If the
Proposed Agreements are not approved by the shareholders, the Current Agreement
will remain in effect through April 30, 1997.
COMPARISON OF FEES AND EXPENSES UNDER THE CURRENT AGREEMENT AND THE
PROPOSED AGREEMENTS. The following tables and examples are provided to help you
understand and compare the various costs and expenses of each Fund that would be
borne directly or indirectly by the shareholders of each Fund under the Current
Agreement and the Proposed Agreements.
The tables include only expenses and fees charged at the Fund level and do
not reflect separate account or contract-based fees and expenses or sales loads.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995
ASSET ALLOCATION International STOCK
<S> <C> <C> <C>
EFFECTIVE MANAGEMENT FEE RATE
Current Agreement................ .48% .49% .47%
Proposed Agreements.............. .62% .71% .69%
Percentage Change................ .14% .22% .22%
EXPENSE RATIO
Current Agreement................ .66% .71% .66%
Proposed Agreements.............. .80% .93% .88%
Percentage Change................ .14% .22% .22%
MANAGEMENT FEE
Current Agreement................ $1,662,023 $1,222,834 $2,102,259
Proposed Agreements............. $2,162,022 $1,821,937 $3,092,462
Difference between aggregate
amounts........................ 30.1% 49.0% 47.1%
- ----- ----- -----
AVERAGE NET ASSETS OF FUND FISCAL
YEAR Ended December 31, 1995........ $347,354,142 $249,528,820 $444,994,144
============--------============ =-----------
</TABLE>
Shown below is a comparison of fees and expenses the Funds incurred during
the fiscal year ended December 31, 1995, and the fees and expenses the Funds
would have incurred had the proposed fee increase been in effect. The table
includes only expenses and fees charged at the Fund level and does not reflect
separate account or contract-based fees and expenses or sales loads.
<TABLE>
<CAPTION>
ASSET ALLOCATION INTERNATIONAL
FUND Fund Stock Fund
ANNUAL FUND
EXPENSES CURRENT PROPOSED CURRENT PROPOSED CURRENT PROPOSED
<S> <C> <C> <C> <C> <C> <C>
Management Fees....... .48% .62% .49% .71% .49% .69%
Distribution Fees... None None None None None None
Other Expenses........ .18% .18% .22% .22% .19% .19%
--------- ------- ---- ---- ----
Total Fund Expenses. .66% .80% .71% .93% .66% .88%
======= ====== ====== ======= ====== =====
</TABLE>
The following example illustrates, for both the existing fee schedule and
the proposed fee increase, the expenses you would incur on a $1000 investment,
assuming a 5% annual rate of return and redemption at the end of each period
shown. This is an illustration only and does not reflect separate account or
contract-based expenses.
Actual expenses and performance may be more or less than shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
ASSET ALLOCATION FUND
<S> <C> <C> <C> <C>
Current.............. $ 7 $21 $37 $ 82
Proposed............. 9 26 44 99
STOCK FUND
Current.............. $ 7 $21 $37 $ 82
Proposed............. 9 28 49 108
INTERNATIONAL FUND
Current.............. $ 7 $23 $40 $ 88
Proposed............. 9 30 51 114
</TABLE>
HOW HAVE THE FUNDS PERFORMED UNDER THE INVESTMENT MANAGER'S DIRECTION?
The Funds' performance for the periods ending June 30, 1996 is set forth in
the following chart. All performance figures shown reflect all Fund operating
expenses, but do not include deductions for the cost of insurance charges, sales
charges, administrative charges, maintenance fees, premium tax charges,
mortality and expense risk charges or other charges that may be incurred under
the variable annuity and variable life insurance contracts for which the Funds
serve as underlying investment vehicles. If they had been included, performance
would have been lower. Please refer to the contract prospectus for a complete
description of expenses, including any applicable sales charges. Please remember
that the performance data shown below is historical and cannot predict or
guarantee future results. Principal value and investment return will vary and
you may have a gain or loss when you withdraw your money.
<PAGE>
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
SINCE INCEPTION
1-YEAR 5-YEAR --(8/24 /88)
<S> <C> <C> <C>
Average Annual Total Return(1)...... 18.46% 15.35% 11.80%
Cumulative Total Return(2).......... 18.46% 105.23% 139.94%
Value of $10,000 Investment(3)...... $11,846 $20,423 $23,994
STOCK FUND
SINCE INCEPTION
1-YEAR 5-YEAR --(8/24 /88)
Average Annual Total Return(1)...... 21.32% 17.68% 12.92%
Cumulative Total Return(2).......... 21.32% 125.78% 159.56%
Value of $10,000 Investment(3)...... $12,132 $22,578 $ 25,956
INTERNATIONAL FUND
SINCE INCEPTION
1-YEAR 5-YEAR (8/24/88)
Average Annual Total Return(1)...... 18.83% 17.95% 14.17%
Cumulative Total Return(2).......... 18.83% 64.11% 73.62%
Value of $10,000 Investment(3)...... $11,883 $16,411 $ 17,362
</TABLE>
(1) Average annual total return represents the average annual change in value of
an investment and assumes reinvestment of dividends and capital gains.
