As filed with the securities and exchange commission on September 30, 1999.
File Nos.
33-20313
811-5479
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 25 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28
TEMPLETON VARIABLE PRODUCTS SERIES FUND
(Exact Name of Registrant as Specified in Charter)
500 East Broward Blvd., Suite 2100, FORT LAUDERDALE, FLORIDA 33396-3091
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (954)527-7500
Barbara J. Green, 500 East Broward Blvd., Suite 2100, Fort Lauderdale, FLORIDA
33396-3091
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on October 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [] pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[] on [] pursuant to paragraph (a)(2)of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
PROSPECTUS
FRANKLIN S&P 500
INDEX FUND-CLASS 1
TEMPLETON
VARIABLE PRODUCTS
SERIES FUND
INVESTMENT STRATEGY GROWTH
OCTOBER 1, 1999
[Insert Franklin Templeton Logo]
As with all fund prospectuses, the SEC has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense. 5
CONTENTS
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
The Fund
[insert page #] Goal and Strategies
[insert page #] Main Risks
[insert page #] Past Performance
[insert page #] Fees and Expenses
[insert page #] Management
[insert page #] Overview of the Trust
Additional Information
[insert page #] Important Recent Developments
[insert page #] Distributions and Taxes
FUND ACCOUNT INFORMATION
[Begin callout]
INFORMATION ABOUT FUND ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
[insert page #] Buying Shares
[insert page #] Selling Shares
[insert page #] Exchanging Shares
[insert page #] Fund Account Policies
[insert page #] Questions
For More Information
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
<PAGE>
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to match the performance of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index) before the deduction of
fund expenses.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund uses investment
"indexing" strategies designed to track the performance of the S&P 500 Index.
The S&P 500 Index is a widely recognized, unmanaged stock market index, which is
dominated by the securities of large U.S. companies. This index includes the
securities of 500 companies from leading industrial sectors which represent a
substantial portion of the market value of all common stocks publicly traded in
the U.S. The S&P 500 Index weights stocks according to their market
capitalization (the number of common stock shares outstanding multiplied by the
stock's current price). Standard & Poor's determines the composition of the S&P
500 Index and may change the composition from time to time.
[Begin callout]
This index fund invests to match the performance of the S&P 500
Composite Stock Price Index.
[End callout]
The fund may invest in the common stocks in the S&P 500 Index in approximately
the same proportions as the S&P 500 Index. For example, if one company's
securities made up 5% of the S&P 500 Index, the fund may invest 5% of its total
assets in that company. This is called the "replication" method. Over time, the
fund will seek to invest at least 80% of its total assets in the common stocks
of companies included in the S&P 500 Index. The fund may also invest in a sample
of stocks found in the S&P 500 Index, selected on the basis of
computer-generated statistical data to resemble the full index in terms of
industry weighting, market capitalization, and other characteristics such as
beta, price-to-book ratios, price-to-earnings ratios and dividend yield. This is
called the "optimization" method. Stocks represent ownership interests in
individual companies and give shareholders a claim in the company's earnings and
assets.
When the manager determines that it would be cost-effective or otherwise
beneficial for the fund to do so, particularly during the early stages of the
fund's growth, the fund may invest in derivative securities, such as stock index
futures and stock index options, as a method of gaining market exposure in
addition to, or instead of, investing in securities in the S&P 500 Index. In
such a circumstance, all or substantially all of the fund's assets may be
invested in derivative securities, with the remainder of assets in short-term
debt securities. Such short-term debt securities may include U.S. government
securities, certificates of deposit, high-grade commercial paper, repurchase
agreements, other money market securities, and money market funds.
Derivative securities are used as an efficient, low-cost method of gaining
immediate exposure to a particular securities market without investing directly
in the underlying securities. The fund may also invest in derivative securities
to keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the stock market. The fund will not use derivative
securities for speculative purposes or as leveraged investments that magnify the
gains or losses of an investment.
PORTFOLIO SELECTION The manager uses various "indexing" strategies designed to
track the performance of the S&P 500 Index and does not seek to outperform the
market as a whole by researching and selecting individual securities. The
manager also does not attempt to manage market volatility or use of defensive
strategies to reduce the effects of market downturns on the fund's performance.
The manager determines the mix of investments that it believes will, in a
cost-effective manner, achieve the fund's investment goal and manages cash flows
into and out of the fund.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect the value of the fund's share price, its
distributions or income, and therefore, the fund's performance.
STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole. Large-capitalization stocks
tend to go through cycles of doing better -- or worse -- than the stock market
in general. In the past, these periods have lasted for several years.
[Begin callout]
Because the stocks the fund holds fluctuate in price with market
conditions, the value of your investment in the fund will go up and down. This
means you could lose money over short or even extended periods.
[End callout]
INDEX TRACKING The fund's ability to track its targeted index may be affected by
transaction costs and fund expenses, cash flows, and changes in the composition
of that index. In addition, the fund's performance may not precisely track the
performance of its targeted index if the securities the manager has selected do
not precisely track that index. If securities the fund owns underperform those
in that index, the fund's performance will be lower than that index. Unlike an
unmanaged index, the fund pays operating expenses that may prevent the fund from
precisely tracking an index's performance. Cash inflows from investors buying
shares could create large balances of cash, while cash outflows from investors
selling shares may require ready reserves of cash. Either situation would likely
cause the fund's performance to deviate from the "fully invested" targeted
index.
DERIVATIVE SECURITIES Stock index futures and stock index options are considered
derivative investments, since their value depends on the value of the underlying
asset to be purchased or sold. The fund's investment in derivatives may involve
a small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the manager's
ability to predict market movements. The fund could suffer losses if its
derivative securities do not correlate well with the indexes or securities for
which they are acting as a substitute or if the fund cannot close out a position
because the trading markets become illiquid.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength may
affect a debt security's value and, thus, impact the value of fund shares.
INTEREST RATE Rate changes can be sudden and unpredictable. When interest rates
rise, debt securities can lose market value. Similarly, when interest rates
fall, debt securities prices can gain value. In general, securities with longer
maturities are more sensitive to these price changes.
See "Important Recent Developments" in this prospectus for a discussion of Year
2000 and any potential impact on the fund's portfolio and operations. More
detailed information about the fund, its policies, and risks can be found in the
Statement of Additional Information.
[Insert graphic of bull and bear] PAST PERFORMANCE
Because the fund is new, it has no performance history.
[insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's estimated expenses for the current
fiscal year. THE TABLE AND THE EXAMPLE DO NOT INCLUDE ANY FEES OR SALES CHARGES
IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN INVESTMENT
OPTION. If they were included, your costs would be higher. Investors should
consult the contract prospectus or disclosure document for more information.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS 1
Maximum sales charge (load) as a percentage
of offering price
Load imposed on purchases 0.00%
Maximum deferred sales charge (load) 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from fund assets)(1)
CLASS 1
Management fees 0.15%
Distribution and service (12b-1) fees 0.00%
Other expenses 0.38%
- -----
Total annual fund operating expenses 0.53%
=====
1. The manager and administrator have agreed in advance to waive or limit their
fees and assume certain other fund expenses as necessary so that Total Fund
Operating Expenses do not exceed 0.55% for class 1. The manager and
administrator are contractually obligated to continue this arrangement through
2000.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other funds. The example assumes you invest $10,000 for the
periods shown and then sell all of your shares at the end of those periods. The
example also assumes your investment has a 5% return each year and the fund's
operating expenses are BEFORE WAIVER as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
- -------------------------------------------------
Class 1 $54 $170
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers) 777 Mariners Island Blvd., P.O. Box 7777, San
Mateo, California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, State Street Global Advisors (SSgA), Two
International Place, Boston, Massachusetts 02110, is the fund's sub-advisor.
SSgA is a division of State Street Bank and Trust Company. A team from SSgA
provides Advisers with investment management advice and assistance.
The fund's lead portfolio manager is:
MARK BOYADJIAN
PORTFOLIO MANAGER OF ADVISERS
Mr. Boyadjian is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in Philosophy from University of California at Berkeley. Prior to joining
the Franklin Templeton Group in 1998, Mr. Boyadjian was a portfolio manager at
Scudder, Stevens & Clark.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of 0.15% of the fund's
net assets. The manager and administrator have agreed in advance to waive or
limit their fees and assume certain other fund expenses as necessary so that
Total Fund Operating Expenses do not exceed 0.55% for class 1. The manager and
administrator are contractually obligated to continue this arrangement through
the year 2000.
"Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Franklin Templeton
Distributors, Inc. The fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the fund. Please see the Statement of Additional
Information for more information.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
[Insert graphic of pyramid] OVERVIEW OF THE TRUST
Templeton Variable Products Series Fund (the Trust) currently consists of ten
separate funds, offering a wide variety of investment choices. Each fund has two
classes of shares, class 1 and class 2, except Franklin S&P 500 Index Fund which
has three classes of shares, class 1, class 2 and class 3. The funds are only
available as investment options in variable annuity or variable life insurance
contracts, except Franklin S&P 500 Index Fund which offers class 3 shares as an
investment option to defined contribution plans participating in Franklin
Templeton ValuSelect(R) and certain other qualified retirement plans that have
executed a special agreement with the fund or its agents. The accompanying
contract prospectus, or other disclosure document, indicates which funds and
classes are available to you.
INVESTMENT CONSIDERATIONS
o The fund has its own investment strategies and risk profile. Generally, the
higher the expected rate of return, the greater the risk of loss.
o No single fund can be a complete investment program; consider diversifying
your fund choices.
o You should evaluate the fund in relation to your personal financial situation,
investment goals, and comfort with risk. Your investment representative can help
you determine if the fund is right for you.
RISKS
o There can be no assurance that the fund will achieve its investment goal.
o Because you could lose money by investing in the fund, take the time to read
this prospectus and consider all risks before investing.
o All securities markets, interest rates, and currency valuations move up and
down, sometimes dramatically, and mixed with the good years can be some bad
years. Since no one can predict exactly how financial markets will perform, you
may want to exercise patience and focus not on short-term market movements, but
on your long-term investment goals.
o Fund shares are not deposits or obligations of, or guaranteed or endorsed by,
any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
Government. Fund shares involve investment risks, including the possible loss of
principal.
MORE DETAILED INFORMATION ABOUT THE FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION
(SAI).
MANAGEMENT
Franklin Advisers, Inc. and its affiliates manage over $225 billion in assets.
In 1992, Franklin joined forces with Templeton, a pioneer in international
investing. The Mutual Advisers organization became part of the Franklin
Templeton organization four years later. Today, Franklin Templeton is one of the
largest mutual fund organizations in the United States, and offers money
management expertise spanning a variety of investment objectives.
ADDITIONAL INFORMATION
[insert graphic of a starburst] IMPORTANT RECENT DEVELOPMENTS
o YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly called the Year 2000
problem). In addition, the fact that the Year 2000 is a leap year may create
difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by its managers, its service providers and other third
parties they do business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if foreign broker/dealers or
foreign markets are not ready for Year 2000.
When evaluating current and potential portfolio positions, Year 2000 is one of
the factors that the fund's managers consider. The managers will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside of the U.S., particularly in emerging
markets, may be more susceptible to Year 2000 problems and may not be required
to make the same level of disclosure regarding Year 2000 readiness as is
required in the U.S. The managers, of course, cannot audit any company or their
major suppliers to verify their Year 2000 readiness. If a company in which the
fund is invested is adversely affected by Year 2000 problems, it is likely that
the price of its security will also be adversely affected. A decrease in the
value of one or more of the fund's portfolio holdings will have a similar impact
on the price of the fund's shares.
The managers and their affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its managers may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund will declare as dividends
substantially all of its net investment income. The fund typically pays
dividends from net investment income and net capital gains, if any, following
the close of the calendar year. Dividends or distributions by the fund will
reduce the per share net asset value (NAV) by the per share amount paid.
Dividends paid by the fund will be automatically reinvested in additional shares
of the fund or, if requested, paid in cash to the insurance company shareholder.
TAX CONSIDERATIONS The tax consequences for contract owners will depend on the
provisions of the variable annuity or variable life insurance contract through
which they are invested in the fund. For more information, please consult the
accompanying contract prospectus or disclosure document.
FUND ACCOUNT INFORMATION
[Insert graphic of paper with lines and someone writing] BUYING SHARES
Class 1 and class 2 shares of the fund are sold at NAV to insurance company
separate accounts to serve as investment options for variable annuity or
variable life insurance contracts. Class 3 shares of the fund are sold at NAV to
defined contribution plans participating in Franklin Templeton ValuSelect(R) and
certain other qualified retirement plans to serve as an investment option for
plan participants. The fund's Board monitors the different share classes to be
sure there are no material conflicts of interest between the two different types
of contract owners and/or plan participants. If there were, the Board would take
corrective action.
Contract owners' payments will be allocated by the insurance company separate
account to purchase shares of the fund, and are subject to any limits or
conditions in the contract. Requests to buy shares are processed at the NAV next
calculated after we receive the request in proper form. The fund does not issue
share certificates.
[Insert graphic of certificate] SELLING SHARES
Each insurance company sells shares of the fund to make benefit or surrender
payments or to execute transfers between investment options under the terms of
its contracts. Requests to sell shares are processed at the NAV next calculated
after we receive the request in proper form.
[Insert graphic of two arrows] EXCHANGING SHARES
Contract owners may exchange shares of the fund for class 1 or class 2 shares of
other funds through a transfer between investment options available under a
variable insurance contract, subject to the terms, and any specific limitations
on the exchange (or "transfer") privilege, described in the contract prospectus.
Frequent exchanges can interfere with fund management or operations and drive up
fund costs. To protect shareholders, there are limits on the number and amount
of exchanges that may be made (please see "Market Timers," below).
[Insert graphic of paper and pen] FUND ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates its NAV per share each business day
at the close of trading on the New York Stock Exchange (normally 1:00 p.m.
Pacific time). Each class's NAV is calculated by dividing its net assets by the
number of its shares outstanding.
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value.
Requests to buy and sell shares are processed on any day the fund is open for
business at the NAV next calculated after we receive the request in proper form.
REPORTS Insurance company shareholders will receive the fund's financial reports
every six months. If you need additional copies, please call 1-800/774- 5001.
MARKET TIMERS The fund is not designed for market timers, large or frequent
transfers. The fund may restrict or refuse purchases or exchanges by market
timers. You will be considered a market timer if you have (i) requested an
exchange out of the fund within two weeks of an earlier exchange request, or
(ii) exchanged shares out of the fund more than twice in a calendar quarter, or
(iii) exchanged shares equal to at least $5 million, or more than 1% of the
fund's net assets, or (iv) otherwise seem to follow a timing pattern. Accounts
under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may refuse any order to buy shares.
o At any time, the fund may establish or change investment minimums.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.
o Investors may only buy shares if the fund is eligible for sale in their
state or jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of
an emergency.
o To permit investors to obtain the current price, insurance companies are
responsible for transmitting all orders to the fund promptly.
SHARE CLASSES The fund has three classes of shares, class 1, class 2 and class
3, which differ only with respect to certain class-specific expenses. Class 2
and class 3 each has a distribution plan or "rule 12b-1 Plan" which is described
in the prospectuses offering class 2 and class 3 shares. In addition, class 3
bears its own registration expenses under state and federal securities laws and
transfer agency (shareholder account maintenance) expenses.
[Insert graphic of question mark] QUESTIONS
More detailed information about the Trust and the fund's account policies can be
found in the fund's Statement of Additional Information (SAI). If you have any
questions about the fund, you can write to us at 100 Fountain Parkway, St.
Petersburg, Florida, 33716-1205 or call 1-800/774-5001. For your protection and
to help ensure we provide you with quality service, all calls may be monitored
or recorded.
FOR MORE INFORMATION
The funds of the Templeton Variable Products Series Fund (the Trust) are only
available as investment options in variable annuity or variable life insurance
contracts, except Franklin S&P 500 Index Fund which is also available as an
investment option to defined contribution plans participating in Franklin
Templeton ValuSelect(R) and certain other qualified retirement plans that have
executed a special agreement with the fund or its agents. Please consult the
accompanying contract prospectus or disclosure document for information about
the terms of an investment in a contract.
You can learn more about the funds in the following documents:
ANNUAL/SEMIANNUAL FUND REPORTS TO SHAREHOLDERS
Includes a discussion of recent market conditions and investment strategies,
financial statements, detailed performance information, fund holdings, and the
auditor's report (Annual Report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments, policies and risks.
It is incorporated by reference (is legally a part of this prospectus).
You may obtain these free reports by contacting your investment representative
or by calling us at the number below.
Franklin(R) Templeton(R) 1-800/774-5001
You can also obtain information about the funds by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file 811-5479
PROSPECTUS
FRANKLIN S&P 500
INDEX FUND-CLASS 2
TEMPLETON
VARIABLE PRODUCTS
SERIES FUND
INVESTMENT STRATEGY GROWTH
OCTOBER 1, 1999
[Insert Franklin Templeton Logo]
As with all fund prospectuses, the SEC has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
CONTENTS
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
The Fund
[insert page #] Goal and Strategies
[insert page #] Main Risks
[insert page #] Past Performance
[insert page #] Fees and Expenses
[insert page #] Management
[insert page #] Overview of the Trust
Additional Information
[insert page #] Important Recent Developments
[insert page #] Distributions and Taxes
FUND ACCOUNT INFORMATION
[Begin callout]
INFORMATION ABOUT FUND ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
[insert page #] Buying Shares
[insert page #] Selling Shares
[insert page #] Exchanging Shares
[insert page #] Fund Account Policies
[insert page #] Questions
For More Information
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to match the performance of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index) before the deduction of
fund expenses.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund uses investment
"indexing" strategies designed to track the performance of the S&P 500 Index.
The S&P 500 Index is a widely recognized, unmanaged stock market index, which is
dominated by the securities of large U.S. companies. This index includes the
securities of 500 companies from leading industrial sectors which represent a
substantial portion of the market value of all common stocks publicly traded in
the U.S. The S&P 500 Index weights stocks according to their market
capitalization (the number of common stock shares outstanding multiplied by the
stock's current price). Standard & Poor's determines the composition of the S&P
500 Index and may change the composition from time to time.
[Begin callout]
This index fund invests to match the performance of the S&P 500 Composite Stock
Price Index.
[End callout]
The fund may invest in the common stocks in the S&P 500 Index in approximately
the same proportions as the S&P 500 Index. For example, if one company's
securities made up 5% of the S&P 500 Index, the fund may invest 5% of its total
assets in that company. This is called the "replication" method. Over time, the
fund will seek to invest at least 80% of its total assets in the common stocks
of companies included in the S&P 500 Index. The fund may also invest in a sample
of stocks found in the S&P 500 Index, selected on the basis of
computer-generated statistical data to resemble the full index in terms of
industry weighting, market capitalization, and other characteristics such as
beta, price-to-book ratios, price-to-earnings ratios and dividend yield. This is
called the "optimization" method. Stocks represent ownership interests in
individual companies and give shareholders a claim in the company's earnings and
assets.
When the manager determines that it would be cost-effective or otherwise
beneficial for the fund to do so, particularly during the early stages of the
fund's growth, the fund may invest in derivative securities, such as stock index
futures and stock index options, as a method of gaining market exposure in
addition to, or instead of, investing in securities in the S&P 500 Index. In
such a circumstance, all or substantially all of the fund's assets may be
invested in derivative securities, with the remainder of assets in short-term
debt securities. Such short-term debt securities may include U.S. government
securities, certificates of deposit, high-grade commercial paper, repurchase
agreements, other money market securities, and money market funds.
Derivative securities are used as an efficient, low-cost method of gaining
immediate exposure to a particular securities market without investing directly
in the underlying securities. The fund may also invest in derivative securities
to keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the stock market. The fund will not use derivative
securities for speculative purposes or as leveraged investments that magnify the
gains or losses of an investment.
PORTFOLIO SELECTION The manager uses various "indexing" strategies designed to
track the performance of the S&P 500 Index and does not seek to outperform the
market as a whole by researching and selecting individual securities. The
manager also does not attempt to manage market volatility or use defensive
strategies to reduce the effects of market downturns on the fund's performance.
The manager determines the mix of investments that it believes will, in a
cost-effective manner, achieve the fund's investment goal and manages cash flows
into and out of the fund.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect the value of the fund's share price, its
distributions or income, and therefore, the fund's performance.
STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole. Large-capitalization stocks
tend to go through cycles of doing better -- or worse -- than the stock market
in general. In the past, these periods have lasted for several years.
[Begin callout]
Because the stocks the fund holds fluctuate in price with market conditions,
the value of your investment in the fund will go up and down. This means you
could lose money over short or even extended periods.
[End callout]
INDEX TRACKING The fund's ability to track its targeted index may be affected by
transaction costs and fund expenses, cash flows, and changes in the composition
of that index. In addition, the fund's performance may not precisely track the
performance of its targeted index if the securities the manager has selected do
not precisely track that index. If securities the fund owns underperform those
in that index, the fund's performance will be lower than that index. Unlike an
unmanaged index, the fund pays operating expenses that may prevent the fund from
precisely tracking an index's performance. Cash inflows from investors buying
shares could create large balances of cash, while cash outflows from investors
selling shares may require ready reserves of cash. Either situation would likely
cause the fund's performance to deviate from the "fully invested" targeted
index.
DERIVATIVE SECURITIES Stock index futures and stock index options are considered
derivative investments, since their value depends on the value of the underlying
asset to be purchased or sold. The fund's investment in derivatives may involve
a small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the manager's
ability to predict market movements. The fund could suffer losses if its
derivative securities do not correlate well with the indexes or securities for
which they are acting as a substitute or if the fund cannot close out a position
because the trading markets become illiquid.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength may
affect a debt security's value and, thus, impact the value of fund shares.
INTEREST RATE Rate changes can be sudden and unpredictable. When interest rates
rise, debt securities can lose market value. Similarly, when interest rates
fall, debt securities prices can gain value. In general, securities with longer
maturities are more sensitive to these price changes.
See "Important Recent Developments" in this prospectus for a discussion of Year
2000 and any potential impact on the fund's portfolio and operations. More
detailed information about the fund, its policies, and risks can be found in the
Statement of Additional Information.
