As filed with the Securities and Exchange Commission on November 2, 1999
Securities Act File No.33-23493
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
(Exact Name of Registrant as Specified in Charter)
(800) 342-3863
(Area Code and Telephone Number)
777 Mariners Island Boulevard
San Mateo, California 94404
(Addresses of Principal Executive Offices) (Zip Code)
KAREN SKIDMORE, ESQ.
777 Mariners Island Boulevard
San Mateo, California 94404
(Name and Address of Agent for Service)
COPIES TO:
JOAN E. BOROS, ESQ.
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective under the
Securities Act of 1933.
It is proposed that this filing will become effective thirty days after the
date of filing pursuant to Rule 488.
The title of the securities being registered is shares of series of the
Franklin Templeton Variable Insurance Products Trust. No filing fee is due
in reliance on Section 24(f) of the Investment Company Act of 1940.
IMPORTANT INFORMATION REGARDING
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Large Cap Growth Investments Fund (previously the Franklin Growth
Investments Fund)
Franklin Small Cap Investments Fund
Mutual Shares Investments Fund
Templeton Asset Allocation Fund
Templeton Bond Fund
Templeton Developing Markets Fund
Templeton International Fund
Templeton Stock Fund
Franklin S&P 500 Index Fund
Franklin Strategic Income Investments Fund
A special meeting of shareholders of the Templeton Variable Products
Series Fund (the "TVP Trust") will be held at the offices of the TVP Trust
located at 500 East Broward Blvd., Suite 2100, Fort Lauderdale, Florida,
33394-3091 on February [1], 2000 at __:00 a.m., Eastern Time. The combined
proxy statement/prospectus discusses the reorganization of the TVP Trust with
the Franklin Templeton Variable Insurance Products Trust (VIP Trust).
Shareholders of the TVP Trust are being asked to vote on certain
reorganization matters and shareholders of the VIP Trust are being asked to
vote on other reorganization matters. As a contract owner, you will also
receive a voting instruction card for each fund whose voting privileges are
attributed to you. We request that you review the enclosed materials and
send us the completed enclosed voting instruction card(s).
WHAT WILL BE DECIDED AT THE MEETING?
This meeting is critically important as you are being asked to consider
and approve a reorganization to eliminate duplicate funds by combining each
TVP Fund with a corresponding VIP Fund. Each TVP Fund is named below next to
its corresponding VIP Fund:
TVP FUNDS VIP FUNDS
Franklin Large Cap Growth Franklin Large Cap Growth
Investments Fund* Securities Fund**
Franklin Small Cap Investments Franklin Small Cap Fund
Fund
Mutual Shares Investments Fund Mutual Shares Securities Fund
Templeton Asset Allocation Fund Templeton Global Asset
Allocation Fund
Templeton Bond Fund Templeton Global Income
Securities Fund
Templeton Developing Markets Templeton Developing Markets
Fund Equity Fund
Templeton International Fund Templeton International Equity
Fund
Templeton Stock Fund Templeton Global Growth Fund
Franklin S&P 500 Index Fund Franklin S&P 500 Index Fund
(New)
Franklin Strategic Income Franklin Strategic Income
Investments Fund Securities Fund (New)
*Previously named the Franklin Growth Investments Fund
**Previously named the Capital Growth Fund
If the reorganization is approved, the separate accounts of your
insurance company will receive shares of the corresponding VIP Fund equal in
value to the shares held in the TVP Funds. The TVP Trust and the VIP Trust
issue class 1 and class 2 shares. The separate accounts of your insurance
company holding class 1 shares of each TVP Fund will receive class 1 shares
of the corresponding VIP Fund. Likewise, the separate accounts of your
insurance company holding class 2 shares of each TVP Fund will receive class
2 shares of the corresponding VIP Fund. The reorganization will not affect
your contract rights. After the reorganization, your contract values will
depend on the performance of the combined funds instead of that of the
current TVP Funds.
WHY IS THE REORGANIZATION BEING PROPOSED?
In 1992, the Franklin and Templeton organizations joined forces. Prior
to this time, Franklin and Templeton had two separate trusts offering mutual
funds dedicated to insurance companies, the TVP Trust and the VIP Trust. The
TVP Trust and the VIP Trust include a number of substantially similar mutual
funds generally having the same investment objectives and very similar
investment policies and strategies. In most cases, the portfolio managers
are also the same. The duplicate funds and related expenses have no clear
benefits to shareholders. To eliminate this duplication, we are proposing
the reorganization in which the TVP Funds will be combined with the VIP Funds.
WHAT HAPPENS TO THE FUNDS AFTER THE REORGANIZATION?
In the reorganization, each TVP Fund will be combined with the
corresponding VIP Fund and become part of the VIP Trust. This combined fund
will have most of the features of the larger corresponding fund except all
combined fund will have the same fundamental investment restriction as the
corresponding VIP Fund. This means that the combined fund will have the same
investment objectives, policies and strategies of the larger corresponding
fund. After the reorganization the TVP Trust will be dissolved. In addition,
the combined fund will have the same investment adviser as the larger fund,
except in the case of the combination of the TVP Templeton International Fund
and the VIP Templeton International Equity Fund. The larger funds are as
follows:
LARGER FUNDS TRUST
Franklin Large Cap Growth VIP Trust
Securities Fund
Franklin Small Cap Fund VIP Trust
Mutual Shares Securities Fund VIP Trust
Templeton Asset Allocation Fund TVP Trust
Templeton Global Income Securities VIP Trust
Fund
Templeton Developing Markets Fund TVP Trust
Templeton International Fund TVP Trust
Templeton Global Growth Fund VIP Trust
Franklin S&P 500 Index Fund TVP Trust
Franklin Strategic Income TVP Trust
Investments Fund
HOW DO THE IMPORTANT FEATURES OF THE FUNDS COMPARE?
The corresponding funds generally have the same investment objectives
and very similar investment policies and strategies. As a result, the
corresponding funds have substantially similar risk factors. In most cases,
the portfolio managers are also the same. Thus, the important features of the
TVP Funds compared to those of the corresponding VIP Funds are nearly
identical.
HOW CAN I VOTE ON THE REORGANIZATION?
You will be able to give your insurance company voting instructions for
those shares attributable to your contract as of the record date for the
special meeting, November 30, 1999. A voting instruction card is, in
essence, a ballot. While only insurance companies are the shareholders of
the funds, these insurance companies will vote in accordance with your
instructions. When you complete your voting instruction card, it tells your
insurance company how to vote its proxy on important issues relating to the
portion of your contract that is allocated to the TVP Trust. If you complete
and sign the voting instruction card, the shares will be voted exactly as you
instruct. If you simply sign the voting instruction card without otherwise
completing it, it will be voted for the reorganization. If you do not return
a voting instruction card at all, the shares will be voted in the same
proportion as shares for which instructions have been received from other
owners of registered variable annuity and variable life insurance contracts.
The shareholders of each TVP Fund will vote separately on proposal 1 and
have its own voting instruction. The shareholders of class 1 and class 2
shares of each fund will vote together as a single class, except that the
shareholders of the class 1 and class 2 shares of the TVP Templeton Bond Fund
will vote separately. The voting instructions for each TVP Funds will ask for
the approval of the combination of that TVP Fund with the corresponding VIP
Fund.
BECAUSE EACH FUND HAS ITS OWN VOTING INSTRUCTIONS, YOU MAY RECEIVE MORE THAN
ONE INSTRUCTION CARD.
Please review the combined proxy statement/prospectus for more detailed
information about the reorganization. Included with the combined proxy
statement/ prospectus, are the prospectuses for the VIP Funds. Please note that
the accompanying prospectuses may include VIP Funds and classes that are not
available under your contract. Then, fill out your voting instruction card and
return it. We want to know how you would like to vote and welcome your comments.
If you have any questions, call 1-800/774-5001.
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TEMPLETON VARIABLE PRODUCTS SERIES FUND
BROWARD FINANCIAL CENTRE
500 EAST BROWARD BOULEVARD
SUITE 2100
FORT LAUDERDALE, FLORIDA 33394-3091
To Shareholders:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of the
Templeton Variable Products Series Fund (the "TVP Trust") will be held at
Broward Financial Centre, 500 East Broward Boulevard, Suite 2100, Fort
Lauderdale, Florida 33394-3091, on February [1], 2000, at ___________ a.m.
(Eastern Time) for the following purposes:
(1) To approve an Agreement and Plan of Reorganization between the TVP Trust
and Franklin Templeton Variable Insurance Products Trust ("VIP Trust"),
which provides that:
o The TVP Trust transfer all of its assets and liabilities to the VIP
Trust;
o The VIP Trust issue shares of the VIP Trust funds which correspond to
the TVP Funds in exchange for the TVP Trust's assets and
liabilities;
o The TVP Trust distribute shares of the corresponding VIP Trust funds to
shareholders of the TVP Trust; and
o The TVP Trust will be dissolved.
as described more fully in the combined proxy statement/prospectus.
TVP FUNDS VIP FUNDS
Franklin Large Cap Growth Franklin Large Cap Growth
Investments Fund* Securities Fund**
Franklin Small Cap Investments Franklin Small Cap Fund
Fund
Mutual Shares Investments Fund Mutual Shares Securities Fund
Templeton Asset Allocation Fund Templeton Global Asset
Allocation Fund
Templeton Bond Fund Templeton Global Income
Securities Fund
Templeton Developing Markets Templeton Developing Markets
Fund Equity Fund
Templeton International Fund Templeton International Equity
Fund
Templeton Stock Fund Templeton Global Growth Fund
Franklin S&P 500 Index Fund Franklin S&P 500 Index Fund
(New)
Franklin Strategic Income Franklin Strategic Income
Investments Fund Securities Fund (New)
*Previously named the Franklin Growth Investments Fund
**Previously named the Capital Growth Fund
Shareholders of each TVP Fund will vote separately on proposal 1 for each TVP
Fund.
(2) To transact such other business as may properly come before the special
meeting or any adjournment thereof.
THE BOARD OF TRUSTEES OF THE TVP TRUST UNANIMOUSLY RECOMMENDS THAT YOU
VOTE TO APPROVE THE PROPOSED REORGANIZATION AS TO EACH TVP FUND.
The Board of Trustees has fixed the close of business on November 30,
1999, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the special meeting. Each shareholder who does
not expect to attend the special meeting in person is requested to date, fill
in, sign and return promptly the enclosed Form of Proxy in the enclosed
envelope, which needs no postage if mailed in the United States. Insurance
company separate accounts that invest in the TVP Trust shares should complete
the Form of Proxy. If a portion of your contract is allocated to the
accounts of insurance companies that invest in the TVP Trust shares, you
should complete and return the enclosed Voting Instructions Form in the
enclosed envelope.
Please review the enclosed combined proxy statement/prospectus for
additional information regarding the reorganization.
By Order of the Board of the Trustees,
Barbara J. Green, Secretary
December [13], 1999
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY OR VOTING
INSTRUCTIONS FORM WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
IMPORTANT INFORMATION REGARDING
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Templeton Global Asset Allocation Fund
Templeton Developing Markets Equity Fund
Templeton International Equity Fund
A special meeting of shareholders of the Templeton Global Asset
Allocation Fund, Templeton Developing Markets Equity Fund and Templeton
International Equity Fund of the Franklin Templeton Variable Insurance
Products Trust (the "VIP Trust") will be held at the offices of the VIP Trust
located at 777 Mariners Island Boulevard, San Mateo, California 94404 on
February [1], 2000 at __:00 a.m., pacific time. The combined proxy
statement/prospectus discusses a reorganization of the VIP Trust and the
Templeton Variable Products Series Fund (the "TVP Trust"). Shareholders of
the TVP Trust are being asked to vote on certain reorganization matters and
shareholders of the VIP Trust are being asked to vote on other reorganization
matters. As a contract owner, you will also receive a voting instruction
card for each fund whose voting privileges are attributed to you. We request
that you review the enclosed materials and send us the completed enclosed
voting instruction card(s).
WHY IS THE REORGANIZATION BEING PROPOSED?
In 1992, the Franklin and Templeton organizations joined forces. Prior
to this time, Franklin and Templeton had two separate trusts offering mutual
funds dedicated to insurance companies, the TVP Trust and the VIP Trust. The
TVP Trust and the VIP Trust include a number of substantially similar mutual
funds generally having the same investment objectives and very similar
investment policies and strategies. In most cases, the portfolio managers
are also the same. The duplicate funds and related expenses have no clear
benefits to shareholders. To eliminate this duplication, we are proposing
the reorganization in which the funds of the TVP Trust (TVP Funds) will be
combined with the funds of the VIP Trust (VIP Funds).
WHAT HAPPENS TO THE FUNDS AFTER THE REORGANIZATION?
In the reorganization, each TVP Fund will be combined with the
corresponding VIP Fund and become part of the VIP Trust. This combined fund
will have most of the features of the larger corresponding fund. This means
that the combined fund will have the same investment objectives, policies and
strategies of the larger corresponding fund. In addition, the combined fund
will have the same investment adviser as the larger fund, except in one case.
The VIP Templeton Global Asset Allocation Fund, VIP Templeton Developing
Markets Equity Fund and the VIP Templeton International Equity Fund are
smaller than the corresponding TVP Funds. To preserve the features of the
three larger TVP Funds for the combined funds, the shareholders of the VIP
Templeton Global Asset Allocation Fund, VIP Templeton Developing Markets
Equity Fund and the VIP Templeton International Equity Fund must vote to
approve (1) new investment advisory agreements and (2) changes to these
funds' fundamental investment restrictions to be more similar to those of the
larger corresponding TVP Funds.
WHAT WILL BE DECIDED AT THE MEETING?
This meeting is critically important. Shareholders of the Templeton
Global Asset Allocation Fund, Templeton Developing Markets Equity Fund and
Templeton International Equity Fund are being asked to consider and approve
(1) the adoption of proposed investment advisory agreement for each fund; (2)
the amendment of certain fundamental investment restrictions for each fund;
and (3) the elimination of certain fundamental investment restrictions for
each fund.
HOW CAN I VOTE ON THE PROPOSALS?
You will be able to give your insurance company voting instructions for
those shares attributable to your contract as of the record date for the
special meeting, November 30, 1999. A voting instruction card is, in
essence, a ballot. While only insurance companies are the shareholders of
the funds, these insurance companies will vote in accordance with your
instructions. When you complete your voting instruction card, it tells your
insurance company how to vote its proxy on important issues relating to the
portion of your contract that is allocated to the TVP Trust. If you complete
and sign the voting instruction card, the shares will be voted exactly as you
instruct. If you simply sign the voting instruction card without otherwise
completing it, it will be voted for the reorganization. If you do not return
a voting instruction card at all, the shares will be voted in the same
proportion as shares for which instructions have been received from other
owners of registered variable annuity and variable life insurance contracts.
The shareholders of each VIP Fund will vote separately on proposal 2 and
4 and on each sub-proposal of proposal 4. Each VIP Fund will have its own
voting instruction. The shareholders of class 1 and class 2 shares of each
VIP Fund will vote together as a single class.
BECAUSE EACH FUND HAS ITS OWN VOTING INSTRUCTIONS, YOU MAY RECEIVE MORE THAN
ONE INSTRUCTION CARD.
Please review the combined proxy statement/prospectus for more detailed
information about the reorganization. Then, fill out your voting instruction
card and return it. We want to know how you would like to vote and welcome
your comments. If you have any questions, call 1-800/774-5001.
<PAGE>
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Templeton Global Asset Allocation Fund
Templeton Developing Markets Equity Fund
Templeton International Equity Fund
777 MARINERS ISLAND BOULEVARD
SAN MATEO, CALIFORNIA 94404
1-(800) 342-3863
To Shareholders:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of the
Templeton Global Asset Allocation Fund, Templeton Developing Markets Equity
Fund and Templeton International Equity Fund of the Franklin Templeton
Variable Insurance Products Trust (the "VIP Trust") will be held at the
offices of the VIP Trust located at 777 Mariners Island Boulevard, San Mateo,
California 94404 on February [1], 2000 at __:00 a.m., pacific time to vote on
the following proposals:
PROPOSAL 2. To approve the adoption of new investment advisory agreement
for the Templeton Global Asset Allocation Fund, Templeton
Developing Markets Equity Fund and Templeton International Equity
Fund, as described more fully in the combined proxy
statement/prospectus.
PROPOSAL 3. To approve changes in the following fundamental investment
restrictions for the Templeton Global Asset Allocation Fund,
Templeton Developing Markets Equity Fund and Templeton
International Equity Fund, as described more fully in the combined
proxy statement/prospectus.
(a) Modification of fundamental investment restriction regarding
Diversification
(b) Modification of fundamental investment restriction regarding
Borrowing
(c) Modification of fundamental investment restriction regarding
Lending
(d) Modification of fundamental investment restriction regarding
Underwriting
(e) Modification of fundamental investment restriction regarding
Concentration
(f) Modification of fundamental investment restriction regarding
Senior Securities
(g) Modification of fundamental investment restrictions regarding
Real Estate and Commodities, which would combine these two separate
fundamental restrictions
PROPOSAL 4. To approve the elimination of certain fundamental investment
restrictions for the Templeton Global Asset Allocation Fund,
Templeton Developing Markets Equity Fund and Templeton
International Equity Fund, as described more fully in the combined
proxy statement/prospectus.
OTHER BUSINESS To vote upon any other business which may legally presented
at the meeting or any adjournment thereof.
THE BOARD OF TRUSTEES OF THE VIP TRUST UNANIMOUSLY RECOMMENDS THAT YOU
VOTE TO APPROVE THE PROPOSED PROPOSAL IN CONNECTION WITH THE REORGANIZATION
AS TO EACH VIP FUND.
The Board of Trustees has fixed the close of business on November 30,
1999, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the special meeting. Each shareholder who does
not expect to attend the special meeting in person is requested to date, fill
in, sign and return promptly the enclosed Form of Proxy in the enclosed
envelope, which needs no postage if mailed in the United States. Insurance
company separate accounts that invest in the VIP Trust shares should complete
the Form of Proxy. If a portion of your contract is allocated to the
accounts of insurance companies that invest in the VIP Trust shares, you
should complete and return the enclosed Voting Instructions Form in the
enclosed envelope.
Please review the enclosed combined proxy statement/prospectus for
additional information regarding the proposal in connection with the
reorganization.
By Order of the Board of the Trustees,
Deborah R. Gatzek, Secretary
December [13], 1999
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY OR VOTING
INSTRUCTIONS FORM WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
COMBINED PROXY STATEMENT/PROSPECTUS DATED DECEMBER [9], 1999
TEMPLETON VARIABLE PRODUCTS SERIES FUND FRANKLIN TEMPLETON VARIABLE INSURANCE
500 East Broward Boulevard, Suite 2100 PRODUCTS TRUST
Fort Lauderdale, Florida 33394-3091 777 Mariners Island Boulevard
1-(800) 774-5001 San Mateo, California 94404
1-(800) 342-3863
We are proposing a reorganization of the Templeton Variable Products Series
Fund (TVP Trust) and the Franklin Templeton Variable Insurance Products Trust
(VIP Trust). In the reorganization, each TVP Fund will be combined with the
corresponding VIP Fund and become part of the VIP Trust. After the
reorganization the TVP Trust will be dissolved. As part of the reorganization,
the VIP Trust will create two new funds. In addition, as part of the
reorganization, three VIP Funds will adopt new investment advisory agreements
and will change their fundamental investment restrictions. To complete the
reorganization, we need the approval of:
o All shareholders of the TVP Trust at a meeting on February [1], 2000 at
[10:00] a.m., eastern time at the offices of the TVP Trust at the above
address; and
o The shareholders of the VIP Trust Templeton Global Asset Allocation Fund,
Templeton Developing Markets Equity Fund and Templeton International Equity
Fund at a meeting on February [1], 2000 at [10:00] a.m., pacific time at
the offices of the VIP Trust at the above address.
The corresponding funds of each Trust (TVP Funds and VIP Funds) are set forth
below.
TVP FUNDS VIP FUNDS
Franklin Large Cap Growth Franklin Large Cap Growth Securities
Investments Fund* Fund**
Franklin Small Cap Investments Fund Franklin Small Cap Fund
Mutual Shares Investments Fund Mutual Shares Securities Fund
Templeton Asset Allocation Fund Templeton Global Asset Allocation Fund
Templeton Bond Fund Templeton Global Income Securities
Fund
Templeton Developing Markets Fund Templeton Developing Markets Equity
Fund
Templeton International Fund Templeton International Equity Fund
Templeton Stock Fund Templeton Global Growth Fund
Franklin S&P 500 Index Fund Franklin S&P 500 Index Fund (New)
Franklin Strategic Income Franklin Strategic Income Securities
Investments Fund Fund (New)
*Previously named the Franklin Growth Investments Fund
**Previously named the Franklin Capital Growth Fund
Currently, only separate accounts of insurance companies are the
shareholders of the class 1 and class 2 shares of the Trusts. In addition,
employee benefit plans are the shareholders of the class 3 shares of the TVP
Franklin S&P 500 Index Fund. We expect to send this document to shareholders on
or about December [13], 1999. The insurance companies must vote as instructed by
owners of registered variable annuity and variable life insurance contracts
whose contracts will be affected by the reorganization. Plan sponsors and
participants may vote only if specified by the relevant employee benefit plan.
On or about December [13], 1999, you will be sent this document to give your
voting instruction to an insurance company or plan sponsor.
This document gives you important information on the reorganization and the
VIP Funds. You should keep this document for future reference. Additional
information is contained in the statement of additional information dated
December [9], 1999. It is incorporated by reference and is legally a part of
this document.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR
DISAPPROVED THE SHARES OF THE VIP FUNDS AND HAS NOT PASSED ON THE ACCURACY OR
THE ADEQUACY OF THIS DOCUMENT. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
FEDERAL CRIME.