(2) Cumulative total return represents the change in the Funds' net asset value
over the periods indicated and assumes reinvestment of dividends and capital
gains.
(3) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the specified periods and assume reinvestment of dividends and
capital gains.
Past expense reductions by TICI increased the Funds' total returns.
WHAT FACTORS DID THE TRUSTEES CONSIDER PRIOR TO RECOMMENDING APPROVAL OF THE
PROPOSED AGREEMENTS?
In determining whether or not it was appropriate to approve the Proposed
Agreements which increase the investment management fees payable to TICI and to
recommend approval to shareholders, the Trustees considered various matters and
extensive information provided by TICI and the Trust's legal counsel, Dechert
Price & Rhoads. The nature of the matters to be considered and the standards to
be used by the Trustees in reaching their decision were reviewed by the Trust's
legal counsel and Bleakley Platt & Schmidt, legal counsel to the Independent
Trustees. After review and discussions of the information provided, the
Independent Trustees met separately to discuss the information and consider the
factors to be weighed and standards to be applied in evaluating the proposed fee
increase.
The Independent Trustees first examined the nature, quality and scope of
the services provided to the Funds by TICI. Second, they reviewed the basis for
an increase in the investment management fee and analyzed the fee schedule
proposed by TICI in terms of investment management fees charged by TICI and
other investment advisers. Finally, the Independent Trustees examined mutual
fund-related revenues and expenses of TICI.
The Independent Trustees were provided with data as to the qualifications
of TICI's personnel, the quality and extent of the services rendered, and its
commitments to its mutual fund advisory business. The Independent Trustees also
considered data presented by TICI showing the extent to which it had
substantially expanded its investment personnel and other services, including
significant continuing upgrading and development of its computer and
communication systems dedicated to its mutual fund advisory activities, both in
the United States and abroad. Information prepared specifically for the purpose
of assisting the Independent Trustees in their evaluation of the Proposed
Agreements included an analysis of the performance and expenses of the Funds
prepared by Lipper Analytical Services, Inc. ("Lipper").
After consideration of all of the data and information provided to them and
the separate meeting to evaluate the new investment management fee proposed by
the Investment Manager, the Independent Trustees discussed the proposed fee
schedule with representatives of TICI. After such discussion, the Independent
Trustees then unanimously determined to recommend to the Board and the Board
unanimously approved the fee schedule reflected in the Proposed Agreements.
Noting their favorable experience in overseeing, on an ongoing basis, the
nature, quality and extent of TICI's services to the Funds, the Independent
Trustees considered, among other factors: (1) the necessity of TICI maintaining
and enhancing its ability to retain and attract capable personnel to serve the
Funds; (2) the increased complexity and expansion of the domestic and
international securities markets and TICI's and its affiliates' shared
expenditures and projected expenses associated with opening and maintaining
research and support offices in Australia, Bahamas, Canada, Scotland,
Luxembourg, France, Italy, and in the United States; (3) the Investment
Manager's expenditures in developing worthwhile and innovative advisory services
for the Funds such as a proprietary research database; (4) the complexity of
research and investment activities, and related travel expenses, in developed
and emerging markets; (5) the investment record of the Investment Manager in
managing the Funds and other investment companies for which it acts as
investment adviser; (6) the Investment Manager's and its affiliates' overall
profitability; (7) the effect of the proposed investment management fee increase
on the expense ratio of the Funds; (8) data as to investment performance,
advisory fees and expense ratios of other investment companies not advised by
the Investment Manager but believed to be generally comparable to the Funds; (9)
other benefits to the Investment Manager from serving as investment manager to
the Funds, as well as benefits to its affiliates serving as principal
underwriter and business manager of the Trust or providing other services to the
Funds and their shareholders; (10) current and developing conditions in the
financial services industry, including the entry into the industry of large and
highly capitalized companies which are spending and appear to be prepared to
continue to spend substantial sums to engage personnel and to provide services
to competing investment companies; and (11) the financial resources of the
Investment Manager.
In their review of the proposed increase in the level of the investment
management fees, the Independent Trustees considered the fact that the current
investment management fees paid by the Funds are lower than those paid to the
Investment Manager by other investment companies with investment objectives
comparable to that of the Funds for which it also serves as investment adviser.
The Independent Trustees also took into account the fact that the Funds' total
expense ratios, including the investment management fees, are below the median
fee rates and expense ratios of groups of mutual funds selected by Lipper as
comparison groups. Moreover, if the Proposed Agreements had been in effect, the
total expense ratio (including the investment management fee) for each of the
Funds would rank in the second lowest quintile for their groups--or below the
median for their groups.