[Insert graphic of bull and bear] PAST PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's estimated expenses for the current
fiscal year. THE TABLE AND THE EXAMPLE DO NOT INCLUDE ANY FEES OR SALES CHARGES
IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN INVESTMENT
OPTION. If they were included, your costs would be higher. Investors should
consult the contract prospectus or disclosure document for more information.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS 2
Maximum sales charge (load) as a percentage
of offering price
Load imposed on purchases 0.00%
Maximum deferred sales charge (load) 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from fund assets)(1)
CLASS 2
Management fees 0.15%
Distribution and service (12b-1) fees 0.25%
Other expenses 0.38%
-----
Total annual fund operating expenses 0.78%
=====
1. The manager and administrator have agreed in advance to waive or limit their
fees and assume certain other fund expenses as necessary so that Total Fund
Operating Expenses do not exceed 0.80% for class 2. The manager and
administrator are contractually obligated to continue this arrangement through
2000.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other funds. The example assumes you invest $10,000 for the
periods shown and then sell all of your shares at the end of those periods. The
example also assumes your investment has a 5% return each year and the fund's
operating expenses are BEFORE WAIVER as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
- -------------------------------------------------
Class 2 $80 $249
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers) 777 Mariners Island Blvd., P.O. Box 7777, San
Mateo, California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, State Street Global Advisors (SSgA), Two
International Place, Boston, Massachusetts 02110, is the fund's sub-advisor.
SSgA is a division of State Street Bank and Trust Company. A team from SSgA
provides Advisers with investment management advice and assistance.
The fund's lead portfolio manager is:
MARK BOYADJIAN
PORTFOLIO MANAGER OF ADVISERS
Mr. Boyadjian is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in Philosophy from University of California at Berkeley. Prior to joining
the Franklin Templeton Group in 1998, Mr. Boyadjian was a portfolio manager at
Scudder, Stevens & Clark.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of 0.15% of the fund's
net assets. The manager and administrator have agreed in advance to waive or
limit their fees and assume certain other fund expenses as necessary so that
Total Fund Operating Expenses do not exceed 0.80% for class 2. The manager and
administrator are contractually obligated to continue this arrangement through
the year 2000.
"Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Franklin Templeton
Distributors, Inc. The fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the fund. Please see the Statement of Additional
Information for more information.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
[Insert graphic of pyramid] OVERVIEW OF THE TRUST
Templeton Variable Products Series Fund (the Trust) currently consists of ten
separate funds, offering a wide variety of investment choices. Each fund has two
classes of shares, class 1 and class 2, except Franklin S&P 500 Index Fund which
has three classes of shares, class 1, class 2 and class 3. The funds are only
available as investment options in variable annuity or variable life insurance
contracts, except Franklin S&P 500 Index Fund which offers class 3 shares as an
investment option to defined contribution plans participating in Franklin
Templeton ValuSelect(R) and certain other qualified retirement plans. The
accompanying contract prospectus, or other disclosure document, indicates which
funds and classes are available to you.
INVESTMENT CONSIDERATIONS
o The fund has its own investment strategies and risk profile. Generally, the
higher the expected rate of return, the greater the risk of loss.
o No single fund can be a complete investment program; consider diversifying
your fund choices.
o You should evaluate the fund in relation to your personal financial situation,
investment goals, and comfort with risk. Your investment representative can help
you determine if the fund is right for you.
RISKS
o There can be no assurance that the fund will achieve its investment goal.
o Because you could lose money by investing in the fund, take the time to read
this prospectus and consider all risks before investing.
o All securities markets, interest rates, and currency valuations move up and
down, sometimes dramatically, and mixed with the good years can be some bad
years. Since no one can predict exactly how financial markets will perform, you
may want to exercise patience and focus not on short-term market movements, but
on your long-term investment goals.
o Fund shares are not deposits or obligations of, or guaranteed or endorsed by,
any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
Government. Fund shares involve investment risks, including the possible loss of
principal.
MORE DETAILED INFORMATION ABOUT THE FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION
(SAI).
MANAGEMENT
Franklin Advisers, Inc. and its affiliates manage over $225 billion in assets.
In 1992, Franklin joined forces with Templeton, a pioneer in international
investing. The Mutual Advisers organization became part of the Franklin
Templeton organization four years later. Today, Franklin Templeton is one of the
largest mutual fund organizations in the United States, and offers money
management expertise spanning a variety of investment objectives.
ADDITIONAL INFORMATION
[insert graphic of a starburst] IMPORTANT RECENT DEVELOPMENTS
o YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly called the Year 2000
problem). In addition, the fact that the Year 2000 is a leap year may create
difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by its managers, its service providers and other third
parties they do business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if foreign broker/dealers or
foreign markets are not ready for Year 2000.
When evaluating current and potential portfolio positions, Year 2000 is one of
the factors that the fund's managers consider. The managers will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside of the U.S., particularly in emerging
markets, may be more susceptible to Year 2000 problems and may not be required
to make the same level of disclosure regarding Year 2000 readiness as is
required in the U.S. The managers, of course, cannot audit any company or their
major suppliers to verify their Year 2000 readiness. If a company in which the
fund is invested is adversely affected by Year 2000 problems, it is likely that
the price of its security will also be adversely affected. A decrease in the
value of one or more of the fund's portfolio holdings will have a similar impact
on the price of the fund's shares.
The managers and their affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its managers may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund will declare as dividends
substantially all of its net investment income. The fund typically pays
dividends from net investment income and net capital gains, if any, following
the close of the calendar year. Dividends or distributions by the fund will
reduce the per share net asset value (NAV) by the per share amount paid.
Dividends paid by the fund will be automatically reinvested in additional shares
of the fund or, if requested, paid in cash to the insurance company shareholder.
TAX CONSIDERATIONS The tax consequences for contract owners will depend on the
provisions of the variable annuity or variable life insurance contract through
which they are invested in the fund. For more information, please consult the
accompanying contract prospectus or disclosure document.
FUND ACCOUNT INFORMATION
[Insert graphic of paper with lines and someone writing] BUYING SHARES
Class 1 and class 2 shares of the fund are sold at NAV to insurance company
separate accounts to serve as investment options for variable annuity or
variable life insurance contracts. Class 3 shares of the fund are sold at NAV to
defined contribution plans participating in Franklin Templeton ValuSelect(R) and
certain other qualified retirement plans to serve as an investment option for
plan participants. The fund's Board monitors the different share classes to be
sure there are no material conflicts of interest between the two different types
of contract owners and/or plan participants. If there were, the Board would take
corrective action.
Contract owners' payments will be allocated by the insurance company separate
account to purchase shares of the fund, and are subject to any limits or
conditions in the contract. Requests to buy shares are processed at the NAV next
calculated after we receive the request in proper form. The fund does not issue
share certificates.
[Insert graphic of certificate] SELLING SHARES
Each insurance company sells shares of the fund to make benefit or surrender
payments or to execute transfers between investment options under the terms of
its contracts. Requests to sell shares are processed at the NAV next calculated
after we receive the request in proper form.
[Insert graphic of two arrows] EXCHANGING SHARES
Contract owners may exchange shares of the fund for class 1 or class 2 shares of
other funds through a transfer between investment options available under a
variable insurance contract, subject to the terms, and any specific limitations
on the exchange (or "transfer") privilege, described in the contract prospectus.
Frequent exchanges can interfere with fund management or operations and drive up
fund costs. To protect shareholders, there are limits on the number and amount
of exchanges that may be made (please see "Market Timers," below).
[Insert graphic of paper and pen] FUND ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates its NAV per share each business day
at the close of trading on the New York Stock Exchange (normally 1:00 p.m.
Pacific time). Each class's NAV is calculated by dividing its net assets by the
number of its shares outstanding.
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value.
Requests to buy and sell shares are processed on any day the fund is open for
business at the NAV next calculated after we receive the request in proper form.
REPORTS Insurance company shareholders will receive the fund's financial reports
every six months. If you need additional copies, please call 1-800/774- 5001.
MARKET TIMERS The fund is not designed for market timers, large or frequent
transfers. The fund may restrict or refuse purchases or exchanges by market
timers. You will be considered a market timer if you have (i) requested an
exchange out of the fund within two weeks of an earlier exchange request, or
(ii) exchanged shares out of the fund more than twice in a calendar quarter, or
(iii) exchanged shares equal to at least $5 million, or more than 1% of the
fund's net assets, or (iv) otherwise seem to follow a timing pattern. Accounts
under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may refuse any order to buy shares.
o At any time, the fund may establish or change investment minimums.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.
o Investors may only buy shares if the fund is eligible for sale in their
state or jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of
an emergency.
o To permit investors to obtain the current price, insurance companies are
responsible for transmitting all orders to the fund promptly.
SHARE CLASSES The fund has three classes of shares, class 1, class 2 and class
3, which differ only with respect to certain class-specific expenses. Class 2
and class 3 each has a distribution plan or "rule 12b-1 Plan" which is described
in the prospectuses offering class 2 and class 3 shares. In addition, class 3
bears its own registration expenses under state and federal securities laws and
transfer agency (shareholder account maintenance) expenses.
DISTRIBUTION AND SERVICE (12B-1) FEES Class 2 has a distribution plan, sometimes
known as a rule 12b-1 plan, that allows the fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute class 2 shares and provide
services to shareholders and contract owners. Because these fees are paid out of
class 2's assets on an on-going basis, over time these fees will increase the
cost of an investment, and may cost more than paying other types of sales
charges.
[Insert graphic of question mark] QUESTIONS
More detailed information about the Trust and the fund's account policies can be
found in the fund's Statement of Additional Information (SAI). If you have any
questions about the fund, you can write to us at 100 Fountain Parkway, St.
Petersburg, Florida, 33716-1205 or call 1-800/774-5001. For your protection and
to help ensure we provide you with quality service, all calls may be monitored
or recorded.
FOR MORE INFORMATION
The funds of the Templeton Variable Products Series Fund (the Trust) are only
available as investment options in variable annuity or variable life insurance
contracts, except Franklin S&P 500 Index Fund which is also available as an
investment option to defined contribution plans participating in Franklin
Templeton ValuSelect(R) and certain other qualified retirement plans that have
executed a special agreement with the fund or its agents. Please consult the
accompanying contract prospectus or disclosure document for information about
the terms of an investment in a contract.
You can learn more about the funds in the following documents:
ANNUAL/SEMIANNUAL FUND REPORTS TO SHAREHOLDERS
Includes a discussion of recent market conditions and investment strategies,
financial statements, detailed performance information, fund holdings, and the
auditor's report (Annual Report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments, policies and risks.
It is incorporated by reference (is legally a part of this prospectus).
You may obtain these free reports by contacting your investment representative
or by calling us at the number below.
Franklin(R) Templeton(R) 1-800/774-5001
You can also obtain information about the funds by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file 811-5479
Prospectus
Templeton Variable
Products Series Fund
Franklin
S&P 500
Index Fund
CLASS 3
INVESTMENT STRATEGY
GROWTH
OCTOBER 1, 1999
[Insert graphic of Franklin Templeton Ben Head]
As with all fund prospectuses, the SEC has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goal and Strategies
4 Main Risks
6 Past Performance
6 Fees and Expenses
8 Management
9 Overview of the Trust
ADDITIONAL INFORMATION
11 Important Recent Developments
12 Distributions and Taxes
FUND ACCOUNT INFORMATION
[Begin callout]
INFORMATION ABOUT FUND ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
13 Buying Shares
13 Selling Shares
13 Exchanging Shares
14 Fund Account Policies
16 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
[Insert graphic of bullseye and arrows]GOAL AND STRATEGIES
GOAL The fund's investment goal is to match the performance of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index) before the deduction of
fund expenses.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund uses investment
"indexing" strategies designed to track the performance of the S&P 500 Index.
The S&P 500 Index is a widely recognized, unmanaged stock market index, which is
dominated by the securities of large U.S. companies. This index includes the
securities of 500 companies from leading industrial sectors which represent a
substantial portion of the market value of all common stocks publicly traded in
the U.S. The S&P 500 Index weights stocks according to their market
capitalization (the number of common stock shares outstanding multiplied by the
stock's current price). Standard & Poor's determines the composition of the S&P
500 Index and may change the composition from time to time.
[Begin callout]
This index fund invests to match the performance of the S&P 500 Composite Stock
Price Index.
[End callout]
The fund may invest in the common stocks in the S&P 500 Index in approximately
the same proportions as the S&P 500 Index. For example, if one company's
securities made up 5% of the S&P 500 Index, the fund may invest 5% of its total
assets in that company. This is called the "replication" method. Over time, the
fund will seek to invest at least 80% of its total assets in the common stocks
of companies included in the S&P 500 Index. The fund may also invest in a sample
of stocks found in the S&P 500 Index, selected on the basis of
computer-generated statistical data to resemble the full index in terms of
industry weighting, market capitalization, and other characteristics such as
beta, price-to-book ratios, price-to-earnings ratios and dividend yield. This is
called the "optimization" method. Stocks represent ownership interests in
individual companies and give shareholders a claim in the company's earnings and
assets.
When the manager determines that it would be cost-effective or otherwise
beneficial for the fund to do so, particularly during the early stages of the
fund's growth, the fund may invest in derivative securities, such as stock index
futures and stock index options, as a method of gaining market exposure in
addition to, or instead of, investing in securities in the S&P 500 Index. In
such a circumstance, all or substantially all of the fund's assets may be
invested in derivative securities, with the remainder of assets in short-term
debt securities. Such short-term debt securities may include U.S. government
securities, certificates of deposit, high-grade commercial paper, repurchase
agreements, other money market securities, and money market funds.
Derivative securities are used as an efficient, low-cost method of gaining
immediate exposure to a particular securities market without investing directly
in the underlying securities. The fund may also invest in derivative securities
to keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the stock market. The fund will not use derivative
securities for speculative purposes or as leveraged investments that magnify the
gains or losses of an investment.
PORTFOLIO SELECTION The manager uses various "indexing" strategies designed to
track the performance of the S&P 500 Index and does not seek to outperform the
market as a whole by researching and selecting individual securities. The
manager also does not attempt to manage market volatility or use defensive
strategies to reduce the effects of market downturns on the fund's performance.
The manager determines the mix of investments that it believes will, in a
cost-effective manner, achieve the fund's investment goal and manages cash flows
into and out of the fund.
[Insert graphic of chart with line going up and down]MAIN RISKS
The fund's main risks can affect the value of the fund's share price, its
distributions or income, and therefore, the fund's performance.
STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole. Large-capitalization stocks
tend to go through cycles of doing better - or worse - than the stock market in
general. In the past, these periods have lasted for several years.
[Begin callout]
Because the stocks the fund holds fluctuate in price with market
conditions, the value of your investment in the fund will go up and down. This
means you could lose money over short or even extended periods.
[End callout]
INDEX TRACKING The fund's ability to track its targeted index may be affected by
transaction costs and fund expenses, cash flows, and changes in the composition
of that index. In addition, the fund's performance may not precisely track the
performance of its targeted index if the securities the manager has selected do
not precisely track that index. If securities the fund owns underperform those
in that index, the fund's performance will be lower than that index. Unlike an
unmanaged index, the fund pays operating expenses that may prevent the fund from
precisely tracking an index's performance. Cash inflows from investors buying
shares could create large balances of cash, while cash outflows from investors
selling shares may require ready reserves of cash. Either situation would likely
cause the fund's performance to deviate from the "fully invested" targeted
index.
DERIVATIVE SECURITIES Stock index futures and stock index options are considered
derivative investments, since their value depends on the value of the underlying
asset to be purchased or sold. The fund's investment in derivatives may involve
a small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the manager's
ability to predict market movements. The fund could suffer losses if its
derivative securities do not correlate well with the indexes or securities for
which they are acting as a substitute or if the fund cannot close out a position
because the trading markets become illiquid.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength may
affect a debt security's value and, thus, impact the value of fund shares.
INTEREST RATE Rate changes can be sudden and unpredictable. When interest rates
rise, debt securities can lose market value. Similarly, when interest rates
fall, debt securities prices can gain value. In general, securities with longer
maturities are more sensitive to these price changes.
See "Important Recent Developments" in this prospectus for a discussion of Year
2000 and any potential impact on the fund's portfolio and operations. More
detailed information about the fund, its policies, and risks can be found in the
Statement of Additional Information.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of percentage sign]FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's estimated expenses for the current
fiscal year. THE TABLE AND THE EXAMPLE DO NOT INCLUDE ANY PLAN ADMINISTRATION
FEES AND EXPENSES IMPOSED ON RETIREMENT PLANS FOR WHICH THE FUND'S CLASS 3 ARE
AN INVESTMENT OPTION. If they were included, your costs would be higher.
Investors should consult their retirement plan documents for more information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS 3
Maximum sales charge (load) as a percentage of offering price
Load imposed on purchases 0.00%
Maximum deferred sales charge (load) 0.00%1
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)2
CLASS 3
Management fees 0.15%
Distribution and service (12b-1) fees 0.25%
Other expenses 0.60%
Total annual fund operating expenses 1.00%
Fee waiver/expense reductions (0.20%)
Net expenses 0.80%
1. Shares acquired through an exchange from another Franklin Templeton fund may
be subject to a contingent deferred sales charge in certain circumstances.
Please see page 13.
2. The manager has agreed in advance to assume certain fund expenses, and the
manager and administrator have agreed in advance to waive or limit their fees,
as necessary so that Total Fund Operating Expenses do not exceed 0.80% for class
3. The manager and administrator are contractually obligated to continue this
arrangement through 2000.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other funds. The example assumes you invest $10,000 for the
periods shown and then sell all of your shares at the end of those periods. The
example also assumes your investment has a 5% return each year and the fund's
operating expenses are BEFORE WAIVER as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
Class 3 $1021 $318
1. Assumes a contingent deferred sales charge will not apply.
[Insert graphic of briefcase]MANAGEMENT
Franklin Advisers, Inc. (Advisers) 777 Mariners Island Blvd., P.O. Box 7777, San
Mateo, California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, State Street Global Advisors (SSgA), Two
International Place, Boston, Massachusetts 02110, is the fund's sub-advisor.
SSgA is a division of State Street Bank and Trust Company. A team from SSgA
provides Advisers with investment management advice and assistance.
The fund's lead portfolio manager is:
MARK BOYADJIAN
PORTFOLIO MANAGER OF ADVISERS
Mr. Boyadjian is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in Philosophy from University of California at Berkeley. Prior to joining
the Franklin Templeton Group in 1998, Mr. Boyadjian was a portfolio manager at
Scudder, Stevens & Clark.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of 0.15% of the fund's
net assets. The manager has agreed in advance to assume certain fund expenses,
and the manager and administrator have agreed in advance to waive or limit their
fees, as necessary so that Total Fund Operating Expenses do not exceed 0.80% for
class 3. The manager and administrator are contractually obligated to continue
this arrangement through the year 2000.
"Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Franklin Templeton
Distributors, Inc. The fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the fund. Please see the Statement of Additional
Information for more information.
TEMPLETON VARIABLE
PRODUCTS SERIES FUND
[Insert graphic of a pyramid]OVERVIEW OF THE TRUST
Templeton Variable Products Series Fund (the Trust) currently consists of ten
separate funds, offering a wide variety of investment choices. Each fund has two
classes of shares, class 1 and class 2, except Franklin S&P 500 Index Fund which
has three classes of shares, class 1, class 2 and class 3. The funds are only
available as investment options in variable annuity or variable life insurance
contracts, except Franklin S&P 500 Index Fund which offers class 3 shares as an
investment option to defined contribution plans participating in Franklin
Templeton ValuSelect(R) and certain other qualified retirement plans that have
executed a special agreement with the fund or its agents.
INVESTMENT CONSIDERATIONS
o The fund has its own investment strategies and risk profile. Generally, the
higher the expected rate of return, the greater the risk of loss.
o No single fund can be a complete investment program; consider diversifying
your fund choices.
o You should evaluate the fund in relation to your personal financial situation,
investment goals, and comfort with risk. Your investment representative can help
you determine if the fund is right for you.
RISKS
o There can be no assurance that the fund will achieve its investment goal.
o Because you could lose money by investing in the fund, take the time to read
this prospectus and consider all risks before investing.
o All securities markets, interest rates, and currency valuations move up and
down, sometimes dramatically, and mixed with the good years can be some bad
years. Since no one can predict exactly how financial markets will perform, you
may want to exercise patience and focus not on short-term market movements, but
on your long-term investment goals.
o Fund shares are not deposits or obligations of, or guaranteed or endorsed by,
any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
Government. Fund shares involve investment risks, including the possible loss of
principal.
MORE DETAILED INFORMATION ABOUT THE FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION
(SAI).
MANAGEMENT
Franklin Advisers, Inc. and its affiliates manage over $225 billion in assets.
In 1992, Franklin joined forces with Templeton, a pioneer in international
investing. The Mutual Advisers organization became part of the Franklin
Templeton organization four years later. Today, Franklin Templeton is one of the
largest mutual fund organizations in the United States, and offers money
management expertise spanning a variety of investment objectives.
ADDITIONAL INFORMATION
[Insert graphic of starburst]IMPORTANT RECENT DEVELOPMENTS
o YEAR 2000 PROBLEM The fund's business operations depend upon a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the date,
and unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly called the Year 2000
problem). In addition, the fact that the Year 2000 is a leap year may create
difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by its managers, its service providers and other third
parties they do business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if foreign broker/dealers or
foreign markets are not ready for Year 2000.
When evaluating current and potential portfolio positions, Year 2000 is one of
the factors that the fund's managers consider. The managers will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside of the U.S., particularly in emerging
markets, may be more susceptible to Year 2000 problems and may not be required
to make the same level of disclosure regarding Year 2000 readiness as is
required in the U.S. The managers, of course, cannot audit any company or their
major suppliers to verify their Year 2000 readiness. If a company in which the
fund is invested is adversely affected by Year 2000 problems, it is likely that
the price of its security will also be adversely affected. A decrease in the
value of one or more of the fund's portfolio holdings will have a similar impact
on the price of the fund's shares.
The managers and their affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its managers may have no control.
[Insert graphic of dollar signs and stacks of coins]DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund will declare as dividends
substantially all of its net investment income. The fund typically pays
dividends from net investment income and net capital gains, if any, following
the close of the calendar year. Dividends or distributions by the fund will
reduce the per share net asset value (NAV) by the per share amount paid.
TAX CONSIDERATIONS Fund distributions received by your qualified retirement
plan, such as a Section 401(k) plan or profit sharing plan, are generally
tax-deferred. This means that you are not required to report fund distributions
on your income tax return when paid, but rather, when your plan makes payments
to you. Investors should consult their retirement plan documents for more
information.
FUND ACCOUNT
INFORMATION
[Insert graphic of paper with lines and someone writing]BUYING SHARES
Class 3 shares of the fund are sold at NAV to defined contribution plans
participating in Franklin Templeton ValuSelect(R) and certain other qualified
retirement plans that have executed a special agreement with the fund or its
agents to serve as an investment option for plan participants. Class 1 and class
2 shares of the fund are sold at NAV to insurance company separate accounts to
serve as investment options for variable annuity or variable life insurance
contracts. The fund's Board monitors the different share classes to be sure
there are no material conflicts of interest between the two different types of
contract owners and/or the plans and plan participants. If there were, the Board
would take corrective action.
Requests to buy shares are processed at the NAV next calculated after we receive
the request in proper form. The fund does not issue share certificates.