You can obtain additional information about the reorganization and the VIP
Funds in:
o The VIP Trust's most recent annual report, dated December 31, 1998.
o The VIP Trust's most recent semi-annual report, dated June 30, 1999.
o The prospectuses for the VIP Funds which are attached as Exhibit.
Please note that the accompanying prospectuses may include VIP Funds
and classes that are not available under your contract.
o The statement of additional information for this combined proxy
statement/prospectus.
o The VIP Trust's statement of additional information dated DECEMBER [9],
1999, which is incorporated by reference in the statement of additional
information for this combined proxy statement/prospectus.
You can obtain information about the TVP Funds from the prospectuses for the TVP
Funds and from the statement of additional information for the TVP Funds. These
documents are also on file with the SEC. The documents for the TVP Funds and the
documents listed above are legally a part of this document. You can obtain them
from us without charge by calling us at 1-800/342-3863 or writing us at 777
Mariners Island Boulevard, San Mateo, California 94404. They are also available
from the SEC's public reference facilities at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the SEC's regional offices or the SEC's website
(http://www.sec.gov). You will have to pay the rates determined by the SEC. In
addition, the TVP Trust and the VIP Trust are required to file reports and other
information with the SEC. You can obtain these reports, proxy statements and
other information at the SEC's public reference facilities, the SEC's regional
offices or the SEC's website.
SHARES OF THE VIP FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY BANK. THEY ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE VIP
FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
TABLE OF CONTENTS
Summary......................................................................7
Why are we proposing the reorganization?...................................7
What is happening in the reorganization?...................................7
What happens to the funds after the reorganization?........................8
Who is eligible to vote?...................................................9
Why am I giving voting instructions?.......................................9
Can I revoke my voting instructions?......................................10
On what matters am I giving voting instructions?..........................11
What vote is required?....................................................12
How do the TVP and VIP Trustees recommend I vote?.........................12
How do the important features of the funds compare?.......................12
How do the expenses of the funds compare?.................................12
How does the performance of the funds compare?............................18
How will the reorganization affect me?....................................18
What happens after the reorganization if my insurance company currently
invests in a TVP Fund?....................................................18
What happens after the reorganization if my insurance company currently
invests in a VIP Fund?....................................................18
Will dividends be changed?................................................19
How are shares bought or sold?............................................19
What are the tax consequences?............................................19
Proposal 1: Combination of the TVP Funds with the VIP Funds................20
Comparison of the Risk Factors..............................................20
Are the risk factors for the corresponding TVP and VIP Funds the same?....20
What are the principal risk factors?......................................21
Comparison of the Investment Policies and Risks of the Funds................25
Are the investment objectives and policies for the corresponding TVP and
VIP Funds the same?.......................................................25
What are the funds' investment objectives and policies?...................25
Comparison of the Management of the Funds...................................29
Is the management of the corresponding funds the same?....................29
Who are the funds' investment advisers?...................................29
Comparison of Fees and Expenses of the Funds................................32
Proposal 2: New Investment Advisory Agreements for the VIP Templeton Global
Asset Allocation Fund, VIP Templeton Developing Markets Equity Fund and VIP
Templeton International Equity Fund.........................................34
Will the management change for the VIP Funds with new investment advisory
agreements?.............................................................. 34
What are the terms of the existing and proposed contracts for the VIP
Funds?................................................................... 34
What fees do the investment advisers receive from funds similar to the
VIP Funds?............................................................... 39
Reasons For Proposals 1 and 2...............................................41
Why are we proposing the reorganization?..................................41
What factors did the TVP Trustees consider prior to recommending approval of
reorganization?...........................................................41
What factors did the VIP Trustees consider?...............................44
Information about the Reorganization........................................46
How will the reorganization work?.........................................46
How will the shares be exchanged and distributed?.........................46
What will happen with the TVP Franklin S&P 500 Index Fund and the TVP
Franklin Strategic Income Investments Fund?...............................46
Can the reorganization be delayed or terminated?..........................46
What are the tax consequences?............................................47
Who will pay the expenses?................................................47
How would the reorganization change the funds' statement of capital?......47
Proposals 3 & 4 -Changes to the Fundamental Investment Restrictions of the VIP
Templeton Global Asset Allocation Fund, Templeton Developing Markets Equity Fund
and Templeton International Equity Fund.....................................52
Why are we proposing amendments or eliminating certain fundamental investment
restrictions?.............................................................52
Proposal 3: To Approve Amendments To Certain Of The Funds' Fundamental
Investment Restrictions.....................................................54
Sub-Proposal 3a: To amend the funds' fundamental investment restriction
regarding diversification of investments....................................54
What effect will the change in the current investment diversification
restriction have on the Funds?..................... ........................54
Sub-Proposal 3b: To amend the funds' fundamental investment restriction
regarding borrowing ........................................................54
What effect will the change in the current borrowing restriction have on a
Fund?.......................................................................55
Sub-Proposal 3c: To amend the Funds' fundamental investment restriction
regarding lending...........................................................55
What effect will standardization of the current lending restriction have
on the funds?...............................................................56
Sub-Proposal 3d: To amend each fund's fundamental investment restriction
regarding underwriting......................................................56
What effect will changing the current underwriting restriction have on the
funds?......................................................................56
Sub-Proposal 3e: To amend the funds fundamental investment restrictions
regarding investments in real estate and commodities........................57
What effect will combining and revising the real estate and commodities
restrictions have on the funds?.............................................57
Sub-Proposal 3f: To amend each fund's fundamental investment restriction
regarding issuing senior securities.........................................57
What effect will amending the restriction regarding issuing senior
securities have on the funds?..............................................58
Sub-Proposal 3g: To amend each fund's fundamental investment restriction
regarding concentration of the fund's investments in the same industry......58
What effect will amending the current restriction regarding industry
concentration have on the funds?............................................59
Proposal 4: To Approve The Elimination Of Certain Of The Funds' Fundamental
Investment Restrictions.....................................................59
Which fundamental investment restrictions is the Board recommending that
the funds eliminate?........................................................59
Illiquid and Restricted Securities......................................59
Foreign Issuers.........................................................60
Control or Management...................................................60
Unseasoned Companies....................................................60
Securities on Margin....................................................61
Securities with Unlimited Liability.....................................61
Management Ownership of Securities......................................61
Tax Diversification for Variable Annuity Funds..........................61
Warrants................................................................62
Why are we recommending that the restrictions be eliminated?..............62
What are the risks, if any, in eliminating the restrictions?..............62
Voting Information and Principal Shareholders...............................62
How are votes solicited?..................................................62
What is a quorum?.........................................................63
How are votes counted?....................................................63
Can the meetings be adjourned?............................................63
How many shares are outstanding?..........................................63
Who are the shareholders?.................................................64
Annual Meetings and Special Meeting.......................................69
The Funds' Service Providers................................................70
Who provides administration services to the VIP Funds?....................70
Who distributes shares of the VIP Trust?..................................70
Who is the transfer agent of the VIP Trust?...............................71
Who is the custodian of the VIP Trust?....................................71
Who is the auditor?.......................................................71
Financial Statements........................................................72
SUMMARY
This summary highlights some of the important information in this document.
This summary may not contain all of the information that is important to you. To
understand the reorganization, the related new investment advisory agreements
and revised fundamental investment restrictions, you should read this entire
document and the exhibits.
WHY ARE WE PROPOSING THE REORGANIZATION?
In 1992, the Franklin and Templeton organizations joined forces. Prior to
this time, Franklin and Templeton had two separate trusts offering mutual funds
dedicated to insurance companies, the TVP Trust and the VIP Trust. The TVP Trust
and the VIP Trust include a number of substantially similar mutual funds
generally having the same investment objectives and very similar investment
policies and strategies. In most cases, the portfolio managers are also the
same. The duplicate funds and related expenses have no clear benefits to
shareholders. To eliminate this duplication, we are proposing the
reorganization.
WHAT IS HAPPENING IN THE REORGANIZATION?
The reorganization will be completed through two principal steps - creating
two new funds for the VIP Trust and eliminating duplicate funds. In connection
with the reorganization, certain VIP Funds will adopt new investment advisory
agreements and will amend or eliminate some of their fundamental investment
restrictions.
To eliminate the duplicate funds, we propose that:
o The TVP Trust transfer all of its assets and liabilities to the VIP Trust;
o The VIP Trust issue shares of the VIP Funds which correspond to the TVP
Funds in exchange for the TVP Trust's assets and liabilities;
o The TVP Trust distribute shares of the corresponding VIP Funds to
shareholders of the TVP Trust; and
o The TVP Trust be dissolved.
The corresponding funds of the TVP Trust and VIP Trust are set forth below.
TVP FUNDS VIP FUNDS
Franklin Large Cap Growth Investments Fund* Franklin Large Cap Growth
Securities Fund**
Franklin Small Cap Investments Fund Franklin Small Cap Fund
Mutual Shares Investments Fund Mutual Shares Securities Fund
Templeton Asset Allocation Fund Templeton Global Asset Allocation
Fund
Templeton Bond Fund Templeton Global Income Securities
Fund
Templeton Developing Markets Fund Templeton Developing Markets Equity
Fund
Templeton International Fund Templeton International Equity Fund
Templeton Stock Fund Templeton Global Growth Fund
Franklin S&P 500 Index Fund Franklin S&P 500 Index Fund (New)
Franklin Strategic Income Investments Fund Franklin Strategic Income Securities
Fund (New)
*Previously named the Franklin Growth
Investments Fund
**Previously named the Franklin Capital
Growth Fund
The VIP Trust will create the Franklin S&P 500 Index Fund and Franklin
Strategic Income Securities Fund. The advisory agreements, which will be
identical to the corresponding TVP Funds' agreements other than the signatory,
will have been approved prior to the reorganization.
We expect the reorganization to be completed around May 1, 2000. In some
cases, the reorganization may be delayed.
WHAT HAPPENS TO THE FUNDS AFTER THE REORGANIZATION?
In the reorganization, each TVP Fund will be combined with the
corresponding VIP Fund and become part of the VIP Trust. After the
reorganization, the TVP Trust will be dissolved. Each combined fund will have
most of the features of the larger corresponding fund (see chart below).
However, all combined funds will have the same fundamental investment
restrictions as the corresponding VIP Fund. We are asking the shareholders of
the smaller VIP Funds to approve changes to these VIP Funds' fundamental
investment restrictions to make them more like the larger corresponding TVP
Funds. This means that the combined fund will have the same investment
objectives, policies and strategies of the larger corresponding fund. In
addition, the combined fund will have the same investment adviser as the larger
fund except for the combined fund of the TVP Templeton International Fund and
VIP Templeton International Equity Fund.
The larger funds are as follows:
LARGER FUNDS TRUST
Franklin Large Cap Growth Securities Fund VIP Trust
Franklin Small Cap Fund VIP Trust
Franklin S&P 500 Index Fund VIP Trust
Franklin Strategic Income Investments VIP Trust
Fund
Mutual Shares Securities Fund VIP Trust
Templeton Asset Allocation Fund TVP Trust
Templeton Developing Markets Fund TVP Trust
Templeton Global Growth Fund VIP Trust
Templeton Global Income Securities Fund VIP Trust
Templeton International Fund TVP Trust
The VIP Templeton Global Asset Allocation Fund, VIP Templeton Developing
Markets Equity Fund and the VIP Templeton International Equity Fund are smaller
than the corresponding TVP Funds. To preserve the features of the three larger
TVP Funds for the combined funds, the shareholders of the VIP Templeton Global
Asset Allocation Fund, VIP Templeton Developing Markets Equity Fund and the VIP
Templeton International Equity Fund must vote to approve (1) new investment
advisory agreements, and (2) changes to these funds' fundamental investment
restrictions to be more similar to those of the larger corresponding TVP Funds.
The new investment advisory agreements will be nearly the same as those
currently in effect for these VIP Funds, except that (1) the VIP Templeton
Developing Markets Equity Fund and the VIP Templeton International Equity Fund's
investment advisory agreements will no longer provide for fund administration
service1; and (2) the investment adviser for the VIP Templeton International
Equity Fund will be Templeton Global Advisors Limited.
The potential impact on total operating expenses for the combined funds as
a result of the new investment advisory agreements is set forth below:
TOTAL EXPENSES HIGHER OR TOTAL EXPENSES HIGHER OR
COMBINATION LOWER THAN THE TVP FUND LOWER THAN THE VIP FUND
Asset Allocation Very Slightly Higher Lower
Developing Markets Lower Moderately Higher
International Lower Lower
The slightly higher total fees for the combined Asset Allocation Fund over those
of the TVP Templeton Asset Allocation Fund are due to the change in the basis on
which fund administration services fees are calculated. The fund administration
services fees for the TVP Fund are currently based on the TVP Trust's assets
while those of the combined fund will be based on the combined fund's assets.
For the combined Developing Markets Fund, the increase is due to the additional
fund administration services fees that will be paid by the combined fund. For
the VIP Templeton Developing Markets Equity Fund, the fund administration
services fee is currently paid by the investment adviser out of its fund
management fee. The fund administration services fee will be paid separately by
the combined fund. While the total fund operating expenses of the Asset
Allocation and Developing Markets combined funds may potentially be higher than
those of current TVP Templeton Asset Allocation Fund or the VIP Templeton
Developing Markets Equity Fund, we believe that the reorganization will provide
other benefits from the combinations.
WHO IS ELIGIBLE TO VOTE?
In order to complete the reorganization, we need the approval of:
o All shareholders of record as of the close of business on November 30, 1999
of the TVP Trust; and
o The shareholders of record as of the close of business on November 30, 1999
of the VIP Templeton Global Asset Allocation Fund, VIP Templeton Developing
Markets Equity Fund and VIP Templeton International Equity Fund.
All shares of each fund will generally vote together as a single class. The
Investment Company Act of 1940 ("1940 Act") requires classes to vote separately
in those cases where only the shareholders of a class will be affected by a
proposal. Shareholders of class 1 and class 2 shares of the TVP Templeton Bond
Fund will be asked to vote separately on approval of the combination of this
Fund with the corresponding VIP Fund and the class 2 shareholders will vote to
approve the change in the rule 12b-1 fee. For all other TVP Funds, all classes
of shareholders will vote together as a single class.
Each share is entitled to one vote. Shareholders may vote by executing a proxy
card. In this case, the proxy holders will vote the shares represented by the
proxy card as marked on the proxy card. If the proxy card is signed but the
voting portion is not completed, the proxy holders will vote the shares for the
proposals.
WHY AM I GIVING VOTING INSTRUCTIONS?
Currently, only separate accounts of insurance companies are the
shareholders of the class 1 and class 2 shares of the Trusts. In addition,
employee benefit plans are the shareholders of the class 3 shares of the TVP
Franklin S&P 500 Index Fund. The insurance companies must vote as instructed by
owners of registered variable annuity and variable life insurance contracts
whose contracts will be affected by the reorganization. Plan sponsors and
participants may vote only if specified by the relevant employee benefit plan.
If your contract is allocated to an option investing in the TVP Trust or
the VIP Templeton Global Asset Allocation Fund, Templeton Developing Markets
Equity Fund or Templeton International Equity Fund as of November 30, 1999, you
will be able to give voting instructions. If you complete and sign the voting
instruction card, the shares related to your contract or plan benefits will be
voted exactly as you instruct. If you simply sign the voting instruction card
without otherwise completing it, these shares will be voted for the proposals.
If you do not return a voting instruction card at all, these shares will be
voted in the same proportion as shares for which the insurance company has
received instructions.
Each fund will vote separately on the proposals and have its own voting
instruction. The voting instructions for each TVP Fund will ask for the approval
of the combination of that TVP Fund with the corresponding VIP Fund. The voting
instructions for each voting VIP Fund will ask for the approval (1) to adopt the
proposed investment advisory agreement for that VIP Fund; (2) to amend certain
fundamental investment restrictions; and (3) to eliminate certain fundamental
investment restrictions.
BECAUSE EACH FUND WILL HAVE ITS OWN VOTING INSTRUCTION CARD, YOU MAY
RECEIVE MORE THAN ONE INSTRUCTION CARD. Included with the combined proxy
statement/ prospectus, are the prospectuses for the VIP Funds. Please note that
the accompanying prospectuses may include VIP Funds and classes that are not
available under your contract.
CAN I REVOKE MY VOTING INSTRUCTIONS?
You may revoke your voting instruction at any time before the proxy is
voted by:
1. delivering a written revocation to the secretary of the TVP Trust or VIP
Trust;
2. forwarding to the TVP Trust or the VIP Trust a later-dated voting
instruction that is received by the TVP Trust or the VIP Trust at or prior to
its meeting; or
3. attending the TVP Trust or the VIP Trust meeting and giving new voting
instructions in person.
ON WHAT MATTERS AM I GIVING VOTING INSTRUCTIONS?
Shareholders of each TVP Fund must separately vote to approve the
reorganization the TVP Fund with the VIP Fund. In addition, the shareholders of
the VIP Templeton Global Asset Allocation Fund, Templeton Developing Markets
Equity Fund and Templeton International Equity Fund must separately vote to
approve (1) the proposed investment advisory agreement for that VIP Fund; (2)
the amendment of certain fundamental investment restrictions; and (3) the
elimination of certain fundamental investment restrictions. No vote is required
from the shareholders of the VIP Funds for the combination of the corresponding
funds. We have set forth the proposals below.
<TABLE>
<CAPTION>
PROPOSAL 1 PROPOSAL 2 PROPOSAL 3(A)-(G) PROPOSAL 4
FUND
REORGANIZATION BY ADOPTING AMENDING CERTAIN ELIMINATING
COMBINING WITH NEW INVESTMENT FUNDAMENTAL CERTAIN
THE CORRESPONDING ADVISORY INVESTMENT FUNDAMENTAL
VIP FUNDS AGREEMENT RESTRICTIONS INVESTMENT
<S> <C> <C> <C> <C>
RESTRICTIONS
TVP Franklin Large Cap Growth X N/A N/A N/A
Investments Fund
TVP Franklin Small Cap X N/A N/A N/A
Investments Fund
TVP Mutual Shares Investments Fund X N/A N/A N/A
TVP Templeton Asset Allocation X N/A N/A N/A
Fund
TVP Templeton Bond Fund X N/A N/A N/A
TVP Templeton Developing Markets X N/A N/A N/A
Fund
TVP Templeton International Fund X N/A N/A N/A
TVP Templeton Stock Fund X N/A N/A N/A
TVP Franklin S&P 500 Index Fund X N/A N/A N/A
TVP Franklin Strategic Income X N/A N/A N/A
Investments Fund
VIP Templeton Global Asset N/A X X X
Allocation Fund
VIP Templeton Developing Markets N/A X X X
Equity Fund
VIP Templeton International N/A X X X
Equity Fund
</TABLE>
WHAT VOTE IS REQUIRED?
A separate vote on proposals 1, 2 and 4 and a separate vote for each
sub-proposal of proposal 3 is required. For each, a "for" vote of the holders of
a "1940 Act majority" of the outstanding shares of these funds is necessary. A
1940 Act majority means the "for" vote of the lesser of (1) a majority of the
fund's outstanding shares, or (2) 67% or more of the fund's shares represented
at the meeting if more than 50% of the outstanding shares are represented.
If we do not receive approval of the reorganization of any particular TVP
Fund, the reorganization will not be completed for that TVP Fund. In such case,
we will consider what further action is appropriate for that TVP Fund. If we do
not receive approval of the new investment advisory agreement for any VIP Fund,
we will complete the reorganization. The old investment advisory agreement will
continue in effect for the combined funds. If we do not receive approval of the
proposals regarding the fundamental investment restrictions, the current VIP
Fund's fundamental investment restrictions will continue to apply.
HOW DO THE TVP AND VIP TRUSTEES RECOMMEND I VOTE?
The trustees of the TVP Trust and VIP Trust concluded at meetings in
October that the reorganization should be approved and suggest that you vote
"for" all the proposals regarding the various components of the reorganization.
In addition, if any other proposals are properly presented at the meeting
for the TVP Trust and the VIP Trust, the trustees of the TVP Trust and VIP Trust
suggest that you instruct your insurance company to grant the proxy holders the
authority to vote in their discretion. The trustees of the TVP Trust and the VIP
Trust are not currently aware of any other business to be presented.
HOW DO THE IMPORTANT FEATURES OF THE FUNDS COMPARE?
The corresponding funds generally have the same investment objectives and
very similar investment policies and strategies. As a result, the corresponding
funds have substantially similar risk factors. In most cases, the portfolio
managers are also the same. Thus, the important features of the TVP Funds
compared to those of the corresponding VIP Funds are nearly identical. We
compare the funds' risk factors, investment objectives and policies, fees and
investment advisers below.
The corresponding funds have slightly different fundamental investment
restrictions. These differences, however, do not materially impact the manner in
which the corresponding funds are managed. We are asking the shareholders of the
VIP Templeton Global Asset Allocation Fund, Templeton Developing Markets Equity
Fund and Templeton International Equity Fund to approve certain amendments to
and elimination of some of these funds' fundamental investment restrictions.
These are described in proposal 3 and proposal 4 and will make these funds'
fundamental investment restrictions more like those of the corresponding TVP
Funds. Additional information about the VIP Funds' current fundamental
investment restrictions is contained in the statement of additional information
for the VIP Funds.
HOW DO THE EXPENSES OF THE FUNDS COMPARE?
The expenses of the TVP Funds and VIP Funds are compared in the tables
below, which also set forth the estimated expenses of the combined funds.