Based upon the factors and information described above, the Trustees
concluded that the proposed fee increases represent an appropriate level of
compensation for the services rendered, and approved the Proposed Agreements,
subject to shareholder approval, effective May 1, 1997.
THE TRUSTEES RECOMMEND THAT YOU VOTE FOR APPROVAL OF THE NEW INVESTMENT
MANAGEMENT AGREEMENTS.
PROPOSAL 4. OTHER BUSINESS
The Trustees know of no other business to be presented at the Meeting. If,
however, any additional matters should be properly presented, proxies will be
voted as specified. Proxies reflecting no specification will be voted in
accordance with the judgment of the persons named in the proxy.
O INFORMATION ABOUT THE TRUST AND THE FUNDS
The Trust was organized as a Massachusetts business trust on February 25,
1988 and is registered under the 1940 Act as an open-end diversified investment
management company. The Trust currently has six series of shares: Templeton
Money Market Fund, Templeton Bond Fund, Templeton Stock Fund, Templeton Asset
Allocation Fund, Templeton International Fund and Templeton Developing Markets
Fund. Shares of the Funds are sold only to insurance company separate accounts
to serve as the investment vehicle for certain variable annuity and life
insurance contracts.
The Trust's last audited financial statements and annual report, and a copy
of its semi-annual report for any subsequent semi-annual period are available
free of charge. To obtain a copy, please call 1-800/342-FUND or forward a
written request to Franklin Templeton Investor Services, Inc., P.O. Box 33030,
St. Petersburg, Florida 33733-8030.
The following table shows the net assets and shares outstanding of each
Fund as of December 2, 1996:
NUMBER OF
FUND NAME NET SHARES
ASSETS OUTSTANDING
Asset Allocation Fund......... $ 550,417,129 26,260,359.209
International Fund............ $ 656,396,931 36,505,947.234
Stock Fund.................... $ 629,659,505 28,047,194.005
Bond Fund . $ 34,199,941 2,940,665.607
Developing Markets Fund....... $ 63,464,118 6,687,472.925
Money Market Fund............. $ 13,102,691 12,102,690.650
--------------- --------------
Total.................... $1,945,938,038 22,464,439.630
============== ==============
As of December 2, 1996, the following Insurance Companies owned, on behalf
of certain separate accounts, more than 5% of the Funds' outstanding shares:
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS NUMBER OUTSTANDING
FUND INSURANCE COMPANY OF SHARES SHARES
<S> <C> <C> <C>
Money Market... Phoenix Home Life Mutual 13,102,690.650 100%
Insurance Company
100 Bright Meadows Blvd.
Enfield, CT 06082
Bond Fund...... Phoenix Home Life Mutual 1,731,750.715 58.59%
Insurance Company
The Travelers Insurance 1,208,914.892 41.11%
Company
One Tower Square
Hartford, CT 06183
Stock Fund..... The Travelers Insurance 136,122,080.059 48.53%
Company
Phoenix Home Life Mutual 14,431,531.461 51.45%
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS NUMBER OUTSTANDING
FUND INSURANCE COMPANY OF SHARES SHARES
- --------------- ------------------- ----------- ------
<S> <C> <C> <C>
International Fund... Phoenix Home Life Mutual 6,274,201.077 17.19%
Insurance Company
The Variable Annuity Life 28,251,566.517 77.39%
Insurance Company
2929 Allen Parkway
Houston, TX 77019
Asset Allocation Fund Phoenix Home Life Mutual 7,303,552.679 27.81%
. Insurance Company
The Travelers Insurance 9,920,740.282 37.78%
Company
The Variable Annuity Life 9,029,052.133 34.38%
Insurance Company
Developing Markets
Fund............... IDS Life Insurance Company 97.26%
IDS Tower 10 6,579,962.876
Minneapolis, MN 55440
</TABLE>
However, the above-named Insurance Companies will exercise voting rights
attributable to the shares held by them in accordance with voting instructions
received from owners of the contracts issued by them. To this extent, such
Insurance Companies do not exercise control over the Trust or the Funds by
virtue of the voting rights arising from their record ownership of Trust shares.
THE EXECUTIVE OFFICERS OF THE TRUST. Officers of the Trust are appointed by
the Trustees and serve at the pleasure of the Board. Listed below, for each
Executive Officer, is a brief description of recent professional experience:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND OFFICES WITH TRUST DURING PAST FIVE YEARS AND AGE
<S> <C>
CHARLES B. JOHNSON..... See Proposal 1, "Electing Trustees".