Investors should consult their retirement plan documents for more information
about selecting the fund as an investment option.
[Insert graphic of certificate]SELLING SHARES
Requests to sell shares are processed at the NAV next calculated after we
receive the request in proper form. A Contingent Deferred Sales Charge (CDSC)
may apply to shares of the fund acquired through an exchange of shares from
another Franklin Templeton fund if the retirement plan is transferred out of the
Franklin Templeton funds or terminated within 365 days of the retirement plan
account's initial purchase in the Franklin Templeton funds. The CDSC is 1% of
the current value of the shares being sold or the NAV at the time of the
purchase of the shares you exchanged for the fund's shares, whichever is less.
There is no CDSC on shares acquired by reinvesting dividends or capital gains
distributions.
[Insert graphic of two arrows]EXCHANGING SHARES
You may exchange shares of the fund for shares of other Franklin Templeton funds
offered as an investment option in your defined contribution plan, subject to
the terms, and any specific limitations on the exchange (or "transfer")
privilege, described in your plan and in the prospectus of that fund.
Frequent exchanges can interfere with fund management or operations and drive up
fund costs. To protect shareholders, there are limits on the number and amount
of exchanges that may be made (please see "Market Timers," below).
[Insert graphic of paper and pen]FUND ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates its NAV per share each business day
at the close of trading on the New York Stock Exchange (normally 1:00 p.m.
Pacific time). Each class's NAV is calculated by dividing its net assets by the
number of its shares outstanding.
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value.
Requests to buy and sell shares are processed on any day the fund is open for
business at the NAV next calculated after we receive the request in proper form.
REPORTS Investors will receive confirmations and account statements that show
account activity. Investors will also receive the fund's financial reports every
six months.
If there is a dealer or other investment representative of record on the
account, he or she may also receive confirmations, account statements and other
information about the account directly from the fund.
MARKET TIMERS The fund is not designed for market timers, large or frequent
transfers. The fund may restrict or refuse purchases or exchanges by market
timers. You will be considered a market timer if you have (i) requested an
exchange out of the fund within two weeks of an earlier exchange request, or
(ii) exchanged shares out of the fund more than twice in a calendar quarter, or
(iii) exchanged shares equal to at least $5 million, or more than 1% of the
fund's net assets, or (iv) otherwise seem to follow a timing pattern. Accounts
under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may refuse any order to buy shares.
o At any time, the fund may establish or change investment minimums.
o The fund may reedem the shares and close the account of any retirement plan
which fails to meet the requirements for qualification under Section 401 of
the Internet Revenue Code or other criteria established by the fund for
ownership of fund shares.
o The fund may modify or discontinue the exchange privilege on 60 days' notice.
o Investors may only buy shares if the fund is eligible for sale in their state
or jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an emergency.
SHARE CLASSES The fund has three classes of shares, class 1, class 2 and class
3, which differ only with respect to certain class-specific expenses. Class 2
and class 3 each has a distribution plan or "rule 12b-1 plan" which is described
in the prospectuses offering class 2 and class 3 shares. In addition, class 3
bears its own registration expenses under state and federal securities laws and
transfer agency (shareholder account maintenance) expenses.
DISTRIBUTION AND SERVICE (12B-1) FEES Class 3 has a distribution plan, sometimes
known as a rule 12b-1 plan, that allows the fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute class 3 shares and provide
services to shareholders and plan participants. Because these fees are paid out
of class 3's assets on an on-going basis, over time these fees will increase the
cost of an investment, and may cost more than paying other types of sales
charges. A portion of the fees payable to Franklin Templeton Distributors, Inc.
(Distributors) or others under the rule 12b-1 plan may be retained by
Distributors for its distribution expenses.
[Insert graphic of question mark]QUESTIONS
More detailed information about the Trust and the fund's account policies can be
found in the fund's Statement of Additional Information (SAI). If you have any
questions about the fund, you can write to us at 100 Fountain Parkway, St.
Petersburg, Florida, 33716-1205 or call 1-800/774-5001. For your protection and
to help ensure we provide you with quality service, all calls may be monitored
or recorded.
FOR MORE INFORMATION
The funds of the Templeton Variable Products Series Fund (the Trust) are only
available as investment options in variable annuity or variable life insurance
contracts, except Franklin S&P 500 Index Fund which is also available as an
investment option to defined contribution plans participating in Franklin
Templeton ValuSelect(R) and certain other qualified retirement plans that have
executed a special agreement with the fund or its agents.
You can learn more about the funds in the following documents:
ANNUAL/SEMIANNUAL FUND REPORTS TO SHAREHOLDERS
Includes a discussion of recent market conditions and investment strategies,
financial statements, detailed performance information, fund holdings, and the
auditor's report (Annual Report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments, policies, and risks.
It is incorporated by reference (is legally a part of this prospectus).
You may obtain these free reports by contacting your investment representative
or by calling us at the number below.
FRANKLIN(R)TEMPLETON(R) 1-800/774-5001
You can also obtain information about the funds by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
FRANKLIN TEMPLETON FUNDS
LITERATURE REQUEST ~ Call 1-800/DIAL BEN(R) (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, sales charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global
Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton International Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH
AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
GROWTH
Franklin Aggressive Growth
Fund
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Large Cap Growth
Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund1
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund1
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Federal Money Fund2
Franklin Money Fund2
TAX-FREE INCOME
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund2
STATE-SPECIFIC TAX-FREE INCOME
Alabama
Arizona3
California3
Colorado
Connecticut
Florida3
Georgia
Kentucky
Louisiana
Maryland
Massachusetts4
Michigan4
Minnesota4
Missouri
New Jersey
New York3
North Carolina
Ohio4
Oregon
Pennsylvania
Tennessee5
Texas
Virginia
VARIABLE ANNUITIES6
Franklin(R) Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate
annuity)
1. These funds are now closed to new accounts, with the exception of retirement
plan accounts.
2. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
3. Two or more fund options available: long-term portfolio; portfolio of insured
securities; high yield portfolio (CA); intermediate-term and money market
portfolios (CA and NY).
4. Portfolio of insured municipal securities.
5. The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
6. Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. Franklin Templeton Variable Insurance Products
Trust, formerly Franklin Valuemark Funds, is managed by Franklin Advisers, Inc.
and its Templeton and Franklin affiliates.
07/99
Investment Company Act file #811-5479ZF050 P 10/99
FRANKLIN
S&P 500
INDEX FUND
Templeton Variable Products Series Fund - Class 1, Class 2 and Class 3
STATEMENT OF ADDITIONAL INFORMATION 500 East Broward Boulevard, Suite 2100
OCTOBER 1, 1999 Fort Lauderdale, FL 33394-3091
1-800/774-5001
- -------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectuses. The
fund's prospectuses, dated October 1, 1999, which we may amend from time to
time, contain the basic information you should know before investing in the
fund. You should read this SAI together with the fund's prospectuses.
For a free copy of the current prospectus, contact your investment
representative or call 1-800/774-5001.
CONTENTS
Goal and Strategies of the Fund 2
Risks 8
Fundamental Investment Restrictions 9
Officers and Trustees 10
Management and Other Services 14
Portfolio Transactions 15
Distributions and Taxes 16
Organization, Voting Rights
and Principal Holders 16
Pricing Shares 17
The Underwriter 18
Performance 18
Miscellaneous Information 20
Description of Ratings 21
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- -------------------------------------------------------------------------------
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
GOAL AND STRATEGIES OF THE FUND
WHAT IS THE FUND'S GOAL?
The fund's investment goal is to match the performance of the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index) before the deduction of fund
expenses. This goal is fundamental, which means that it may not be changed
without shareholder approval.
The following gives more detailed information about the fund's investment
policies and the types of securities that it may buy.
DEBT SECURITIES represent a loan of money by the purchaser of the securities to
the issuer. A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bond, notes and
commercial paper differ in the length of the issuer's payment schedule and
commercial paper is the shortest. The fund presently intends to limit these
investments to high quality, short-term debt securities.
The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
During periods of rising interest rates, the value of such securities generally
declines. These changes in market value of securities owned by the fund will be
reflected in the fund's net asset value.
RATINGS. Various investment services publish ratings of some of the debt
securities in which the fund may invest. Higher yields are ordinarily available
from securities in the lower rating categories, such as securities rated Ba or
lower by Moody's Investors Service, Inc. (Moody's) or BB or lower by Standard &
Poor's Ratings Services (S&P) or from unrated securities deemed by the fund's
manager to be of comparable quality. These ratings represent the opinions of the
rating services with respect to the issuer's ability to pay interest and repay
principal. They do not purport to reflect other risk, such as the risk of
fluctuations in market value and are not absolute standards of quality. However,
lower rated securities typically are riskier than investment grade securities.
Bonds which are rated C by Moody's are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated C by S&P are securities on
which no interest is being paid. Please see the appendix for a discussion of the
ratings.
If the rating on an issue held in the fund's portfolio is changed by the rating
service or the security goes into default, this event will be considered by the
fund in its evaluation of the overall investment merits of that security but
will not generally result in an automatic sale of the security.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) will be carefully analyzed by the manager to assess
whether, at the time of purchase, the planned investment offers potential
returns which are reasonable in light of the risks involved.
BANK OBLIGATIONS, or instruments secured by bank obligations, include fixed,
floating or variable rate CDs, letters of credit, time deposits, bank notes and
bankers' acceptances. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange normally drawn by an importer or exporter to pay for specific
merchandise and which are "accepted" by a bank, meaning, in effect, that the
bank unconditionally agrees to pay the face value of the instrument upon
maturity. Such obligations include dollar-denominated certificates of deposit
and bankers' acceptances of banks having total assets in excess of $1 billion,
certificates of deposit of federally insured savings and loan associations
having total assets in excess of $1 billion, or cash and time deposits with
banks. Time deposits are non-negotiable deposits that are held in a banking
institution for a specified time at a stated interest rate.
COMMERCIAL PAPER typically refers to short-term obligations of banks,
corporations and other borrowers with maturities of up to 270 days. Investments
in commercial paper are generally limited to obligations rated Prime-1 or
Prime-2 by Moody's or A-1 or A-2 by S&P or if unrated, issued by companies
having an outstanding debt issue currently rated Aaa or Aa by Moody's or AAA or
AA by S&P. See the Appendix for a description of commercial paper ratings.
U.S. GOVERNMENT SECURITIES The fund may invest in U.S. Government securities
including: (1) U.S. Treasury obligations with varying interest rates, maturities
and dates of issuance, such as U.S. Treasury bills (maturities of one year or
less), U.S. Treasury notes (original maturities of one to ten years) and U.S.
Treasury bonds (generally original maturities of greater than ten years); and
(2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities such as the Government National Mortgage Association, the
Export-Import Bank and the Farmers Home Administration. The fund's investments
may include obligations that are supported by the full faith and credit of the
U.S. Government. In the case of U.S. Government securities that are not backed
by the full faith and credit of the U.S. Government (e.g., obligations of the
Federal National Mortgage Association (FNMA) or a Federal Home Loan Bank), the
fund must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the U.S.
Government itself in the event the agency or instrumentality does not meet its
commitments.
DIVERSIFICATION The fund will operate as a diversified fund under federal
securities law. A diversified fund may not, with respect to 75% of its total
assets, purchase the securities of any one issuer (except U.S. Government
securities) if more than 5% of the value of the fund's assets would be invested
in such issuer, or if the fund would hold more than 10% of the outstanding
voting securities of such issuer.
In addition, the fund intends to diversify its investments to meet the
requirements under federal tax laws relating to regulated investment companies
and variable contracts issued by insurance companies. In order to comply with
the diversification requirements related to regulated investment companies, the
fund will limit its investments so that, at the close of each quarter of the
taxable year:
(i) With respect to 50% of the market value of its assets, not more than 5% of
the market value of its assets will be invested in the securities of a single
issuer and the fund will not own more than 10% of the outstanding voting
securities of a single issuer; and
(ii) Not more than 25% of the market value of the fund's assets will be invested
in the securities of a single issuer.
The fund's investments in U.S. Government securities are not subject to these
limitations.
In order to comply with the diversification requirements related to variable
contracts issued by insurance companies, the fund will diversify its investments
such that:
(i) No more than 55% of the fund's assets are represented by any one investment;
(ii) No more than 70% of the fund's assets are represented by any two
investments;
(iii) No more than 80% of the fund's assets are represented by any three
investments; and
(iv) No more than 90% of the fund's assets are represented by any four
investments. To the extent the fund invests in obligations of U.S. Government
agencies or instrumentalities, each agency or instrumentality is treated as a
separate issuer for purposes of the above rules.
EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends which are distributions of earnings by the company to its owners.
Equity security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock. Preferred stockholders
typically receive greater dividends but may receive less appreciation than
common stockholders and may have greater voting rights as well. Equity
securities may also include warrants or rights. Warrants or rights give the
holder the right to purchase a common stock at a given time for a specified
price.
ILLIQUID SECURITIES The fund may invest in securities that cannot be offered to
the public for sale without first being registered under the Securities Act of
1933 (restricted securities), or in other securities which, in the opinion of
the board of trustees, may be illiquid. No restricted or illiquid securities
will be acquired by the fund if such acquisition would cause the aggregate value
of illiquid assets to exceed the limit prescribed by the SEC, which is currently
up to 15% of net assets.
Illiquid securities are generally securities that cannot be sold within seven
days in the normal course of business at approximately the amount at which the
fund has value them. Subject to the percentage limitation on illiquid
securities, the board of trustees has authorized the fund to invest in
restricted securities where such investment is consistent with the fund's
investment goal. The board of trustee has authorized these securities to be
considered liquid to the extent the investment manager determines on a daily
basis that there is a liquid institutional or other market for such securities -
for example, restricted securities which may be freely transferred among
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended, and for which a liquid institutional market has developed. In
spite of the manager's determinations in this regard, the board of trustees will
remain responsible for such determinations and will consider appropriate action,
consistent with the fund's goals and policies, if the security should become
illiquid after purchase. In determining whether a restricted security is
properly considered a liquid security, the investment manager and the board of
trustees will take into account, among others, the following factors: (i) the
frequency of trades and quotes for the security; (ii) the number of dealers
willing to buy or sell the security and the number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and (iv) the nature
of the security and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers, and the mechanics
of transfer). To the extent the fund invests in restricted securities that are
deemed liquid, the general level of illiquidity may be increased if qualified
institutional buyers become uninterested in buying these securities or the
market for these securities contracts.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. These
loans may not exceed 331/3% of the value of the fund's total assets, measured at
the time of the most recent loan. For each loan, the borrower must maintain with
the fund's custodian collateral (consisting of any combination of cash,
securities issued by the U.S. government and its agencies and instrumentalities,
or irrevocable letters of credit) with a value at least equal to 102% of the
current market value of the loaned securities. The fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The fund may terminate the loan at any time and obtain the
return of the securities loaned within the normal settlement period for the
security involved. The fund will continue to receive any interest or dividends
paid on the loaned securities and to have voting rights with respect to the
securities. As with other extensions of credit, however, there are risks of
delay in recovery or even loss of rights in collateral should the borrower fail.
OPTIONS, FUTURES AND OPTIONS ON FINANCIAL FUTURES
GENERALLY. The fund may buy and sell financial futures contracts and options on
these contracts and options on securities and securities indices. The fund may
only sell covered options. As more fully explained below, the fund may not
commit more than 5% of its total assets to initial margin deposits on futures
and related options contracts and premiums paid for related options.
Financial futures contracts and options on these contracts and options on
securities and securities indices are generally considered "derivative
securities." The fund will not use derivative securities for speculative
purposes or as leveraged investments that magnify the gains or losses of an
investment.
CALL AND PUT OPTIONS ON SECURITIES. The fund reserves the right to write (sell)
covered put and call options and buy put and call options on securities that
trade on securities exchanges, although the fund has no present intention of
doing so.
WRITING CALL OPTIONS. Call options written by the fund give the holder the right
to buy the underlying securities from the fund at a stated exercise price; put
options written by the fund give the holder the right to sell the underlying
security to the fund at a stated exercise price. A call option written by the
fund is "covered" if the fund owns the underlying security which is subject to
the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the fund
holds a call on the same security and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the fund in cash or
marketable securities in a segregated account with its custodian bank. The
premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand, and
interest rates.
In the case of a call option, the writer of an option may have no control over
when the underlying securities must be sold, in the case of a call option,
since, with regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation. Whether or not an
option expires unexercised, the writer retains the amount of the premium. This
amount may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from the sale of
the underlying security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be cancelled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of an option may
liquidate its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will permit
the fund to write another call option on the underlying security with either a
different exercise price, expiration date or both. In addition, effecting a
closing transaction will permit the cash or proceeds from the sale of any
securities subject to the option to be used for other fund investments. If the
fund desires to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction prior to or at the
same time as the sale of the security.
The fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to buy the option; the fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to buy the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the fund.
BUYING CALL OPTIONS. The fund may buy call options on securities that it intends
to buy in order to limit the risk of a substantial increase in the market price
of the security. The fund may also buy call options on securities held in its
portfolio and on which it has written call options. A call option gives the
holder the right to buy the underlying securities from the option writer at a
stated exercise price. Prior to its expiration, a call option may be sold in a
closing sale transaction. Profit or loss from such a sale will depend on whether
the amount received is more or less than the premium paid for the call option
plus the related transaction costs.
WRITING PUT OPTIONS. A put option gives the buyer of the option the right to
sell, and the writer (seller) the obligation to buy, the underlying security or
currency at the exercise price during the option period. The option may be
exercised at any time prior to its expiration date. The operation of put options
in other respects, including their related risks and rewards, is substantially
identical to that of call options.
The fund would write put options only on a covered basis, which means that the
fund would maintain in a segregated account cash or marketable securities in an
amount not less than the exercise price at all times while the put option is
outstanding. The rules of the clearing corporation currently require that the
assets be deposited in escrow to secure payment of the exercise price. The fund
would generally write covered put options in circumstances where the manager
wishes to buy the underlying security or currency for the fund's portfolio at a
price lower than the current market price of the security or currency. In such
event, the fund would write a put option at an exercise price which, reduced by
the premium received on the option, reflects the lower price it is willing to
pay. Since the fund would also receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this technique could be
used to enhance current return during periods of market uncertainty. The risk in
this type of transaction would be that the market price of the underlying
security or currency would decline below the exercise price less the premiums
received.
BUYING PUT OPTIONS. As the holder of a put option, the fund has the right to
sell the underlying security at the exercise price at any time during the option
period. The fund may enter into closing sale transactions with respect to put
options, exercise them, or permit them to expire.
The fund may buy a put option on an underlying security or currency owned by the
fund (a "protective put") as a hedging technique in order to protect against an
anticipated decline in the value of the security. This hedge protection is
provided only during the life of the put option when the fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price, regardless of any decline in the underlying security's market price. For
example, a put option may be purchased in order to protect unrealized
appreciation of a security when the manager deems it desirable to continue to
hold the security or currency because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security or currency is eventually
sold.
The fund may also buy put options at a time when the fund does not own the
underlying security. By buying put options on a security it does not own, the
fund seeks to benefit from a decline in the market price of the underlying
security. If the put option is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price during the life of the put option, the fund will lose its entire
investment in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
The premium paid by the fund when buying a put option will be recorded as an
asset in the fund's statement of assets and liabilities. This asset will be
adjusted daily to the options' current market value, which will be the latest
sale price at the time at which the net asset value per share of the fund is
computed, the close of the New York Stock Exchange (NYSE), or, in the absence of
a sale, the latest bid price. The asset will be extinguished upon expiration of
the option, the writing of an identical option in a closing transaction, or the
delivery of the underlying security or currency upon the exercise of the option.
OPTIONS ON STOCK INDICES. The fund may also buy call and put options on stock
indices. Call and put options on stock indices are similar to options on
securities except that, rather than the right to buy or sell stock at a
specified price, options on a stock index give the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
underlying stock index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike stock
options, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than price movements in individual stocks.
When the fund writes an option on a stock index, the fund will establish a
segregated account containing cash or marketable securities with its custodian
bank in an amount at least equal to the market value of the underlying stock
index and will maintain the account while the option is open or it will
otherwise cover the transaction.
FUTURES CONTRACTS. The fund may enter into contracts for the purchase or sale
for future delivery of securities and in such contracts based upon financial
indices (financial futures). Financial futures contracts are commodity contracts
that obligate the long or short holder to take or make delivery of a specified
quantity of a financial instrument, such as a security, or the cash value of a
securities index during a specified future period at a specified price. A "sale"
of a futures contract means the acquisition of a contractual obligation to
deliver the securities called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract means the acquisition of a
contractual obligation to acquire the securities called for by the contract at a
specified price on a specified date. Futures contracts have been designed by
exchanges that have been designated "contracts markets" by the Commodity Futures
Trading Commission (CFTC) and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant contract market.
At the same time a futures contract is purchased or sold, the fund must allocate
cash or securities as a deposit payment ("initial deposit"). The fund may not
commit more than 5% of its total assets to initial margin deposits on futures
contracts. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required since each day the fund would provide or
receive cash that reflects any decline or increase in the contract's value.
In addition, the fund must deposit in a segregated account additional cash or
liquid securities to ensure the futures contracts are unleveraged. The value of
assets held in the segregated account must be equal to the daily value of all
outstanding futures contracts less any amount deposited as margin.
At the time of delivery of securities on the settlement date of a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different composition from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although financial futures contracts by their terms call for the actual delivery
or acquisition of securities, or the cash value of the index, in most cases the
contractual obligation is fulfilled before the date of the contract without
having to make or take delivery of the securities or cash. The obligation to
make or take delivery is ended by buying (or selling, as the case may be) on an
exchange an identical financial futures contract calling for delivery in the
same month. All transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the contracts are
traded. The fund will incur brokerage fees when it buys or sells financial
futures.
The fund will not engage in transactions in futures contracts for speculation.
When the fund buys futures contracts or related call options, marketable
instruments equal to the difference between the fluctuating market value of such
futures contract and the aggregate value of the initial and variation margin
payments made by the fund will be deposited in a segregated account with the
custodian bank to collateralize such long positions.
OPTIONS ON FUTURES CONTRACTS. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security or currency. Depending on the price of the option compared
to either the price of the futures contract upon which it is based or the price
of the underlying securities or currency, the option may be less risky than
direct ownership of the futures contract or the underlying securities or
currency. As with the purchase of futures contracts, when the fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates or appreciation in the value of a
foreign currency against the U.S. dollar.
If a fund writes a call option on a futures contract and the futures price at
expiration of the option is below the exercise price, the fund will retain the
full amount of the option premium, which may provide a partial hedge against any
decline that may have occurred in the value of the fund's holdings. If the
futures price at expiration of the option is higher than the exercise price, the
fund will retain the full amount of the option premium, which may provide a
partial hedge against any increase in the price of securities that the fund
intends to purchase. If a put or call option the fund has written is exercised,
the fund will incur a loss that will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
fund's losses from existing options on futures may be affected by changes in the
value of its portfolio securities.