Generally, the larger of the corresponding funds has lower total expenses,
except for the TVP Templeton Developing Markets Fund. After the combination, the
combined funds are expected to have lower or the same total annual operating
expenses of the individual funds except that: (1) the combined Asset Allocation
Fund will have immaterially higher expenses than the TVP Templeton Asset
Allocation Fund; and (2) the combined Developing Markets Fund will have
moderately higher expenses than the VIP Templeton Developing Markets Equity
Fund.
Each fund has two classes of shares available to insurance companies, class
1 and class 2. Each class is identical, except that class 2 has a distribution
plan or "rule 12b-1" plan and the class 2 shareholders pay an additional
distribution fee.
The following tables show the actual fees and expenses that you may pay for
buying and holding the class 1 and class 2 shares of the TVP Funds and VIP
Funds, as well as the estimated fees and expenses if the funds are combined. The
estimated fees and expenses are based upon the funds' expenses as of December
31, 1998.
The combined fund fees and expenses reflect the fees that would apply if
the new investment advisory agreements for the VIP Templeton Global Asset
Allocation Fund, VIP Templeton Developing Markets Equity Fund, VIP Templeton
International Equity Fund and VIP Franklin Small Cap Fund are adopted. If these
investment advisory agreements are adopted, for each of these VIP Funds except
the VIP Templeton Global Asset Allocation Fund, new fund administration
agreements will also be adopted. The fees for these agreements are also included
in the combined fund fees and expenses. The funds do not charge any shareholder
transaction expenses for the class 1 and class 2 shares. THESE TABLES DO NOT
REFLECT THE CHARGES AND FEES ASSESSED BY THE INSURANCE COMPANY UNDER YOUR
CONTRACT.
Examples showing the amount of these expenses based upon a $10,000
investment in the funds and a 5% annual return and redemption at the end of each
time period are contained in Exhibit __.
<TABLE>
<CAPTION>
FEES OF THE CLASS 1 SHARES
Fiscal Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
Management and Fund Other Expenses Total Annual Fund
Administration Fee Operating Expenses
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
TVP VIP Fund Pro TVP Fund VIP Fund Pro TVP Fund VIP Fund Pro
Fund forma, forma, forma,
Combined Combined Combined
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Large Cap Growth 0.70% 0.75% 0.75% 2.21%3 0.02% 0.02% 2.91% 0.77% 0.77%
Investments Fund1
Franklin Large Cap Growth
Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments 0.85% 0.75% 0.80%4 0.16%3 0.02% 0.02%4 1.01% 0.77% 0.82%4
Fund2
Franklin Small Cap Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund 0.70% 0.74% 0.74% 2.17% 0.03% 0.03% 2.87 0.77% 0.77%
Mutual Shares Securities Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund 0.70% 0.80% 0.73% 0.08% 0.04% 0.06% 0.78% 0.84% 0.79%
Templeton Global Asset
Allocation Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Bond Fund 0.60% 0.57% 0.56% 0.13% 0.06% 0.06% 0.73% 0.63% 0.62%
Templeton Global Income
Securities Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets 1.35% 1.25% 1.39% 0.31% 0.16% 0.17% 1.66% 1.41% 1.56%
Fund
Templeton Developing Markets
Equity Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund 0.79% 0.80% 0.75% 0.07% 0.08% 0.08% 0.86% 0.88% 0.83%
Templeton International Equity
Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund 0.80% 0.83% 0.79% 0.09% 0.05% 0.06% 0.89% 0.88% 0.85%
Templeton Global Growth Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund5 0.25% n/a 0.25% 0.28% n/a 0.28% 0.53% n/a 0.53%
Franklin S&P 500 Index Fund
(New)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Franklin Strategic Income 0.63% n/a 0.63% 0.32% n/a 0.32% 0.95% n/a 0.95%
Investments Fund6
Franklin Strategic Income
Securities Fund (New)
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FEES OF THE CLASS 2 SHARES
Fiscal Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT AND FUND DISTRIBUTION FEE OTHER EXPENSES TOTAL ANNUAL FUND
ADMINISTRATION FEE OPERATING EXPENSE
- -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TVP FUND VIP PRO TVP FUND VIP PRO TVP FUND VIP PRO TVP VIP PRO
FUND FORMA, FUND1 FORMA, FUND FORMA, FUND FUND FORMA,
COMBINED COMBINED COMBINED COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Large Cap Growth N/A 0.75% 0.75% N/A 0.25% 0.25% N/A 0.02% 0.02% N/A 1.02% 1.02%
Investments Fund2
Franklin Large Cap Growth
Securities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments 0.85% 0.75% 0.80%4 0.25% 0.25% 0.25% 0.16%5 0.02% 0.02%4 1.26% 1.02% 1.07%4
Fund3
Franklin Small Cap Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund 0.70% 0.74% 0.74% 0.25% 0.25% 0.25% 2.17% 0.03% 0.03% 3.12% 1.02% 1.02%
Mutual Shares Securities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation 0.70% 0.80% 0.73% 0.25% 0.25% 0.25% 0.08% 0.04% 0.06% 1.03% 1.09% 1.04%
Fund
Templeton Global Asset
Allocation Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Bond Fund 0.60% 0.57% 0.56% 0.15% 0.25% 0.25% 0.13% 0.06% 0.06% 0.88% 0.88% 0.87%
Templeton Global Income
Securities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets 1.35% 1.25% 1.39% 0.25% 0.25% 0.25% 0.31% 0.16% 0.17% 1.91% 1.66% 1.81%
Fund
Templeton Developing Markets
Equity Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund 0.79% 0.80% 0.75% 0.25% 0.25% 0.25% 0.07% 0.08% 0.08% 1.11% 1.13% 1.08%
Templeton International Equity
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund 0.80% 0.83% 0.79% 0.25% 0.25% 0.25% 0.09% 0.05% 0.06% 1.14% 1.13% 1.10%
Templeton Global Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund6 0.25% n/a 0.25% 0.25% 0.00% 0.25% 0.28% n/a 0.28% 0.78% n/a 0.78%
Franklin S&P 500 Index Fund
(New)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Strategic Income N/A N/A n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Investments Fund7
Franklin Strategic Income
Securities Fund (New)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
In addition, the TVP Franklin S&P 500 Index Fund has a third class of
shares available to employee benefit plans. Class 3 is identical to class 1 and
class 2, except that class 2 and class 3 have their own distribution plans or
"rule 12b-1" plans. Also, class 3 bears its own registration expenses under
state and federal securities laws and transfer agency (shareholder account
maintenance) expenses. The following table shows the actual fees and expenses
that you may pay for buying and holding the class 3 shares of the TVP Franklin
S&P 500 Index Fund. THESE TABLES DO NOT REFLECT ANY CHARGES AND FEES ASSESSED
UNDER YOUR EMPLOYEE BENEFIT PLAN. The fees and expenses will be the same after
the reorganization because the VIP Franklin S&P 500 Index Fund will have the
same agreements as the TVP Fund. Examples showing the amount of these expenses
based upon a $10,000 investment in the funds and a 5% annual return and
redemption at the end of each time period are contained in Exhibit __.
Franklin S&P 500 Index Fund
class 3
Shareholder Fees (fees paid directly from your investment)
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
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%)2
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 the prospectus for class 3 shares of the Franklin
S&P 500 Index Fund.
2. The investment adviser has agreed in advance to assume certain fund
expenses, and the investment adviser and fund administrator have agreed in
advance to waive or limit their fees as necessary so that the total annual
fund operating expenses do not exceed 0.80% for class 3. The investment
adviser and the fund administrator are contractually obligated to continue
this arrangement through year 2000.
HOW DOES THE PERFORMANCE OF THE FUNDS COMPARE?
Due to the substantial similarities in investment objectives and policies,
over time the corresponding funds could be expected to perform similarly, though
not identically. Differences in performance between corresponding funds are
generally due to differences in asset sizes and cash flow. The performance of
the larger corresponding fund is generally better. The performance of the funds
is compared in Exhibit __.
HOW WILL THE REORGANIZATION AFFECT ME?
We anticipate that the reorganization and the increase in net assets for
the combined funds will result in operating efficiencies that will benefit you
as well as the shareholders. We also believe that the reorganization has the
following additional benefits:
o COST SAVINGS. The combined funds have a potential to decrease their
operating expenses by spreading fixed costs over a larger pool of assets
and by efficiencies in portfolio management.
o PORTFOLIO MANAGEMENT. For the newer and smaller funds, an increase in net
assets may also afford greater flexibility and diversification in pursuing
their investment objectives.
o MORE FUNDS. The VIP Trust offers eighteen more funds than the TVP Trust.
Your insurance company may choose to make these additional VIP Funds
available under your contract.
The reorganization will not affect your contract rights. You will not
experience any change in the value of your contract immediately following the
reorganization.
WHAT HAPPENS AFTER THE REORGANIZATION IF MY INSURANCE COMPANY CURRENTLY INVESTS
IN A TVP FUND?
The only change will be the funds in which your insurance company invests.
Your insurance company will keep the same separate account. Your contract values
will be allocated to the same separate account and that separate account will
invest in the corresponding VIP Fund after the reorganization. Thus, after the
reorganization your contract values will depend on the performance of the
corresponding VIP Funds as combined with the TVP Funds rather than those of the
current TVP Funds.
WHAT HAPPENS AFTER THE REORGANIZATION IF MY INSURANCE COMPANY CURRENTLY INVESTS
IN A VIP FUND?
After the reorganization, the VIP Funds will acquire the assets and
liabilities of the TVP Funds. No shares of the VIP Trust are being exchanged. If
approved by shareholders, the VIP Templeton Global Asset Allocation Fund, the
VIP Templeton International Equity Fund and VIP Templeton Developing Markets
Equity Fund will adopt new investment advisory agreements. These will be nearly
the same as those currently in effect for the corresponding TVP Funds, except
that for the VIP Templeton International Equity Fund, Templeton Global Advisors
Limited will serve as the investment adviser. In addition, if approved by
shareholders, these VIP Funds will adopt changes to their fundamental investment
restrictions which will make them more like the larger corresponding TVP Funds.
Apart from the reorganization, the shareholders of the VIP Franklin Small Cap
Fund are being asked to approve a new investment advisory agreement in a
separate proxy statement.
WILL DIVIDENDS BE CHANGED?
No. The TVP Funds and VIP Funds declare and pay dividends and distributions
at the same intervals. These dividends and distributions will continue to be
reinvested by your insurance company in additional shares of the VIP Funds.
HOW ARE SHARES BOUGHT OR SOLD?
Shares of the TVP Trust and the VIP Trust are only sold to insurance
companies and, in some cases, to employee benefit plans that are qualified plans
under the federal tax law. The VIP Trust will continue to sell its shares on a
continuous basis at net asset value only to insurance companies and these
qualified plans. The reorganization will have no impact on your right to
reallocate among your insurance company's separate account options, as permitted
under your contract.
WHAT ARE THE TAX CONSEQUENCES?
In the opinion of Jorden Burt Boros Cicchetti Berenson & Johnson LLP,
special counsel to the TVP Trust and the VIP Trust, based on certain assumptions
and representations, it is not expected that shareholders will recognize any
gain or loss for federal income tax purposes as a result of the exchange of
their TVP Trust shares for the VIP Trust shares or that the VIP Funds will
recognize any gain or loss upon receipt of the corresponding TVP Funds' assets.
PROPOSAL 1: COMBINATION OF THE TVP FUNDS WITH THE VIP FUNDS
COMPARISON OF THE RISK FACTORS
Investing in the TVP Funds and VIP Funds involves risks. These risks relate
to the underlying investments of the TVP Funds and VIP Funds. These risks may
cause the value of shares of a fund to increase or decrease based on movements
in the value of these underlying investments.
ARE THE RISK FACTORS FOR THE CORRESPONDING TVP AND VIP FUNDS THE SAME?
Yes. The risk factors are essentially the same due to the substantial
similarities of the investment objectives and policies between the corresponding
TVP and VIP Funds. The risks of each VIP Fund are described in greater detail in
the accompanying VIP Fund prospectuses included as Exhibit __. The risks for VIP
Franklin S&P 500 Index Fund and the VIP Franklin Strategic Income Securities
Fund will be the same as those of the corresponding TVP Funds because the VIP
Trust will adopt all features of the corresponding TVP Funds.
WHAT ARE THE PRINCIPAL RISK FACTORS?
We have identified the principal risk factors of each TVP Fund and each
corresponding VIP Fund in the table below. We describe each of these risks after
the table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Indebt- Mortgage Reorgan-
Fund Deri- edness Securities izing of
vative and Lower- and Asset dis-
Securities Diver- Foreign Illiquid Partici-Index Interest Rated Backed stressed
Credit sification Securities Securities pations Tracking Rate Securities Securities Companies Stocks
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TVP Franklin Large Cap Growth X
Investments Fund
VIP Franklin Large Cap Growth X
Securities Fund
TVP Franklin Small Cap X
Investments Fund
VIP Franklin Small Cap Fund X
TVP Mutual Shares Investments X X X X X X X X
Fund
VIP Mutual Shares Securities Fund X X X X X X X X
TVP Templeton Asset Allocation X X X X X X
Fund
VIP Templeton Global Asset X X X X X
Allocation Fund
TVP Templeton Bond Fund X X X X X
VIP Templeton Global Income X X X X X
Securities Fund
TVP Templeton Developing Markets X X X X
Fund
VIP Templeton Developing Markets X X X X
Equity Fund
TVP Templeton International Fund X X X X
VIP Templeton International X X X X
Equity Fund
TVP Templeton Stock Fund X X X X
VIP Templeton Global Growth Fund X X X X
TVP Franklin S&P 500 Index Fund X X X X
VIP Franklin S&P 500 Index Fund X X X X
TVP Franklin Strategic Income X X X X X X X X
Investments Fund
VIP Franklin Strategic Income X X X X X X X X
Securities Fund
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</TABLE>
We have described each of the principal risk factors identified above for
the TVP and VIP Funds below. Most of the risks apply to more than one fund.
Please refer to the above table to see if the risk applies to a particular fund.
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 the security's value and, thus, impact the value of fund shares.
DERIVATIVE SECURITIES. Derivative investments, such as forward currency
exchange contracts, stock index futures and stock index options are financial
instruments whose performance depends, at least in part, on the performance of
an underlying asset such as stock prices indices, or currency exchange rates.
They are used to help manage interest rate and currency risks, increase
liquidity, or invest in a particular stock, bond or index in a more efficient
way. Their successful use will depend on the manager's ability to predict market
movements. Losses from their use can be greater than if they had not been used.
Risks include potential loss to the fund due to the derivative securities
failure to correlate well with the indexes or securities for which they are
acting as a substitute, the imposition of controls by a government on the
exchange of foreign currencies, delivery failure, default by the other party or
inability to close out a position because the trading market becomes illiquid.
DIVERSIFICATION. If a fund is non-diversified under the federal securities
laws it may invest a greater portion of its assets in one issuer and have a
smaller number of issuers than a diversified fund. Therefore, the fund may be
more sensitive to economic, business, political or other changes affecting
similar issuers or securities. The fund will, however, meet tax diversification
requirements.
FOREIGN SECURITIES. Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
CURRENCY. Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a
foreign currency, an investment in that country loses value because the
investment is worth fewer dollars. Currency markets generally are not as
regulated as securities markets.
COUNTRY. General securities market movements in any country where the
fund has investments are likely to affect the value of the securities the
fund owns that trade in that country. The political, economic, and social
structures of some countries the fund invests in may be less stable and
more volatile than those in the U.S. The risks of investing in these
countries include the possibility of currency devaluations, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes that U.S. markets, resulting in less liquidity and
more volatility than experienced in the U.S. While short-term volatility in
these markets can be disconcerting, declines in excess of 50% are not
unusual.
COMPANY. Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as
U.S. companies and their securities may not be as liquid as securities of
similar U.S. companies. Non-U.S. stock exchanges, trading systems, brokers,
and companies generally have less government supervision and regulation
than in the U.S. The fund may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies and obtaining
judgments with respect to non-U.S. investments in non-U.S. courts than with
respect to U.S. companies in U.S. courts.
ILLIQUID SECURITIES. Illiquid securities are securities with a limited
trading market. There is a possible risk that the securities cannot be
readily sold or can only be resold at a price significantly lower than
their value.
INDEBTEDNESS AND PARTICIPATIONS. The purchase of debt securities of
reorganizing or distressed companies always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may
be lost. There are no established markets for indebtedness, making them
less liquid than other securities, and purchasers of participations, such
as the fund, must rely on the financial institution issuing the
participation to assert any rights against the borrower with respect to the
underlying indebtedness. In addition, the fund takes on the risk as to the
creditworthiness of the bank or other financial intermediary issuer, as
well as of the issuer of the underlying indebtedness.
INDEX TRACKING. The S&P 500 fund's ability to track the S&P 500 Index may
be affected by transaction costs and fund expenses, cash flows, and changes in
the composition of the index. In addition, the fund's performance may not
precisely track the performance of the S&P 500 Index if the securities the
manager has selected do not precisely track the index. If securities the fund
owns underperforms those in the index, the fund's performance will be lower than
the index. Unlike an unmanaged index, the fund pays operating expenses that may
prevent the fund from precisely tracking the 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" index.
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 can gain value. In general, securities with longer
maturities are more sensitive to these price changes. A sub-category of interest
rate risk is REINVESTMENT RISK, which is the risk that interest rates will be
lower when the fund seeks to reinvest interest payments, or the proceeds from a
matured debt security, resulting in less income received by the fund.
LOWER-RATED SECURITIES. Junk bonds generally have more risk than
higher-rated securities, and can be considered speculative. Companies issuing
high yield debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates. If
an issuer stops paying interest and/or principal, payments may never resume. The
fund may lose its entire investment in bonds that may be, or are, in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price swings
due to changes in economic conditions, market activity, large sustained sales, a
high-profile default, or other factors. High yield securities generally are less
liquid than higher-quality bonds, and infrequent trades can make accurate
pricing more difficult. At times, it may be difficult to sell these securities
promptly at an acceptable price, which may limit the fund's ability to sell
these securities.
MORTGAGE SECURITIES AND ASSET BACKED SECURITIES. Ginnie Maes, and other
mortgage- and asset-backed securities, differ from conventional debt securities
because principal is paid back over the life of the security rather than at
maturity. The fund may receive unscheduled prepayments of principal due to
voluntary prepayments, refinancing or foreclosure on the underlying mortgage or
other loans. During periods of declining interest rates, principal prepayments
generally increase. The fund may be forced to reinvest returned principal at
lower interest rates, and there may be less potential for capital appreciation.
In periods of rising interest rates, prepayments can decline, thus extending the
security's maturity which may in turn cause the security's price to fall. Credit
enhancements, if any, may be inadequate in the event of default.
REORGANIZING OR DISTRESSED COMPANIES. The Mutual Shares Securities Fund's
bargain-driven focus may result in the fund choosing securities that are not
widely followed by other investors, including companies reporting poor earnings,
companies whose share prices have declined sharply, turnarounds, cyclical
companies, or companies emerging from bankruptcy, which may have higher risk.
There can be no assurance that any merger or other restructuring, or tender or
exchange offer proposed at the time the fund invests in a reorganizing or
distressed company will be completed on the terms contemplated, and therefore,
benefit the fund.
SMALLER COMPANIES. While smaller companies, and to a lesser extent mid-size
companies, may offer greater opportunities for capital growth than larger, more
established companies, they also have more risk. Historically, smaller company
securities have been more volatile in price and have fluctuated independently
from larger company securities, especially over the shorter-term. Smaller or
relatively new companies can be particularly sensitive to changing economic
conditions, their growth prospects are less certain, their securities are less
liquid, and they can be considered speculative. These companies may suffer
significant losses, and technology and biotechnology industry stocks, in
particular, can be subject to abrupt or erratic price movements.
STOCKS. While this may not be the case in foreign markets, in the U.S.,
stocks have historically outperformed other asset classes over the long term,
they tend to go up and down more dramatically over the short term. These price
movements may result from factors affecting individual companies or industries,
or the securities markets as a whole. Value stock prices are considered "cheap"
relative to the company's perceived value and are often out of favor with other
investors. If other investors fail to recognize the company's value and do not
become buyers, or if they become sellers, or in markets favoring faster-growing
companies, value stocks may not increase in value as anticipated by the manager
or may decline further. Growth stock prices reflect projections of future
earnings or revenues, and can, therefore, fall dramatically if the company fails
to meet those projections.
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 event extended periods.
<PAGE>
COMPARISON OF THE INVESTMENT POLICIES AND RISKS OF THE FUNDS
To help you understand the impact of the reorganization, we have compared
the important features of the funds.
ARE THE INVESTMENT OBJECTIVES AND POLICIES FOR THE CORRESPONDING TVP AND VIP
FUNDS THE SAME?
The investment objectives and policies of all pairs of corresponding funds
are substantially similar. In each case, the VIP Fund invests primarily in the
same types of securities as the corresponding TVP Fund because of the
similarities in their investment policies and strategies. However, there are
some differences. These occur with the (1) TVP Templeton Asset Allocation Fund
and the VIP Templeton Global Asset Allocation Fund, and (2) TVP Templeton Bond
Fund and VIP Templeton Global Income Securities Fund.
The TVP Templeton Asset Allocation Fund and the VIP Templeton Global Asset
Allocation Fund have two noteworthy differences in their stated policies. First,
the VIP Fund may invest up to 25% of its assets in higher yielding, medium and
lower-rated debt securities, while the TVP Fund may only invest 15% of its
assets in these securities. Second, the VIP Fund is restricted from investing in
securities where the issuer has failed to make a payment that is due.