CHAIRMAN AND VICE PRESIDENT
SINCE 1995
CHARLES E. JOHNSON..... Senior vice president and director of Franklin
PRESIDENT SINCE 1996 Resources, Inc.; senior vice president of Franklin
Templeton Distributors, Inc.; president and chief
executive officer of Templeton Worldwide, Inc.;
president and director of Franklin Institutional
Services Corporation; chairman of the board of
Templeton Investment Counsel, Inc.; officer and/or
director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee of 41 of the
investment companies in the Franklin Templeton
Group of Funds. Age 40.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND OFFICES WITH TRUST DURING PAST FIVE YEARS AND AGE
<S> <C>
RUPERT H. JOHNSON, JR. .. Executive vice president and director of Franklin
VICE PRESIDENT SINCE 1996 Resources, Inc. and Franklin Templeton Distributors,
Inc.; president and director of Franklin
Advisers, Inc.; director of Franklin Templeton
Investor Services, Inc. and Franklin Templeton
Services, Inc.; and officer and/or director,
trustee or managing general partner, as the case
may be, of most other subsidiaries of Franklin
Resources, Inc. and 61 of the investment
companies in the Franklin Templeton Group of
Funds. Age 56.
HARMON E. BURNS.......... Executive vice president, secretary and director of
VICE PRESIDENT SINCE 1996 Franklin Resources, Inc.; executive vice president
and director of Franklin Templeton Distributors,
Inc.; executive vice president of Franklin
Advisers, Inc.; officer and/or director, as the
case may be, of other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or
trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds Age 51.
DEBORAH R. GATZEK........ Senior vice president and general counsel of
VICE PRESIDENT SINCE 1996 Franklin Resources, Inc.; senior vice president of
Franklin Templeton Distributors, Inc.; vice
president of Franklin Advisers, Inc.; and
officer of 61 of the investment companies in the
Franklin Templeton Group of Funds. Age 48.
ELIZABETH M. KNOBLOCK.... General counsel, secretary and a senior vice
VICE PRESIDENT--COMPLIANCE president of Templeton Investment Counsel, Inc.;
SINCE 1996 formerly, vice president and associate general
counsel of Kidder Peabody & Co. Inc. (1989-1990),
assistant general counsel of Gruntal & Co., Inc.
(1988), vice president and associate general counsel
of Shearson Lehman Hutton Inc. (1988), vice
president and assistant general counsel of E.F.
Hutton & Co. Inc. (1986-1988), and special counsel
of the division of investment management of the
Securities and Exchange Commission (1984-1986); and
officer of 23 of the investment companies in the
Franklin Templeton Group of Funds. Age 41.
MARK G. HOLOWESKO........ President and director of Templeton Global Advisors
VICE PRESIDENT SINCE 1994 Limited; chief investment officer 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); and officer of 23 of the investment
companies in the Franklin Templeton Group of
Funds. Age 36.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND OFFICES WITH TRUST DURING PAST FIVE YEARS AND AGE
- - ---------------------------- ------------------------------
<S> <C>
MARTIN L. FLANAGAN....... Senior vice president, treasurer and chief financial
VICE PRESIDENT SINCE 1994 officer of Franklin Resources, Inc.; director and
executive vice president of Templeton Investment
Counsel, Inc.; director and president of
Franklin Templeton Services, Inc.; a member of
the International Society of Financial Analysts
and the American Institute of Certified Public
Accountants; formerly with Arthur Andersen &
Company (1982- 1983); officer and/or director,
as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or
director or trustee of 61 of the investment
companies in the Franklin Templeton Group of
Funds. Age 36.
SAMUEL J. FORESTER, JR. . Vice President of 10 of the investment companies in
VICE PRESIDENT SINCE 1994 the Franklin Templeton group of Funds; formerly,
President of the Templeton Global Bond Managers
Division of Templeton Investment Counsel, Inc.;
founder and partner of Forester, Hairston
Investment Management (1989-1990); managing
director (Mid-East Region) of Merrill Lynch,
Pierce, Fenner & Smith Inc. (1987-1988); advisor
for Saudi Arabian Monetary Agency (1982-1987).
Age 48.
JOHN R. KAY.............. Vice president and treasurer of Templeton Worldwide,
VICE PRESIDENT SINCE 1994 Inc.; assistant vice president of Franklin Templeton
Distributors, Inc.; formerly, vice president and
controller of the Keystone Group, Inc.; and
officer of 27 of the investment companies in the
Franklin Templeton Group of Funds. Age 56.
THOMAS LATTA............. Vice president of the Templeton Global Bond Managers
VICE PRESIDENT SINCE 1994 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.
BARBARA J. GREEN......... Senior vice president of Templeton Worldwide, Inc.