STOCK INDEX FUTURES. A stock index futures contract obligates the seller to
deliver (and the buyer to take) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made.
OPTIONS ON STOCK INDEX FUTURES. The fund may buy and sell call and put options
on stock index futures. Call and put options on stock index futures are similar
to options on securities except that, rather than the right to buy or sell stock
at a specified price, options on stock index futures give the holder the right
to receive cash. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
If an option is exercised on the last trading day prior to the expiration date
of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing price of the
futures contract on the expiration date.
FUTURE DEVELOPMENTS. The fund may take advantage of opportunities in the area of
options and futures contracts and options on futures contracts and any other
derivative investments which are not presently contemplated for use by the fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the fund's investment objectives and
legally permissible for the fund.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements. Under
a repurchase agreement, the fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price. Repurchase agreements may involve risks in the
event of default or insolvency of the bank or broker-dealer, including possible
delays or restrictions upon the fund's ability to sell the underlying
securities. The fund will enter into repurchase agreements only with parties who
meet certain creditworthiness standards, i.e., banks or broker-dealers that the
manager has determined present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
REVERSE REPURCHASE AGREEMENTS. The fund may also enter into reverse repurchase
agreements, which are the opposite of repurchase agreements but involve similar
mechanics and risks. The fund sells securities to a bank or dealer and agrees to
repurchase them at a mutually agreed price and date. Cash or liquid high-grade
debt securities having an initial market value, including accrued interest,
equal to at least 102% of the dollar amount sold by the fund are segregated,
i.e., set aside, as collateral and marked-to-market daily to maintain coverage
of at least 100%. Reverse repurchase agreements involve the risk that the market
value of the securities retained by the fund may decline below the price of the
securities the fund has sold but is obligated to repurchase under the agreement.
A default by the purchaser might cause the fund to experience a loss or delay in
the liquidation costs. The fund intends to enter into reverse repurchase
agreements with domestic or foreign banks or securities dealers. The manager
will evaluate the creditworthiness of these entities prior to engaging in such
transactions and it will conduct these activities under the general supervision
of the board of trustees.
SHORT-TERM INVESTMENTS As discussed in the prospectus, the fund may invest in
short-term debt securities, including the following:
o short-term (less than twelve months to maturity) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
o finance company and corporate commercial paper, and other short-term corporate
securities, in each case rated Prime-1 by Moody's or A or better by S&P or, if
unrated, of comparable quality as determined by the manager;
o obligations (including certificates of deposit, time deposits and bankers'
acceptances) of banks;
o repurchase agreements with banks and broker-dealers with respect to such
securities; and
o money market funds.
WHEN-ISSUED, DELAYED DELIVERY AND TO-BE-ANNOUNCED (TBA) TRANSACTIONS Although
the fund does not anticipate doing so, the fund reserves the right to buy
securities on a "when-issued," "delayed delivery" or "TBA" basis. These
transactions are arrangements under which the fund buys securities that have
been authorized but not yet issued with payment for and delivery of the security
scheduled for a future time, generally in 30 to 60 days. Purchases of securities
on a when issued or delayed delivery basis are subject to the risk that the
value or yields at delivery may be more or less than the purchase price or the
yields available when the transaction was entered into. Although the fund will
generally buy securities on a when-issued or TBA basis with the intention of
holding the securities, it may sell the securities before the settlement date if
it is deemed advisable. When the fund is the buyer in this type of transaction,
it will maintain, in a segregated account with its custodian bank, cash or
marketable securities having an aggregate value equal to the amount of the
fund's purchase commitments until payment is made. To the extent the fund
engages in when-issued, delayed delivery or TBA transactions, it will do so only
for the purpose of acquiring portfolio securities consistent with its investment
objectives and policies, and not for the purpose of investment leverage. In
when-issued, delayed delivery and TBA transactions, the fund relies on the
seller to complete the transaction. The seller's failure to do so may cause the
fund to miss a price or yield considered advantageous to the fund. Securities
purchased on a when issued or delayed delivery basis do not generally earn
interest until their scheduled delivery date. Entering into a when issued,
delayed delivery or TBA transaction is a form of leverage that may affect
changes in net asset value to a greater extent.
RISKS
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FUTURES CONTRACTS entail certain risks. A purchase or sale of a futures contract
may result in losses in excess of the amount invested. The fund may not be able
to close out a futures contract where a liquid secondary market is unavailable
for the futures contract the fund wishes to close. In addition, there may be an
imperfect correlation between movements in the securities on which the futures
or options contract is based and movements in the securities held by the fund.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the manager may still not
result in a successful transaction.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price. Once the daily limit has been
reached in a futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs only price
movements during a particular trading day and, therefore, does not limit
potential losses because the limit may work to prevent the liquidation of
unfavorable positions. For example, futures prices have occasionally moved to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some holders
of futures contracts to substantial losses.
The fund intends to purchase or sell futures only on exchanges or boards of
trade where there appears to be an active secondary market, but there is no
assurance that a liquid secondary market will exist for any particular contract
or at any particular time. In addition, many of the futures contracts available
may be relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market will develop
or continue to exist.
Use of stock index futures may involve risks because of imperfect correlations
between movements in prices of stock index futures on the one hand and movements
in prices on the other.
OPTIONS ON FUTURES CONTRACTS The amount of risk the fund assumes when it
purchases an option on a futures contract is the premium paid for the option
plus related transaction costs. In writing options on futures, the fund's loss
is potentially unlimited and may exceed the amount of the premium received.
Also, the fund may not be able to close out option contract positions where a
liquid secondary market is unavailable for the option the fund wishes to close.
In addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
OPTIONS ON SECURITIES The fund's options investments involve certain risks. The
effectiveness of an options strategy depends on the degree to which price
movements in the underlying securities correlate with price movements in the
relevant portion of the fund's portfolio. In addition, the fund bears the risk
that the prices of its portfolio securities will not move in the same amount as
the option it has purchased, or that there may be a negative correlation that
would result in a loss on both the securities and the option. If the manager is
not successful in using options in managing a fund's investments, the fund's
performance will be worse than if the manager did not employ such strategies.
The purchaser of an option can lose the amount of the premium plus related
transaction costs. The fund as an option writer could lose amounts substantially
in excess of its initial investment, due to the margin and collateral
requirements associated with option writing.
Options on securities traded on national securities exchanges are within the
jurisdiction of the SEC, as are other securities traded on such exchanges. As a
result, many of the protections provided to traders on organized exchanges will
be available with respect to such transactions. In particular, all option
positions entered into on a national securities exchange are cleared and
guaranteed by the Options Clearing Corporation, thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than in the
over-the-counter market, potentially permitting the fund to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
Although the fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. For some options, no secondary market on an exchange may
exist and a fund may have difficulty effecting closing transactions in
particular options. Therefore, the fund would have to exercise its options in
order to realize any profit and would incur transaction costs upon the sale of
underlying securities where a buyer exercises put or call options. If the fund
as a covered call option writer is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
OPTIONS ON STOCK INDICES The fund's ability to use options on stock indexes
effectively depends on the degree to which price movements in the underlying
index or underlying securities correlate with price movements in the relevant
portion of the fund's portfolio. Inasmuch as these securities will not duplicate
the components of any index, the correlation will not be perfect. Consequently,
the fund bears the risk that the prices of the securities underlying the option
will not move in the same amount as the option. It is also possible that there
may be a negative correlation between the index and the securities that would
result in a loss on both the securities and the instrument. Accordingly,
successful use by a fund of options on stock indexes, will be subject to the
manager's ability to predict correctly movements in the direction of the
securities markets generally or of a particular segment. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Positions in stock index options may be closed out only on an exchange that
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular stock index option at any specific time.
Thus, it may not be possible to close an option position. The inability to close
options positions could have an adverse impact on the fund's performance.
REPURCHASE AGREEMENTS The use of repurchase agreements involves certain risks.
For example, if the other party to the agreement defaults on its obligation to
repurchase the underlying security at a time when the value of the security has
declined, the fund may incur a loss upon disposition of the security. If the
other party to the agreement becomes insolvent and subject to liquidation or
reorganization under the bankruptcy code or other laws, a court may determine
that the underlying security is collateral for a loan by a fund not within the
control of the fund, and therefore the realization by the fund on the collateral
may be automatically stayed. Finally, it is possible that the fund may not be
able to substantiate its interest in the underlying security and may be deemed
an unsecured creditor of the other party to the agreement. While the manager
acknowledges these risks, it is expected that if repurchase agreements are
otherwise deemed useful to the fund, these risks can be controlled through
careful monitoring procedures.
REVERSE REPURCHASE AGREEMENTS are considered borrowings by the fund and as such
are subject to the investment limitations discussed under "Fundamental
Investment Restrictions." These transactions may increase the volatility of the
fund's income or net asset value. The fund carries the risk that any securities
purchased with the proceeds of the transaction will depreciate or not generate
enough income to cover the fund's obligations under the reverse repurchase
transaction. These transactions also increase the interest and operating
expenses of the fund.
FUNDAMENTAL INVESTMENT RESTRICTIONS
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INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
The fund may not:
1. Borrow money, except that the fund may borrow money from banks or affiliated
investment companies to the extent permitted (a) by the 1940 Act, or (b) any
exemptions therefrom which may be granted by the SEC, or (c) for temporary or
emergency purposes and then in an amount not exceeding 331/3% of the value of
the fund's total assets (including the amount borrowed).
2. Act as an underwriter except to the extent the fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own shares.
3. Make loans to other persons except (a) through the lending of its portfolio
securities, (b) through the purchase of debt securities, loan participations
and/or engaging in direct corporate loans in accordance with its investment
objectives and policies, and (c) to the extent the entry into a repurchase
agreement is deemed to be a loan. The fund may also make loans to affiliated
investment companies to the extent permitted by the 1940 Act or any exemptions
therefrom which may be granted by the SEC.
4. Purchase or sell real estate and commodities, except that the fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies, and
other indices or any other financial instruments, and may purchase and sell
options on such futures contracts.
5. Issue securities senior to the fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the fund from (a) making any permitted borrowings, loans, mortgages or
pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions or reverse repurchase transactions, or (c) making short
sales of securities to the extent permitted by the 1940 Act and any rule or
order thereunder, or SEC staff interpretations thereof.
6. Concentrate (invest more than 25% of its total assets) in securities of
issuers in a particular industry (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities or securities of
other investment companies).
7. Purchase the securities of any one issuer (other than the U.S. Government or
any of its agencies or instrumentalities, or securities of other investment
companies) if immediately after such investment (a) more than 5% of the value of
the fund's total assets would be invested in such issuer or (b) more than 10% of
the outstanding voting securities of such issuer would be owned by the fund,
except that up to 25% of the value of the fund's total assets may be invested
without regard to such 5% and 10% limitations.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.
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OFFICERS AND TRUSTEES
The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the trust who
are responsible for administering the trust's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.
The name, age and address of the officers and
board members, as well as their affiliations, positions held with the trust, and
principal occupations during the past five years are shown below.
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
*Nicholas F. Brady (69)
16 North Washington Street, Easton, MD 21601
Trustee
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of natural gas), Christiana Companies, Inc. (operating and investment
companies), and H.J. Heinz Company (processed foods and allied products);
director or trustee, as the case may be, of 20 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993) and Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) (until 1988).
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee, as
the case may be, of 50 of the investment companies in the Franklin Templeton
Group of Funds.
Andrew H. Hines, Jr. (76)
150 2nd Avenue N., St. Petersburg, FL 33701
Trustee
Consultant,Triangle Consulting Group; Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case may be, of 21 of the investment
companies in the Franklin Templeton Group of Funds; and formerly, Chairman and
Director, Precise Power Corporation (1990-1997), Director, Checkers Drive-In
Restaurant, Inc. (1994-1997), and Chairman of the Board and Chief Executive
Officer, Florida Progress Corporation (holding company in the energy area)
(1982-1990) and director of various of its subsidiaries.
Edith E. Holiday (47)
3239 38th Street, N.W., Washington, DC 20016
Trustee
Director, Amerada Hess Corporation (exploration and refining of natural gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present) and H.J.
Heinz Company (processed foods and allied products) (1994-present); director or
trustee, as the case may be, of 24 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Chairman (1995-1997) and Trustee
(1993-1997), National Child Research Center, 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).
*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 49 of the investment
companies in the Franklin Templeton Group of Funds.
Betty P. Krahmer (70)
2201 Kentmere Parkway, Wilmington, DE 19806
Trustee
Director or trustee of various civic associations; director or trustee, as the
case may be, of 20 of the investment companies in the Franklin Templeton Group
of Funds; and formerly, Economic Analyst, U.S. government.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 48 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
Fred R. Millsaps (70)
2665 NE 37th Drive, Fort Lauderdale, FL 33308
Trustee
Manager of personal investments (1978-present); director of various business and
nonprofit organizations; director or trustee, as the case may be, of 21 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Chief Executive Officer, Landmark Banking Corporation (1969-1978),
Financial Vice President, Florida Power and Light (1965-1969), and Vice
President, Federal Reserve Bank of Atlanta (1958-1965).
Barbara J. Green (51)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
Secretary
Senior Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 20 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Deputy Director, 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).
James R. Baio (45)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
Treasurer
Certified Public Accountant; Senior Vice President, Templeton Worldwide, Inc.,
Templeton Global Investors, Inc. and Templeton Funds Trust Company; officer of
21 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Senior Tax Manager, Ernst & Young (certified public accountants)
(1977-1989).
Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 52 of the investment companies
in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC;
Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and Director,
Templeton Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, LLC and Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; officer and/or director of some of
the other subsidiaries of Franklin Resources, Inc.; and officer and/or director
or trustee, as the case may be, of 52 of the investment companies in the
Franklin Templeton Group of Funds.
Samuel J. Forester, Jr. (51)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
Vice President
Managing Director, Templeton Worldwide, Inc.; Vice President and Director,
Templeton Global Income Portfolio Ltd.; Director, Closed Joint-Stock Company
Templeton and Templeton Trust Services Pvt. Ltd.; officer of 10 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Templeton Global Bond Managers, a division of Templeton Investment
Counsel, Inc., Founder and Partner, Forester, Hairston Investment Management,
Inc. (1989-1990), Managing Director (Mid-East Region), Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988), and Advisor for Saudi Arabian Monetary Agency
(1982-1987).
Deborah R. Gatzek (50)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 53 of the investment
companies in the Franklin Templeton Group of Funds.
Mark G. Holowesko (39)
Lyford Cay, Nassau, Bahamas
Vice President
President, Templeton Global Advisors Limited; Chief Investment Officer, Global
Equity Group; Executive Vice President and Director, Templeton Worldwide, Inc.;
officer of 20 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).
Charles E. Johnson (43)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
President
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 33 of the investment companies in
the Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin
Advisory Services, LLC; Director, Franklin/Templeton Investor Services, Inc.;
and officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 52 of the investment companies
in the Franklin Templeton Group of Funds.
John R. Kay (59)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
Vice President
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; officer of 25 of the investment companies in the
Franklin Templeton Group of Funds; and formerly, Vice President and Controller,
Keystone Group, Inc.
Elizabeth M. Knoblock (44)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
Vice President - Compliance
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.; officer
of 20 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Vice President and Associate General Counsel, Kidder Peabody & Co.
Inc. (1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel, Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).
*This board member is considered an "interested person" under federal securities
laws. Charles B. Johnson is an interested person due to his ownership of
Franklin Resources, Inc. Mr. Brady's status as an interested person results from
his business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby
Overseas and Templeton Global Advisors Limited are limited partners of Darby
Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.
The trust pays non-interested board members and Mr. Brady an annual retainer of
$2,000 and a fee of $200 per board meeting attended. Board members who serve on
the audit committee of the trust and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the trust. Members of a committee are not compensated
for any committee meeting held on the day of a board meeting. Non-interested
board members may also serve as directors or trustees of other funds in the
Franklin Templeton Group of Funds and may receive fees from these funds for
their services. The following table provides the total fees paid to
non-interested board members and Mr. Brady by the trust and by the Franklin
Templeton Group of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
TOTAL FEES THE FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM GROUP ON WHICH
NAME THE TRUST1 ($) OF FUNDS2 ($) EACH SERVES3
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Harris J. Ashton 4,000 361,157 48
Nicholas F. Brady 4,000 140,975 20
S. Joseph Fortunato 4,000 367,835 50
Andrew H. Hines, Jr. 5,988 208,075 21
Edith E. Holiday 4,000 211,400 24
Betty P. Krahmer 4,000 141,075 20
Gordon S. Macklin 4,000 361,157 48
Fred R. Millsaps 4,400 210,075 21
1. For the fiscal year ended December 31, 1998. During the period from September
1, 1997, through February 27, 1998, an annual retainer of $6,000 and fees at the
rate of $500 per board meeting attended were in effect.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 161 U.S. based
funds or series.
Non-interested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin Advisers, Inc.
(Advisers). The manager is a wholly owned subsidiary of Franklin Resources, Inc.
(Resources), a publicly owned company engaged in the financial services industry
through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the
principal shareholders of Resources.
The manager provides investment research and portfolio management services. The
manager has overall responsibility for determining the mix of investments that
it believes will, in a cost-effective manner, achieve the fund's investment goal
and managing cash flows into and out of the fund. The manager provides periodic
reports to the board, which reviews and supervises the manager's investment
activities. To protect the fund, the manager and its officers, directors and
employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of the fund. Similarly, with respect to the fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the fund or other
funds it manages. Of course, any transactions for the accounts of the manager
and other access persons will be made in compliance with the fund's code of
ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or other
client transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
The fund's subadvisor is State Street Global Advisors, a division of State
Street Bank and Trust Company. The subadvisor has an agreement with the manager
and provides the manager with investment management advice and assistance. The
subadvisor selects the securities for the fund to buy, hold or sell. The
subadvisor also selects the brokers who execute the fund's portfolio
transactions. The subadvisor's activities are subject to the board's review and
control, as well as the manager's instruction and supervision. To protect the
fund, the subadvisor and its officers, directors and employees are covered by
fidelity insurance.
MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of 0.15%
of its average daily net assets. The fee is computed according to the terms of
the management agreement. Each class of the fund's shares pays its proportionate
share of the fee.
The manager pays the subadvisor a fee equal to an annual rate of :
o 0.05% of the value of the fund's net assets up to and including $50,000,000;
and
o 0.04% of the value of the fund's net assets over $50,000,000 up to and
including $100,000,000; and
o 0.02% of the value of the fund's net assets over $100,000,0000.
The manager pays this fee from the management fees it receives from the fund.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the trust to provide certain administrative
services and facilities for the trust. Under this agreement, FT Services is
responsible for preparing and maintaining books, records, and tax and financial
reports, and monitoring compliance with regulatory requirements. FT Services
subcontracts with Templeton Funds Annuity Company (TFAC) to provide certain of
these services. FT Services and TFAC are direct or indirect wholly owned
subsidiaries of Resources and are affiliates of Advisers and the trust's
principal underwriter.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an annual
rate of 0.10% of the fund's average daily net assets.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
For its services, Investor Services receives a fixed fee per account. Each class
of the fund also will reimburse Investor Services for certain of its
out-of-pocket expenses, which may include payments by Investor Services to
entities, including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the fund.
The amount of reimbursements for these services per benefit plan participant
fund account per year will not exceed the per account fee payable by the fund to
Investor Services in connection with maintaining shareholder accounts.
CUSTODIAN The Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the securities and other assets of the
fund.
AUDITOR McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, is the
trust's independent auditor. The auditor gives an opinion on the financial
statements included in the trust's Annual Report to Shareholders and reviews the
trust's registration statement filed with the SEC.
RESEARCH SERVICES The manager and subadvisor may receive services from various
affiliates. The services may include information, analytical reports, computer
screening studies, statistical data, and factual resumes pertaining to
securities eligible for purchase by the fund. Such supplemental research, when
utilized, is subject to analysis by the manager and subadvisor before being
incorporated into the investment advisory process.
PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
Subject to oversight by the manager, the subadvisor selects brokers and dealers
to execute the fund's portfolio transactions in accordance with its fiduciary
duty, criteria set forth in the management agreement and subadvisory agreement
and any directions that the board may give.
When placing a portfolio transaction, the subadvisor seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the subadvisor and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The subadvisor will ordinarily place
orders to buy and sell over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
manager, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.
The subadvisor may pay certain brokers commissions that are higher than those
another broker may charge, if the subadvisor determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the subadvisor's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the subadvisor include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the subadvisor in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund. They
must, however, be of value to the subadvisor in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services the subadvisor receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the subadvisor to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the subadvisor and its affiliates may use this
research and data in their investment advisory capacities with other clients. If
the fund's officers are satisfied that the best execution is obtained, the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, also may be considered a factor in the selection of broker-dealers to
execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the fund,
any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.
If purchases or sales of securities of the fund and one or more other investment
companies or clients supervised by the subadvisor are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
subadvisor, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
differences in the distribution and service (Rule 12b-1) fees, subtransfer
agency (shareholder account maintenance) and state and federal registration fees
of the three classes of shares. The fund does not pay "interest" or guarantee
any fixed rate of return on an investment in its shares.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund intends to elect
and qualify for its current fiscal year to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code. As regulated investment
company, the fund generally pays no federal income tax on the income and gains
it distributes. To ensure that individuals holding the variable annuity or
variable life insurance contracts whose assets are invested in the fund will not
be subject to federal income tax on distributions made by the fund prior to
receipt of payments under the contracts, the fund intends to comply with the
additional requirements of Section 817(h) of the Internal Revenue Code relating
to diversification of its assets. The board reserves the right not to maintain
the qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to make certain minimum distributions by December
31 of each year. Federal excise taxes will not apply to the fund in a given
calendar year, however, if all of its shareholders at all times during the
calendar year are segregated asset accounts of life insurance companies where
the shares are held in connection with variable products.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- -------------------------------------------------------------------------------
The fund is a diversified series of Templeton Variable Products Series Fund (the
Trust), an open-end management investment company, commonly called a mutual
fund. The Trust was organized as a Massachusetts business trust on February 25,
1988, and is registered with the SEC.
The shareholders of a Massachusetts business trust, could, under certain
circumstances, be held personally liable as partners for its obligations. The
Agreement and Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
each series' (fund's) assets for any shareholder held personally liable for
obligations of that fund or the Trust. The Declaration of Trust provides that
the Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the fund or the Trust and shall satisfy
any judgment thereon. All such rights are limited to the assets of the fund. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Furthermore, the activities
of the fund as an investment company, as distinguished from an operating
company, would not likely give rise to liabilities in excess of the fund's total
assets. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to the unlikely circumstance in which both
inadequate insurance exists and the fund itself is unable to meet its
obligations.