The TVP Templeton Bond Fund and the VIP Templeton Global Income Securities
Fund also have two noteworthy differences in their stated policies. First, the
VIP Fund may only invest up to 30% of its assets in higher yielding, medium and
lower-rated debt securities, while the TVP Fund's investment in these securities
is not limited. Second, the VIP Fund is restricted from investing in securities
where the issuer has failed to make a payment that is due.
Each of the corresponding funds has adopted slightly different fundamental
investment restrictions. These differences, however, do not materially impact
the manner in which the corresponding funds are managed. We are asking the
shareholders of the VIP Templeton Global Asset Allocation Fund, Templeton
Developing Markets Equity Fund and Templeton International Equity Fund to
approve certain changes to and eliminations of some of these funds' fundamental
investment restrictions. These changes are described in proposal 3 and proposal
4. These changes will make these funds' fundamental investment restrictions more
like those of the corresponding TVP Funds. Additional information about the VIP
Funds' current fundamental investment restrictions is contained in the statement
of additional information for the VIP Funds.
We believe that these differences are minor and/or are of no practical
significance as the portfolio managers invest for the pairs of corresponding
funds in a similar manner.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES?
VIP FRANKLIN LARGE CAP GROWTH TVP FRANKLIN LARGE CAP GROWTH
SECURITIES FUND INVESTMENTS FUND
OBJECTIVE - Capital appreciation.
POLICIES - Under normal market Same
conditions, the fund will invest at
least 65% of its assets in equity
securities of U.S. large cap growth
companies ($8.5 billion or more),
focusing on those companies that are
expected to have revenue growth in
excess of the economy as a whole
either through above-average
industry expansion or market share
gains.
VIP FRANKLIN SMALL CAP FUND TVP FRANKLIN SMALL CAP INVESTMENTS
FUND
OBJECTIVE - Long-term capital
growth. Same
POLICIES - Under normal market
conditions, the fund will invest at
least 65% of its assets in equity
securities of U.S. small
capitalization growth companies.
VIP MUTUAL SHARES SECURITIES FUND TVP MUTUAL SHARES INVESTMENTS FUND
OBJECTIVE - Capital appreciation.
Secondarily it seeks income.
POLICIES - Under normal market Same
conditions, the fund will invest at
least 65% of its assets in equity
securities of companies which the
manager believes are available at a
market price less than their actual
value based on certain recognized or
objective criteria (intrinsic
value).
VIP TEMPLETON GLOBAL ASSET TVP TEMPLETON ASSET ALLOCATION FUND
ALLOCATION FUND
OBJECTIVE - High total return.
POLICIES - Under normal market Same
conditions, the fund will invest in
equity securities of companies in
any nation, debt securities of
companies and governments of any
nation, and in money market
instruments.
VIP TEMPLETON GLOBAL INCOME TVP TEMPLETON BOND FUND
SECURITIES FUND
OBJECTIVE - High current income.
Capital appreciation is a secondary
consideration.
Same
POLICIES - Under normal market
conditions, the fund will invest at
least 65% of its assets in debt
securities of governments and their
political subdivisions and agencies,
supranational organizations and
companies located anywhere in the
world, including emerging markets.
VIP TEMPLETON DEVELOPING MARKETS TVP TEMPLETON DEVELOPING MARKETS
EQUITY FUND FUND
OBJECTIVE - Long-term capital
appreciation.
Same
POLICIES - Under normal market
conditions, the fund will invest at
least 65% of its total assets in
emerging market equity securities.
VIP TEMPLETON INTERNATIONAL EQUITY TVP TEMPLETON INTERNATIONAL FUND
FUND
OBJECTIVE - Long-term capital OBJECTIVE - Long-term capital
growth. growth.
POLICIES - Under normal market POLICIES - Under normal market
conditions, the fund will invest at conditions, the fund will invest at
least 65% of its assets in equity least 65% of its assets in equity
securities that trade in non-U.S. securities of companies located
markets, including emerging markets, outside the U.S., including
and that are issued by companies emerging markets.
that have their principal activities
outside the U.S.
VIP TEMPLETON GLOBAL GROWTH FUND TVP TEMPLETON STOCK FUND
OBJECTIVE - Long-term capital
growth.
Same
POLICIES - Under normal market
conditions, the fund will invest at
least 65% of its assets in equity
securities of companies throughout
the world, including the U.S. and
emerging markets.
VIP FRANKLIN S&P 500 INDEX FUND TVP FRANKLIN S&P 500 INDEX FUND
------------------------------- -------------------------------
This is a new fund. The investment OBJECTIVE - To match the
objectives and policies will be performance of the Standard &
identical to the TVP Franklin S&P Poor's 500 Composite Stock Price
Index Fund. Index ("S&P 500 Index") before the
deduction of expenses.
POLICIES - Under normal market
conditions, the fund uses an
investment "indexing" strategy
designed to track the performance
of the S&P 500 Index.
VIP FRANKLIN STRATEGIC INCOME TVP FRANKLIN STRATEGIC INCOME
SECURITIES FUND INVESTMENTS FUND
This is a new fund. The investment OBJECTIVE - To earn a high level of
objectives and policies will be current income. Its secondary goal
identical to the TVP Franklin is long-term capital appreciation.
Strategic Income Investments Fund.
POLICIES - Under normal market
conditions, the fund will invest at
least 65% of its total assets in
U.S. and non-U.S. debt securities.
COMPARISON OF THE MANAGEMENT OF THE FUNDS
IS THE MANAGEMENT OF THE CORRESPONDING FUNDS THE SAME?
Almost. The investment adviser responsible for the day-to-day management of
the corresponding funds is the same, with two exceptions: (1) TVP Templeton
Stock Fund and the VIP Templeton Global Growth Fund, and (2) TVP Templeton
International Fund and VIP Templeton International Equity Fund.
The investment adviser to the TVP Templeton Stock Fund is Templeton
Investment Counsel, Inc. and the investment adviser to the VIP Templeton Global
Growth Fund is Templeton Global Advisors Limited. When these two funds are
combined, the investment adviser will be Templeton Global Advisors Limited.
In connection with the combination of the TVP Templeton International Fund
and VIP Templeton International Equity Fund, we are proposing that Templeton
Global Advisor Limited act as the investment adviser to the combined fund.
Templeton Investment Counsel, Inc. and Templeton Global Advisors Limited
are "sister" Templeton companies in the Franklin Templeton organization. Each
has access to substantially similar resources, including a global network of
research and support offices and services, as well as computer and communication
systems. In general, Franklin Templeton managers employ a similar "bottomup"
long-term value approach to stock selection.
In addition, the portfolio managers are the same for all pairs of the
corresponding funds, except in three pairs: (1) the TVP Templeton Asset
Allocation Fund and the VIP Templeton Global Asset Allocation Fund; (2) the TVP
Templeton International Fund and the VIP Templeton International Equity Fund;
and (3) the TVP Templeton Stock Fund and the VIP Templeton Global Growth Fund.
Information about the portfolio managers for these three pairs of corresponding
funds and the combined funds is contained in Exhibit __.
WHO ARE THE FUNDS' INVESTMENT ADVISERS?
The following table names the investment adviser and sub-adviser to each
TVP Fund and its corresponding VIP Fund. In addition, the following table names
the investment adviser after the reorganization.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Franklin Large Cap Franklin None N/A N/A
Growth Investments Fund Advisers,
Inc.
VIP Franklin Large Cap Franklin None Franklin None
Growth Securities Fund Advisers, Advisers,
Inc. Inc.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Franklin Small Cap Fund Franklin None N/A N/A
Advisers,
Inc.
VIP Franklin Small Cap Fund Franklin None Franklin None
Advisers, Advisers,
Inc. Inc.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Mutual Shares Fund Franklin None N/A N/A
Mutual
Advisers,
LLC
VIP Mutual Shares Franklin None Franklin None
Securities Fund Mutual Mutual
Advisers, Advisers,
LLC LLC
<PAGE>
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Templeton Asset Templeton None Templeton None
Allocation Fund Investment Investment
Counsel, Counsel,
Inc. Inc.
VIP Templeton Global Asset Templeton Templeton N/A N/A
Allocation Fund Global Investment
Advisors Counsel,
Limited Inc.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Templeton Bond Fund Templeton None N/A N/A
Investment
Counsel,
Inc.
VIP Templeton Global Franklin Templeton Franklin Templeton
Income Securities Fund Advisers, Investment Advisers, Investment
Inc. Counsel, Inc. Counsel,
Inc. Inc.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Templeton Developing Templeton None Templeton None
Markets Fund Asset Asset
Management Management
Ltd. Ltd.
VIP Templeton Developing Templeton None N/A N/A
Markets Equity Fund Asset
Management
Ltd.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Templeton Templeton None Templeton None
International Fund Investment Global
Counsel, Advisors
Inc. Limited
VIP Templeton Franklin Templeton N/A N/A
International Equity Fund Advisers, Investment
Inc. Counsel,
Inc.
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Templeton Stock Fund Templeton None N/A N/A
Investment
Counsel,
Inc.
VIP Templeton Global Templeton None Templeton None
Growth Fund Global Global
Advisors Advisors
Limited Limited
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Franklin S&P 500 Index Franklin State Franklin State
Fund Advisers, Street Advisers, Street
Inc. Global Inc. Global
Advisors Advisors
VIP Franklin S&P 500 Index Franklin State N/A N/A
Fund (New) Advisers, Street
Inc. Global
Advisors
CURRENT CURRENT COMBINED COMBINED
INVESTMENT SUB-ADVISER FUND FUND
ADVISER INVESTMENT SUB-ADVISER
ADVISER
TVP Franklin Strategic Franklin Templeton Franklin Templeton
Income Investments Fund Advisers, Investment Advisers, Investment
Inc. Counsel, Inc. Counsel,
Inc. Inc.
VIP Franklin Strategic Franklin Templeton N/A N/A
Income Securities Fund Advisers, Investment
(New) Inc. Counsel,
Inc.
COMPARISON OF FEES AND EXPENSES OF THE FUNDS
The fees and expenses of the TVP Funds and the VIP Funds include the
management fees, other fees and expenses, and distribution fees for the class 2
shares. We have detailed the fees and expenses of the TVP Funds and VIP Funds on
pages __. Set forth below is a narrative of the fees and expenses of the funds.
MANAGEMENT AND FUND ADMINISTRATION FEES. Management fees are paid to the
investment advisers of the funds. For all the VIP Funds, except the VIP
Templeton Global Asset Allocation Fund, each fund's investment adviser also
provides services related to the day-to-day operations of the fund. Each
investment adviser contracts with an affiliate to provide fund administration
services. The TVP Funds and the VIP Global Asset Allocation Fund contract
directly with an affiliate to provide fund administration services. These
services include preparing and maintaining books, records and tax and financial
reports, and monitoring compliance with regulatory requirements. The fees for
fund administration services for the TVP Funds are based on the amount of the
TVP Trust's assets, while those for the VIP Fund are based on each VIP Fund's
assets. After the combination, this fee will be based upon each VIP Fund's
assets. As a result of this change, the combined Asset Allocation fund has only
slightly higher total annual operating expenses than those of the TVP Templeton
Asset Allocation Fund.
We are proposing that the policies and the investment advisers of the
larger corresponding funds survive after the reorganization, except for the
combination of the TVP Templeton International Fund and the VIP Templeton
International Equity Fund. To do this, we propose that the VIP Templeton
Developing Markets Equity Fund and VIP Templeton Global Asset Allocation Fund
replace their advisory agreements with those in effect for the TVP Templeton
Developing Markets Fund and TVP Templeton Asset Allocation Fund. For the
combined fund of the TVP Templeton International Fund and the VIP Templeton
International Equity Fund, we are proposing that Templeton Global Advisors
Limited serve as the investment adviser. In other respects, each of the
investment advisory agreements will be identical to those of the corresponding
TVP Fund. After the combination of these funds, no investment adviser will
provide fund administration services.
OTHER FEES AND EXPENSES. Other expenses of the funds include custody fees,
transfer agency costs, legal and accounting fees and printing costs.
The reorganization should potentially result in a decrease in some of these
expenses due to the operating efficiencies arising from the larger asset base.
These operating efficiencies relate primarily to fixed expenses, such as costs
of printing and fees for professional services such as legal and accounting
fees. With the larger asset base, shareholders should individually bear a lesser
portion of the cost of these fixed expenses. Expenses that are based on a fund's
asset value, such as fees charged as a percentage of a fund's assets, or the
number of transactions, such as custody and transfer agent fees, would likely
not decrease as a result of the reorganization. However, even with respect to
these types of expenses, the larger asset base may enable the fund to negotiate
lower overall fees.
DISTRIBUTION FEES. Each fund has two classes of shares available to
insurance companies. The class 2 shares have a separate distribution or "rule
12b-1" plan. These fees may be used to compensate the principal underwriter, the
insurance company shareholders 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. Currently, the 12b-1
fees for all TVP Funds and VIP Funds are 0.25% (prior to July 1, 1999 the 12b-1
fees for the VIP Funds were 0.30%). However, in the case of the VIP Templeton
Global Income Securities Fund class 2 shares, the rule 12b-1 fee is 0.25% as
compared to the TVP Templeton Bond Fund's charge of 0.15%. As a result of the
combination of these two funds, the class 2 shareholders of the TVP Templeton
Bond Fund will pay a higher rule 12b-1 fee, but the combined fund is anticipated
to have lower total annual fund operating expenses.
<PAGE>
PROPOSAL 2: NEW INVESTMENT ADVISORY AGREEMENTS FOR THE VIP TEMPLETON GLOBAL
ASSET ALLOCATION FUND, VIP TEMPLETON DEVELOPING MARKETS EQUITY FUND AND VIP
TEMPLETON INTERNATIONAL EQUITY FUND
In connection with the reorganization, we are proposing that the investment
objectives, policies and strategies of the larger corresponding funds survive
within the VIP Trust. In addition, the combined funds will have the same
investment adviser and generally the same portfolio managers of the larger
corresponding funds, except for the combined fund of the TVP Templeton
International Fund and the VIP Templeton International Equity Fund. To do this,
we propose that VIP Templeton Developing Markets Equity Fund and VIP Templeton
Global Asset Allocation Fund, which are smaller than their corresponding TVP
Funds, replace their investment advisory agreements with those in effect for the
TVP Templeton Developing Markets Fund and TVP Templeton Asset Allocation Fund.
In connection with the reorganization, we are proposing that the VIP Templeton
International Equity Fund adopt a new investment advisory agreement with
Templeton Global Advisors Limited. Information about these investment advisers
and their officers and directors is set forth in Exhibit __.
WILL THE MANAGEMENT CHANGE FOR THE VIP FUNDS WITH NEW INVESTMENT ADVISORY
AGREEMENTS?
For the VIP Templeton Developing Markets Equity Fund and VIP Templeton
Global Asset Allocation Fund, the day-to-day management will remain the same.
For the VIP Templeton Developing Markets Equity Fund, the new agreement will be
with that fund's current investment adviser. For the VIP Templeton Global Asset
Allocation Fund, the new agreement will be with its current sub-adviser. For the
VIP Templeton International Equity Fund, the investment adviser will be
Templeton Global Advisors Limited, an affiliate of Franklin Advisers, Inc., the
current investment adviser to the fund.
Copies of the proposed investment advisory agreements for the VIP Templeton
Global Asset Allocation Fund, Templeton Developing Markets Equity Fund and
Templeton International Equity Fund are attached as Exhibits , , and ,
respectively.
WHAT ARE THE TERMS OF THE EXISTING AND PROPOSED CONTRACTS FOR THE VIP FUNDS?
EXISTING CONTRACTS. The VIP Templeton Global Asset Allocation Fund has an
existing investment advisory agreement, and the VIP Templeton Developing Markets
Equity Fund and VIP Templeton International Equity Fund have existing investment
management contracts with the investment advisers named in the table below. The
table below also sets forth the dates of the contracts, dates the shareholders
approved the contracts and the dates the VIP Trustees last approved these
contracts.
DATE
DATE OF LAST
DATE OF SOLE APPROVED
FUND INVESTMENT CONTRACT SHAREHOLDERBY THE
ADVISER APPROVAL VIP
TRUSTEES
VIP Templeton Global Asset Templeton 04-19-95 04-17-94 04-15-99
Allocation Fund Global
Advisors
Limited
VIP Templeton Developing Markets Templeton 03-15-94*03-15-94 04-15-99
Equity Fund Asset
Management,
Ltd.
VIP Templeton International Franklin 01-27-92 01-23-92 04-15-99
Equity Fund Advisers, Inc.
* The Board of Trustees authorized a revised agreement reflecting a
corporate consolidation of the investment adviser.
For the VIP Global Asset Allocation and VIP Templeton International Equity
Funds, the investment advisers have entered into sub-advisory agreements with
Templeton Investment Counsel, Inc., which is paid from the amounts that the
investment adviser receives.
By its terms, each existing investment adviser and sub-adviser contract
will continue in effect from year to year so long as approved annually by the
VIP Trustees (at a meeting called for that purpose) or by vote of a majority of
each fund's outstanding shares. In either case, renewal of the existing
investment advisory and sub-advisory contracts must be approved by a majority of
the trustees that satisfy the independence requirement under the federal
securities laws. The existing investment advisory and sub-advisory contracts are
subject to termination without penalty on 60 days' written notice by either
party to the other and will terminate automatically in the event of assignment.
Under the existing investment advisory and sub-advisory contracts, subject
to the control and supervision of the VIP Trustees, each investment adviser or
the sub-adviser
o manages the investment and reinvestment of each fund's assets in accordance
with each fund's investment objectives and policies,
o makes all determinations with respect to buying, holding, and selling the
fund's securities, and
o exercises any investment security rights, including voting rights.
In performing duties under its existing investment advisory and sub-advisory
contract, each investment adviser or sub-adviser is required to comply with the
provisions of the VIP Trust's Agreement and Declaration of Trust and By-Laws and
each fund's stated investment objectives, policies and restrictions.
The existing investment advisory and sub-advisory contracts provide that
each investment adviser and sub-adviser will abide by each fund's brokerage
policies when selecting broker-dealers to execute portfolio transactions for the
fund. Although the services provided by broker-dealers may incidentally help the
investment adviser or sub-adviser reduce its expenses or otherwise benefit the
investment adviser or sub-adviser, its clients, its affiliates and the fund, the
value of these services is indeterminable and the investment adviser's or the
sub-adviser's fee is not reduced by any offsetting or compensating arrangement.
Currently, the investment advisers for the VIP Templeton Developing Markets
Equity Fund and the VIP Templeton International Equity Fund are also responsible
for providing other services for the day-to-day operations of the funds. The
investment advisers contract with an affiliate to provide the administration
services to the funds. These services include preparing and maintaining books,
records, and tax and financial reports, and monitoring compliance with
regulatory requirements.
The investment adviser for the VIP Templeton Global Asset Allocation Fund
is not required to furnish any personnel, overhead items or facilities to the
funds. The investment adviser does not provide trading desk facilities or daily
pricing of the fund's portfolios, although these services are provided to some
other investment companies by their investment advisers.
Each existing investment advisory and sub-advisory contract also provides
that each investment adviser or sub-adviser, its directors, officers, employees
or agents will have no liability to any fund or its shareholders for any error
in judgment, mistake of law, or for any loss arising out of any investment or
other act or omission in the performance of its duties, except for any
liability, loss or damage resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
For the fiscal year ended December 31, 1998, the investment advisers
received the following amounts:
FUND AMOUNT RECEIVED
VIP Templeton Global Asset Allocation Fund $ 585,747
VIP Templeton Developing Markets Equity Fund $2,633,409
VIP Templeton International Equity Fund $8,900,761
For the fiscal year ended December 31, 1998, the sub-advisers received from
the investment advisers the following amounts:
FUND AMOUNT RECEIVED
VIP Templeton Global Asset Allocation Fund $ 175,133
VIP Templeton International Equity Fund $ 561,199
PROPOSED CONTRACTS. The proposed contracts will generally be the same as
the contracts currently in effect for the corresponding TVP Funds. For the VIP
Global Asset Allocation Fund and VIP Templeton Developing Markets Equity Fund,
the proposed contract will be with the current investment adviser to the
corresponding TVP Fund. For the VIP Templeton Global Asset Allocation Fund, the
proposed contract will be executed with Templeton Investment Counsel Inc., which
previously served as the sub-adviser to this fund. For the VIP Templeton
Developing Markets Equity Fund, the proposed contract will be executed with its
existing investment adviser, Templeton Asset Management Ltd. For the VIP
Templeton International Equity Fund, the proposed contract will be executed with
Templeton Global Advisors Limited.
The proposed contract for the VIP Templeton Global Asset Allocation Fund
will be the same as the investment advisory agreement currently in effect for
this fund. Under the proposed contract, the VIP Templeton Global Asset
Allocation Fund will pay the same fee to the investment adviser.
The proposed contract for the VIP Templeton International Equity Fund and
the VIP Templeton Developing Markets Equity Fund will be nearly the same as
their current contracts with regard to investment advisory services. Unlike the
current contracts, the proposed contracts no longer require the investment
adviser to provide fund administration services to the funds. Instead, these
services will be provided by an affiliate of the funds under a separate
contract.