SECRETARY SINCE 1996 and officer of other subsidiaries of Templeton
Worldwide, Inc.; formerly, deputy director of
the Division of Investment Management, executive
assistant and senior advisor to the chairman,
counselor to the chairman, special counsel and
attorney fellow, U.S. Securities and Exchange
Commission (1986-1995), attorney, Rogers &
Wells, and judicial clerk, U.S. District Court
(District of Massachusetts); and secretary of 23
of the investment companies in the Franklin
Templeton Group of Funds. Age 49.
JAMES R. BAIO.......... Certified public accountant; senior vice president of
TREASURER SINCE 1994 Templeton Worldwide, Inc. and Templeton Funds Trust
Company; formerly, senior tax manager with Ernst &
Young (certified public accountants) (1977- 989); and
treasurer of 23 of the investment companies in the
Franklin Templeton Group of Funds. Age 42.
</TABLE>
THE INVESTMENT MANAGER. TICI, whose address is 500 East Broward Boulevard,
Suite 2100, Fort Lauderdale, Florida, is a wholly-owned subsidiary of Templeton
Global Investors, Inc., which is a wholly-owned subsidiary of Templeton
Worldwide, Inc., which, in turn, is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), 777 Mariners Island Blvd., San Mateo, California,
94404-1585. Resources is primarily engaged, through various subsidiaries, in
providing investment management, share distribution, transfer agent and
administrative services to a family of investment companies. Resources is an
NYSE, Inc. listed holding company (NYSE: BEN). Resources' principal shareholders
are Charles B. Johnson, a Trustee of the Trust, and Rupert H. Johnson, Jr., vice
president of the Trust, who own approximately 20% and 16%, respectively, of its
outstanding shares.
The principal executive officers of TICI are:
<TABLE>
<CAPTION>
NAME AND OFFICE PRINCIPAL OCCUPATION Address
<S> <C> <C>
Charles E. Johnson.. Executive Manager 500 East Broward Blvd., Suite
DIRECTOR AND CHAIRMAN 2100
Fort Lauderdale, Florida
Donald F. Reed...... Securities Analyst 500 East Broward Blvd., Suite
DIRECTOR AND PRESIDENT 2100
Fort Lauderdale, Florida
Martin L. Flanagan.. Accountant 777 Mariners Island Blvd.
DIRECTOR, EXECUTIVE VICE San Mateo, California
PRESIDENT AND CHIEF
OPERATING OFFICER
Gregory E. McGowan.. Attorney 500 East Broward Blvd., Suite
DIRECTOR AND EXECUTIVE 2100
VICE PRESIDENT Fort Lauderdale, Florida
Gary P. Motyl....... Securities Analyst 500 East Broward Blvd., Suite
DIRECTOR AND EXECUTIVE 2100
VICE PRESIDENT Fort Lauderdale, Florida
Elizabeth M. Knoblock . Attorney 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT, 2100
GENERAL COUNSEL AND Fort Lauderdale, Florida
SECRETARY
Howard Joseph Leonard.. Securities Analyst 500 East Broward Blvd., Suite
EXECUTIVE VICE PRESIDENT 2100
Fort Lauderdale, Florida
Niels E. Andersen...... Securities Analyst 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT 2100
Fort Lauderdale, Florida
Mark R. Beveridge...... Securities Analyst 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT 2100
Fort Lauderdale, Florida
Gary R. Clemons........ Securities Analyst 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT 2100
Fort Lauderdale, Florida
William T. Howard, Jr. . Securities Analyst 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT 2100
Fort Lauderdale, Florida
Charles Reed Hutchens.. Securities Analyst 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT 2100
Fort Lauderdale, Florida
Marc S. Joseph......... Securities Analyst 500 East Broward Blvd., Suite
SENIOR VICE PRESIDENT 2100
Fort Lauderdale, Florida
Michael J. Corcoran.... Accountant 777 Mariners Island Blvd.
VICE PRESIDENT AND CONTROLLER San Mateo, California
</TABLE>
Some of the Trustees or officers of the Trust (whose addresses and
biographical information are set forth above under "Electing Trustees") also
serve as directors or officers of TICI. These Trustees and officers are listed
below:
Martin L. Flanagan
Charles E. Johnson
Elizabeth M. Knoblock
TICI also serves as investment manager or sub-adviser to other U.S. registered
investment companies that have an investment objective similar to that of Stock
Fund, International Fund or Asset Allocation Fund. TICI receives and expects to
receive from these investment companies the following investment management
fees:
<TABLE>
<CAPTION>
APPROXIMATE INVESTMENT
NET ASSETS AS OF MANAGEMENT FEE
INVESTMENT Company December 2, 1996 (Annual Rate)*
<S> <C> <C>
Templeton Institutional Funds,
Inc.-- $2,763,347,554 0.70%
Foreign Equity Series...........