The Trust currently offers two classes of shares for each series, class 1 and
class 2, except for the Franklin S&P 500 Index Fund which currently offers one
additional class of shares, class 3. The full title of each series and class is:
Franklin Growth Investments Fund - class 1
Franklin Growth Investments Fund - class 2
Franklin Small Cap Investments Fund - class 1
Franklin Small Cap Investments Fund - class 2
Franklin S&P 500 Index Fund - class 1
Franklin S&P 500 Index Fund - class 2
Franklin S&P 500 Index Fund - class 3
Franklin Strategic Income Investments Fund - class 1
Franklin Strategic Income Investments Fund - class 2
Mutual Shares Investments Fund - class 1
Mutual Shares Investments Fund - class 2
Templeton Asset Allocation Fund - class 1
Templeton Asset Allocation Fund - class 2
Templeton Bond Fund - class 1
Templeton Bond Fund - class 2
Templeton Developing Markets Fund - class 1
Templeton Developing Markets Fund - class 2
Templeton International Fund - class 1
Templeton International Fund - class 2
Templeton Stock Fund - class 1
Templeton Stock Fund - class 2
For all funds, shares of each class represent proportionate interests in a
fund's assets and are identical except that each fund's class 2 shares (and
class 3 shares in the case of Franklin S&P 500 Index Fund) will bear the expense
of the class 2 (and class 3, as applicable) distribution plan. (See "The
Underwriter" below, for a description of these plans.) In addition, class 3 of
Franklin S&P 500 Index Fund will bear its own registration expenses under state
and federal securities laws and transfer agency (shareholder account
maintenance) expenses. On matters that affect the fund as a whole, each class
has the same voting and other rights and preferences as any other class. On
matters that affect only one class, only shareholders of that class may vote.
Each class votes separately on matters affecting only that class, or expressly
required to be voted on separately by state or federal law. Shares of each class
of a series have the same voting and other rights and preferences as the other
classes and series of the Trust for matters that affect the Trust as a whole.
Additional series and/or classes may be offered in the future.
The Trust has non-cumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all of
the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The Trust does not intend to hold annual shareholder meetings. The Trust or the
fund may hold special meetings, however, for matters requiring shareholder
approval. A meeting may be called by the board to consider the removal of a
board member if requested in writing by shareholders holding at least 10% of the
outstanding shares. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a board member. A
special meeting also may be called by the board in its discretion.
PRINCIPAL SHAREHOLDERS Class 1 and class 2 shares of the fund are sold to and
owned only by insurance company separate accounts to serve as the investment
vehicle for variable annuity and life insurance contracts. Class 3 shares of the
fund are offered as an investment option only to defined contribution plans
participating in Franklin Templeton ValuSelect(R) and certain other qualified
retirement plans that have executed a special agreement with the fund or its
agents.
The insurance companies will exercise voting rights attributable to shares they
own in accordance with voting instructions received by owners of the contracts
issued by the insurance companies. To this extent, the insurance companies do
not exercise control over the trust by virtue of the voting rights from their
ownership of trust shares. Voting rights attributable to shares of the fund
owned by defined contribution plans participating in Franklin Templeton
ValuSelect and other qualified retirement plans will be voted as required by
applicable law and the governing plan documents.
As of the date of this SAI, there are no principal shareholders of the fund,
although there are principal shareholders of other series of the Trust.
PRICING SHARES
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When they buy and sell shares, the trust's shareholders pay and receive the net
asset value (NAV) per share.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding. The fund follows the procedures described below.
The fund calculates the NAV per share of each class each business day at the
close of trading on the NYSE (normally 1:00 p.m. pacific time). The fund does
not calculate the NAV on days the NYSE is closed for trading, which include New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its net asset value, the fund values cash and receivables at
their realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager and subadvisor.
The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.
Generally, trading in U.S. government securities and money market instruments is
substantially completed each day at various times before the close of the NYSE.
The value of these securities used in computing the NAV is determined as of such
times. Occasionally, events affecting the values of these securities may occur
between the times at which they are determined and the close of the NYSE that
will not be reflected in the computation of the NAV. If events materially
affecting the values of these securities occur during this period, the
securities will be valued at their fair value as determined in good faith by the
board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.
REDEMPTIONS IN KIND In the case of redemption requests, the board reserves the
right to make payments in whole or in part in securities or other assets of the
fund, in case of an emergency, or if the payment of such a redemption in cash
would be detrimental to the existing shareholders of the fund. In these
circumstances, the securities distributed would be valued at the price used to
compute the fund's net assets and you may incur brokerage fees in converting the
securities to cash. The fund does not intend to redeem illiquid securities in
kind. If this happens, however, you may not be able to recover your investment
in a timely manner.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the trust's shares.
DISTRIBUTORS is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, except to the
extent these expenses are borne by the insurance companies. These expenses
include advertising expenses and the costs of printing sales material and
prospectuses used to offer fund shares. The trust pays the expenses of preparing
and printing amendments to its registration statements and prospectuses (other
than those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors may be entitled to receive payment under the class 2 and class 3
Rule 12b-1 plans, as discussed below. Except as noted below, Distributors
receives no other compensation from the trust for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The fund's class 2 and class 3 shares each
have a separate distribution or "rule 12b-1" plan. Under each plan, the fund may
pay up to a maximum of 0.25% per year of the average daily net assets
attributable to its class. These fees may be used to compensate Distributors,
insurance companies, dealers, 401(k) plan record keeping and servicing agents,
or others for distribution and related services and as a servicing fee.
The terms and provisions of the plans, including terms and provisions relating
to required reports, term, and approval, are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid under the rules of
the National Association of Securities Dealers, Inc.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the board, including a majority vote
of the board members who are not interested persons of the trust and who have no
direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such board members be done by the non-interested
members of the board. The plans and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
management agreement with the manager, or by vote of a majority of the
outstanding shares of the respective class. Distributors, the insurance
companies or others may also terminate their respective distribution or service
agreement at any time upon written notice.
The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the respective class, and all material amendments
to the plans or any related agreements shall be approved by a vote of the
non-interested members of the board, cast in person at a meeting called for the
purpose of voting on any such amendment.
Distributors is required to report in writing to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the board with such other information as may
reasonably be requested in order to enable the board to make an informed
determination of whether the plans should be continued.
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PERFORMANCE
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and current yield quotations used by the fund are
based on the standardized methods of computing performance mandated by the SEC.
If a rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the fund to compute or express performance follows.
For share classes offered only to insurance company separate accounts for use in
variable annuity and variable life insurance contracts, to the extent required
by SEC rules, the advertised performance of such share classes will be displayed
no more prominently than standardized performance of the applicable insurance
company separate accounts/contracts. For information about how an insurance
company may advertise such performance, please consult the contract prospectus
which accompanies the trust prospectus.
Regardless of the method used, past performance does not guarantee future
results, and is an indication of the return to shareholders only for the limited
historical period used.
AVERAGE ANNUAL RETURN is determined by finding the average annual rates of
return over the periods indicated below that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes income dividends and capital gain distributions are reinvested at net
asset value. The quotation assumes the account was completely redeemed at the
end of each period and the deduction of all applicable fund charges and fees. It
does NOT however, include any fees or sales charges imposed by the variable
insurance contract for which the fund's class 1 and class 2 shares are
investment options or plan administration expenses imposed on retirement plans
for which the fund's Class 3 shares are an investment option. If they were
included, performance would be lower.
These figures are calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are reinvested
at NAV, the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. Cumulative total return, however,
is based on the actual return for a specified period rather than on the average
return over the periods indicated above.
From time to time, the fund may publish its current yield. The current yield
will be calculated by dividing the annualization of the income earned by the
fund during a recent 30-day period by the net asset value per share at the end
of such period. In addition, aggregate, cumulative and average total return
information for the fund over different periods of time may also be advertised.
Except as stated above, the fund will use the same methods for calculating its
performance.
A distribution rate for the fund may also be published in communications
preceded or accompanied by a copy of the fund's current prospectus. The fund's
current distribution rate will be calculated by dividing the annualization of
the total distributions made by the fund during the most recent preceding fiscal
quarter by the net asset value per share at the end of such period. The current
distribution rate may differ from current yield because the distribution rate
will be for a different period of time and may contain items of capital gain and
other items of income, while current yield reflects only earned income.
Uniformly computed yield and total return figures for the fund will also be
published along with publication of its distribution rate.
Hypothetical performance information may also be prepared for sales literature
or advertisements. Owners of contracts issued by life insurance companies should
see the appropriate insurance company separate account prospectus and SAI.
VOLATILITY Occasionally statistics may be used to show the fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of the fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of NAV or total return around an
average over a specified period of time. The idea is that greater volatility
means greater risk undertaken in achieving performance.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
o Dow Jones(R) Composite Average and its component averages - a price-weighted
average of 65 stocks that trade on the NYSE. The average is a combination of the
Dow Jones Industrial Average (30 blue-chip stocks that are generally leaders in
their industry), the Dow Jones Transportation Average (20 transportation
stocks), and the Dow Jones Utilities Average (15 utility stocks involved in the
production of electrical energy).
o The NYSE composite or component indices - an unmanaged index of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.
o Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund Performance
Analysis - measure total return and average current yield for the mutual fund
industry and rank individual mutual fund performance over specified time
periods, assuming reinvestment of all distributions, exclusive of any applicable
sales charges.
o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.
o Financial publications: THE WALL STREET JOURNAL, AND BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY magazines - provide
performance statistics over specified time periods.
o Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
o Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
o Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk-adjusted performance of a fund over specified
time periods relative to other funds within its category.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
- -------------------------------------------------------------------------------
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services more than 4 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined forces
with Templeton, a pioneer in international investing. The Mutual Advisers
organization, known for its value-driven approach to domestic equity investing,
became part of the organization four years later. Together, the Franklin
Templeton Group has over $222 billion in assets under management for more than 7
million U.S. based mutual fund shareholder and other accounts. The Franklin
Templeton Group of Funds offers 110 U.S. based open-end investment companies to
the public. The fund may identify itself by its NASDAQ symbol or CUSIP number.
S&P, a division of The McGraw-Hill Companies, Inc. does not sponsor, endorse,
sell, or promote the fund. S&P makes no representation or warranty, express or
implied, to the owners of the fund or any member of the public regarding the
advisability of investing in securities generally or in the fund particularly or
the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the fund is the licensing by Distributors of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the fund or Distributors. S&P
has no obligation to take the needs of Distributors or the owners of the fund
into consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the fund or the timing of the issuance or sale of the fund
or in the determination or calculation of the equation by which the fund is to
be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY OTHER
PERSON OR ENTITY FROM USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING THE FOREGOING,
IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large, fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear somewhat
larger.
A: Bonds rated A possess many favorable investment attributes and are considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is assigned
an actual or implied CCC- rating. The C rating also may reflect the filing of a
bankruptcy petition under circumstances where debt service payments are
continuing. The C1 rating is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings are opinions of the ability of issuers to repay punctually their
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designations for both short-term debt and
commercial paper, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
File Nos. 33-20313
FORM N-1A
PART C
Other Information
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the previously filed
documents indicated below, except as noted:
(a) Articles of Incorporation.
(i) Form of Declaration of Trust dated February 25, 1988
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No.: 33-20313
Filing Date: April 29, 1998
(ii) Form of Amendment of Declaration of Trust
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No.: 33-20313
Filing Dated: April 29, 1998
(iii) Seventh Amended Establishment and Designation of Series of Shares
(b) By-Laws.
(i) By-Laws dated February 25, 1988
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No.: 33-20313
Filing Dated: April 29, 1998
(c) Instruments Defining Rights of Security Holders.
Not applicable
(d) Investment Advisory Contracts.
(ii) Amended and Restated Investment Management Agreement for Templeton Money
Market Fund and Templeton Bond Fund
Filing: Registration Statement of Registrant on Form N-1A
File No.: 33-20313
Filing Date: February 27, 1995
(iii) Investment Management Agreement for Templeton Developing Markets Fund
Filing: Post-Effective Amendment No. 12 to Registration
Statement of Fund on Form N-1A
File No.: 33-20313
Filing Date: February 16, 1996
(iv) Investment Management Agreement between Fund, on behalf of the Templeton
Asset Allocation Fund, and Templeton Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997
(v) Investment Management Agreement between Fund, on behalf of the Templeton
Stock Fund, and Templeton Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997
(vi) Investment Management Agreement between Fund, on behalf of the Templeton
International Fund, and Templeton Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997
(vii) Investment Management Agreement between Fund, on behalf of the Franklin
Growth Investments Fund, and Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997
(viii)Investment Management Agreement between Fund, on behalf of the
Mutual Shares Investments Fund, and Franklin Mutual Advisers, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997
(ix) Form of Management Agreement between Fund, on behalf of Franklin Small
Cap Investments Fund, and Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 18 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 13, 1998
(x) Form of Investment Management Agreement between Fund, on behalf Franklin
Strategic Income Investments Fund, and Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 23 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: June 30, 1999
(xi) Form of Subadvisory Agreement between Franklin Advisers, Inc. and
Templeton Investment Counsel, Inc., on behalf of Franklin
Strategic Income Fund, Inc.
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No.: 33-20313
Filing Dated: July 16, 1999
(xii) Investment Advisory Agreement between Templeton Variable Products Series
Fund, on behalf of Franklin S&P 500 Index Fund, and Franklin Advisers,
Inc.
(xiii)Subadvisory Agreement between Franklin Advisers, Inc., on behalf of
Franklin S&P 500 Index Fund, and State Street Global Advisors,
a division of State Street Bank and Trust Company.
(e) Underwriting Contracts.
(i) Amended and Restated Distribution Agreement
Filing: Post-Effective Amendment No.10 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: December 22, 1995
(f) Bonus or Profit Sharing Contracts.
Not Applicable
(g) Custodian Agreements.
(i) Amended and Restated Custodian Agreement
Filing: Post-Effective Amendment No. 13 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: April 12, 1996
(ii) Master Custody Agreement between the Fund and the Bank of New York
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997
(h) Other Material Contracts.
(i) Amended and Restated Business Management Agreement
Filing: Post-Effective Amendment No. 12 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: February 16, 1996
(ii) Form of Fund Administration Agreement between Fund , and Franklin
Templeton Services, Inc.
Filing: Post-Effective Amendment No. 19 to Registration
Statement of Fund on Form N-1A.
File No. 33-20313
Filing Date: February 24, 1999
(iii) Form of Fund Administration Agreement between Fund, on behalf of
Franklin Strategic Income Investments Fund, and Franklin
Templeton Services, Inc. Filing:
Post-Effective Amendment No. 23 to Registration Statement of
Fund on Form N-1A
File No. 33-20313
Filing Date: June 30, 1999
(iv) Form of Administration Agreement between Registrant, on behalf of Franklin
S&P 500 Index Fund, and Franklin Templeton Services, Inc.
Post-Effective Amendment No. 23 to Registration Statement of
Fund on Form N-1A
File No. 33-20313
Filing Date: June 30, 1999
(i) Legal Opinion.
(i) Opinion and consent of counsel dated April 28, 1998
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No.: 33-20313
Filing Date: April 29, 1998
(j) Other Opinions.
Not Applicable
(k) Omitted Financial Statements.
Not Applicable
(l) Initial Capital Agreements.
(i) Letter concerning initial capital
Filing: Post-Effective Amendment No. 2 to Registration
Statement of Fund on Form N-1A
File No. 33-20313
Filing Date: August 26, 1988
(m) Rule 12b-1 Plan.
(i) Class 2 Distribution Plan between Fund and Franklin
Distributors, Inc.
(ii) Class 3 Distribution Plan between Fund and Franklin
Distributors, Inc.
(o) Rule 18f-3 Plan.
(i) Multiple Class Plan for all series of Fund
(p) Power Of Attorney.
(i) Power of Attorney from Officers and Trustees of the Fund executed August
17, 1999.
(n) Exhibit 27 - Financial Data Schedules.
Not applicable.
ITEM 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not Applicable
ITEM 25 INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Fund by the Fund pursuant to the Declaration of Trust or otherwise, the Fund
is aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act, and,
therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Fund of expenses
incurred or paid by trustees, officers or controlling persons of the Fund in
connection with the successful defense of any act, suit or proceeding)is
asserted by such trustees, officers or controlling persons in connection with
the shares being registered, the Fund will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issues.
ITEM 26 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The officers and directors of Fund 's investment advisers also serve as
officers and/or directors or trustees for (1) Franklin Resources, Inc.
("Resources"), the corporate parent of all Fund 's Investment Managers,
and/or (2) other investment companies in the Franklin Templeton Group of
Funds.
(i) Templeton Asset Management Ltd., formerly known as Templeton Investment
Management (Singapore) Pte Ltd.
Templeton Asset Management Ltd. ("Templeton Singapore"), an indirect, wholly
owned subsidiary of Resources, serves as investment manager to Templeton
Developing Markets Fund. For information please see Part B and Schedules A
and D of Form ADV of Templeton Singapore (SEC File 801-46997), incorporated
herein by reference, which set forth the officers and directors of Templeton
Singapore and information as to any business, profession, vocation of
employment of a substantial nature engaged in by those officers and directors
during the past two years.
(ii) Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI"), an indirect, wholly owned
subsidiary of Resources, serves as adviser to Asset Allocation, Bond,
International, and Stock Funds and in that capacity furnishes portfolio
management services and investment research. TICI also serves as the
sub-adviser for the Franklin Strategic Income Investments Fund. For
additional information please see Part B and Schedules A and D of Form ADV of
TICI (SEC File 801-15125), incorporated herein by reference, which set forth
the officers and directors of TICI and information as to any business,
profession, vocation of employment of a substantial nature engaged in by
those officers and directors during the past two years.
(iii) Franklin Mutual Advisers, LLC.
Franklin Mutual Advisers, LLC ("Mutual Advisers"), a direct, wholly owned
subsidiary of Resources, serves as investment manager to the Mutual Shares
Investments Fund. For information please see Part B and Schedules A and D of
Form ADV of Mutual Advisers (SEC File 801-53068), incorporated herein by
reference, which set forth the officers and directors of Mutual Advisers and
information as to any business, profession, vocation of employment of a
substantial nature engaged in by those officers and directors during the past
two years.
(iv) Franklin Advisers, Inc.
Franklin Advisers, Inc. ("Advisers"), a direct wholly owned subsidiary of
Resources, serves as Investment Manager to the Franklin Growth Investments
Fund, Franklin Small Cap Investments Fund, Franklin Strategic Income
Investments Fund and Franklin S&P 500 Index Fund. For additional
information, please see Part B and Schedules A and D of Form ADV of Advisers
(SEC File 801-26292), incorporated herein by reference, which sets forth the
officers and directors of Advisers and information as to any business,
profession, vocation or employment of a substantial nature engaged in by
those officers and directors during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Franklin Templeton Variable Insurance Products Trust
(formerly Franklin Valuemark Funds)
Institutional Fiduciary Trust
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
(b) The information required by this Item 27 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
N-1A and schedule A of Form BD filed by Distributors with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889).
ITEM 28 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books, or other documents required to be maintained by the Fund
pursuant to Section 31(a) of the Investment Company Act of 1940 are kept by
the Fund , and its administrator, Franklin Templeton Services, Inc., 500 E.
Broward Blvd., Fort Lauderdale, Florida 33394-3091, or its shareholder
services agent, Franklin/Templeton Investor Services, Inc., 100 Fountain
Parkway, St. Petersburg, Florida 33716-1205.
ITEM 29 MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 30 UNDERTAKINGS
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act, the Fund certifies that it meets all of the requirements for
effectiveness of this registration statement under rule 485(b) under the
Securities Act and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City of San Mateo
and the State of California, on the 30th day of September 1999.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By: _____________________________________
/s/ Karen L. Skidmore, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
Charles E. Johnson* Principal Executive Officer and Trustee
Charles E. Johnson Dated: September 30, 1999
Fred R. Millsaps* Trustee
Fred R. Millsaps Dated: September 30, 1999
Edith E. Holiday* Trustee
Edith E. Holiday Dated: September 30, 1999
Betty P. Krahmer* Trustee
Betty P. Krahmer Dated: September 30, 1999
Charles B. Johnson* Trustee
Charles B. Johnson Dated: September 30, 1999
Harris J. Ashton* Trustee
Harris J. Ashton Dated: September 30, 1999
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: September 30, 1999
Andrew H. Hines, Jr.* Trustee
Andrew H. Hines, Jr. Dated: September 30, 1999
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: September 30, 1999
Nicholas F. Brady* Trustee
Nicholas F. Brady Dated: September 30, 1999
James R. Baio* Principal Financial Officer
James R. Baio Dated: September 30, 1999
*By
/s/ Karen L. Skidmore, Attorney-in-Fact
(Pursuant to attached Powers of Attorney)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.(a)(i) Form of Declaration of Trust *
EX-99.(a)(ii) Form of Amendment of Declaration of Trust *
EX-99(a)(iii) Seventh Amended Establishment and Attached
Designation of Series of Shares
EX-99.(b)(i) By-Laws *
EX-99.(d)(i) Amended and Restated Investment *
Management Agreement for Templeton Money
Market Fund and Templeton Bond Fund
EX-99.(d)(ii) Investment Management Agreement for *
Templeton Developing Markets Fund
EX-99.(d)(iii) Investment Management Agreement *
between Registrant, on behalf of the
Templeton Asset Allocation Fund, and
Templeton Investment Counsel, Inc.
EX-99.(d)(iv) Investment Management Agreement *
between Registrant, on behalf of the
Templeton Stock Fund, and Templeton
Investment Counsel, Inc.
EX-99.(d)(v) Investment Management Agreement *
between Registrant, on behalf of the
Templeton International Fund, and
Templeton Investment Counsel, Inc.
EX-99.(d)(vi) Investment Management Agreement *
between Registrant, on behalf of
Franklin Growth Investments Fund,
and Franklin Advisers, Inc.
EX-99.(d)(vii) Investment Management Agreement *
between Registrant, on behalf of the
Mutual Shares Investments Fund, and
Franklin Mutual Advisers, Inc.
EX-99.(d)(viii) Form of Management Agreement between *
Registrant, on behalf of Franklin Small
Cap Investments Fund, and Franklin
Advisers, Inc.
EX-99 (d) (ix) Form of Investment Advisory Agreement *
between Registrant, on behalf of Franklin
Strategic Income Fund, and Franklin Advisers, Inc.
EX-99 (d) (x) Form of Subadvisory Agreement between *
Franklin Advisers, Inc., on behalf of Franklin
Strategic Income Fund, and Templeton Investment
Counsel, Inc.
EX-99 (d) (xi) Investment Advisory Agreement Attached
between Registrant, on behalf of
Franklin S&P 500 Index
Fund and Franklin Advisers, Inc.
EX-99(d) (xii) Subadvisory Agreement between Attached
Franklin Advisers, Inc., on behalf of Franklin
S&P 500 Index Fund, and State Street Global
Advisors, a division of State Street Bank and Trust
Company.