The impact on total fees for the combined funds as a result of the new
investment advisory agreements is set forth below:
TOTAL EXPENSES HIGHER OR TOTAL EXPENSES HIGHER OR
COMBINATION LOWER THAN THE TVP FUND LOWER THAN THE VIP FUND
Asset Allocation Slightly Higher Lower
Developing Markets Lower Moderately Higher
International Lower Lower
The slightly higher total fees for the combined Asset Allocation Fund over those
of the TVP Templeton Asset Allocation Fund are due to the change in the basis on
which fund administration services fees are calculated. The fund administration
services fees for the TVP Fund are based on the TVP Trust's assets while those
of the combined fund will be based on the combined fund's assets. For the
combined Developing Markets Fund, the increase is due to the additional fund
administration services fees that will be paid by the combined fund. For the VIP
Templeton Developing Markets Equity Fund, the fund administration services fee
was paid by the investment adviser out of its fund management fee. For the
combined fund, the fund administration services fee will be paid separately by
the combined fund. While the total fund operating expenses of the Asset
Allocation and Developing Markets combined funds may potentially be higher than
those of the current TVP Templeton Asset Allocation Fund or the VIP Templeton
Developing Markets Equity Fund, we believe that the reorganization will provide
other benefits from the combinations.
The proposed contract for the VIP Templeton International Equity Fund will
also differ from the current contract because the investment adviser is
different. Currently, Franklin Advisers, Inc. is the investment adviser. Under
the proposed contract, the investment adviser would be Templeton Global Advisors
Limited. Franklin Advisers, Inc. and Templeton Global Advisors Limited are
affiliated companies in the Franklin Templeton organization. Each has access to
substantially similar resources, including a global network of research and
support offices and services, as well as computer and communication systems.
For all of these VIP Funds, the proposed contracts will result in the fees
set forth below:
VIP TEMPLETON GLOBAL ASSET ALLOCATION FUND
CURRENT FEE (ANNUAL RATE)* PROPOSED FEE (ANNUAL RATE)*
(DID NOT INCLUDE ADMINISTRATION (WILL NOT INCLUDE ADMINISTRATION
SERVICES) SERVICES)
0.65% up to and including $200 million 0.65% up to and including $200 million
0.585% over $200 million up to and 0.585% over $200 million up to and
including $1.3 billion including $1.3 billion
0.52% over $1.3 billion 0.52% over $1.3 billion
*Based upon average daily net assets.
VIP TEMPLETON DEVELOPING MARKETS EQUITY FUND
CURRENT FEE PROPOSED FEE PROPOSED ADMINISTRATION FEE
(ANNUAL RATE)* (ANNUAL RATE)* (ANNUAL RATE)*
(WILL NOT INCLUDE
(INCLUDED ADMINISTRATION ADMINISTRATION
SERVICES) SERVICES)
1.25% 1.25% 0.15% up to and including $200
million
0.135% over $200 million, up
to and including $700 million
0.10% over $700 million, up to
and including $1.2 billion
0.075% over $1.2 billion
*Based upon average daily net assets.
VIP TEMPLETON INTERNATIONAL EQUITY FUND
CURRENT FEE PROPOSED FEE PROPOSED
(ANNUAL RATE)* (ANNUAL RATE)* ADMINISTRATION FEE
(ANNUAL RATE)*
(INCLUDED ADMINISTRATION (WILL NOT INCLUDE
SERVICES) ADMINISTRATION SERVICES)
1.00% up to and including 0.75% up to and including 0.15% up to and
$100 million $200 million including $200 million
0.90% over $100 million up 0.675% over $200 million 0.135% over $200
to and including $250 up to and including $1.3 million, up to and
million billion including $700 million
0.80% over $250 million up 0.60% over $1.3 billion 0.10% over $700
to and including $500 million, up to and
million including $1.2 billion
0.75% over $500 million 0.075% over $1.2
billiion
*Based upon average daily net assets.
If approved, the proposed contracts will become effective May 1, 2000 and
continue in effect until April 30, 2002, and thereafter from year to year as
long as approved annually by (1) the VIP Trustees and a majority of the
independent trustees at a meeting called for that purpose or (2) a vote of the
fund's shareholders.
COMPARISON OF FEES AND EXPENSES UNDER THE EXISTING AGREEMENTS AND THE
PROPOSED AGREEMENTS. Shown below is a comparison of fees and expenses that the
VIP Templeton Global Asset Allocation Fund, VIP Templeton Developing Markets
Equity Fund and VIP Templeton International Equity Fund incurred during the
fiscal year ended December 31, 1998, and the fees and expenses the funds would
have incurred if the proposed contracts and the fund combinations would have
been in effect during that same period.
FISCAL YEAR ENDED DECEMBER 31, 1998
VIP TEMPLETON VIP TEMPLETON VIP TEMPLETON
GLOBAL DEVELOPING INTERNATIONAL
ASSETS ALLOCATION MARKETS EQUITY FUND EQUITY FUND
FUND
CLASS 1 CLASS 2 CLASS 1 CLASS 2 CLASS 1 CLASS 2
INVESTMENT
ADVISORY FEE
AND FUND
ADMINISTRATION
FEE
Current .80% .80% 1.25% 1.25% .80% .80%
Agreement........
Proposed .73% .73% 1.39% 1.39% .75% .75%
Agreements.......
Change......... -.07% -.07% +0.14% +0.14% -.05% -.05%
TOTAL ANNUAL
FUND OPERATING
EXPENSES*
Current .84% 1.09% 1.41% 1.66% .88% 1.13%
Agreement........
Proposed .79% 1.04% 1.56% 1.81% .83% 1.08%
Agreements.......
Change......... -.05% -.05% .15% .15% -.05% -.05%
TOTAL AMOUNT
PAID FOR
INVESTMENT
ADVISORY FEE
Current $5,086,03$5,086,03$4,888,592 $4,888,592 $15,999,513$15,999,513
Agreement........
Proposed $5,027,46$5,027,46$4,888,592 $4,888,592 $13,959,750$13,959,750
Agreements.......
Change......... -$58,575 -$58,575 $0 $0 -$2,039,763-$2,039,763
TOTAL AMOUNT
PAID FOR FUND
ADMINISTRATION
FEE
Current $850,899 $850,899 $172,848 $172,848 $986,271 $986,271
Agreement........
Proposed $1,112,17$1,112,173 $557,968 $557,968 $2,179,344$2,179,344
Agreements.......
Change......... $261,274 $261,274 $385,120 $385,120 $1,193,073$1,193,073
AVERAGE NET
ASSETS OF FUND
FISCAL YEAR $90,114,852 $0$210,672,688 $0$1,106,768,060 $0
ENDED DECEMBER
31, 1998.........
AVERAGE NET
ASSETS OF
COMBINED FUND
FISCAL YEAR $837,172,833 $0$391,087,358 $0$2,139,125,017 $0
ENDED DECEMBER
31, 1998........
*Includes other expenses, and for class 2 shares, the distribution fee. For
information on these fees, see the tables on pages 15 and 16 and Comparison of
Fees and Expenses of the Funds on page 34.
WHAT FEES DO THE INVESTMENT ADVISERS RECEIVE FROM FUNDS SIMILAR TO THE VIP
FUNDS?
Templeton Investment Counsel, Inc. does not serve as investment manager or
sub-adviser to other U.S. registered investment companies that have an
investment objective similar to that of the VIP Templeton Global Asset
Allocation Fund after the reorganization.
Templeton Asset Management Ltd. also serves as investment manager or
sub-adviser to one other U.S. registered investment company that has an
investment objective similar to that of the VIP Templeton Developing Markets
Equity Fund after the reorganization. In this capacity, it receives and expects
to receive from this investment company the following investment management
fees:
Approximate Investment
net assets as Management Fee
INVESTMENT COMPANY of (ANNUAL RATE)*
NOVEMBER 30,
1999
Templeton Developing
Markets Trust.......... 1.25%
$ X,XXX,XXX,XXX
Templeton Global Advisor Limited also serves as investment manager or
sub-adviser to one other U.S. registered investment company that has an
investment objective similar to that of the VIP Templeton International Equity
Fund after the reorganization. In this capacity, it receives and expects to
receive from this investment company the following investment management fees:
Approximate Investment
net assets as Management Fee
INVESTMENT COMPANY of (ANNUAL RATE)*
NOVEMBER 30,
1999
Templeton Foreign Fund.
0.75% up to and including $200 million,
$ X,XXX,XXX,XXX 0.65% over $200 million and up to and
including $1.3 billion,
0.60% over $1.3 billion
REASONS FOR PROPOSALS 1 AND 2
WHY ARE WE PROPOSING THE REORGANIZATION?
In 1992, the Franklin and Templeton organizations joined forces. Prior to
this time, Franklin and Templeton each had separate trusts offering mutual funds
dedicated to insurance companies, the TVP Trust and the VIP Trust. The VIP Funds
have been offered in connection with insurance products issued by one insurance
company, while the TVP Funds are offered in connection with products issued by
other insurance companies. The TVP Trust and the VIP Trust include many
substantially similar mutual funds generally having the same investment
objectives and very similar investment policies and strategies. In most cases,
the portfolio managers are also the same. The duplicate funds and related
expenses have no clear benefits to shareholders. To eliminate this duplication,
we are proposing the reorganization. This would enable Franklin Templeton to
realize operating efficiencies by maintaining a single trust of mutual funds to
be offered in connection with insurance products and employee benefit plans.
These operating efficiencies would also benefit shareholders and are expected
pass through to you.
WHAT FACTORS DID THE TVP TRUSTEES CONSIDER PRIOR TO RECOMMENDING APPROVAL OF
REORGANIZATION?
In determining whether or not it was appropriate to approve the
reorganization and to recommend approval to shareholders, the TVP Trustees
considered various matters and extensive information provided by Franklin
Templeton management and the Trust's legal counsel. The nature of the matters
considered and the standards used by the TVP Trustees in reaching their decision
were reviewed by the TVP Trust's special legal counsel, Jorden Burt Boros
Cicchetti Berenson & Johnson LLP and Bleakley Platt & Schmidt, legal counsel to
the independent TVP Trustees. After review and discussions of the information
provided, the independent TVP Trustees met separately to discuss the information
and consider the factors to be weighed and standards to be applied in evaluating
the proposed fee increase.
During its October 21, 1999 meeting, the TVP Trustees received detailed
information about the reorganization, including:
o detailed information about the funds which included comparisons of the
corresponding funds that highlighted the number of similarities between
them, and identified any notable differences;
o the reasons for the reorganization;
o the structure of the reorganization; and
o the potential impact of the reorganization on the TVP Trust, VIP
Trust, their shareholders, including the shareholders' interest in the
impact, if any, on the owners of the variable annuity and variable
life contracts.
REASONS FOR THE REORGANIZATION. The TVP Trustees reviewed the background
underlying the existence of the two trusts that offered mutual funds to
insurance companies. Using the detailed comparisons of the funds, the TVP
Trustees looked at the corresponding TVP Funds and VIP Funds and determined that
they were nearly identical. The Franklin Templeton management informed the TVP
Trustees that the reorganization would potentially result in cost savings and
certain other portfolio advantages arising from having larger pools of assets to
invest. In addition, the TVP Trustees learned that these operational
efficiencies may lead to better performance of the combined corresponding funds
than the performance that could be expected for the TVP Fund or the VIP Fund on
a stand alone basis.
STRUCTURE OF THE REORGANIZATION. The TVP Trustees reviewed detailed
information about the manner in which the reorganization would be accomplished.
The TVP Trustees considered whether the TVP Trust or the VIP Trust should
continue after the reorganization. In addition, the TVP Trustees addressed which
funds' characteristics should continue after the reorganization.
The TVP Trustees looked at various factors to determine which entity should
continue after the reorganization. In reviewing comparisons of the TVP Funds and
the VIP Funds, the TVP Trustees found that in five of eight instances the VIP
Funds were larger. Counsel informed the TVP Trustees that larger funds are
generally considered the survivor in a fund reorganization under legal and
accounting principles and precedent. Moreover, the TVP Trustees received
information showing that the VIP Trust has a greater number of funds than the
TVP Trust.
The TVP Trustees examined the detailed comparisons of the TVP Funds and VIP
Funds to determine which funds' characteristics should continue after the
reorganization. These comparisons included information about the funds' size,
age, investment objectives and policies, investment adviser and sub-adviser,
portfolio managers, and expense ratios, along with other information. These
comparisons showed that the corresponding funds' (1) investment objectives and
policies, (2) investment advisers responsible for the day-to-day management, and
(3) portfolio managers were the same in most cases. All the VIP Funds are larger
than the corresponding TVP funds, except that the TVP Templeton Asset Allocation
Fund, TVP Templeton Developing Markets Fund and the TVP Templeton International
Fund are larger than the corresponding VIP Funds. The fund comparisons also
showed that generally the larger funds have lower expense ratios, except for the
TVP Templeton Developing Markets Fund. In addition, the performance comparison
showed that the larger corresponding funds had the better performance.
Counsel informed the TVP Trustees that if the characteristics of any TVP
Fund were selected to survive, this would require the corresponding VIP Fund to
adopt the major characteristics of the TVP Fund. This includes adopting the
investment advisory agreement of the TVP Fund. The TVP Trustees considered the
similarities of the TVP Templeton Asset Allocation Fund, Templeton Developing
Markets Fund and the Templeton International Fund and the corresponding VIP
Funds.
POTENTIAL IMPACT. In reviewing the potential impact of the reorganization,
the TVP Trustees considered the interests of the TVP Trust's shareholders and
the shareholders' considerations of the owners of the variable annuity and
variable life contracts.
o COMPARABILITY OF THE FUNDS. The fund comparisons highlighted the
similarities between the corresponding funds' investment objectives
and policies. The TVP Trustees noted some minor differences. These
occur with (1) the TVP Templeton Asset Allocation Fund and the VIP
Templeton Global Asset Allocation Fund, and (2) the TVP Templeton Bond
Fund and VIP Templeton Global Income Securities Fund.
The TVP Templeton Asset Allocation Fund and the VIP Templeton Global
Asset Allocation Fund have two differences. First, the VIP Fund may
invest up to 25% of its assets in higher yielding, medium and
lower-rated debt securities, while the TVP Fund may only invest 15% of
its assets in these securities. Second, the VIP Fund is restricted
from investing in defaulted debt securities.
The TVP Templeton Bond Fund and the VIP Templeton Global Income
Securities Fund have two differences. First, the VIP Fund may invest
up to 30% of its assets in higher yielding, medium and lower-rated
debt securities, while the TVP Fund's ability to invest in these
securities is not limited. Second, the VIP Fund is restricted from
investing in defaulted debt securities.
Because the characteristics of the TVP Templeton Asset Allocation Fund
would survive the reorganization, there would be no impact on its
shareholders. For the TVP Templeton Bond Fund, the TVP Trustees found
that these differences are very minor and/or are of no practical
significance. The TVP Trustees determined that the shareholders of the
TVP Templeton Bond Fund would benefit overall by the combination with
the VIP Templeton Global Income Securities Fund.
o COMPARABILITY OF THE FUNDS' MANAGEMENT. The TVP Trustees noted that
all the corresponding funds' day-to-day management is the same except
(1) for the TVP Templeton Stock Fund and the VIP Templeton Global
Growth Fund and (2) that upon the combination of the TVP Templeton
International Fund and the VIP Templeton International Equity Fund,
the VIP Fund would adopt a new investment advisory agreement with
Templeton Global Advisors Limited.
The investment adviser to the TVP Templeton Stock Fund is Templeton
Investment Counsel, Inc. and the investment adviser to the VIP
Templeton Global Growth Fund is Templeton Global Advisors Limited. The
TVP Trustees reviewed information about Templeton Global Advisors
Limited, including the fact that Templeton Investment Counsel, Inc.
and Templeton Global Advisors Limited are part of the Franklin
Templeton group of investment advisory firms with access to
substantially similar resources. The TVP Trustees noted that since its
inception in 1994 the VIP Templeton Global Growth Fund has
outperformed or had essentially the same performance as the TVP Stock
Fund, while assessing lower overall management fees.
For the proposed change in the investment adviser to the VIP Templeton
International Equity Fund, the TVP Trustees considered information
about Templeton Global Advisors Limited. The TVP Trustees noted that
the change in investment adviser was merely a change within the
Franklin Templeton organization. Thus, the TVP Trustees could assume
that the new investment adviser would have access to substantially
similar resources and would manage the fund in the same manner as the
prior investment adviser.
For the TVP Franklin S&P 500 Index Fund and the TVP Franklin Strategic
Income Investments Fund, the TVP Trustees noted that the new
corresponding VIP funds would have the same characteristics of these
funds, including the same investment advisers and sub-advisers.
o EXPENSES OF THE FUNDS. The TVP Trustees compared the expenses of the
corresponding funds and reviewed the anticipated expense ratios of the
combined funds. The TVP Trustees noted that fund comparisons showed
that all the larger funds, except for the TVP Templeton Developing
Markets Fund, had the lower expense ratios. The TVP Trustees found
that the expense ratios of the combined funds were lower than the
ratios for the TVP Funds, except for a slight increase in the combined
fund for the TVP Templeton Asset Allocation Fund. The TVP Trustees
considered the differential in the rule 12b-1 fees for class 2 shares
of the TVP Templeton Bond Fund and the VIP Templeton Global Income
Securities Fund. Total annual fund operating expenses for the combined
fund, however, are expected to slightly decrease. The TVP Trustees
considered all of the other benefits of the reorganization, and
determined that these benefits outweighed the slight increase in the
expense ratio for the TVP Templeton Asset Allocation Fund, and the
slight increase in the rule 12b-1 fees for class 2 shares of the TVP
Templeton Bond Fund.
o PERFORMANCE OF THE FUNDS. The TVP Trustees compared the historical
investment performance records of the corresponding funds. The
performance of each of the TVP Funds and VIP Funds as of ___________,
was as set out in Exhibit . The TVP --- Trustees noted that the larger
corresponding funds had the better performance history. Any
differences in performance were attributed to differences in asset
sizes and cash flows. Due to the substantial similarities in
investment objectives and policies, the TVP Trustees were informed
that over time the corresponding funds could be expected to perform
similarly, though not identically. In addition, the TVP Trustees were
informed that due to the anticipated cost savings from the
reorganization, it was expected that the combined funds would have
better performance than the performance that could be expected for the
TVP Fund or the VIP Fund on a stand alone basis.
o TAX CONSEQUENCES. The TVP Trustees were informed that the
reorganization plan was anticipated to be tax-free.
o IMPACT ON CONTRACT VALUES. The TVP Trustees were told that the
reorganization would not impact the contract owners' values because
the exchange of shares would be made at the corresponding funds' net
asset values. Moreover, the separate accounts through which the
contracts are funded would not change except for the fund in which the
separate accounts invest. After the reorganization, the contract
owners' values would vary based upon the investment experience of the
combined funds in the VIP Trust. The TVP Trustees were informed that
the insurance company shareholders would take all action necessary to
ensure that the interests of the contract owners will be duly and
validly recorded on the books and records of the insurance company
shareholders.
WHAT FACTORS DID THE VIP TRUSTEES CONSIDER?
In determining whether or not it was appropriate to approve the proposed
investment advisory agreements and to recommend approval to shareholders, the
VIP Trustees considered various matters and extensive information provided by
the Franklin Templeton management and the VIP Trust's legal counsel. The nature
of the matters to be considered and the standards to be used by the VIP Trustees
in reaching their decision were reviewed by the VIP Trust's special legal
counsel, Jorden Burt Boros Cicchetti Berenson & Johnson LLP, and Bleakley Platt
& Schmidt, legal counsel to the independent VIP Trustees. After review and
discussions of the information provided, the independent VIP Trustees determined
separately to discuss the information and consider the factors to be weighed and
standards to be applied in evaluating the proposed agreements.
At a meeting held on October 22, 1999, the VIP Trustees considered
substantially the same information as was considered by the TVP Trustees. VIP
Trustees considered the similarities between the TVP Templeton Asset Allocation
Fund, Templeton Developing Markets Fund and the Templeton International Fund and
the corresponding VIP Funds to determine if these VIP Funds should adopt new
investment advisory agreements. The VIP Trustees noted that the investment
objectives were the same and the investment advisers of the VIP Templeton
Developing Markets Equity Fund and VIP Templeton Global Asset Allocation Fund
who would be responsible for the day-to-day management would be the same.
The VIP Trustees noted that the proposed contract for the VIP Templeton
Global Asset Allocation Fund will be the same as the investment advisory
agreements currently in effect for this fund. Under the proposed contract, the
VIP Templeton Global Asset Allocation Fund will pay the same fee to the
investment adviser The VIP Trustees were informed that after the combination,
the total annual operating expenses are anticipated to be lower than those of
the VIP Fund.
The VIP Trustees found that the proposed contract for the VIP Templeton
International Equity Fund and the VIP Templeton Developing Markets Equity Fund
will be nearly the same as their current contracts, except that the investment
adviser would no longer be providing fund administration services to the funds.
The VIP Trustees also reviewed the expense ratios of the combined funds. As a
result of the new agreements, the fees for the proposed investment advisory
contract and the administration service contract for the VIP Templeton
International Fund will be lower than the amounts under the current contract.
For the VIP Templeton Developing Markets Equity Fund, however, the change
was expected to result in moderately higher total annual fund operating
expenses. The increase is due to the separate fee for the fund administration
services contract that the combined fund will pay, while paying the same fee to
the investment adviser. Currently, the fee paid to the investment adviser
includes an amount for fund administration services. Because the combined fund
will pay this new separate fee, the VIP Trustees recognized that the investment
advisory fee would effectively increase. The VIP Trustees reviewed information
comparing the total operating fund expenses of the combined Developing Markets
Fund with those of similar funds. This information showed that the current total
fund operating expenses of the VIP Fund were generally lower than similar funds
and that these expenses for the combined fund would continue to be lower than
similar funds. In addition, the VIP Trustees compared the performance of the VIP
Templeton Developing Markets Equity Fund with that of similar funds. Also, the
VIP Trustees considered the expertise of and the services provided by the
investment adviser. The VIP Trustees recognized that the investment adviser had
established an extensive global network of research resources which includes a
global research team traveling extensively throughout the world, visiting
issuers and developing research ideas. The effective increase would also assist
the investment adviser in retaining and attracting capable personnel. The VIP
Trustees considered all of the other benefits of the reorganization, and
determined that these benefits outweighed the modest increases in expense
ratios.