Templeton Global Opportunities Fund $ 629,148,847 0.950% up to $200 million,
. 0.935% of next $500 million,
0.900% of next $500 million,
0.875% thereafter
Templeton Capital Accumulator
Fund, Inc....................... $ 125,891,704 0.75%
Franklin Valuemark Funds--Asset
Allocation Fund**............... $ 52,647,037 0.65% up to $200 million,
0.585% up to 1.3 billion,
0.52% over 1.3 billion
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE INVESTMENT
NET ASSETS AS OF MANAGEMENT FEE
INVESTMENT Company DECEMBER 2, 1996 (ANNUAL RATE)*
- ---------------- - ---------------- --------------
<S> <C> <C>
Franklin Valuemark Funds--
International Equity Fund**. $1,084,023,739 1.00% up to $100 million,
0.90% up to $250 million,
0.80% up to $500 million,
0.75% over $500 million
(including Fund
Administration Fees)
Advantus International Balanced
Fund***...................... $ 45,600,00 0.70% on first $25 million,
.55% on next $25 million,
.50% on next $50 million,
.40% on excess over $100
million
Marshall International Stock
Fund***...................... $ 163,900,000 .50% on first $70 million,
.40% on excess over $70 mllion
Maxim Series Fund, Inc.
(International Portfolio I)*** $ 92,800,000 .70% on first $25 million,
. .55% on next $25 million,
.50% on next $50 million,
.40% on excess over $100
million
MIMLIC Series Fund
(International $ 205,000,000 .75% on first $10 million,
Stock Portfolio)***.......... .65% on next $15 million,
.55% on next $25 million,
.50% on next $50 million,
.40% on next $100 million
Northwestern Mutual Series Fund,
Inc. (International Equity $ 487,500,000 .50% on first $100 million,
Portfolio)***................ .40% in excess of $100 million
Pacific Select Fund
(International Series)***.... $ 425,300,000 .70% on first $25 million,
.55% on next $25 million,
.50% on next $50 million,
.40% on excess over $100 milion*
American AAdvantage Funds and
American AAdvantage Mileage
Funds (Master-Feeder
Funds)****..................... $ 146,000,000 .50% on first $100 million,
.35% on next $50 million,
.30% on next $250 million,
.25% on excess over $400 million
</TABLE>
* TICI has not agreed to waive or reduce its investment management fees.
**TICI serves as sub-adviser to these funds. The investment management fees
shown for these funds reflect the total investment advisory fees paid by
such funds to their investment advisers, which are affiliates of TICI.
***TICI serves as sub-adviser to these funds. The investment management fees
shown for these funds reflect only the sub-advisory fees paid to TICI. The
investment advisers of these funds, which are not affiliated with TICI,
receive total investment advisory fees ranging from .85% to 1.00% of the
funds' net assets, out of which the investment advisers pay the sub-advisory
fees to TICI.
****TICI serves as one of three sub-advisers to this fund, which is part of a
master-feeder structure. The fees shown above reflect only the sub-advisory
fees paid to TICI and do not include other advisory or other fees paid to
other parties.
THE BUSINESS MANAGER. The business manager of the Trust and each of the
Funds is Templeton Funds Annuity Company ("TFAC"), a Florida corporation,
located at 700 Central Avenue, St. Petersburg, Florida 33701-3628. TFAC is an
indirect, wholly-owned subsidiary of Resources. Pursuant to a Business
Management Agreement between the Trust and TFAC dated October 30, 1992, as
amended and restated February 23, 1996, TFAC performs certain administrative
functions for the Funds. TFAC will continue to serve as the business manager if
the Proposed Agreements are approved. For its services, TFAC receives a monthly
fee equal on an annual basis to 0.15% of the combined average daily net assets
of all of the Funds up to $200 million, reduced to 0.135% of the Funds'
aggregate net assets up to $700 million, reduced to 0.1% of such net assets up
to $1.2 billion and further reduced to 0.075% annually of such net assets in
excess of $1.2 billion. This fee is allocated among the Funds according to their
respective average daily net assets. During the fiscal year ended December 31,
1995, TFAC received fees from the Trust totaling $1,380,760.00.
THE PRINCIPAL UNDERWRITER. Franklin Templeton Distributors, Inc.
("FTD"), 700 Central Avenue, St. Petersburg, Florida 33701-3628, an indirect,
wholly-owned subsidiary of Resources, serves as the principal underwriter
for the Funds' shares and will continue to do so if the Proposed Agreements
are approved. FTD receives no compensation for its services as the Funds'
principal underwriter.
THE CUSTODIAN. The custodian for the Funds is The Chase Manhattan Bank, 1
Chase Manhattan Plaza, New York, New York 10081, pursuant to a Custody Agreement
dated February 23, 1996 and last amended May 10, 1996.