EX-99.(e)(i) Amended and Restated Distribution *
Agreement
EX-99.(g)(i) Amended and Restated Custodian Agreement *
EX-99.(g)(ii) Master Custody Agreement between *
the Registrant and the Bank of New York
EX-99.(h)(i) Amended and Restated Business *
Management Agreement
EX-99.(h)(ii) Form of Fund Administration *
Agreement between Registrant,
and Franklin Templeton Services, Inc.
EX-99 (h) (iii) Form of Fund Administration Agreement *
between Registrant, on behalf of Franklin
Strategic Income Investments Fund, and
Franklin Templeton Services, Inc.
EX-99 (h) (iv) Form of Fund Administration Agreement between *
Registrant, on behalf of Franklin S&P Index Fund,
and Franklin Templeton Services, Inc.
EX-99.(i)(i) Opinion and Consent of Counsel dated *
April 28, 1998
EX-99.(l)(i) Letter concerning initial capital *
EX-99(m)(i) Class 2 Distribution Plan Attached
between Registrant and Franklin Distributors, Inc.
EX-99(m)(ii) Class 3 Distribution Plan between Attached
Registrant, and Franklin Distributors, Inc.
EX-99.(o)(i) Multiple Class Plan for all Attached
series of Registrant
EX-99.(p)(i) Power of Attorney from Officers Attached
and Trustees of the Fund executed
August 17, 1999
*Incorporated by Reference
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Seventh Amended Establishment and Designation
of Series of Shares of Beneficial Interest, Par Value $0.01 Per Share
The undersigned, being a majority of the Trustees of Templeton Variable
Products Series Fund, a Massachusetts business trust (the "Trust"), acting
pursuant to Sections 5.11 and 5.12 of the Declaration of Trust dated February
25, 1988 (the "Declaration of Trust") of the Trust, and having divided the
shares of beneficial interest of the Trust into nine separate series (each
individually a "Fund" or collectively the "Funds") and two separate classes by
an Establishment and Designation of Series of Shares of Beneficial Interest, Par
Value $0.01 per Share dated February 25, 1988 and amended on June 15, 1988, May
1, 1992, December 5, 1995, February 14, 1997, February 27, 1998, and May 19,
1999 hereby establish and designate one additional Fund which shall consist of
three classes, and amend and restate the Funds' and each class's special and
relative rights as follows:
1. The Funds shall be designated Templeton Bond Fund, Templeton Stock Fund,
Templeton Asset Allocation Fund, Templeton International Fund, Templeton
Developing Markets Fund, Franklin Growth Investments Fund, Franklin Small Cap
Investments Fund, Mutual Shares Investments Fund, Franklin Strategic Income
Investments Fund, Franklin Real Estate Investments Fund, Templeton International
Smaller Companies Investments Fund, and Franklin S&P 500 Index Fund.
2. The classes shall be designated as follows:
Templeton Asset Allocation Fund Class 1
Templeton Asset Allocation Fund Class 2
Templeton Bond Fund Class 1
Templeton Bond Fund Class 2
Templeton Developing Markets Fund Class 1
Templeton Developing Markets Fund Class 2
Templeton International Fund Class 1
Templeton International Fund Class 2
Templeton Stock Fund Class 1
Templeton Stock Fund Class 2
Franklin Growth Investments Fund Class 1
Franklin Growth Investments Fund Class 2
Franklin Small Cap Investments Fund Class 1
Franklin Small Cap Investments Fund Class 2
Mutual Shares Investments Fund Class 1
Mutual Shares Investments Fund Class 2
Franklin Strategic Income Investments Fund Class 1
Franklin Strategic Income Investments Fund Class 2
Franklin Real Estate Investments Fund Class 1
Franklin Real Estate Investments Fund Class 2
Templeton International Smaller Companies Investments Fund Class 1
Templeton International Smaller Companies Investments Fund Class 2
Franklin S&P 500 Index Fund Class 1
Franklin S&P 500 Index Fund Class 2
Franklin S&P 500 Index Fund Class 3
3. Each Fund shall be authorized to hold cash and invest in securities and
instruments and use investment techniques as described in the Trust's
registration statement under the Securities Act of 1933, as amended from time to
time. Each share of beneficial interest, par value $0.01 per share, of each Fund
("Share") shall be redeemable as provided in the Declaration of Trust, shall be
entitled to one vote (or fraction thereof in respect of a fractional Share) on
matters on which Shares of that series shall be entitled to vote and shall
represent a pro rata beneficial interest in the assets allocated to that Fund.
The proceeds of sales of Shares of a Fund, together with any income and gain
thereon, less any diminution or expenses thereof, shall irrevocably belong to
that Fund, unless otherwise required by law. Each Share of a Fund shall be
entitled to receive its pro rata share of net assets of that Fund upon
liquidation of that Fund. Upon redemption of a Shareholder's Shares, or
indemnification for liabilities incurred by reason of a Shareholder being or
having been a Shareholder of a Fund, such Shareholder shall be paid solely out
of the property of such Fund.
4. Shareholders of each Fund shall vote separately as a class on any matter
except, consistent with the Investment Company Act of 1940, as amended, (the
"1940 Act") and the rules thereunder and the Trust's registration statement
thereunder, (i) the election of Trustees, (ii) any amendment to the Declaration
of Trust, unless the amendment affects fewer than all Funds, in which case
Shareholders of the affected Funds shall vote separately, and (iii) ratification
of the selection of auditors. Shareholders of each Fund shall vote together as a
single class on any matter, except to the extent required by the 1940 Act and
the rules thereunder, or when the Trustees have determined that the matter
affects only the interests of Shareholders of a particular class of Shares of a
Fund, in which case only the Shareholders of such class shall be entitled to
vote thereon. In each case of such separate voting, the Trustees shall determine
whether, for the matter to be effectively acted upon within the meaning of Rule
18f-2 under the 1940 Act or any successor rule as to a Fund, the applicable
percentage (as specified in the Declaration of Trust, or the 1940 Act and the
rules thereunder) of the Shares of that Fund alone must be voted in favor of the
matter, or whether the favorable vote of such applicable percentage of the
Shares of each Fund entitled to vote on the matter is required.
5. The assets and liabilities of the Trust shall be allocated among the
above-referenced Funds as set forth in Section 5.11 of the Declaration of Trust,
except as provided below:
a. Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular class may be charged to and borne solely by such
class and the bearing of expenses solely by a class of Shares may be
appropriately reflected (in a manner determined by the Trustees), and cause
differences in, the net asset value attributable to, and the dividend,
redemption and liquidation rights of, the Shares of different classes of a Fund.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all classes of
a Fund for all purposes. The liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
Fund shall be allocated among the Funds on the basis of their relative average
daily net assets.
b. The Trustees may from time to time in particular cases make specific
allocations of assets or liabilities among the Funds.
6. Shares of each class of a Fund may vary between themselves as to rights
of redemption and conversion rights, as may be approved by the Trustees and set
forth in a Fund's then-current prospectus.
7. The Trustees (including any successor Trustees) shall have the right at
any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund or any class thereof, now or hereafter created, or
to otherwise change the special and relative rights of any such Fund or any
class thereof, provided that such change shall not adversely affect the rights
of Shareholders of such Fund or class.
IN WITNESS WHEREOF, the undersigned have signed this instrument as of
August 19, 1999. This Instrument may be executed by the Trustees on separate
counterparts but shall be effective only when signed by a majority of the
Trustees.
- ------------------------------- ------------------------------
/s/ Charles B. Johnson, /s/ Harris J. Ashton,
as Trustee as Trustee
- ------------------------------- ------------------------------
/s/ Betty P. Krahmer, /s/ Fred R. Millsaps
as Trustee as Trustee
- ------------------------------- ------------------------------
/s/ Nicholas F. Brady, /s/ Andrew H. Hines,
as Trustee as Trustee
- ------------------------------- ------------------------------
/s/ S. Joseph Fortunato, /s/ Gordon S. Macklin,
as Trustee as Trustee
- -------------------------------
/s/ Edith E. Holiday,
as Trustee
TEMPLETON VARIABLE PRODUCTS SERIES FUND
on behalf of
FRANKLIN S&P 500 INDEX FUND
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT made between TEMPLETON VARIABLE PRODUCTS
SERIES FUND, a Massachusetts business trust (the "Trust"), on behalf of FRANKLIN
S&P 500 INDEX FUND (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS,
INC., a California corporation, (the "Adviser").
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
desires to avail itself of the services, information, advice, assistance and
facilities of an investment adviser and to have an investment adviser perform
various management, statistical, research, investment advisory and other
services for the Fund; and,
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
investment advisory, counseling and supervisory services to investment companies
and other investment counseling clients, and desires to provide these services
to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter set
forth, it is mutually agreed as follows:
1. EMPLOYMENT OF THE ADVISER. The Trust hereby employs the Adviser to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the officers
of the Trust, for the period and on the terms hereinafter set forth. The Adviser
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the
Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. INVESTMENT ADVISORY SERVICES.
(a) The Adviser shall manage the Fund's assets subject to and in accordance
with the investment objectives and policies of the Fund and any directions which
the Trust's Board of Trustees may issue from time to time. In pursuance of the
foregoing, the Adviser 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 the same.
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. The Adviser
shall render or cause to be rendered regular reports to the Trust, at regular
meetings of its Board of Trustees and at such other times as may be reasonably
requested by the Trust's Board of Trustees, of (i) the decisions made with
respect to the investment of the Fund's assets and the purchase and sale of its
investment securities, (ii) the reasons for such decisions and (iii) the extent
to which those decisions have been implemented.
(b) The Adviser, subject to and in accordance with any directions which the
Trust's Board of Trustees may issue from time to time, shall place, in the name
of the Fund, orders for the execution of the Fund's securities transactions.
When placing such orders, the Adviser shall seek to obtain the best net price
and execution for the Fund, but this requirement shall not be deemed to obligate
the Adviser to place any order solely on the basis of obtaining the lowest
commission rate if the other standards set forth in this section have been
satisfied. The parties recognize that there are likely to be many cases in which
different brokers are equally able to provide such best price and execution and
that, in selecting among such brokers with respect to particular trades, it is
desirable to choose those brokers who furnish research, statistical, quotations
and other information to the Fund and the Adviser in accordance with the
standards set forth below. Moreover, to the extent that it continues to be
lawful to do so and so long as the Board of Trustees determines that the Fund
will benefit, directly or indirectly, by doing so, the Adviser may place orders
with a broker who charges a commission for that transaction which is in excess
of the amount of commission that another broker would have charged for effecting
that transaction, provided that the excess commission is reasonable in relation
to the value of "brokerage and research services" (as defined in Section 28(e)
(3) of the Securities Exchange Act of 1934) provided by that broker.
Accordingly, the Trust and the Adviser agree that the Adviser shall select
brokers for the execution of the Fund's transactions from among:
(i) Those brokers and dealers who provide quotations and other
services to the Fund, specifically including the quotations necessary to
determine the Fund's net assets, in such amount of total brokerage as may
reasonably be required in light of such services; and
(ii) Those brokers and dealers who supply research, statistical and
other data to the Adviser or its affiliates which the Adviser or its
affiliates may lawfully and appropriately use in their investment advisory
capacities, which relate directly to securities, actual or potential, of
the Fund, or which place the Adviser in a better position to make decisions
in connection with the management of the Fund's assets and securities,
whether or not such data may also be useful to the Adviser and its
affiliates in managing other portfolios or advising other clients, in such
amount of total brokerage as may reasonably be required. Provided that the
Trust's officers are satisfied that the best execution is obtained, the
sale of shares of the Fund may also be considered as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
(c) When the Adviser has determined that the Fund should tender
securities pursuant to a "tender offer solicitation," Franklin/Templeton
Distributors, Inc. ("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such capacity under
the federal securities laws and rules thereunder and the rules of any
securities exchange or association of which Distributors may be a member.
Neither the Adviser nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to
maintain its corporate existence and membership in the National Association
of Securities Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Adviser or Distributors (i) to act
pursuant to the foregoing requirement under any circumstances in which they
might reasonably believe that liability might be imposed upon them as a
result of so acting, or (ii) to institute legal or other proceedings to
collect fees which may be considered to be due from others to it as a
result of such a tender, unless the Trust on behalf of the Fund shall enter
into an agreement with the Adviser and/or Distributors to reimburse them
for all such expenses connected with attempting to collect such fees,
including legal fees and expenses and that portion of the compensation due
to their employees which is attributable to the time involved in attempting
to collect such fees.
(d) The Adviser shall render regular reports to the Trust, not more
frequently than quarterly, of how much total brokerage business has been
placed by the Adviser, on behalf of the Fund, with brokers falling into
each of the categories referred to above and the manner in which the
allocation has been accomplished.
(e) The Adviser agrees that no investment decision will be made or
influenced by a desire to provide brokerage for allocation in accordance
with the foregoing, and that the right to make such allocation of brokerage
shall not interfere with the Adviser's paramount duty to obtain the best
net price and execution for the Fund.
(f) Decisions on proxy voting shall be made by the Adviser unless the
Board of Trustees determines otherwise. Pursuant to its authority, Adviser
shall have the power to vote, either in person or by proxy, all securities
in which the Fund may be invested from time to time, and shall not be
required to seek or take instructions from the Fund with respect thereto.
Adviser shall not be expected or required to take any action other than the
rendering of investment-related advice with respect to lawsuits involving
securities presently or formerly held in the Fund, or the issuers thereof,
including actions involving bankruptcy. Should Adviser undertake litigation
against an issuer on behalf of the Fund, the Fund agrees to pay its portion
of any applicable legal fees associated with the action or to forfeit any
claim to any assets Adviser may recover and, in such case, agrees to hold
Adviser harmless for excluding the Fund from such action. In the case of
class action suits involving issuers held in the Fund, Adviser may include
information about the Fund for purposes of participating in any
settlements.
B. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser, its
officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
C. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its officers and
employees available to the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration and management of the
Fund and its investment activities.
D. AUTHORITY TO DELEGATE. The Adviser may, at its expense, select and
contract with one or more investment advisers registered under the Investment
Advisers Act of 1940 ("Sub-Advisers") to perform some or all of the services for
a Fund for which it is responsible under this Agreement. The Adviser will
compensate any Sub-Adviser for its services to the Fund. The Adviser may
terminate the services of any Sub-Adviser at any time in its sole discretion,
and shall at such time assume the responsibilities of such Sub-Adviser unless
and until a successor Sub-Adviser is selected and the requisite approval of a
Fund's shareholders is obtained. The Adviser will continue to have
responsibility for all advisory services furnished by any Sub-Adviser.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay all of its
own expenses other than those expressly assumed by the Adviser herein, which
expenses payable by the Fund shall include:
A. Fees and expenses paid to the Adviser as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including
the expenses of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value of
the Fund's net assets;
E. Salaries and other compensations of executive officers of the
Trust who are not officers, directors, stockholders or employees of
the Adviser or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the purchase
and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the
filing of reports with regulatory bodies and the maintenance of the
Fund's and the Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for
sale;
K. Trustees' fees and expenses to trustees who are not directors,
officers, employees or stockholders of the Adviser or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any
applicable state laws; including the printing and mailing of
prospectuses to its shareholders;
M. Trade association dues;
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums; and
O. The Fund's portion of the cost of any proxy voting service
used on its behalf.
4. COMPENSATION OF THE ADVISER. The Fund shall pay an advisory fee in cash
to the Adviser based upon a percentage of the value of the Fund's net assets,
calculated as set forth below, as compensation for the services rendered and
obligations assumed by the Adviser, during the preceding month, on the first
business day of the month in each year.
A. For purposes of calculating such fee, the value of the net assets of the
Fund shall be determined in the same manner as that Fund uses to compute the
value of its net assets in connection with the determination of the net asset
value of its shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of the management
fee payable by the Fund shall be calculated daily at the annual rate of 0.15% of
the value of the Fund's net assets.
B. The advisory fee payable by the Fund shall be reduced or eliminated to
the extent that Distributors has actually received cash payments of tender offer
solicitation fees less certain costs and expenses incurred in connection
therewith and to the extent necessary to comply with the limitations on expenses
which may be borne by the Fund as set forth in the laws, regulations and
administrative interpretations of those states in which the Fund's shares are
registered. The Adviser 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 Adviser 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 full set forth herein.
C. If this Agreement is terminated prior to the end of any month, the
accrued advisory fee shall be paid to the date of termination.
5. ACTIVITIES OF THE ADVISER. The services of the Adviser to the Fund
hereunder are not to be deemed exclusive, and the Adviser and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-Laws of the Trust
and Section 10(a) of the 1940 Act, it is understood that trustees, officers,
agents and shareholders of the Trust are or may be interested in the Adviser or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Adviser or its affiliates are or may be
interested in the Trust as trustees, officers, agents, shareholders or
otherwise; that the Adviser or its affiliates may be interested in the Fund as
shareholders or otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE ADVISER.
A. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of the
Adviser, the Adviser shall not be subject to liability to the Trust or the Fund
or to any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Adviser agrees to reimburse the Trust
for any and all costs, expenses, and counsel and trustees' fees reasonably
incurred by the Trust in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement, holdings of meetings of
its shareholders or trustees, the conduct of factual investigations, any legal
or administrative proceedings (including any applications for exemptions or
determinations by the Securities and Exchange Commission) which the Trust incurs
as the result of action or inaction of the Adviser or any of its affiliates or
any of their officers, directors, employees or stockholders where the action or
inaction necessitating such expenditures (i) is directly or indirectly related
to any transactions or proposed transaction in the stock or control of the
Adviser or its affiliates (or litigation related to any pending or proposed or
future transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or, (ii)
is within the control of the Adviser or any of its affiliates or any of their
officers, directors, employees or stockholders. The Adviser shall not be
obligated pursuant to the provisions of this Subparagraph 6(B), to reimburse the
Trust for any expenditures related to the institution of an administrative
proceeding or civil litigation by the Trust or a shareholder seeking to recover
all or a portion of the proceeds derived by any stockholder of the Adviser or
any of its affiliates from the sale of his shares of the Adviser, or similar
matters. So long as this Agreement is in effect, the Adviser shall pay to the
Trust the amount due for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the Adviser therefor. This
provision shall not be deemed to be a waiver of any claim the Trust may have or
may assert against the Adviser or others for costs, expenses or damages
heretofore incurred by the Trust or for costs, expenses or damages the Trust may
hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any trustee
or officer of the Trust, or director or officer of the Adviser, from liability
in violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written below and
shall continue in effect for two (2) years thereafter, unless sooner terminated
as hereinafter provided and shall continue in effect thereafter for periods not
exceeding one (1) year so long as such continuation is approved at least
annually (i) by a vote of a majority of the outstanding voting securities of
each Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a vote
of a majority of the Trustees of the Trust who are not parties to the Agreement
(other than as Trustees of the Trust), cast in person at a meeting called for
the purpose of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment of any penalty
either by vote of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund on 60 days'
written notice to the Adviser;
(ii) shall immediately terminate with respect to the Fund in the event
of its assignment; and
(iii) may be terminated by the Adviser on 60 days' written notice to
the Fund.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall
have the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing addressed
and delivered, or mailed post-paid, to the other party at any office of
such party.
8. SEVERABILITY. 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.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 1st day of October 1999.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
on behalf of Franklin S&P 500 Index Fund
By: /S/ CHARLES E. JOHNSON
Charles E. Johnson
President
FRANKLIN ADVISERS, INC.
By: /S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
TEMPLETON VARIABLE PRODUCTS SERIES FUND
on behalf of
FRANKLIN S&P 500 INDEX FUND
SUBADVISORY AGREEMENT
This Agreement is entered into as of September 14, 1999, by and between Franklin
Advisers, Inc., a California corporation (the "Manager"), and State Street
Global Advisors, a division of State Street Bank and Trust Company, a
Massachusetts trust company (the "Subadvisor").
WHEREAS, Franklin S&P 500 Index Fund (the "Fund") is a series of Templeton
Variable Products Series Fund (the "Trust"), an investment company registered
with the U.S. Securities and Exchange Commission ("SEC") pursuant to the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, Manager is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act"), and Subadvisor is a "bank" as defined
in the Advisors Act and both are engaged in the business of supplying, among
other things, investment advice and investment management services to investment
companies and other investment counseling clients; and
WHEREAS, Manager has been retained to render investment advisory services to the
Fund pursuant to an Investment Advisory Agreement (the "Management Contract"),
and Manager desires to retain Subadvisor to render investment advisory, research
and related services to the Fund pursuant to this Agreement, and Subadvisor is
willing to provide such services; and
WHEREAS, the Trust's board of trustees (the "Board"), including a majority of
trustees who are not "interested persons" (as defined below) of any party to
this Agreement, have consented to such an arrangement.
NOW, THEREFORE, in consideration of the covenants and mutual promises contained
herein, the parties hereto, intending to be legally bound hereby, mutually agree
as follows:
I. APPOINTMENT OF SUBADVISOR; COMPENSATION
1.1 Appointment of Subadvisor.
Subject to and in accordance with the provisions hereof, Manager hereby appoints
Subadvisor as investment subadvisor to provide the various investment advisory
and other services to the Fund set forth herein and, subject to the restrictions
set forth herein, and hereby delegates to Subadvisor the authority vested in
Manager pursuant to the Management Contract to the extent necessary to enable
Subadvisor to perform its obligations under this Agreement. Subadvisor accepts
such appointment for the compensation herein provided and agrees to use its best
efforts in performing the services to be provided pursuant to this Agreement.
Manager shall continue to have responsibility for all services to be provided to
the Fund pursuant to the Management Contract and shall oversee and review the
Subadvisor's performance of its duties under this Agreement.
1.2 Scope of Investment Authority.
(a) Subadvisor is hereby authorized, on a discretionary basis, to manage the
investments and determine the composition of the assets of the Fund, subject at
all times to (i) the supervision and control of the Board, (ii) the investment
objectives, policies and limitations, as contained in the Fund's current
Prospectus and Statement of Additional Information and other governing
documents, including the Trust's Declaration of Trust and By-laws, and (iii)
such instructions, policies and limitations relating to the Fund as the Board or
Manager may from time to time adopt and communicate in writing to Subadvisor.
Notwithstanding anything herein to the contrary, Subadvisor is not authorized to
take any action, including the purchase and sale of Fund securities, in
contravention of any restriction, limitation, objective, policy or instruction
described in the previous sentence.
(b) It is understood and agreed that, for so long as this Agreement shall remain
in effect, Subadvisor shall, subject to Section 1.2(a) hereof, retain
discretionary investment authority over the manner in which the Fund's assets
are invested, provided that the Board and Manager shall at all times have the
right to monitor the Fund's investment activities and performance, require
Subadvisor to make reports and give explanations as to the manner in which the
Fund's assets are being invested, and, should either Manager or the Board become
dissatisfied with Subadvisor's performance in any way, terminate this Agreement
in accordance with the provisions of Section 8.2 hereof.