The VIP Trustees also considered the change in the investment adviser to
the VIP Templeton International Equity Fund. The VIP Trustees reviewed
information about Templeton Global Advisors Limited. The VIP Trustees noted that
the change in investment adviser was merely a change in the corporate structure
within the Franklin Templeton organization. Thus, the VIP Trustees believed that
the new investment adviser would have access to substantially similar resources
and would manage the fund in the same manner as the prior investment adviser.
At this meeting the VIP Trustees also considered proposals that are
appropriate to the reorganization to change and eliminate certain fundamental
investment restrictions for the VIP Templeton Global Asset Allocation Fund, VIP
Templeton Developing Markets Fund and VIP Templeton International Equity Fund.
These proposals and the VIP Trustees consideration of these proposals are
described in proposals 3 and 4 of this document.
CONCLUSION
o The TVP Trustees recommend that shareholders vote "for" approval of the
reorganization as to each TVP Fund, including the adoption of the investment
advisory agreements.
o The VIP Trustees recommend that shareholders of the VIP Trust Templeton
Global Asset Allocation Fund, Templeton Developing Markets Equity Fund and
Templeton International Equity Fund vote "for" approval of the new investment
advisory agreements.
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
HOW WILL THE REORGANIZATION WORK?
The reorganization will be completed through two principal steps - creating
two new funds for the VIP Trust and eliminating duplicate funds. In connection
with the reorganization, certain VIP Funds will adopt new investment advisory
agreements and will amend or eliminate some of their fundamental investment
restrictions.
To eliminate the duplicate funds, we propose that:
o The TVP Trust transfer all of its assets and liabilities to the VIP Trust;
o The VIP Trust issue shares of the VIP Funds which correspond to the TVP
Funds in exchange for the TVP Trust's assets and liabilities;
o The TVP Trust distribute shares of the corresponding VIP Funds to
shareholders of the TVP Trust; and
o The TVP Trust be dissolved.
HOW WILL THE SHARES BE EXCHANGED AND DISTRIBUTED?
In exchange for the transferred assets and liabilities of the TVP Funds,
the TVP Trust will issue shares of the corresponding VIP Funds. The VIP Trust
will issue the number of full or fractional shares equal to the dollar value of
the shares of the corresponding TVP Fund that are outstanding immediately before
the reorganization. The shareholders of class 1 shares of the TVP Trust will
receive class 1 shares of the corresponding VIP Fund. The shareholders of class
2 shares of the TVP Trust will receive class 2 shares of the corresponding VIP
Fund. The shareholder of class 3 shares of the TVP Trust will receive class 3
shares of the corresponding VIP Fund. TVP Trust shareholders will also receive
any unpaid dividends or distributions that would be declared before the
reorganization of the TVP Trust. The VIP Trust will establish an account for
each shareholder of the TVP Trust reflecting the number of VIP Fund shares
distributed to that shareholder. The VIP Trust will not issue share
certificates.
WHAT WILL HAPPEN WITH THE TVP FRANKLIN S&P 500 INDEX FUND AND THE TVP FRANKLIN
STRATEGIC INCOME INVESTMENTS FUND?
Two new VIP Funds will be created with the same features of the TVP
Franklin S&P 500 Index and TVP Franklin Strategic Income Investments Funds. The
VIP Trust has taken all actions required by state law and its controlling trust
documents to establish the new VIP Funds. The new VIP Funds thus will be
eligible to receive the assets of the corresponding TVP Funds. The VIP Trust
will file a registration statement to add these two new funds. Because the VIP
Funds will adopt the features of the current corresponding TVP Funds, the
registration for the new VIP Funds is not anticipated to be materially different
from those of the TVP Funds. The SEC must declare this registration statement
effective prior to or concurrent with the reorganization.
CAN THE REORGANIZATION BE DELAYED OR TERMINATED?
Yes. In order for us to complete the reorganization, all the conditions
contained in a reorganization agreement between the TVP Trust and VIP Trust must
be satisfied.
One condition is your approval of the reorganization. We are required to
obtain approval of the reorganization from each of the TVP Fund's shareholders.
If we do not receive enough votes for the reorganization of any TVP Fund, the
reorganization will not be completed for that TVP Fund. In such case, we will
consider what further action is appropriate for that TVP Fund. We are also
required to obtain separate approval from the shareholders of each VIP Fund for
which we propose to adopt a new investment advisory agreement. If we do not
receive enough votes for the approval of the new investment advisory agreement
from the shareholders of any of the applicable VIP Fund, we will complete the
reorganization. The old investment advisory agreement will continue in effect
for the combined corresponding funds. Finally, we are seeking approval to change
the fundamental investment restrictions for certain VIP Funds. If we do not
receive enough votes for the proposals, we will complete the reorganization, but
the current fundamental investment restrictions will continue to apply.
The TVP Trust and VIP Trust may agree to terminate the reorganization at
any time, before or after approval by shareholders. In addition, if any
condition in the agreement that benefits the VIP Trust has not been satisfied,
the VIP Trust may terminate the reorganization, unless the VIP Trust agrees to
waive the condition. Likewise, if any condition in the agreement that benefits
the TVP Trust has not been satisfied, then the TVP Trust may terminate the
reorganization, unless the TVP Trust agrees to waive the condition.
WHAT ARE THE TAX CONSEQUENCES?
In the opinion of Jorden Burt Boros Cicchetti Berenson & Johnson LLP,
special counsel to the TVP Trust and the VIP Trust, based upon certain
assumptions and representations, it is not expected that shareholders of the TVP
Funds will recognize any gain or loss for federal income tax purposes as a
result of the exchange of their shares of the TVP Funds for shares of the
corresponding VIP Funds or that VIP Trust will recognize any gain or loss upon
receipt of the assets of the TVP Funds.
The TVP Trust and VIP Trust have not sought, and will not seek, a private
letter ruling from the Internal Revenue Service (IRS) with respect to the
federal income tax consequences of the reorganization. The opinion of Jorden
Burt Boros Cicchetti Berenson & Johnson LLP with respect to the tax consequences
of the reorganization is not binding on the IRS and does not preclude the IRS
from adopting a contrary position. Shareholders should consult their own tax
advisers concerning the potential tax consequences of the reorganization to
them, including any applicable foreign, state or local income tax consequences.
WHO WILL PAY THE EXPENSES?
The TVP Trust and VIP Trust have agreed that the cost to accomplish the
reorganization will be split among the TVP Trust and VIP Trust and the
investment advisers to the funds. These costs include costs of obtaining the
necessary approvals for the reorganization, as well as legal fees and accounting
fees for preparing this document, fees for mailing this document and expenses
for holding the special meetings.
HOW WOULD THE REORGANIZATION CHANGE THE FUNDS' STATEMENT OF CAPITAL?
The following tables show the capitalization of the TVP Funds and the
corresponding VIP Funds as of June 30, 1999 and on a pro forma basis as of that
date giving effect to the proposed reorganization.
<PAGE>
VIP FRANKLIN
TVP FRANKLIN LARGE CAP LARGE CAP GROWTH
GROWTH INVESTMENTS FUND SECURITIES FUND PRO FORMA
NET ASSETS
Class 1 $488,589 $355,536,656 $356,025
Class 2 n/a n/a n/a
NET ASSET VALUE PER
SHARE
Class 1 $13.13 $18.06 $18.06
Class 2 n/a $18.02 $18.02
SHARES OUTSTANDING
Class 1 37,220 19,689,451 19,716,505
Class 2 n/a 17,055 17,055
TVP FRANKLIN SMALL CAP VIP FRANKLIN
INVESTMENTS FUND SMALL CAP FUND PRO FORMA
NET ASSETS
Class 1 $482,735 $299,177,022 $299,659,757
Class 2 $19,867,737 $78,214 $19,945,951
NET ASSET VALUE PER
SHARE
Class 1 $10.74 $15.98 $15.98
Class 2 $10.73 $15.95 $15.95
SHARES OUTSTANDING
Class 1 44,934 18,724,755 18,754,964
Class 2 1,852,384 4,903 1,250,529
TVP MUTUAL SHARES VIP MUTUAL
INVESTMENTS FUND SHARES PRO FORMA
SECURITIES FUND
NET ASSETS
Class 1 $2,456,111 $496,887,152 $499,324,045
Class 2 $1,210,949 $442,187 $1,653,101
NET ASSET VALUE PER
SHARE
Class 1 $11.16 $13.70 $13.70
Class 2 $11.15 $13.68 $13.68
SHARES OUTSTANDING
Class 1 220,178 36,256,033 36,435,311
Class 2 108,637 32,326 120,846
VIP TEMPLETON
TVP TEMPLETON ASSET GLOBAL ASSET
ALLOCATION FUND ALLOCATION FUND PRO FORMA
NET ASSETS
Class 1 $660,891,561 $70,553,184 $731,341,753
Class 2 $15,490,118 $43,061 $15,531,081
NET ASSET VALUE PER
SHARE
Class 1 $21.11 $13.32 $13.32
Class 2 $21.05 $13.29 $13.29
SHARES OUTSTANDING
Class 1 31,309,340 5,297,517 54,914,001
Class 2 735,922 3,239 1,168,786
TVP TEMPLETON BOND FUND VIP TEMPLETON PRO FORMA
GLOBAL INCOME
SECURITIES FUND
NET ASSETS
Class 1 $23,523,321 $113,608,897 $137,145,104
Class 2 $289,795 $82,432 $372,240
NET ASSET VALUE PER
SHARE
Class 1 $10.04 $12.20 $12.20
Class 2 $10.03 $12.18 $12.18
SHARES OUTSTANDING
Class 1 2,343,325 9,311,962 11,240,103
Class 2 28,891 6,766 30,559
VIP TEMPLETON
TVP TEMPLETON DEVELOPING
DEVELOPING MARKETS FUND MARKETS EQUITY PRO FORMA
FUND
NET ASSETS
Class 1 $268,035,925 $188,802,531 $456,676,620
Class 2 $35,071,995 $587,362 $35,649,221
NET ASSET VALUE PER
SHARE
Class 1 $7.23 $9.39 $9.39
Class 2 $7.21 $9.38 $9.38
SHARES OUTSTANDING
Class 1 37,062,731 20,102,042 48,646,869
Class 2 4,862,951 62,613 3,801,632
<PAGE>
VIP TEMPLETON
TVP TEMPLETON INTERNATIONAL
INTERNATIONAL FUND EQUITY FUND PRO FORMA
NET ASSETS
Class 1 $996,310,751 $824,805,932 $1,821,453,295
Class 2 $81,169,758 $4,293,014 $85,472,863
NET ASSET VALUE PER
SHARE
Class 1 $19.85 $17.30 $17.30
Class 2 $19.77 $17.27 $17.27
SHARES OUTSTANDING
Class 1 50,203,995 47,685,867 105,276,084
Class 2 4,105,074 248,579 4,948,623
VIP TEMPLETON
TVP TEMPLETON STOCK GLOBAL GROWTH PRO FORMA
FUND FUND
NET ASSETS
Class 1 $620,428,154 $732,163,775 $1,352,733,204
Class 2 $27,435,349 $1,481,045 $28,919,051
NET ASSET VALUE PER
SHARE
Class 1 $21.28 $16.54 $16.54
Class 2 $21.21 $16.52 $16.52
SHARES OUTSTANDING
Class 1 29,158,278 44,256,213 81,766,984
Class 2 1,293,337 89,660 1,750,395
TVP FRANKLIN S&P 500 VIP FRANKLIN S&P
INDEX FUND 500 INDEX FUND PRO FORMA
NET ASSETS
Class 1 n/a n/a n/a
Class 2 n/a n/a n/a
Class 3 n/a n/a n/a
NET ASSET VALUE PER
SHARE
Class 1 n/a n/a n/a
Class 2 n/a n/a n/a
Class 3 n/a n/a n/a
SHARES OUTSTANDING
Class 1 n/a n/a n/a
Class 2 n/a n/a n/a
Class 3 n/a n/a n/a
<PAGE>
TVP FRANKLIN STRATEGIC VIP FRANKLIN
INCOME INVESTMENTS FUND STRATEGIC INCOME PRO FORMA
SECURITIES FUND
NET ASSETS
Class 1 $3,308,832 n/a $3,308,832
Class 2 n/a n/a n/a
NET ASSET VALUE PER
SHARE
Class 1 $9.86 n/a $9.86
Class 2 n/a n/a n/a
SHARES OUTSTANDING
Class 1 335,659 n/a 335,659
Class 2 n/a n/a n/a
<PAGE>
PROPOSALS 3 & 4 - CHANGES TO THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE VIP
TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON DEVELOPING MARKETS EQUITY
FUND AND TEMPLETON INTERNATIONAL EQUITY FUND INTRODUCTION
WHY ARE WE PROPOSING AMENDMENTS OR ELIMINATING CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS?
Recent changes in federal law no longer require certain investment
restrictions of the funds. The changes are consistent with the reorganization by
making the fundamental investment restrictions more like the larger
corresponding TVP Funds.. The changes also are consistent with Franklin
Templeton's goal of standardizing restrictions among all of the funds in the
Franklin Templeton group of funds. We are proposing to make changes to the
fundamental investment restrictions as shown in the chart below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
VIP TEMPLETON VIP TEMPLETON VIP
RESTRICTION GLOBAL ASSET DEVELOPING TEMPLETON
ALLOCATION MARKETS EQUITY INTERNATIONAL
FUND FUND EQUITY FUND
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<CAPTION>
PROPOSAL 3 - MODIFICATION OF
RESTRICTIONS (each sub-proposal must be
individually approved)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) Diversification X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
(b) Borrowing X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
(c) Lending X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
(d) Underwriting X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
(e) Concentration X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
(f) Senior Securities X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
(g) Real Estate and Commodities* X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
PROPOSAL 4 - ELIMINATION OF
RESTRICTIONS
(all of the following approved as a
group)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Illiquid Securities** X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Exercising Control or Management X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Unseasoned Companies N/A X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Margin Securities X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Securities with Unlimited Liability X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Restricted Securities N/A X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Management Ownership of Securities X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Compliance with Section 817(h) X X X
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Warrants N/A X N/A
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Unlisted Foreign Issuers N/A X N/A
- ---------------------------------------------------------------------------------------
</TABLE>
*Currently two restrictions that will be combined into one.
**There are two restrictions with respect to illiquid securities that we are
proposing to eliminate.
Each fund is subject to certain investment restrictions that govern the
fund's investment activities. Under the 1940 Act, certain investment
restrictions are required to be "fundamental," which means that they can only be
changed by a shareholder vote.
Recently, certain legal and regulatory requirements applicable to mutual
funds changed. Each fund currently is subject to fundamental investment
restrictions that are either more restrictive than required under current law
regarding diversification, and borrowing and lending by these funds.
Accordingly, we are recommending the amendment to these fundamental investment
restrictions.
The proposed changes will not affect any fund's investment goal. Although
the proposed changes in fundamental investment restrictions will provide each
fund greater flexibility to respond to future investment opportunities, we do
not anticipate that the changes, individually or in the aggregate, will result
in a material change in the level of investment risk associated with investment
in the fund. We do not anticipate that the proposed changes will materially
affect the manner in which any fund is managed.
<PAGE>
PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUNDS' FUNDAMENTAL
INVESTMENT RESTRICTIONS
(THIS PROPOSAL INVOLVES SEPARATE VOTES ON SUB-PROPOSALS 3A - 3G)
SUB-PROPOSAL 3A: TO AMEND THE FUNDS' FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING DIVERSIFICATION OF INVESTMENTS.
The 1940 Act prohibits a "diversified" fund from purchasing securities of
any one issuer if, at the time of purchase, as to 75% of the fund's total
assets, more than 5% of the fund's total assets would be invested in securities
of that issuer, or the fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the fund's total
assets may be invested without regard to these limitations. Under the 1940 Act,
as recently amended, these 5% and 10% limitations do not apply to securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or to the securities of other investment companies.
While the 1940 Act excludes the securities of other investment companies
and the U.S. government and its agencies and instrumentalities, each fund's
current restriction does not include a carve out for the securities of other
investment companies. In addition, although the 1940 Act prohibits a fund from
owning or holding more than 10% of the "outstanding voting securities" of an
issuer, each fund's current restriction prohibits the fund from holding more
than 10% of "any or all classes" of the securities of an issuer. Since each
fund's restriction excludes a broader class of securities from the 10%
limitation, it is more restrictive than the 1940 Act.
WHAT EFFECT WILL THE CHANGE IN THE CURRENT INVESTMENT DIVERSIFICATION
RESTRICTION HAVE ON THE FUNDS?
Amending each fund's diversification policy would make it consistent with
the current definition of a diversified investment company under the 1940 Act,
and would provide each fund with greater investment flexibility. The proposed
restriction is similar to the current restriction. The most significant change
in the proposed restriction is that it excludes other investment companies
securities from the 5% and 10% limitations. With this exclusion, each fund would
be able to invest cash held at the end of the day in money market funds or other
short-term investments without regard to the 5% and 10% investment limitations.
Each fund, together with the other Franklin Templeton funds, has obtained an
exemptive order from the SEC (the "Cash Sweep Order") which permits the Franklin
Templeton funds to invest their uninvested cash in one or more Franklin or
Templeton money market funds. Amending each fund's current restriction would
permit each fund to take advantage of the investment opportunities presented by
the Cash Sweep Order, since the Cash Sweep Order contemplates relief from the
1940 Act restrictions relating to the permissible percentage investments in
other investment companies.
SUB-PROPOSAL 3B: TO AMEND THE FUNDS' FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING BORROWING.
Investment companies must impose certain limitations on their borrowing
activities. The limitations on borrowing are generally designed to protect
shareholders and their investments by restricting a fund's ability to subject
its assets to the claims of creditors who might have a claim to the fund's
assets that would take precedence over the claims of shareholders. A fund's
borrowing restriction must be fundamental.
Federal law allows a fund to borrow from banks up to one-third of its total
assets (including the amount borrowed). In addition, a fund may borrow up to 5%
of its total assets for temporary purposes from any person. Funds typically
borrow money to meet redemptions in order to avoid forced, unplanned sales of
portfolio securities. This technique allows a fund greater flexibility to buy
and sell portfolio securities for investment or tax considerations, rather than
for cash flow considerations.
WHAT EFFECT WILL THE CHANGE IN THE CURRENT BORROWING RESTRICTION HAVE ON A
FUND?
The VIP Templeton International Fund is presently limited to borrowing up
to 5% of the value of its total assets for any reason, except from banks for
temporary emergency purposes only. In addition, the current restriction does not
specifically limit the fund's overall ability to borrow up to the 33 1/3%
allowed under current law. The VIP Templeton International Fund's current
restriction also states that the fund may not borrow in excess of 5% "for direct
investment in securities." The 1940 Act limits on borrowing historically were
interpreted to prohibit mutual funds from making additional investments in
securities while borrowings exceeded 5% of total assets. However, such a 5%
limit is not required under the 1940 Act, rather it originated from informal
regulatory positions. Accordingly, under the proposed restriction, each fund
would be permitted to make additional investments, even if borrowings exceed 5%
of total assets.
The VIP Templeton Global Asset Allocation and VIP Templeton Developing
Markets Equity Funds' restriction only permit them to borrow from banks an
amount not exceeding one-third of the value of the fund's total asset including
the amount borrowed. The proposed restriction would clarify that each fund may
borrow: (1) from banks to the extent permitted by the 1940 Act or any exemptions
therefrom, and (2) from any person for temporary purposes. However, in either
case, all borrowings must not exceed 33 1/3% of total assets.
The proposed restriction also permits each fund to borrow cash from
affiliated investment companies. Each fund, together with other Franklin
Templeton funds, has requested an order from the SEC that would permit each fund
to borrow money from affiliated Franklin Templeton funds (the "Interfund
Borrowing and Lending Order.") As discussed in Sub-Proposal 2c, the Interfund
Borrowing and Lending Order also would permit each fund to lend money to other
Franklin Templeton funds. If the Interfund Borrowing and Lending Order is
approved, the proposed restriction would permit each fund, under certain
circumstances, to borrow money from other Franklin Templeton funds at rates
which are more favorable than those which each fund would receive if it borrowed
from banks or other lenders.
Since the proposed borrowing restriction would provide each fund with
greater borrowing flexibility, each fund may be subject to additional costs, as
well as the risks inherent to borrowing, such as reduced total return.
SUB-PROPOSAL 3C: TO AMEND THE FUNDS' FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING LENDING.
Certain investment techniques could, under certain circumstances, be
considered to be loans. For example, if a fund invests in debt securities, such
investments might be considered to be loans from each fund to the issuer of the
debt securities. In order to ensure that a fund may invest in bonds, debentures
or other debt securities or repurchase agreements, which could technically be
characterized as the making of loans, each fund's current fundamental
restriction excludes these securities from the restrictions. In addition, each
fund's fundamental policy explicitly permits each fund to lend its portfolio
securities. Securities lending is a practice that has become common in the
mutual fund industry and involves the temporary loan of portfolio securities to
parties who use the securities for the settlement of securities transactions.
The collateral delivered to a fund in connection with such a transaction is then
invested to provide the fund with additional income it might not otherwise have.
Securities lending involves certain risks if the borrower fails to return the
securities.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT LENDING RESTRICTION HAVE ON
THE FUNDS?