ADDITIONAL INFORMATION ABOUT VOTING
AND THE SHAREHOLDERS MEETING
SOLICITATION OF PROXIES. In addition to soliciting proxies by mail, the
Trustees and the employees of the Insurance Companies and Resources and its
affiliates may solicit voting instructions from Contract Owners in
person or by telephone. The cost of soliciting proxies, including the fees of a
proxy soliciting agent, are borne by the Trust. The Trust, however, does not
reimburse Trustees, officers, and regular employees and agents involved in the
solicitation of proxies.
QUORUM. A majority of the shares entitled to vote--present in person or
represented by proxy--constitutes a quorum at the Meeting. Shares whose proxies
reflect an abstention on any item are all counted as shares present and entitled
to vote for purposes of determining the presence of a quorum.
METHODS OF TABULATION. The inspector of election will count the total
number of votes cast "for" approval of each of the proposals for purposes of
determining whether sufficient affirmative votes have been cast. Abstentions
will be treated as votes not cast and, therefore, will not be counted for
purposes of obtaining approval of Proposals 1 and 2, and will not have any
effect on the outcome of the proposal. With respect to any other proposal,
abstentions have the effect of a negative vote on the proposal.
Each of the Insurance Companies holding shares of the Funds have agreed to
vote their shares in proportion to and in the manner instructed by Contract
Owners. If a Contract Owner gives no instructions by not returning the voting
instruction card, the relevant Insurance Company will vote the shares in the
same proportion as shares of that Fund for which it has received instructions.
If a Contract Owner returns a signed voting instruction card but does not
indicate specific instructions, the shares will be voted in accordance with the
Trustees' recommendations.
ADJOURNMENT. If a sufficient number of votes in favor of the proposals
contained in the Notice of Annual Meeting and Proxy Statement is not received by
the time scheduled for the Meeting, the persons named in the proxy may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies with respect to any such proposals. Any proposed adjournment requires
the affirmative vote of a majority of shares present at the Meeting. The
appropriate
Insurance Company will vote in favor of such adjournment those shares which
they are entitled to vote in favor of such proposals. They will vote against
such adjournment those shares required to be voted against such proposals. Any
proposals for which sufficient favorable votes have been received by the time of
the Meeting may be acted upon and considered final regardless of whether the
Meeting is adjourned to permit additional solicitation with respect to any other
proposal.
REVOCATION OF PROXIES. Proxies executed by any of the Insurance Companies
may be revoked at any time before they are voted by written revocation received
by the Secretary of the Trust, by properly executing a later-dated proxy or by
attending the Meeting and voting in person.
SHAREHOLDER PROPOSALS. The Trust's Agreement and Declaration of Trust does
not provide for annual meetings of shareholders, and the Trust does not
currently intend to hold such a meeting in 1998. Shareholder proposals to be
included in the proxy statement for any subsequent meeting must be received at
the Trust's offices, 700 Central Avenue, St. Petersburg, Florida 33701, at least
120 days prior to any such meeting.
By Order of the Board of Trustees,
Barbara J. Green, Secretary
January 13, 1997
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of [DATE] between TEMPLETON VARIABLE PRODUCTS SERIES
FUND, a Massachusetts business trust (hereinafter referred to as the "Trust"),
on behalf of its series TEMPLETON ASSET ALLOCATION FUND ("Fund"), and TEMPLETON
INVESTMENT COUNSEL, INC., a Florida corporation ("Investment Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust,
on behalf of the Fund, desires to avail itself of the services of the Investment
Manager; and,
WHEREAS, the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, is engaged in the business of
rendering investment management services and desires to provide these services
to the Fund.
THEREFORE, in consideration of the mutual agreements herein made, the Trust
and the Investment Manager understand and agree as follows:
(1) The Investment Manager shall manage the investment and reinvestment of
the Fund's assets consistent with the provisions of the Trust's Agreement and
Declaration of Trust and the Fund's investment policies as 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 such steps as may be necessary to implement those determinations. Such
determinations and services shall include determining the manner in which any
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's investment securities shall be exercised, subject to
guidelines adopted by the Board of Trustees.
(2) The Investment Manager is not required to furnish any personnel,
overhead items or facilities for the Trust, 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 Fund 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 Fund'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 Fund'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 Fund'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 Trust agrees to pay to the Investment Manager a monthly fee in
dollars at an annual rate of 0.65% of the first $200,000,000 of the Fund's
average daily net assets, reduced for such assets over $200,000,000 to 0.585%,
and further reduced for such assets in excess of $1,300,000,000 to 0.52%,
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 Fund 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 Fund's fiscal year if
accrued expenses thereafter fall below the limit.
The Manager may waive all or a portion of its fees provided for hereunder
and such waiver shall be treated as a reduction in purchase price of its
services. The Manager shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of the Fund's expenses,
as if such waiver or limitation were fully set forth herein.