1.3 Independent Contractor.
Notwithstanding anything herein to the contrary, Subadvisor shall be an
independent contractor and will have no authority to act for or represent the
Trust, the Fund or Manager in any way or otherwise be deemed an agent of any of
them, except to the extent expressly authorized by this Agreement or in writing
by the Trust or Manager.
1.4 Compensation.
Subadvisor shall be compensated for the services it performs on behalf of the
Fund in accordance with the terms set forth in Appendix A to this Agreement.
II. SERVICES TO BE PERFORMED BY SUBADVISOR
2.1 Investment Advisory Services.
(a) In fulfilling its obligations to manage the assets of the Fund, Subadvisor
will:
(i) provide the Fund with such investment research, advice and supervision as
the Board and Manager may from time to time consider necessary for the proper
management of the assets of the Fund;
(ii) formulate and implement a continuous investment program for the Fund;
(iii) take whatever steps are necessary to implement these investment programs
by the purchase and sale of securities and other investments, including the
selection of brokers or dealers, the placing of orders for such purchases and
sales in accordance with the provisions of paragraph (b) below and the affirming
of such purchases and sales with counterparties and clearing agents and ensuring
that such purchases and sales are properly settled and cleared in a timely
manner;
(iv) provide to Manager, the Fund's custodian and/or to such other entities as
Manager shall request, such information and reports with respect to the
implementation of the Fund's investment program as Manager shall request,
including daily reporting of all transactions effected by Subadvisor on
behalf of the Fund and daily reporting of pricing and all other information
sufficient to enable the Fund to comply with Rule 22c-1 under the 1940 Act.
Subadvisor shall promptly forward to Manager and the Fund's custodian
copies of all brokerage or dealer confirmations for each transaction
effected for the Fund and shall as soon as is practicable provide Manager
and the Fund's custodian with copies of the trade blotter for each such
transaction;
(v) provide the Board in advance of the Board's regular and special meetings
and at such other times as may be reasonably requested by the Board, a
report of its activities hereunder on behalf of the Fund and its proposed
strategy, and such other periodic or special reports as the Board or
Manager may reasonably request, all in such form and detail as requested by
the Board, and make an investment officer available to attend such meetings
as the Board may request. Subadvisor shall also provide the Board and
Manager with copies of Subadvisor's quarterly compliance reports prepared
in connection with Subadvisor's code of ethics adopted in compliance with
Rule 17j-1 of the 1940 Act promptly after such reports are available; and
(vi) provide advice and assistance to Manager as to the determination of the
fair value of certain securities where market quotations are not readily
available for purposes of calculating net asset value of the Fund in
accordance with valuation procedures and methods established by the Board.
(b) Subadvisor shall place all orders for the purchase and sale of portfolio
securities for the Fund's account with brokers, dealers, futures commission
merchants or banks selected by Subadvisor. Subadvisor shall use its best
efforts to obtain for the Fund the most favorable net price and execution
available. Subject to the policies and procedures adopted by the Board,
Subadvisor may, to the extent authorized by law and in accordance with the
Fund's Prospectus and Statement of Additional Information, cause the Fund
to pay a broker or dealer who provides brokerage and research services (as
defined in Section 28(e) of the Securities Exchange Act of 1934) an amount
of commission for effecting a portfolio investment transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction, in recognition of the brokerage and research
services provided by the broker or dealer. To the extent authorized by
applicable law, Subadvisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of such action. The Board shall periodically review the commissions
paid by the Fund to determine if the commissions paid over representative
periods were reasonable in relation to the benefits to the Fund. Subject to
applicable law and the policies and procedures adopted by the Board,
Subadvisor may select brokers or dealers that are affiliated with
Subadvisor in executing purchases and sales of securities for the Fund.
2.2 Administrative and Other Services.
(a) Facilities and Personnel.
Subadvisor will, at its expense, furnish (i) all necessary investment and
management facilities, including salaries of personnel required for it to
execute its duties faithfully under this Agreement, and (ii) administrative
facilities, including bookkeeping, clerical personnel and equipment necessary
for the efficient conduct of the investment affairs of the Fund (excluding
determination of net asset value and shareholder accounting services).
(b) Maintenance of Books and Records.
Subadvisor agrees to maintain, in the form and for the period required by Rules
31a-1 and 31a-2 under the 1940 Act, all accounts, books and records with respect
to the Fund as are required to be maintained pursuant to the 1940 Act.
Subadvisor agrees that such accounts, books and records are the property of the
Trust and will be surrendered to the Trust or Manager (or any other party at the
Trust's direction) promptly upon request. Subadvisor agrees to provide copies of
such accounts, books and records to Manager and the Fund's accountants and
auditors promptly upon request. Subadvisor shall timely furnish to Manager all
information relating to Subadvisor's services under this Agreement needed by
Manager to keep the other books and records of the Fund required by Rule 31a-1
under the 1940 Act. Subadvisor further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any such records as are required to
be maintained by it pursuant to this Agreement.
(c) Provision of Certain Additional Information.
Subadvisor shall provide such information as is necessary to enable the Trust
and Manager to prepare and update the Trust's registration statement (and any
supplement thereto), the Fund's financial statements and any other periodic
financial reports or other documents required to be filed with the SEC and any
other regulatory entity. Subadvisor understands that the Trust and Manager will
rely on such information in the preparation of the Trust's registration
statement, the Fund's financial statements and other reports and documents, and
hereby covenants that any such information provided by Subadvisor expressly for
use in such registration statements, financial statements and/or other reports
or documents shall be true and complete in all material respects. Subadvisor
agrees to provide such other information as the Fund or Manager may reasonably
request for use in the preparation of other materials necessary or helpful for
the underwriting and distribution of the Fund's shares.
(d) Exercise of Voting Rights for Investments.
Manager hereby delegates to Subadvisor discretionary authority to determine 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.
Subadvisor shall use its best good faith judgment to exercise such rights in a
manner which best serves the interests of the Fund and its shareholders.
Subadvisor shall promptly notify Manager and the Fund's custodian of corporate
actions and shall notify Manager of Proxy votes in the event Subadvisor
exercises any such rights with respect to the Fund's investment securities. Upon
written notice to Subadvisor, the Board or Manager may at any time withdraw the
authority granted to Subadvisor pursuant to this Section to perform any or all
of the voting services contemplated hereby.
III. EXPENSES
During the term of this Agreement, Subadvisor will pay all expenses incurred by
it in connection with its activities under this Agreement other than the cost of
securities (including brokerage commissions, if any) purchased for the Fund. The
Fund and Manager will be responsible for their respective expenses and
liabilities.
IV. COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS; CONFIDENTIALITY
4.1 Compliance with Applicable Laws and Governing Documents.
Subadvisor will comply with (i) all applicable state and federal laws and
regulations governing the performance of Subadvisor's duties hereunder, (ii) the
investment objective, policies and limitations, as provided in the Fund's
current Prospectus, Statement of Additional Information and other governing
documents, and (iii) such instructions, policies and limitations relating to the
Fund as the Board or Manager may from time to time adopt and communicate to
Subadvisor. Without limiting the generality of the foregoing, Subadvisor shall
ensure that (1) the Fund shall comply with Section 817(h) of the Internal
Revenue Code of 1986 and the regulations issued thereunder (the "Code"),
specifically Regulation Section 1.817-5, relating to the diversification
requirements for variable annuity, endowment, and life insurance contracts, and
any amendments or other modifications to such Section or regulations; (2)
Subadvisor's activities do not disqualify the Fund as a regulated investment
company under Subchapter M of the Code or any successor provision; and (3) any
and all applicable state insurance law restrictions on investments that operate
to limit or restrict the investments that the Fund may otherwise make and which
Manager has provided to Subadvisor in writing are complied with as well as any
changes thereto.
Subadvisor shall submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may reasonably request or require pursuant to applicable laws and
regulations.
Manager will provide Subadvisor with copies of (i) the Trust's Declaration of
Trust and By-laws, as currently in effect, (ii) the Fund's currently effective
Prospectus and Statement of Additional Information, and all updates thereto, as
set forth in the Trust's registration statement under the 1940 Act and the
Securities Act of 1933, as amended, (iii) any instructions, investment policies
or other restrictions adopted by the Board or Manager supplemental thereto, and
(iv) the Management Contract. Manager will provide Subadvisor with such further
documentation and information concerning the investment objectives, policies and
restrictions applicable to the Fund, and such other information relating to the
business affairs of the Fund as Subadvisor from time to time reasonably requests
in order to discharge its obligations hereunder. Manager shall provide or cause
to be provided timely information to Subadvisor regarding such matters as
inflows to and outflows from the Fund and the cash requirements of the Fund.
4.2 Confidentiality.
Subadvisor will treat confidentially and as proprietary information of the Fund
all records and other information relative to the Fund and prior, present and
potential shareholders, and will not use such records or information other than
in performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Fund. The foregoing shall not be
applicable to any information that is publicly available when provided or which
thereafter becomes publicly available other than in contravention of this
Section or which is required to be disclosed by any regulatory authority in the
lawful and appropriate exercise of its jurisdiction, by judicial or
administrative process or otherwise by applicable law or regulation.
Subadvisor agrees not to disclose the existence of this Agreement or the
underlying business relationship without the prior written approval of Manager.
V. ACTIVITIES OF SUBADVISOR AND CONFLICTS OF INTEREST
It is understood that the services provided by Subadvisor are not to be deemed
exclusive. Manager acknowledges that Subadvisor may have investment
responsibilities, or render investment advice to, or perform other investment
advisory services, for individuals or entities, including other investment
companies registered pursuant to the 1940 Act ("Clients"), which may invest in
the same type of securities as the Fund, and Subadvisor is free to render
services to others so long as Subadvisor's services under this Agreement are not
impaired. Manager agrees that Subadvisor may give advice or exercise investment
responsibility and take such other action with respect to Clients which may
differ from advice given or the timing or nature of action taken with respect to
the Fund.
If purchases or sales of securities for the Fund or other Clients of Subadvisor
or its affiliates arise for consideration at or about the same time, Subadvisor
shall make transactions in such securities for the Fund and its other Clients in
a manner deemed equitable to all. It is agreed that, on occasions when
Subadvisor deems the purchase or sale of a security to be in the best interest
of the Fund as well as other Clients, it may, to the extent permitted by
applicable laws or regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for the Fund and the other Clients in order
to obtain favorable execution and lower brokerage commissions or prices. In that
event, allocation of the securities purchased or sold, as well as the expenses
incurred in the transaction, will be made by Subadvisor in the manner that is
most equitable and consistent with its fiduciary obligations to the Fund and to
such other Clients. In some cases these procedures may adversely affect the size
of the position obtainable for or disposed of by the Fund or have an adverse
effect on price.
It is understood that the trustees, officers, agents and shareholders of the
Trust are or may be interested in Subadvisor as directors, officers,
stockholders or otherwise; that directors, officers, agents and stockholders of
Subadvisor are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that Subadvisor may be interested in the Trust; and
that the existence of any such dual interest shall not affect the validity of
this Agreement or of any transactions hereunder except as otherwise provided in
the Trust's Declaration of Trust and the declaration of trust of Subadvisor,
respectively, or by specific provisions of applicable law.
No provision of this Agreement shall be construed to protect any director or
officer of Manager or Subadvisor from liability in violation of Sections 17(h)
and (i) of the 1940 Act.
VI. REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Representations of Manager. Manager represents, warrants and agrees that:
(a) Manager is a corporation organized under the laws of the State of
California;
(b) Manager is and shall remain duly registered as an "investment adviser" under
the Advisers Act;
(c) Manager has been duly appointed by the Board to provide investment services
to the Fund as contemplated by the Management Contract;
(d) the execution, delivery and performance of this Agreement are within
Manager's powers, have been and remain duly authorized by all necessary
corporate action and will not violate or constitute a default under any
applicable law or regulation or of any decree, order, judgment, agreement or
instrument binding on Manager;
(e) no consent (including, but not limited to, exchange control consents) of any
applicable governmental authority or body is necessary, except for such consents
as have been obtained and are in full force and effect, and all conditions of
which have been duly complied with; and
f) this Agreement constitutes a legal, valid and binding obligation enforceable
against Manager.
6.2 Representations of Subadvisor. Subadvisor represents, warrants and agrees
that:
(a) Subadvisor is a Massachusetts trust company established pursuant to the laws
of the Commonwealth of Massachusetts;
(b) Subadvisor is registered as an "investment adviser" under the Advisers Act
or is not required to register as an "investment adviser" thereunder;
(c) Subadvisor has filed a notice of exemption pursuant to Rule 4.14 under the
Commodity Exchange Act with the Commodities Futures Trading Commission and the
National Futures Association, or is not required to file such exemption;
(d) the execution, delivery and performance of this Agreement are within
Subadvisor's powers, have been and remain duly authorized by all necessary
corporate action and will not violate or constitute a default under any
applicable law or regulation or of any decree, order, judgment, agreement or
instrument binding on Subadvisor;
(e) no consent (including, but not limited to, exchange control consents) of any
applicable governmental authority or body is necessary, except for such consents
as have been obtained and are in full force and effect, and all conditions of
which have been duly complied with;
(f) this Agreement constitutes a legal, valid and binding obligation enforceable
against Subadvisor; and
(g) the total fee to be paid by Manager to Subadvisor pursuant to this Agreement
is not higher than the total fee, determined on a percentage of assets basis and
including the total fee payable after any reduction or waiver of fees by
Subadvisor or its affiliates (the "Total Fee"), paid as of the effective date of
this Agreement, and shall be no higher than the Total Fee that may be paid in
the future, by any investment manager, registered investment company (or series
thereof), separate account or other entity to Subadvisor (and its affiliates) in
connection with the provision of investment management or subadvisory investment
management services by Subadvisor (and its affiliates) to any registered
investment company (or series thereof), separate account or other investment
vehicle which has (i) as its principal investment strategy tracking or
replicating the total return performance of the S&P 500 Composite Stock Price
Index, (ii) total net assets less than $1 billion dollars, and (iii) a
substantially similar relationship with a subadvisor (including non-investment
management services) (each, an "Equivalent Client").
(1) In the event Subadvisor (or any affiliate of Subadvisor) enters into any
arrangement with an Equivalent Client where the Total Fee to be paid to
Subadvisor (or its affiliates) by such Equivalent Client is less than the fee
payable to Subadvisor under this Agreement (a "Lesser Fee"), Subadvisor agrees
to promptly notify Manager of such arrangement and shall agree to promptly amend
this Agreement so that the total fees payable hereunder are at most equal to the
Lesser Fee payable to Subadvisor (or its affiliates) by any Equivalent Client.
(2) To the extent that a delay occurs between (i) the date Subadvisor (or any
affiliate of Subadvisor) enters into any arrangement with an Equivalent Client
under which such Equivalent Client is to pay a Lesser Fee, and (ii) the date
Subadvisor notifies Manager of such arrangement, then (iii) Manager shall
receive a corresponding credit against its Total Fee based on the difference
between the Lesser Fee and the Total Fee paid by Manager during the period of
the delay.
6.3 Covenants of Subadvisor.
(a) Notification Regarding Certain Events Affecting Subadvisor.
Subadvisor will promptly notify the Trust and Manager in writing of the
occurrence of any event that could have a material impact on the performance of
its obligations pursuant to this Agreement, including without limitation: (i)
the occurrence of any event which could disqualify Subadvisor from serving as an
investment adviser of a registered investment company pursuant to Section 9(a)
of the 1940 Act or otherwise; (ii) any material change in Subadvisor's overall
business activities that may have a material adverse effect on Subadvisor's
ability to perform under its obligations under this Agreement; (iii) any event
that would constitute a change in control of Subadvisor; and (iv) the existence
of any pending or threatened audit, investigation, complaint, examination or
other inquiry (other than routine regulatory examinations or inspections)
relating to the Fund conducted by any state or federal governmental regulatory
authority.
(b) Code of Ethics.
Subadvisor will adopt a written code of ethics complying with the requirements
of Rule 17j-1 under the 1940 Act and will provide the Trust and Manager with a
copy of such code of ethics, evidence of its adoption and copies of any
supplemental policies and procedures implemented to ensure compliance therewith.
Subadvisor agrees that it will promptly supply Manager with copies of any
material changes to any of the documents provided by Subadvisor pursuant to this
Section.
(c) Insurance.
Subadvisor shall maintain for the duration hereof, with an insurer acceptable to
Manager, a blanket bond and professional liability (errors and omissions)
insurance in amounts reasonably acceptable to Manager. Subadvisor agrees that
such insurance shall be considered primary and Subadvisor shall assure that such
policies pay claims prior to similar policies that may be maintained by Manager.
In the event Subadvisor fails to have in force such insurance, that failure will
not exclude Subadvisor's responsibility to pay up to the limit Subadvisor would
have had to pay had said insurance been in force.
(d) Year 2000 Compliance.
(i) WARRANTY AND DEFINITION. Subadvisor is taking reasonable and comprehensive
steps to ensure that its products and services (and those of its third-party
suppliers) ("Services") are Year 2000 Compliant. "Year 2000 Compliant" means
that:
(aa) Such Services operate correctly with dates on or after January 1, 2000;
(bb) Such Services accurately account for twentieth and twenty-first century
dates; and
(cc) All date-related data fields, user interfaces and data interfaces include
an indication of the century such that such Services accurately recognize and
accommodate the rollover to the Year 2000 (including processing the fact that
Year 2000 is a leap year) without normal operation being impaired by the advent
of the Year 2000.
At Manager's request, Subadvisor shall provide test scripts sufficient to
verify the Services' compliance with this Section.
(ii) BREACH OF YEAR 2000 WARRANTY: Upon a breach of this subsection 6.3(d),
and in addition to any other remedies available to the Fund, Trust and Manager
hereunder, Subadvisor shall provide correction(s) to the products and services
to make them Year 2000 Compliant within a commercially reasonable time frame of
receiving notice of such non-compliance. If Subadvisor is unable to supply such
correction(s) within such period, Manager may at its option treat such failure
as a material breach and terminate this Agreement effective thirty (30) days
after Subadvisor's receipt of Manager's notice of non-compliance. Alternatively,
in the event of any breach of this subsection 6.3(d), Manager may elect
immediately to terminate this Agreement for Subadvisor's material breach without
any cure period.
VII. LIABILITY OF SUBADVISOR; INDEMNIFICATION
7.1 Liability of Subadvisor.
(a) Neither Subadvisor, nor any of its directors, officers or employees, shall
be liable to Manager, the Fund or the Trust for any loss resulting from
Subadvisor's acts or omissions as subadvisor to the Fund, except to the
extent any such losses result from (i) Subadvisor's breach of its duties
hereunder, or (ii) bad faith, willful misfeasance, reckless disregard or
gross negligence on the part of Subadvisor in the performance of
Subadvisor's duties and obligations under this Agreement.
(b) Notwithstanding the foregoing, Subadvisor agrees to reimburse the Trust,
the Fund and Manager for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust, the Fund and Manger in the
preparation, printing and distribution of proxy statements, amendments to
the Trust's Registration Statement, holdings of meetings of the Trust's
shareholders or trustees, the conduct of factual investigations, any legal
or administrative proceedings (including any applications for exemptions or
determinations by the SEC) which the Trust, the Fund or Manager incurs as
the result of action or inaction of the Subadvisor or any of its affiliates
or any of their officers, directors, employees or stockholders where the
action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the stock
or control of Subadvisor or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares or control) which
shall have been undertaken without the prior, express approval of the
Trust's Board of Trustees; or, (ii) is within the control of Subadvisor or
any of its affiliates or any of their officers, directors, employees or
stockholders. So long as this Agreement is in effect, the Subadvisor shall
pay to the Trust and Manager the amount due for expenses subject to this
Section 7.1(b) within 30 days after a bill or statement has been received
by Subadvisor therefor. This provision shall not be deemed to be a waiver
of any claim the Trust, the Fund or Manager may have or may assert against
Subadvisor or others for costs, expenses or damages heretofore incurred by
the Trust, the Fund or Manager or for costs, expenses or damages the Trust,
the Fund or Manager may hereafter incur which are not reimbursable to it
hereunder. The Trust, the Fund, Manager and Subadvisor agree that
Subadvisor's maximum liability under this Section 7.1(b) shall be no more
than the greater of (i) $20,000, or (ii) 20% of the total fee received by
Subadvisor for its services hereunder for the twelve month period
immediately preceding such action or inaction.
7.2 Indemnification.
(a) Subadvisor agrees to indemnify and hold the Trust, the Fund and Manager
harmless from any and all direct or indirect liabilities, losses or damages
(including reasonable attorneys fees) suffered by the Trust, the Fund or
Manager resulting from (i) Subadvisor's breach of its duties hereunder, or
(ii) bad faith, willful misfeasance, reckless disregard or gross negligence
on the part of Subadvisor in the performance of Subadvisor's duties and
obligations under this Agreement, except to the extent such loss results
from the Trust's, the Fund's or Manager's own willful misfeasance, bad
faith, reckless disregard or negligence in the performance of their
respective duties and obligations under the Management Contract or this
Agreement.
(b) Manager hereby agrees to indemnify and hold Subadvisor harmless from any
and all direct or indirect liabilities, losses or damages (including
reasonable attorneys fees) suffered by Subadvisor resulting from (i)
Manager's breach of its duties hereunder, or (ii) bad faith, willful
misfeasance, reckless disregard or gross negligence on the part of Manager
in the performance of Manager's duties and obligations under this
Agreement, except to the extent such loss results from Subadvisor's own
willful misfeasance, bad faith, reckless disregard or negligence in the
performance of Subadvisor's duties and obligations under this Agreement.
VIII. DURATION, TERMINATION AND AMENDMENT OF AGREEMENT
8.1 Effective Date; Duration; Continuance.
(a) This Agreement shall become effective on September 14, 1999, provided that
this Agreement shall not take effect unless it has first been approved (i)
by a vote of a majority of those trustees of the Trust who are not parties
to this Agreement or "interested persons" (as defined in the 1940 Act) of
any such party, and (ii) by vote of a majority of the Fund's outstanding
voting securities.
(b) Subject to prior termination pursuant to Section 8.2 below, this Agreement
shall continue in effect for two (2) years following the effective date,
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually (i) by vote of the
Board or by a vote of a majority of the outstanding voting securities of
the Fund, and (ii) by the vote of a majority of the trustees of the Trust
who are not "interested persons" (as defined in the 1940 Act) of any party
to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
(c) If any continuance of this Agreement is not obtained, Subadvisor will
continue to act as the Fund's investment subadvisor pending the required
approval of the continuance of this Agreement or of a new contract with
Subadvisor or a different subadvisor or other definitive action; provided,
that the compensation received by Subadvisor during such period is in
compliance with Rule 15a-4 under the 1940 Act or any successor provision.