The proposed restriction would provide each fund with greater lending
flexibility. While the proposed restriction retains the carve-outs in the
existing restriction, it also would provide each fund with additional
flexibility to make loans to affiliated investment companies to the extent
permitted by the Interfund Borrowing and Lending Order. If the Interfund
Borrowing and Lending Order is approved, the proposed restriction would permit
each fund, under certain conditions, to lend cash to other Franklin Templeton
funds at rates higher than those which the fund would receive if the fund loaned
cash to banks through short term lendings such as repurchase agreements. We
anticipate that this additional flexibility to lend cash to affiliated
investment companies would provide additional investment opportunities, and
would enhance each fund's ability to respond to changes in legal, market,
industry or regulatory conditions.
SUB-PROPOSAL 3D: TO AMEND EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING UNDERWRITING.
Under the 1940 Act, a fund's policy concerning underwriting is required to
be fundamental. Under the federal securities laws, a person or company generally
is considered an underwriter if it participates in the public distribution of
securities of OTHER ISSUERS, usually by purchasing the securities from the
issuer with the intention of re-selling the securities to the public. From time
to time, a mutual fund may purchase a security for investment purposes which it
later sells or redistributes to institutional investors or others under
circumstances where a fund could possibly be considered to be an underwriter
under the technical definition of underwriter contained in the securities laws.
For example, funds often purchase securities in private securities transactions
where a resale could raise a question relating to whether or not the fund is
technically acting as an underwriter. However, recent SEC interpretations
clarify that re-sales of privately placed securities by institutional investors
do not make the institutional investor an underwriter in these circumstances.
The proposed restriction encompasses these SEC positions.
WHAT EFFECT WILL CHANGING THE CURRENT UNDERWRITING RESTRICTION HAVE ON THE
FUNDS?
The proposed restriction is substantially similar to each fund's current
restriction. As with the current restriction, the proposed restriction
specifically permits the funds to resell restricted securities in those
instances where there may be a question as to whether a fund is technically
acting as an underwriter. The proposed underwriting restriction also clarifies
that a fund may sell its own shares without being deemed an underwriter. Under
the 1940 Act, a mutual fund will not be considered an underwriter if it sells
its own shares pursuant to a written distribution plan that complies with Rule
12b-1 of the 1940 Act.
Furthermore, the new restriction would help each fund achieve the goal of
amending the language of the investment restrictions to reflect current SEC
interpretations. It is not anticipated that adoption of the proposed restriction
would involve any additional risk since it would not affect the way each fund is
currently managed.
SUB-PROPOSAL 3E: TO AMEND THE FUNDS FUNDAMENTAL INVESTMENT RESTRICTIONS
REGARDING INVESTMENTS IN REAL ESTATE AND COMMODITIES.
Under the 1940 Act, a fund's restrictions regarding investments in real
estate and commodities must be fundamental. Each fund presently has two separate
investment restrictions that govern each fund's ability to invest in real estate
and commodities. The proposed standardized restriction would combine these two
restrictions into one, as well as clarify the types of financial commodities and
other instruments in which each fund may invest.
WHAT EFFECT WILL COMBINING AND REVISING THE REAL ESTATE AND COMMODITIES
RESTRICTIONS HAVE ON THE FUNDS?
The proposed restriction would combine the limitations on investing in both
real estate and commodities into one restriction.
Real Estate: Each fund's current restriction states that the fund may not
invest in real estate, but it specifically excludes "first mortgage loans or
other direct obligations secured by real estate" from the restriction. Since an
investment in first mortgage loans or other obligations secured by real estate
would not be considered a direct investment in real estate, the proposed
restriction would continue to permit such an investment. The proposed
restriction would specifically reference each fund's ability to purchase
securities of real estate investment trusts ("REITs") to the extent that an
investment in REITs would otherwise meet each fund's investment criteria.
Investing in REITs has gained popularity since the early 1990s, and the number
of REITs available for investment has also increased dramatically.
Each fund will continue to be prohibited from directly purchasing or
selling real estate. It is not anticipated that the proposed restriction would
involve any additional risk to the funds as the funds do not currently, and have
not in the past, invested in real estate or REITs. Therefore, the proposed
restriction will not affect the way the funds are currently managed.
COMMODITIES: Generally, commodities are considered to be physical
commodities such as wheat, cotton, rice and corn. However, futures contracts,
including financial futures contracts such as those related to currencies, stock
indices or interest rates, are also considered to be commodities. Funds
typically invest in such contracts and options on contracts for hedging or other
investment purposes. The proposed restriction clarifies that each fund has the
flexibility to invest in financial futures contracts and related options. The
proposed restriction would permit investment in financial futures instruments
for either investment or hedging purposes. Although each fund hasalways had the
ability to invest in options on securities and options on futures, they have not
done so. Each fund does not intend to begin investing in financial futures
contracts and related options. Therefore, it is not anticipated that the
proposed restriction would involve any additional risk. Using financial futures
instruments can involve substantial risks, and will be utilized only if the
investment adviser believes such risks are advisable.
SUB-PROPOSAL 3F: TO AMEND EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING ISSUING SENIOR SECURITIES.
Under the 1940 Act, a fund must have an investment policy describing its
ability to issue senior securities. A "senior security" is an obligation of a
fund with respect to its earnings or assets that takes precedence over the
claims of the fund's shareholders with respect to the same earnings or assets.
The 1940 Act generally prohibits an open-end fund from issuing senior securities
in order to limit the use of leverage. In general, a fund uses leverage when it
borrows money to enter into securities transactions, or acquires an asset
without being required to make payment until a later time.
SEC staff interpretations allow a fund to engage in a number of types of
transactions which might otherwise be considered to create "senior securities"
or "leverage," so long as the fund meets certain collateral requirements
designed to protect shareholders. For example, some transactions that may create
senior security concerns include short sales, certain options and futures
transactions, reverse repurchase agreements and securities transactions that
obligate the fund to pay money at a future date (such as when-issued, forward
commitment or delayed delivery transactions). When engaging in such
transactions, a fund must mark on its books or its custodian bank's books, or
set aside money or securities with its custodian bank to meet the SEC staff's
collateralization requirements. This procedure effectively eliminates a fund's
ability to engage in leverage for these types of transactions.
A number of each fund's current fundamental and non-fundamental investment
restrictions relate to senior securities. For example, each fund currently is
prohibited from purchasing securities on margin and making short sales. Each
fund was originally required by the states to have fundamental restrictions
regarding these transactions. These types of transactions also raise senior
security issues under the federal securities laws. In addition, each fund
presently has a non-fundamental policy under which it may not "pledge, mortgage
or hypothecate its assets as security for loans (except to the extent of
allowable temporary loans)." These types of transactions are generally
considered to raise senior security concerns. Adopting Sub-Proposal 3f would
consolidate into one investment restriction: (1) a concise statement of each
fund's senior security restriction, as well as (2) each fund's current
fundamental and non-fundamental restrictions that address senior security
issues. The part of each fund's current restriction relating to the purchase of
securities on margin is proposed to be eliminated in Proposal 4. The restriction
on short sales would be carved out of the new senior securities restriction, as
further described below.
WHAT EFFECT WILL AMENDING THE RESTRICTION REGARDING ISSUING SENIOR
SECURITIES HAVE ON THE FUNDS?
The proposed restriction would permit each fund to engage in permissible
types of leveraging transactions. The proposed restriction would permit a fund
to engage in options, futures contracts, forward contracts, repurchase
transactions or reverse repurchase transactions. The proposed restriction also
would permit a fund to make short sales as permitted under the 1940 Act, and any
exemptions available under the 1940 Act. Essentially, the proposed restriction
clarifies a fund's ability to engage in those investment transactions (such as
repurchase transactions) that, while appearing to raise senior security
concerns, have been interpreted as not constituting the issuance of senior
securities under the federal securities laws.
The Board does not anticipate that any additional risk to a fund will occur
if the fund combines the current fundamental restriction with the
non-fundamental restriction to result in one, standardized, fundamental
investment restriction regarding senior securities.
SUB-PROPOSAL 3G: TO AMEND EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING CONCENTRATION OF THE FUND'S INVESTMENTS IN THE SAME
INDUSTRY.
Under the 1940 Act, a fund's policy of concentrating its investments in
securities of companies in the same industry must be fundamental. Under the
federal securities laws, a mutual fund "concentrates" its investments if it
invests more than 25% of its "net" assets (exclusive of certain items such as
cash, U.S. government securities, securities of other investment companies, and
tax-exempt securities) in a particular industry or group of industries. A fund
is not permitted to concentrate its investments in a particular industry unless
it so states.
WHAT EFFECT WILL AMENDING THE CURRENT RESTRICTION REGARDING INDUSTRY
CONCENTRATION HAVE ON THE FUNDS?
Each fund's existing fundamental restriction recites the fund's
concentration policy and states that the fund may not invest more than 25% of
its assets in any single industry. The proposed restriction provides each fund
with marginally added flexibility because, consistent with SEC interpretations,
it exempts from the 25% limitation: (i) securities of other investment
companies, and (ii) securities issued or guaranteed by the U. S. government or
any of its agencies or instrumentalities. It also recites the current federal
securities law requirement with respect to concentration that limits investments
to "net" as opposed to "total" assets. While the proposed restriction does not
address specifically the timing of the application of the concentration policy,
as the current restriction does, the parenthetical clarifying that a fund may
not "invest" more than 25% of its assets in the securities industry is adequate
to reflect that the test applies at the time of investment. The investment
flexibility provided by the new concentration restriction will help each fund
respond to future legal, regulatory, market or technical changes. However,
adoption of the proposed restriction is not expected to change materially the
way in which each fund currently is managed as each fund does not intend to
begin concentrating in shares of other investment companies or the U. S.
government or any of its agencies or instrumentalities.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE SUB-PROPOSALS 3A-3G
PROPOSAL 4: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUNDS' FUNDAMENTAL
INVESTMENT RESTRICTIONS
WHICH FUNDAMENTAL INVESTMENT RESTRICTIONS IS THE BOARD RECOMMENDING THAT THE
FUNDS ELIMINATE?
Each fund has several fundamental investment restrictions that were
originally drafted pursuant to state laws and regulations. Because of recent
changes in law and recent SEC staff positions, these laws and regulations are no
longer relevant to the fund. Thus, each fund is no longer legally required to
include some of the current restrictions among its fundamental investment
restrictions. Eliminating these investment restrictions will further the goal of
the reorganization by making the fundamental investment restrictions more like
the larger corresponding TVP Funds. In addition, it will standardize these funds
fundamental investment restrictions with others in the Franklin Templeton group
of funds. We have determined that all of these current fundamental investment
restrictions should be eliminated.
ILLIQUID AND RESTRICTED SECURITIES
Each fund has fundamental investment restrictions that limit its ability to
invest in illiquid securities and to purchase restricted securities. Illiquid
securities are securities that may not be readily sold within seven days at the
price at which they are being accounted. Similarly, restricted securities are
subject to certain contractual or other restrictions on their resale. Restricted
securities are often considered to be illiquid because their disposition is
often difficult or requires more than seven days. We recommend that all these
fundamental investment restrictions be eliminated. These restrictions likely
originated under certain state securities laws and are no longer required by the
states. The SEC does not require a fund's illiquid securities restriction to be
fundamental. In addition, there is currently no SEC requirement that a fund
state a restricted securities policy.
Under the current restrictions, each fund is prevented from investing more
than 10% of its assets in securities that are illiquid. The SEC recently amended
its position to permit funds to invest up to 15% of their assets in illiquid
securities. However, each fund may not take advantage of this new SEC position
because its existing policies relating to investments in illiquid securities are
both fundamental and contain a lower percentage limitation. Since the current
policy is fundamental, it may only be changed by a shareholder vote. Eliminating
this as a fundamental policy would enable each fund to both take advantage of
the current SEC position and to respond to future SEC changes in this area
without the delay and expense of a shareholder vote, thereby providing each fund
with additional investment flexibility. Although each fund's policy relating to
illiquid securities would no longer be fundamental, each fund would continue to
be subject to the SEC rules and regulations in this area.
The VIP Templeton Developing Markets Equity Fund and VIP Templeton
International Equity Fund have adopted restrictions on the purchase of
restricted securities. Current SEC rules have substantially increased the number
of restricted securities that can now be considered liquid and, in addition,
have given to the trustees the ability to determine, under specific guidelines,
that a security is liquid. The most common form of liquid restricted securities
would be Rule 144A securities. Elimination of this restriction would allow these
funds greater flexibility to invest in restricted securities.
Elimination of these restrictions should not have an impact on the
day-to-day management of any fund as each fund does not currently intend to
increase the percentages in which each fund invests in either illiquid or
restricted securities.
FOREIGN ISSUERS
The VIP Templeton Developing Markets Fund has an investment restriction
that provides that it will not invest more than 15% of its assets in securities
of foreign issuers not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% in illiquid investments. The nature of the
foreign securities markets has changed considerably since this restriction was
adopted, including a greater variety of foreign securities that are not traded
on a securities exchange. Elimination of this restriction would allow the fund
greater flexibility to invest in securities that are now commonplace in the
global securities market.
Elimination of this restriction, however, should not have an impact on the
day-to-day management of the fund as it does not currently intend to increase
the percentages in which it invests in either unlisted or illiquid foreign
securities.
CONTROL OR MANAGEMENT
Each fund has adopted a current fundamental investment restriction that
limits each fund's ability to invest for purposes of exercising control or
management. This restriction was enacted in response to various state securities
laws and is no longer required. Typically, if a fund acquires a large percentage
of the securities of a single issuer, it will be deemed to have invested in such
issuer for the purposes of exercising control or management. This restriction
was intended to ensure that a mutual fund would not make investments in order to
become engaged in the business of managing another company or to influence
management.
Eliminating this restriction will not have any impact on the day-to-day
management of any fund because each fund has not in the past, and has no present
intention, of investing in an issuer for the purposes of exercising control or
management. Further, the goal of this restriction, namely to limit a fund's
ability to control another issuer, is embodied in the 1940 Act diversification
rule, which is proposed to be incorporated in the proposed investment
restriction relating to diversification (described in Sub-Proposal 3a). The
diversification restriction limits each fund's ability to own more than a
certain percentage of any one issuer, which acts to limit its ability to
exercise control or management over another company.
UNSEASONED COMPANIES
Each fund, except the VIP Templeton Global Asset Allocation Fund, has
adopted a current fundamental investment restriction that limits each fund's
ability to invest in companies which have a record of less than three years of
continuous operations. Such relatively new companies are considered to be
unseasoned companies. This restriction was originally included in response to
the various state law requirements to which mutual funds were previously
subject. This restriction was intended to ensure a fund's stability through its
investment in companies with a proven track record.
Elimination of this restriction should not have an impact on the day-to-day
management of any fund as each fund has not previously, nor does it currently
intend, to invest in unseasoned companies.
SECURITIES ON MARGIN
Each fund has adopted a current fundamental investment restriction that
limits each fund's ability to purchase securities on margin or sell securities
short. This restriction was originally included in response to various state law
requirements. Each fund is no longer required by state law to retain specific
fundamental policies regarding these types of investment activities.
As a general matter, elimination of this fundamental restriction relating
to purchasing securities on margin should not have an impact on the day-to-day
management of any fund, since the 1940 Act prohibitions on these types of
transactions would continue to apply to each fund.
SECURITIES WITH UNLIMITED LIABILITY
Each fund has adopted a current fundamental investment restriction that
limits each fund's ability to invest in assessable securities or securities
involving unlimited liability on the part of the fund. This restriction was
originally included to comply with various state laws. Each fund is no longer
required to include this as a fundamental policy.
Elimination of this restriction should not have an impact on the day-to-day
management of any fund as each fund has not previously, nor does it currently
intend, to invest in securities with unlimited liability.
MANAGEMENT OWNERSHIP OF SECURITIES
Each has a current restriction that limits each fund's ability to invest in
securities issued by companies whose securities are owned in certain amounts by
trustees and officers of the fund, or by its investment adviser. This policy
originated many years ago with a now obsolete state securities law.
As a general matter, elimination of this fundamental restriction should not
have an impact on the day-to-day management of any fund, as the 1940 Act
restrictions still apply to each fund.
TAX DIVERSIFICATION FOR VARIABLE ANNUITY FUNDS
Each fund has adopted a restriction that prohibits the fund from investing
in a manner that does not comply with the investment diversification
requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended
(the "Code"). Section 817(h) of the Code applies to investment companies, like
each fund, which are held by segregated asset accounts of one or more insurance
companies, and which are only available to the public through the purchase of a
variable contract or under certain employee benefit plans. Under Section 817(h)
of the Code and applicable Treasury Regulations, each fund will be "adequately
diversified" for purposes of the Code, if: (i) no more than 55% of the value of
the total assets of the fund may be represented by any one investment, (ii) no
more than 70% by any two investments, (iii) no more than 80% by any three
investments, and (iv) no more than 90% by any four investments. Each fund seeks
to maintain compliance with the diversification provisions set forth in the Code
and the Treasury Regulations in order to take advantage of certain tax
opportunities available to insurance funds.
As a general matter, elimination of this fundamental restriction should not
have an impact on the day-to-day management of each fund since the restrictions
of the Code and applicable Treasury Regulations will continue to apply to each
fund, and each fund will continue to invest in a manner which complies with the
diversification rules set forth in Section 817(h) of the Code and applicable
Treasury Regulations.
WARRANTS
The VIP Templeton Developing Markets Fund has an investment restriction
that prohibits it from investing more than 5% of its assets in warrants, whether
or not listed on the New York Stock Exchange, including no more than 2% of its
total assets which may be invested in warrants that are not listed on those
exchanges. Warrants acquired by the fund in units or attached to securities are
not included in this restriction. This policy originated many years ago with now
obsolete state securities law.
As a general matter, elimination of this fundamental restriction should not
have an impact on the day-to-day management of the fund as it has not
previously, nor does it currently intend, to invest in warrants in any
significant excess of these prior limitations.
WHY ARE WE RECOMMENDING THAT THE RESTRICTIONS BE ELIMINATED?
We have determined that eliminating the restrictions is consistent with the
federal securities laws. Moreover, eliminating these restrictions is consistent
with the goals of the reorganization. This will also modify each fund's list of
fundamental restrictions to standardized investment restrictions adopted by
other Franklin and Templeton funds. By both standardizing and reducing the total
number of investment restrictions that can be changed only by a shareholder
vote, we believe that each fund will be able to minimize the costs and delays
associated with holding future shareholder meetings to revise fundamental
policies that become outdated or inappropriate.
We believe that eliminating the restrictions is in the best interest of
each fund's shareholders as it will provide each fund with increased flexibility
to pursue its investment goal.
WHAT ARE THE RISKS, IF ANY, IN ELIMINATING THE RESTRICTIONS?
We do not anticipate that eliminating the restrictions will result in any
additional risk to any fund. Although each fund's current restrictions, as
drafted, are no longer legally required, each fund's ability to invest in these
areas will continue to be subject to the limitations of the 1940 Act, any
exemptive orders granted under the 1940 Act, and the Code. Further, each fund
has no current intention of changing its present investment practices as a
result of eliminating these restrictions.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 4
VOTING INFORMATION AND PRINCIPAL SHAREHOLDERS
HOW ARE VOTES SOLICITED?
We intend to solicit proxies by mail. In addition, the employees of (1) the
Trusts and their affiliates and of (2) the insurance companies, may solicit
voting instructions from you in person or by telephone. The cost of soliciting
proxies and voting instructions is borne by the TVP Trust, VIP Trust and the
investment advisers to the funds. The Trusts do not reimburse their employees
and agents involved in the solicitation of proxies.
WHAT IS A QUORUM?
A majority of the shares entitled to vote--present in person or represented
by proxy--constitutes a quorum at the meeting. Shares abstaining on any item are
counted as shares present and entitled to vote for purposes of determining the
presence of a quorum.
HOW ARE VOTES COUNTED?
The inspector of election will count the total number of votes cast "for"
approval of each of the proposals for purposes of determining whether sufficient
affirmative votes have been cast. Abstentions are counted towards quorum and
will be treated as votes not cast. Approval of the proposals requires the
affirmative vote of the shareholders. Thus, abstentions have the same effect as
a negative vote.
CAN THE MEETINGS BE ADJOURNED?
If a sufficient number of votes in favor of any of the proposals contained
in the notice of special meeting is not received by the time scheduled for the
meeting, the persons named in the proxy may propose one or more adjournments of
the meeting to permit further solicitation of proxies with respect to that
proposal. Any proposed adjournment requires the affirmative vote of a majority
of shares present at the meeting.
Your insurance company will vote in favor of an adjournment those shares
which it is entitled to vote for that proposal. It will vote against an
adjournment those shares required to be voted against that proposal. Any
proposals for which sufficient favorable votes have been received by the time of
the meeting may be acted upon and considered final regardless of whether the
meeting is adjourned to permit additional solicitation with respect to any other
proposal.
HOW MANY SHARES ARE OUTSTANDING?
The number of outstanding shares for the TVP Funds on November 30, 1999
are as follows:
NAME OF TVP FUND AND CLASS SHARES ENTITLED TO VOTE
TVP Franklin Large Cap Growth Investments Fund
Class
1................................................................ shares
- ------------------------------------------------------------------------
Class
2................................................................ shares
- ------------------------------------------------------------------------
TVP Franklin Small Cap Investments Fund
Class
1................................................................ shares
- ------------------------------------------------------------------------
Class
2................................................................ shares
- ------------------------------------------------------------------------
TVP Mutual Shares Investments Fund
Class
1................................................................ shares
- ------------------------------------------------------------------------
Class
2................................................................ shares
- ------------------------------------------------------------------------
TVP Templeton Asset Allocation Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
TVP Templeton Bond Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
TVP Templeton Developing Markets Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
TVP Templeton International Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
TVP Templeton Stock Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
TVP Franklin S&P 500 Index Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
Class
3................................................................shares
- -----------------------------------------------------------------------
TVP Franklin Strategic Income Investments Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
The number of outstanding shares for the VIP Funds on November 30, 1999 are
as follows:
NAME OF VIP FUND AND CLASS SHARES ENTITLED TO VOTE
VIP Templeton Global Asset Allocation Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
VIP Templeton Developing Markets Equity Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
VIP Templeton International Equity Fund
Class
1................................................................shares
- -----------------------------------------------------------------------
Class
2................................................................shares
- -----------------------------------------------------------------------
WHO ARE THE SHAREHOLDERS?