(5) This Agreement shall become effective on [DATE] and shall continue in
effect until [DATE]. 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 the 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 Trust and the Fund the use of the names
"Franklin," "Templeton" or any name misleadingly implying a continuing
relationship between the Trust or 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 Fund'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 for 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 negligence on the Investment Manager's part or by reason of reckless
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 the 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
State of Florida, 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 Trust 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:
TEMPLETON INVESTMENT COUNSEL, INC.
By:
<PAGE>
APPENDIX B
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of [DATE] between TEMPLETON VARIABLE PRODUCTS SERIES
FUND, a Massachusetts business trust (hereinafter referred to as the "Trust"),
on behalf of its series TEMPLETON INTERNATIONAL FUND ("Fund"), and TEMPLETON
INVESTMENT COUNSEL, INC., a Florida corporation ("Investment Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust,
on behalf of the Fund, desires to avail itself of the services of the Investment
Manager; and,
WHEREAS, the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, is engaged in the business of
rendering investment management services and desires to provide these services
to the Fund.
THEREFORE, in consideration of the mutual agreements herein made, the Trust
and the Investment Manager understand and agree as follows:
(1) The Investment Manager shall manage the investment and reinvestment of
the Fund's assets consistent with the provisions of the Trust's Agreement and
Declaration of Trust and the Fund's investment policies as 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 such steps as may be necessary to implement those determinations. Such
determinations and services shall include determining the manner in which any
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's investment securities shall be exercised, subject to
guidelines adopted by the Board of Trustees.
(2) The Investment Manager is not required to furnish any personnel,
overhead items or facilities for the Trust, 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 Fund 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 Fund'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 Fund'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 Fund'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 Trust agrees to pay to the Investment Manager a monthly fee in
dollars at an annual rate of 0.75% of the first $200,000,000 of the Fund's
average daily net assets, reduced for such assets over $200,000,000 to 0.675%,
and further reduced for such assets in excess of $1,300,000,000 to 0.60%,
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 Fund 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 Fund's fiscal year if
accrued expenses thereafter fall below the limit.
The Manager may waive all or a portion of its fees provided for hereunder
and such waiver shall be treated as a reduction in purchase price of its
services. The Manager shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of the Fund's expenses,
as if such waiver or limitation were fully set forth herein.
(5) This Agreement shall become effective on [DATE] and shall continue in
effect until [DATE]. 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 the 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 Trust and the Fund the use of the names
"Franklin," "Templeton" or any name misleadingly implying a continuing
relationship between the Trust or 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 Fund'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 for 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 negligence on the Investment Manager's part or by reason of reckless
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 the 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
State of Florida, 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 Trust 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:
TEMPLETON INVESTMENT COUNSEL, INC.
By:
<PAGE>
APPENDIX C
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of [DATE] between TEMPLETON VARIABLE PRODUCTS SERIES
FUND, a Massachusetts business trust (hereinafter referred to as the "Trust"),
on behalf of its series TEMPLETON STOCK FUND ("Fund"), and TEMPLETON INVESTMENT
COUNSEL, INC., a Florida corporation ("Investment Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust,
on behalf of the Fund, desires to avail itself of the services of the Investment
Manager; and,
WHEREAS, the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, is engaged in the business of
rendering investment management services and desires to provide these services
to the Fund.
THEREFORE, in consideration of the mutual agreements herein made, the Trust
and the Investment Manager understand and agree as follows:
(1) The Investment Manager shall manage the investment and reinvestment of
the Fund's assets consistent with the provisions of the Trust's Agreement and
Declaration of Trust and the Fund's investment policies as 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 such steps as may be necessary to implement those determinations. Such
determinations and services shall include determining the manner in which any
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's investment securities shall be exercised, subject to
guidelines adopted by the Board of Trustees.
(2) The Investment Manager is not required to furnish any personnel,
overhead items or facilities for the Trust, 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 Fund 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 Fund'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 Fund'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 Fund'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 Trust agrees to pay to the Investment Manager a monthly fee in
dollars at an annual rate of 0.75% of the first $200,000,000 of the Fund's
average daily net assets, reduced for such assets over $200,000,000 to 0.675%,
and further reduced for such assets in excess of $1,300,000,000 to 0.60%,
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 Fund 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 Fund's fiscal year if
accrued expenses thereafter fall below the limit.
The Manager may waive all or a portion of its fees provided for hereunder
and such waiver shall be treated as a reduction in purchase price of its
services. The Manager shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of the Fund's expenses,
as if such waiver or limitation were fully set forth herein.
(5) This Agreement shall become effective on [DATE] and shall continue in
effect until [DATE]. 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 the 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 Trust and the Fund the use of the names
"Franklin," "Templeton" or any name misleadingly implying a continuing
relationship between the Trust or 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 Fund'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 for 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 negligence on the Investment Manager's part or by reason of reckless
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 the 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
State of Florida, 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 Trust 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:
TEMPLETON INVESTMENT COUNSEL, INC.
By:
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