8.2 Termination and Assignment.
(a) Subject to earlier termination as provided pursuant to Section 6.3(d), this
Agreement may be terminated at any time, without the payment of any
penalty, by the Board or the vote of a majority of the outstanding voting
securities of the Fund upon sixty days' written notice to Manager and
Subadvisor, and by Manager or Subadvisor upon sixty days' written notice to
the Trust and the other party.
(b) This Agreement will terminate automatically, without the payment of any
penalty, in the event of its assignment (as defined in the 1940 Act), or in
the event the Management Contract is terminated for any reason.
(c) Notwithstanding the foregoing, this Agreement may be terminated by Manager
upon material breach by Subadvisor of any of the representations and
warranties set forth in this Agreement, if such breach shall not have been
cured within a 20 day period after notice of such breach; or immediately if
Subadvisor becomes unable to discharge its duties and obligations under
this Agreement.
8.3 Amendments.
This Agreement may not be amended without the prior written consent of each of
the parties hereto and unless such amendment is specifically approved (i) if
required by law, by the vote of a majority of the outstanding voting securities
of the Fund, and (ii) by the vote of a majority of the trustees of the Trust who
are not interested persons (as defined in the 1940 Act) of any person to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval.
8.4 Definitions.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons," when
used herein, shall have the respective meanings specified in the 1940 Act as now
in effect or as hereafter amended, and subject to such orders or no-action
letters as may be granted by the SEC.
IX. MISCELLANEOUS PROVISIONS
9.1 Notices and Instructions.
All notices required to be given pursuant to this Agreement shall be delivered
or mailed to the last known business address of the Trust, Manager or
Subadvisor, as the case may be, in person or by registered mail or a private
mail or delivery service providing the sender with notice of receipt. Notice
shall be deemed given on the date delivered or mailed in accordance with this
Section 9.1. Instructions may be given by letter, telex, telefax or telephone
confirmed by telex, by the Board or by any other person authorized by a
resolution of the Board, provided a certified copy of such resolution has been
supplied to Subadvisor.
9.2 Entire Agreement.
This Agreement contains the entire understanding and agreement of the parties
with respect to the subject hereof.
9.3 Captions.
The headings in the sections of this Agreement are inserted for convenience of
reference only and shall not constitute a part of the Agreement.
9.4 Severability.
If any provision of this Agreement shall be held or made invalid by court
decision, statute, rule or otherwise, this Agreement shall be construed, insofar
as is possible, as if such portion had never been contained herein.
9.5 Governing Law.
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of California (without giving effect to
the choice of law provisions thereof), or any of the applicable provisions of
the 1940 Act. To the extent that the laws of the State of California, or any of
the provisions in this Agreement, conflict with applicable provisions of the
1940 Act, the latter shall control.
9.6 Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, all of which shall together constitute one and the same
instrument.
9.7 Limitation of Liability.
Subadvisor acknowledges that it has received notice of and accepts the
limitations on the Trust's liability as set forth in its Agreement and
Declaration of Trust. Subadvisor agrees that the Trust's obligations hereunder,
if any, shall be limited to the assets of the Fund, and that Subadvisor shall
not seek satisfaction of any such obligation from any shareholders of the Fund
or from any trustee, officer, employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
FRANKLIN ADVISERS, INC.
By: /S/ DEBORAH R. GATZEK
Name: Deborah R. Gatzek
Title: Executive Vice President
STATE STREET GLOBAL ADVISORS,
a division of State Street Bank and Trust Company
By: /S/MARC V. SIMONS
Name: Marc V. Simons
Title: Principal
Franklin S&P 500 Index Fund hereby acknowledges and agrees to the provisions of
Section 3 and Section 7.1 of this Agreement.
TEMPLETON VARIABLE PRODUCTS SERIES FUND on behalf of FRANKLIN S&P 500 INDEX FUND
By: /S/DEBORAH R. GATZEK
Name: Deborah R. Gatzek
Title: Vice President
APPENDIX A
Pursuant to Section 1.4 of the Agreement, Manager shall pay a monthly
subadvisory fee in cash to Subadvisor based upon a percentage of the value of
the Fund's net assets, calculated as set forth below, which fee shall be payable
on the first business day of the month in each year as compensation for the
services rendered and obligations assumed by Subadvisor during the preceding
month. The fee shall be payable on the first business day of the first month
following the effective date of the Agreement.
For purposes of calculating such fee, the value of the net assets of the Fund
shall be determined in the same manner as that the Fund uses to compute the
value of its net assets in connection with the determination of the net asset
value of its shares, all as set forth more fully in the Fund's currently
effective Prospectus and Statement of Additional Information. The rate of the
subadvisory fee payable by Manager shall be calculated daily at the following
annual rates:
0.05% of the value of its net assets up to and including $50,000,000;
and
0.04% of the value of its net assets over $50,000,000 up to and
including $100,000,000; and
0.02% of the value of its net assets over $100,000,000.
If the Agreement is terminated prior to the end of any month, the monthly
subadvisory fee shall be prorated for the portion of the month the Agreement is
in effect and shall be payable promptly after the date of the termination.
Subadvisor agrees to look exclusively to Manager, and not to any assets of the
Trust or the Fund, for the payment of Subadvisor's fees arising under the
Agreement.
CLASS 2 DISTRIBUTION PLAN
I. Investment Company: TEMPLETON VARIABLE PRODUCTS SERIES FUND
II. Funds: TEMPLETON ASSET ALLOCATION FUND
TEMPLETON BOND FUND
TEMPLETON DEVELOPING MARKETS FUND
TEMPLETON INTERNATIONAL FUND
TEMPLETON STOCK FUND
FRANKLIN S&P 500 INDEX FUND
FRANKLIN GROWTH INVESTMENTS FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND
MUTUAL SHARES INVESTMENTS FUND
PREAMBLE TO CLASS 2 DISTRIBUTION PLAN
TEMPLETON VARIABLE PRODUCTS SERIES FUND ("Investment Company") is an open-end
management investment company organized as a Massachusetts business trust, which
offers the shares of beneficial interest of its series (each, a "Fund") to
certain life insurance companies ("Insurance Companies") for allocation to
certain of their separate accounts established for the purpose of funding
variable annuity contracts and variable life insurance policies (collectively,
"Variable Contracts").
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by the Investment
Company for the Class 2 (the "Class") shares of each Fund named above, which
Plan shall take effect on the date Class 2 shares of the Funds are first offered
(the "Effective Date of the Plan"). The Plan has been approved by a majority of
the Board of Trustees of the Investment Company (the "Board"), including a
majority of the Board members who are not interested persons of the Investment
Company and who have no direct or indirect financial interest in the operation
of the Plan (the "non-interested Board members"), cast in person at a meeting
called for the purpose of voting on such Plan.
The Board's approval included a determination that in the exercise of their
reasonable business judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit each Fund and its Class 2
shareholders.
DISTRIBUTION PLAN
1. Each Fund shall pay Distributors, the Insurance Companies or others for
activities primarily intended to sell Class 2 shares or Variable Contracts
offering Class 2 shares. Payments made under the Plan may be used for, among
other things, the printing of prospectuses and reports used for sales purposes,
preparing and distributing sales literature and related expenses,
advertisements, education of contract owners or dealers and their
representatives, and other distribution-related expenses, including a prorated
portion of Distributors' or the Insurance Companies' overhead expenses
attributable to the distribution of these Variable Contracts.
Payments made under the Plan may also be used to pay Insurance Companies,
dealers or others for, among other things, service fees as defined under NASD
rules, furnishing personal services or such other enhanced services as a Fund or
a Variable Contract may require, or maintaining customer accounts and records.
Agreements for the payment of fees to the Insurance Companies or others shall be
in a form which has been approved from time to time by the Board, including the
non-interested Board members.
2. The maximum amount which may be paid by each Fund shall be a percentage, as
indicated on Schedule A, per annum of the average daily net assets represented
by shares of the Fund's Class 2. These payments shall be made quarterly by each
Fund to Distributors, the Insurance Companies or others. Expenses in excess of
these maximum annual rates that otherwise qualify for payment shall not be
carried forward into successive annual periods.
3. In no event shall the aggregate asset-based sales charges exceed the amount
permitted to be paid pursuant to the Rules of Conduct of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies paid to it, to the Insurance Companies and
to others under the Plan, and shall furnish the Board with such other
information as the Board may reasonably request in connection with the payments
made under the Plan in order to enable the Board to make an informed
determination of whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year with
respect to a Fund only so long as such continuance is specifically approved at
least annually by a vote of the Board, including the non-interested Board
members, cast in person at a meeting called for the purpose of voting on the
Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated with respect to the Class 2 shares of any Fund at any time, without
penalty, by vote of a majority of the outstanding Class 2 shares of the Fund or
by vote of a majority of the non-interested Board members, on not more than
sixty (60) days' written notice, or by Distributors on not more than sixty (60)
days' written notice, and shall terminate automatically in the event of any act
that constitutes an assignment of the Management Agreement between the
Investment Company on behalf of the Fund and the Fund's Adviser.
7. The Plan, and any agreements entered into pursuant to this Plan, may not be
amended to increase materially the amount to be spent by any Fund pursuant to
Paragraph 2 hereof without approval by a majority of the Fund's outstanding
Class 2 shares.
8. All material amendments to the Plan, or any agreements entered into pursuant
to this Plan, shall be approved by a vote of the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Investment Company's non-interested Board members shall be committed to the
discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and agreed to
by the Investment Company, on behalf of the Class 2 shares of each Fund, and
Distributors as evidenced by their execution hereof.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By: /S/ CHARLES E. JOHNSON
Charles E. Johnson
President
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /S/ GREGORY E. JOHNSON
Gregory E. Johnson
President
September 24, 1999
TEMPLETON VARIABLE PRODUCTS SERIES FUND
CLASS 2 DISTRIBUTION PLAN
Schedule A
The following are the maximum amounts each Fund may pay under the accompanying
Class 2 Distribution Plan, stated as a percentage per year of Class 2's average
daily net assets represented by shares of Class 2.
FUND NAME MAXIMUM ANNUAL PAYMENT RATE
TEMPLETON ASSET ALLOCATION FUND 0.25%
TEMPLETON BOND FUND 0.15%
TEMPLETON DEVELOPING MARKETS FUND 0.25%
TEMPLETON INTERNATIONAL FUND 0.25%
TEMPLETON STOCK FUND 0.25%
FRANKLIN GROWTH INVESTMENTS FUND 0.25%
FRANKLIN S&P 500 INDEX FUND 0.25%
FRANKLIN SMALL CAP INVESTMENTS FUND 0.25%
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND 0.25%
MUTUAL SHARES INVESTMENTS FUND 0.25%
CLASS 3 DISTRIBUTION PLAN
I. Investment Company: TEMPLETON VARIABLE PRODUCTS SERIES FUND
II. Fund: FRANKLIN S&P 500 INDEX FUND
PREAMBLE TO CLASS 3 DISTRIBUTION PLAN
TEMPLETON VARIABLE PRODUCTS SERIES FUND ("Investment Company") is an open-end
management investment company organized as a Massachusetts business trust, which
offers the shares of beneficial interest of its series, including the Franklin
S&P 500 Index Fund (the "Fund"), to certain life insurance companies ("Insurance
Companies") for allocation to certain of their separate accounts established for
the purpose of funding variable annuity contracts and variable life insurance
policies (collectively, "Variable Contracts") and shares of the Fund to employee
benefit, pension and other plans meeting the requirements for qualification
under section 401(k) of the Internal Revenue Code ("401(k) Plans").
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") by the Investment
Company for the Class 3 (the "Class") shares of the Fund named above, which Plan
shall take effect on the date Class 3 shares of the Fund are first offered (the
"Effective Date of the Plan"). The Plan has been approved by a majority of the
Board of Trustees of the Investment Company (the "Board"), including a majority
of the Board members who are not interested persons of the Investment Company
and who have no direct or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a meeting called
for the purpose of voting on such Plan.
The Board's approval included a determination that in the exercise of their
reasonable business judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its Class 3
shareholders.
DISTRIBUTION PLAN
1. The Fund shall pay Distributors, the Insurance Companies or others for
activities primarily intended to sell Class 3 shares or Variable Contracts
offering Class 3 shares. Payments made under the Plan may be used for, among
other things, the printing of prospectuses and reports used for sales purposes,
preparing and distributing sales literature and related expenses,
advertisements, education of contract owners or dealers and their
representatives, and other distribution-related expenses, including a prorated
portion of Distributors' or the Insurance Companies' overhead expenses
attributable to the distribution of these Variable Contracts. Payments made
under the Plan may also be used to pay Insurance Companies, dealers, 401(k) Plan
record keeping and servicing agents, or others for, among other things, service
fees as defined under NASD rules, furnishing personal services or such other
enhanced services as the Fund or a Variable Contract may require, or maintaining
customer accounts and records. Agreements for the payment of fees to the
Insurance Companies or others shall be in a form which has been approved from
time to time by the Board, including the non-interested Board members.
2. The maximum amount which may be paid by the Fund shall be a percentage, as
indicated on Schedule A, per annum of the average daily net assets represented
by shares of the Fund's Class 3. These payments shall be made quarterly by the
Fund to Distributors, the Insurance Companies or others. Expenses in excess of
these maximum annual rates that otherwise qualify for payment shall not be
carried forward into successive annual periods.
3. In no event shall the aggregate asset-based sales charges exceed the amount
permitted to be paid pursuant to the Rules of Conduct of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies paid to it, to the Insurance Companies and
to others under the Plan, and shall furnish the Board with such other
information as the Board may reasonably request in connection with the payments
made under the Plan in order to enable the Board to make an informed
determination of whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year with
respect to the Fund only so long as such continuance is specifically approved at
least annually by a vote of the Board, including the non-interested Board
members, cast in person at a meeting called for the purpose of voting on the
Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated with respect to the Class 3 shares of any Fund at any time, without
penalty, by vote of a majority of the outstanding Class 3 shares of the Fund or
by vote of a majority of the non-interested Board members, on not more than
sixty (60) days' written notice, or by Distributors on not more than sixty (60)
days' written notice, and shall terminate automatically in the event of any act
that constitutes an assignment of the Management Agreement between the
Investment Company on behalf of the Fund and the Fund's Adviser.
7. The Plan, and any agreements entered into pursuant to this Plan, may not be
amended to increase materially the amount to be spent by any Fund pursuant to
Paragraph 2 hereof without approval by a majority of the Fund's outstanding
Class 3 shares.
8. All material amendments to the Plan, or any agreements entered into pursuant
to this Plan, shall be approved by a vote of the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Investment Company's non-interested Board members shall be committed to the
discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and agreed to
by the Investment Company, on behalf of the Class 3 shares of the Fund, and
Distributors as evidenced by their execution hereof.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By: /S/ CHARLES E. JOHNSON
Charles E. Johnson
President
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /S/ GREGORY E. JOHNSON
Gregory E. Johnson
President
September 24, 1999
TEMPLETON VARIABLE PRODUCTS SERIES FUND
CLASS 3 DISTRIBUTION PLAN
Schedule A
The following are the maximum amounts the Fund may pay under the accompanying
Class 3 Distribution Plan, stated as a percentage per year of Class 3's average
daily net assets represented by shares of Class 3.
FUND NAME MAXIMUM ANNUAL PAYMENT RATE
FRANKLIN S&P 500 INDEX FUND 0.25%
TEMPLETON VARIABLE PRODUCTS SERIES FUND
on behalf of
TEMPLETON ASSET ALLOCATION FUND
TEMPLETON BOND FUND
TEMPLETON DEVELOPING MARKETS FUND
TEMPLETON INTERNATIONAL FUND
TEMPLETON STOCK FUND
FRANKLIN S&P 500 INDEX FUND
FRANKLIN GROWTH INVESTMENTS FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND
FRANKLIN SMALL CAP INVESTMENTS FUND
MUTUAL SHARES INVESTMENTS FUND
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of the
Board of Trustees of Templeton Variable Products Series Fund (the "Investment
Company") on behalf of each series named above (each, a "Multi-Class Fund"). The
Board has determined that the Plan is in the best interests of each class of
each Fund and of the Investment Company as a whole. The Plan sets forth the
provisions relating to the establishment of multiple classes of shares
("Shares") of the Multi-Class Funds.
1. Each Multi-Class Fund with the exception of Franklin S&P 500 Index Fund
shall offer two classes of shares, to be known as Class 1 and Class 2 Shares.
The Franklin S&P 500 Index Fund shall offer three classes of shares, to be known
as Class 1, Class 2 and Class 3 Shares.
2. All Shares shall be sold solely to certain life insurance company
("Insurance Company") variable accounts for the purpose of funding certain
variable annuity and variable life insurance contracts ("Variable Contracts")
and to such other investors as are determined to be eligible to purchase Shares.
In addition, Class 3 Shares may be sold to employee benefit, pension or other
plans meeting the requirements for qualification under section 401(k) of the
Internal Revenue Code ("401(k) Plans"). None of the Classes of Shares shall be
subject to any front-end or deferred sales charges.
3. The Distribution Plans adopted by the Investment Company pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Rule 12b-1
Plans"), associated with the Class 2 and Class 3 Shares may be used to pay
Franklin/Templeton Distributors, Inc. ("Distributors"), the Insurance Companies
or others to assist in the promotion and distribution of Class 2 and Class 3
Shares or Variable Contracts offering Class 2 Shares and Class 3 Shares.
Payments made under the Distribution Plans may be used for, among other things,
the printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education of
contract owners or dealers and their representatives, and other
distribution-related expenses, including a prorated portion of Distributors' or
the Insurance Companies' overhead expenses attributable to the distribution of
these Variable Contracts or Shares of the Funds. Payments made under the
Distribution Plans may also be used to pay Insurance Companies, dealers, and
with respect to Class 3 Shares, 401(k) Plan recordkeeping and servicing agents
and related persons, or others for, among other things, furnishing personal
services and maintaining customer accounts and records, paying recordkeeping and
sub-shareholder servicing expenses, or as service fees as defined under rules of
the National Association of Securities Dealers, Inc. Agreements for the payment
of fees to the Insurance Companies or others shall be in a form that has been
approved from time to time by the Board, including the non-interested Board
members. Each Class may pay a different share of expenses ("Class Expenses") if
such expenses are actually incurred in a different amount by that Class, or if
the Class receives services of a different kind or to a different degree than
that of the other Classes. Class Expenses are those expenses specifically
attributable to the particular Class of Shares, namely (a) Rule 12b-1 Plan fees,
(b) transfer and shareholder servicing agent fees and administrative fees, (c)
recordkeeping and sub-shareholder servicing expenses incurred by administrators
or related persons of 401(k) plans, (d) blue sky and SEC registration fees, and
(e) any other incremental expenses subsequently identified that should be
allocated to one Class which shall be approved by a vote of the Board. Expenses
may involve issues relating either to a specific Class or to the entire
Multi-Class Fund. Such expenses constitute Class Expenses only when they are
attributable to a specific Class.
The Investment Company has not adopted any Rule 12b-1 Plan for Class 1
shares.
4. Currently, the differences between Class 1, Class 2, and Class 3 Shares
are that the Class 2 and 3 Shares, but not the Class 1 Shares have a Rule 12b-1
Plan, only the Franklin S&P 500 Fund offers the Class 3 Shares, only the Class 3
Shares are sold to 401(k) Plans, and the expenses differ among the Classes.
5. Currently, there are no conversion features associated with the Class 1,
Class 2, and Class 3 Shares.
6. Shares of a class may be exchangeable for Shares of the same or
different classes of another series of the Investment Company or of another
underlying investment company according to the terms and conditions related to
transfer privileges set forth in the Variable Contract prospectuses and
documents governing the 401(k) Plans, as they may be amended from time to time.
7. Each Class will vote separately with respect to any Rule 12b-1 Plan
related to that Class.
8. On an ongoing basis, the Investment Company's Board members, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will monitor
the Multi-Class Funds for the existence of any material conflicts between the
interests of the various classes of shares. The Board members, including a
majority of the Board members who are not interested persons of the Investment
Company as defined by the Act, shall take such action as is reasonably necessary
to eliminate any such conflict that may develop. The investment advisers of each
Multi-Class Fund and Distributors shall be responsible for alerting the Board to
any material conflicts that arise.
9. All material amendments to this Plan must be approved by a majority of
the Investment Company's Board members, including a majority of the Board
members who are not interested persons of the Investment Company as defined by
the Act.
10. I, Barbara J. Green, Secretary of Templeton Variable Products Series
Fund, do hereby certify that this Multiple Class Plan was adopted by the Board
of Trustees of the Investment Company on July 21, 1999.
-------------------------------
/s/ Barbara J. Green, Secretary
POWER OF ATTORNEY
The undersigned Officers and Trustees of TEMPLETON VARIABLE PRODUCTS SERIES
FUND (the "Registrant") hereby appoint Mark H. Plafker, Bruce G. Leto, Deborah
R. Gatzek, Barbara J. Green, Karen L. Skidmore, and Joan E. Boros (with full
power to each of them to act alone) his/her attorney-in-fact and agent, in all
capacities, to execute, deliver and file in the names of the undersigned, any
and all instruments that said attorneys and agents may deem necessary or
advisable to enable the Registrant to comply with or register any security
issued by the Registrant under the Securities Act of 1933, as amended, including
but not limited to, any registration statement, including any and all pre- and
post-effective amendments thereto; and the filing of any registration statement
(including any amendment thereto) of an investment company under the Investment
Company Act of 1940 and the rules and regulations thereunder and any other
document to be filed with the U.S. Securities and Exchange Commission and any
and all documents required to be filed with respect thereto with any other
regulatory authority. Each of the undersigned grants to each of said attorneys,
full authority to do every act necessary to be done in order to effectuate the
same as fully, to all intents and purposes as he/she could do if personally
present, thereby ratifying all that said attorneys-in-fact and agents, may
lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which shall be deemed to be
a single document.
The undersigned Officers and Trustees hereby execute this Power of Attorney
as of the 30th day of August, 1999.
--------------------------------------- ----------------------------------
/s/ Harris J. Ashton, Trustee /s/ Betty P. Krahmer, Trustee
--------------------------------------- ----------------------------------
/s/ Nicholas F. Brady, Trustee /s/ Gordon S. Macklin, Trustee
- --------------------------------------- ----------------------------------
/s/ S. Joseph Fortunato, Trustee /s/ Fred R. Millsaps, Trustee
--------------------------------------- ----------------------------------
/s/ Andrew H. Hines, Jr., Trustee /s/ Charles E. Johnson, President
--------------------------------------- ----------------------------------
/s/ Charles B. Johnson, Trustee /s/ James R. Baio, Treasurer
---------------------------------------
/s/ Edith E. Holiday, Trustee