The name, address and percentage of ownership of the shareholders that
owned of record 5% or more of the TVP Funds on November 30, 1999, and the
percentage of the corresponding VIP Funds that would be owned by these
shareholders after completing the reorganization based upon their holdings on
November 30, 1999 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERCENTAGE PRO FORMA
CLASS OF OF CLASS PERCENTAGE
SHARES OWNED ON OF CLASS OF
TVP TRUST NAME AND ADDRESS OWNED RECORD DATE VIP FUND
OWNED ON
CONSUMMATION
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Large Cap Growth Templeton Funds Annuity Class 1 47.01
Investments Fund Company
100 Fountain Parkway
St. Petersburg, FL
33716-1205
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Large Cap Growth COVA Financial Services Class 1 49.7
Investments Fund Life Insurance Company
One Tower Lane, Suite
3000
Oakbrook Terrace, IL
60181-4644
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Small Cap Templeton Funds Annuity Class 1 36.1
Investments Fund Company
100 Fountain Parkway
St. Petersburg, FL
33716-1205
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Small Cap COVA Financial Services Class 1 60.9
Investments Fund Life Insurance Company
One Tower Lane, Suite
3000
Oakbrook Terrace, IL
60181-4644
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Small Cap Pruco Life Insurance Class 2 64.22
Investments Fund Company
213 Washington Street
Newark, NJ 07102-2992
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Small Cap Travelers Life & Annuity Class 2 27.03
Investments Fund Company/Travelers Life
Insurance Company
1 Tower Square
Hartford, CT 06183
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Small Cap Pruco Life Insurance Class 2 6.3
Investments Fund Company of New Jersey
213 Washington Street
Newark, NJ 07102-2992
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Mutual Shares Investments COVA Financial Services Class 1 88.6
Fund Life Insurance Company
One Tower Lane, Suite
3000
Oakbrook Terrace, IL
60181-4644
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Mutual Shares Investments Templeton Funds Annuity Class 2 10.6
Fund Company
100 Fountain Parkway
St. Petersburg, FL
33716-1205
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Mutual Shares Investments Phoenix Home Life Mutual Class 2 1005
Fund Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Asset Allocation The Variable Annuity Class 1 47.26
Fund Life Insurance Company
2929 Allen Parkway
Houston, TX 77019
- ------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
Templeton Asset Allocation Travelers Life & Annuity Class 1 35.83
Fund Company/Travelers Life
Insurance Company
1 Tower Square
Hartford, CT 06183
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Asset Allocation Phoenix Home Life Mutual Class 1 16.7
Fund Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Asset Allocation Phoenix Home Life Mutual Class 2 98.5
Fund Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Bond Fund Travelers Life & Annuity Class 1 53.53
Company/Travelers Life
Insurance Company
1 Tower Square
Hartford, CT 06183
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Bond Fund Phoenix Home Life Mutual Class 1 45.35
Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Bond Fund Glenbrook Life and Class 2 1007
Annuity Company
3100 Sanders Road
Northbrook, IL 60062
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing IDS Life Insurance Class 1 85.38
Markets Fund Company
IDS Tower 10
Minneapolis, MN 55440
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing IDS Life Insurance Class 1 5.6
Markets Fund Company of New York
20 Madison Avenue
Extension
Albany, NY 12203
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing Phoenix Home Life Mutual Class 2 30.35
Markets Fund Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing CUNA Mutual Life Class 2 33.29
Markets Fund Insurance Company
2000 Heritage Way
Waverly, IA 50677
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing Minnesota Mutual Life Class 2 23.4
Markets Fund Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing Travelers Life & Annuity Class 2 10.8
Markets Fund Company/Travelers Life
Insurance Company
1 Tower Square
Hartford, CT 06183
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International The Variable Annuity Class 1 78.26
Fund Life Insurance Company
2929 Allen Parkway
Houston, TX 77019
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International Phoenix Home Life Mutual Class 1 8.1
Fund Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International Jefferson Pilot Class 1 6.2
Fund Financial Insurance
Company
One Granite Place
P.O. Box 515
Concord, NH 03302-0515
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International Phoenix Home Life Mutual Class 2 34.45
Fund Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International Travelers Life & Annuity Class 2 38.93
Fund Company/Travelers Life
Insurance Company
1 Tower Square
Hartford, CT 06183
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International The Union Central Life Class 2 20.2
Fund Insurance Company
P.O. Box 40888
1876 Waycross Road
Cincinnati, OH 45240
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Stock Fund Travelers Life & Annuity Class 1 64.33
Company/Travelers Life
Insurance Company
1 Tower Square
Hartford, CT 06183
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Stock Fund Phoenix Home Life Mutual Class 1 32.95
Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Stock Fund Phoenix Home Life Mutual Class 2 84.95
Insurance Company
One American Row
Hartford, CT 06115
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Stock Fund The Union Central Life Class 2 9.9
Insurance Company
P.O. Box 40888
1876 Waycross Road
Cincinnati, OH 45240
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Strategic Income Templeton Funds Annuity Class 1 1001
Investments Fund Company
100 Fountain Parkway
St. Petersburg, FL
33716-1205
- ------------------------------------------------------------------------------------------
</TABLE>
1Templeton Funds Annuity Company is a Florida corporation and is a wholly owned
subsidiary of Franklin Resources, Inc.
2Pruco Life Insurance Company is an Arizona corporation and is owned by The
Prudential Insurance Company of America.
3Travelers Life & Annuity Company and Travelers Life Insurance Company are
Connecticut corporations and are owned by The Travelers Insurance Company, which
is an indirect wholly owed subsidiary of Citigroup Inc.
4COVA Financial Services Life Insurance Company is a Missouri corporation and is
a wholly owned subsidiary of General American Life Insurance Company.
5Phoenix Home Life Mutual Insurance Company is a New York corporation.
6The Variable Annuity Life Insurance Company is a Texas corporation and is an
indirect wholly owned subsidiary of American General Corporation.
7Glenbrook Life and Annuity Company is an Illinois corporation and is a wholly
owned subsidiary of Allstate Insurance Company.
8IDS Life Insurance Company is a Minnesota corporation and is a wholly owned
subsidiary of American Express Financial Corporation.
9CUNA Mutual Life Insurance Company is an Iowa corporation.
10The Union Central Life Insurance Company is an Ohio corporation.
<PAGE>
As of November 30, 1999, the trustees and officers of TVP Trust, as a
group, owned less than 1% of the outstanding shares of each TVP Fund.
As of November 30, 1999, the name, address and percentage of ownership of
the shareholders that owned of record 5% or more of the outstanding shares of
the VIP Funds are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERCENTAGE PRO FORM
CLASS OF CLASS PERCENTAGE
OF OWNED ON OF CLASS OF
VIP TRUST NAME AND ADDRESS SHARES RECORD DATE VIP FUND
OWNED OWNED ON
CONSUMMATION
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Large Cap Growth
Securities Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Small Cap Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Mutual Shares Securities Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Global Asset
Allocation Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Global Income
Securities Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Developing Markets
Equity Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton International
Equity Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Templeton Global Growth Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Franklin Strategic Income
Securities Fund
- ------------------------------------------------------------------------------------------
</TABLE>
Your insurance company will vote on the proposed reorganization as you
instruct. Thus, your insurance company does not exercise control over the funds
solely as the record owner of the funds' shares.
As of November 30, 1999, the trustees and officers of the VIP Trust, as a
group, owned less than 1% of the outstanding shares of each of the VIP Funds.
ANNUAL MEETINGS AND SPECIAL MEETING
Neither the TVP Trust's nor the VIP Trust's Agreement and Declaration of
Trust provide for annual meetings of shareholders. Neither Trust currently
intends to hold such a meeting in the year 2000. If the reorganization is
completed, the TVP Trust will no longer have shareholders (or shareholder
meetings). Proposals included in the proxy statement for any subsequent meeting
must be received within a reasonable time before any such meeting at the VIP
Trust's offices, 777 Mariners Island Boulevard, San Mateo, California 94404. If
a shareholder submits a proposal after that time, the proposal will not appear
in the proxy statement.
THE FUNDS' SERVICE PROVIDERS
WHO PROVIDES ADMINISTRATION SERVICES TO THE VIP FUNDS?
Franklin Templeton Services, Inc. ("FT Services") provides certain
administration services and facilities to each fund. FT Services has direct
agreements with Templeton Global Asset Allocation Fund and Mutual Shares
Investments Fund. FT Services has subcontracts with the managers of all other
funds. FT Services is wholly owned by Franklin Resources, Inc. and is an
affiliate of the funds' managers and principal underwriter.
FT Services' administration services include preparing and maintaining
books, records, and tax and financial reports, and monitoring compliance with
regulatory requirements.
ADMINISTRATION FEES. The funds, in the case of the VIP Templeton Global
Asset Allocation Fund and Mutual Shares Securities Fund, and the investment
advisers for all other funds, pay FT Services a monthly fee for each fund equal
to an annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the fiscal year ended December 31, 1998, FT Services received either from
the funds or from the investment advisers the following amounts:
VIP FUNDS AMOUNTS
Franklin Large Cap Growth Securities $227,544
Fund
Franklin Small Cap Fund $455,754
Mutual Shares Securities Fund $669,378
Templeton Global Asset Allocation Fund $135,172
Templeton Global Income Securities $250,588
Fund
Templeton Developing Markets Equity $307,396
Fund
Templeton International Equity Fund $1,379,045
Templeton Global Growth Fund $1,048,256
Franklin S&P 500 Index Fund (New) None
Franklin Strategic Income Securities None
Fund (New)
WHO DISTRIBUTES SHARES OF THE VIP TRUST?
Franklin Templeton Distributors, Inc. ("FT Distributors") acts as the
principal underwriter in the continuous public offering of the VIP Trust shares.
FT Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404. FT
Distributors pays the expenses of the distribution of fund shares, except to the
extent these expenses are borne by your insurance company. These expenses
include advertising expenses and the costs of printing sales material and
prospectuses. The VIP Trust pays the expenses of preparing and printing
amendments to its registration statements and prospectuses (other than those
necessitated by the activities of FT Distributors) and of sending prospectuses
to existing shareholders. FT Distributors may be entitled to receive payment
under the class 2 rule 12b-1 plans, as discussed below. Except for the fees
under the rule 12b-1 plans, FT Distributors receives no other compensation from
the VIP Trust for acting as underwriter. For the fiscal year ended December 31,
1998, the funds did not pay any fees pursuant to the plans.
WHO IS THE TRANSFER AGENT OF THE VIP TRUST?
Franklin Templeton Investor Services, Inc. ("FT Investor Services") is the
VIP Trust's shareholder servicing agent and acts as the fund's transfer agent
and dividend-paying agent. FT Investor Services is located at 777 Mariners
Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777.
WHO IS THE CUSTODIAN OF THE VIP TRUST?
Custodian Bank of New York, Mutual Funds Division, 90 Washington Street,
New York, NY 10286, acts as custodian of the VIP Funds' securities and other
assets. In addition, The Chase Manhattan Bank, at its principal office at
MetroTech Center, Brooklyn, NY 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the assets of Franklin
Global Income Securities Fund, Templeton Developing Markets Equity Fund,
Templeton Global Growth Fund and Templeton Global Asset Allocation Fund. As
foreign custody manager, the bank selects and monitors foreign sub-custodian
banks, selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
WHO IS THE AUDITOR?
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco CA 94105, is
VIP Trust's independent auditor. The auditor gives an opinion on the financial
statements included in VIP Trust's annual report to shareholders and reviews the
trust's registration statement filed with the SEC.
<PAGE>
FINANCIAL STATEMENTS
The financial highlights and financial statements for TVP Funds for the
fiscal year or period ended December 31, 1998, are contained in TVP Trust's
annual report to shareholders and in the prospectuses and statement of
additional information for the TVP Funds dated July 1, 1999, each of which is
incorporated by reference into this document. The financial highlights and the
financial statements for the VIP Funds for the fiscal year ended December 31,
1998 are contained in VIP Trust's annual reports to shareholders and VIP Trust's
prospectuses and statement of additional information dated October 25, 1999,
each of which is incorporated by reference in this document.
The audited financial highlights and financial statements of the VIP Funds
for the fiscal year ended December 31, 1999, contained in VIP Trust's annual
reports and incorporated by reference in this document, have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as indicated in its
reports with respect thereto and are incorporated herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The audited financial highlights and financial statements of the TVP Funds
for the fiscal year ended December 31, 1999, contained in TVP Trust's annual
reports and incorporated by reference in this document, have been audited by
McGladrey & Pullen, independent public accountants, as indicated in its reports
with respect thereto and are incorporated herein in reliance upon the authority
of said firm as experts in accounting and auditing.
Unaudited pro forma combined financial statements of the TVP Funds and VIP
Funds for the as of June 30, 1999 are included in the statement of additional
information to this document.
* * *
THE TVP TRUST WILL FURNISH TO YOU, WITHOUT CHARGE, COPIES OF ITS DECEMBER 31,
1998 ANNUAL REPORT AND ITS JUNE 30, 1999 SEMI-ANNUAL REPORT TO ANY PARTICIPATING
INSURANCE COMPANY IN SUFFICIENT NUMBER TO PROVIDE COPIES UPON REQUEST ADDRESSED
TO: TVP FUNDS, OR BY TELEPHONE AT 1-800-774-5001.
YOU ARE URGED TO FILL-IN, SIGN AND DATE THE ENCLOSED VOTING INSTRUCTION
FORMS AND RETURN THEM PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY
IF MAILED IN THE UNITED STATES.
By Order of the Board of Trustees
Barbara J. Green
Secretary
December [13], 1999
1 Fund administration services will be directly provided to the fund by
the same affiliate of the adviser currently indirectly providing such services.
1 The investment adviser has agreed in advance to assume certain fund expenses,
and the investment adviser and fund administrator have agreed in advance to
waive or limit their fees as necessary so that total annual fund operating
expenses do not exceed 1.00% for class 1. The investment adviser and fund
administrator are contractually obligated to continue this arrangement through
year 2000.
2 The investment adviser has agreed in advance to assume certain fund expenses,
and the investment adviser and fund administrator have agreed in advance to
waive or limit their fees as necessary so that total annual fund operating
expenses do not exceed 1.00% for class 1. The investment adviser and fund
administrator are contractually obligated to continue this arrangement through
year 2000.
3 Other expenses are based on 12/31/99 annualized estimates.
4 Apart from the reorganization, the shareholders of the VIP Franklin Small Cap
Fund are voting to approve a new investment advisory agreement. If this advisory
agreement is not approved, the management and fund administration fees, other
expenses, and total annual fund operating expenses, for the combined fund class
1 would be 0.75%, 0.02% and 0.77%, respectively.
5 The TVP Franklin S&P 500 Index Fund will begin operation on November 1, 1999.
For purposes of this table, the fees are estimated and based on net assets of
$30 million. The investment adviser has agreed in advance to assume certain fund
expenses, and the investment adviser and fund administrator have agreed in
advance to waive or limit their fees as necessary so that total annual fund
operating expenses do not exceed 0.55% for class 1. The investment adviser and
fund administrator are contractually obligated to continue this arrangement
through year 2000.
6 The TVP Franklin Strategic Income Securities Fund began operations on July 1,
1999. For purposes of this table, the fees are estimated and based on net assets
of $7.5 million. The investment adviser has agreed in advance to assume certain
fund expenses, and the investment adviser and fund administrator have agreed in
advance to waive or limit their fees as necessary so that total annual fund
operating expenses do not exceed 0.75% for class 1. The investment adviser and
fund administrator are contractually obligated to continue this arrangement
through year 200
1 Because no class 2 shares were issued as of December 31, 1998, figures (other
than rule 12b-1 fees) are based on the funds' class 1 actual expenses for the
fiscal year ended December 31, 1998, plus class 2's annual rule 12b-1 fee of
0.25%. (While the maximum amount payable under each fund's class 2 rule 12b-1
plan is 0.35% per year of the fund's average daily net assets, the Board of
Trustees of Franklin Templeton Variable Insurance Products Trust has set the
current rate at 0.25% of average daily net assets per year.)
2The TVP Franklin Large Cap Growth Investments Fund class 2 has not commenced
operations.
3 The investment adviser has agreed in advance to assume certain fund expenses,
and the investment adviser and fund administrator have agreed in advance to
waive or limit their fees as necessary so that total annual fund operating
expenses do not exceed 1.25% for class 2. The investment adviser and fund
administrator are contractually obligated to continue this arrangement through
year 2000.
4 Apart from the reorganization, the shareholders of the VIP Franklin Small Cap
Fund are voting to approve a new investment advisory agreement. If this advisory
agreement is not approved, the management and fund administration fees, other
expenses, and the total annual fund operating expenses for the combined fund
class 2 would be 0.75%, 0.02%, and 1.02%, respectively.
5 Other expenses are based on 12/31/99 annualized estimates.
6 The TVP Franklin S&P 500 Index Fund will begin operations on November 1, 1999.
For purposes of this table, the fees are estimated and based on net asset of $30
million. The investment adviser has agreed in advance to assume certain fund
expenses, and the investment adviser and fund 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 2. The investment adviser and fund
administrator are contractually obligated to continue this arrangement through
year 2000.
7 The TVP /Franklin Strategic Income Investments Fund class 2 has not commenced
operations.
INDEX OF EXHIBITS
Exhibit I Form of Agreement and Plan of Reorganization by and
between Templeton Variable Products Series Fund and
Franklin Templeton Variable Insurance Products Trust
Exhibit II Prospectuses of the VIP Funds (attached separately)
Exhibit III Form of Investment Advisory Agreement with respect
to VIP Templeton Global Asset Allocation Fund
Exhibit IV Form of Investment Advisory Agreement with respect to VIP
Templeton Developing Markets Equity Fund
Exhibit V Form of Investment Advisory Agreement with respect to VIP
Templeton International Equity Fund
Exhibit VI Information about the Investment Advisers and Certain
Portfolio Managers
Exhibit VII TVP Funds and VIP Funds Comparative Fee Table
Examples
Exhibit VIII TVP Funds and VIP Funds Comparative Fund Comparative
Performance
EXHIBIT I
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ____ day of______________, by and between Templeton Variable Products
Series Fund (the "TVP Trust"), a Massachusetts Business Trust with its
principal place of business at Broward Financial Centre, Suite 2100, Ft.
Lauderdale, Florida 33394, for itself and on behalf of Franklin Large Cap
Growth Investments Fund, Franklin Small Cap Investments Fund, Mutual Shares
Investments Fund, Templeton Asset Allocation Fund, Templeton Bond Fund,
Templeton Developing Markets Fund, Templeton International Fund, Templeton
Stock Fund, Franklin S&P 500 Index Fund, and Franklin Strategic Income
Investments Fund (each an "Acquired Fund" and collectively the "Acquired
Funds") and Franklin Templeton Variable Insurance Products Trust (the "VIP
Trust"), a Massachusetts Business Trust with its principal place of business
at 777 Mariners Island Boulevard, San Mateo, California 94404, for itself and
on behalf of the Franklin Large Cap Growth Securities Fund, Franklin Small
Cap Fund, Mutual Shares Securities Fund, Templeton Global Asset Allocation
Fund, Templeton Global Income Securities Fund, Templeton Developing Markets
Equity Fund, Templeton International Equity Fund, Templeton Global Growth
Fund, Franklin S&P 500 Index Fund, and Franklin Strategic Income Securities
Fund (each an "Acquiring Fund" and collectively the "Acquiring Funds").
In accordance with the terms and conditions set forth in this Agreement,
the parties desire that all of the assets of each Acquired Fund be
transferred to its corresponding Acquiring Fund corresponding thereto (as set
forth in Exhibit A hereto) in exchange for shares of the specified classes of
the corresponding Acquiring Fund (the "Acquiring Fund Shares") and the
assumption by each Acquiring Fund of the liabilities (as defined in paragraph
1.6) of each corresponding Acquired Fund, and that Acquiring Fund Shares be
distributed immediately after the Closing (as defined in paragraph 3.1) by
each Acquired Fund to its shareholders of the respective share classes of the
Acquired Fund in liquidation of the Acquired Fund. The parties intend that
each Reorganization as defined herein qualify as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that each of the Acquiring Funds qualify as a
"party to a reorganization" within the meaning of Section 368 (b) of the Code,
with respect to such Reorganization.
WHEREAS, the TVP Trust and the VIP Trust have agreed to a reorganization
(the "Reorganization") pursuant to which the duplication of funds will be
eliminated as the funds of the TVP Trust (the "TVP Funds") will become a part
of the corresponding funds of the VIP Trust (the "VIP Funds");
WHEREAS, the Board of Trustees of the TVP Trust and the VIP Trust
(including a majority of the non-interested Trustees for each Trust) have
determined that the Reorganization is in the best interest of their
respective funds and their respective shareholders and that the interest of
the existing shareholders of the VIP Funds would not be diluted as a result
of the Reorganization;
WHEREAS, the purpose of the Reorganization is to combine the assets of
the TVP Funds with those of the VIP Funds in an attempt to achieve greater
operating economies;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree
as follows:
1. TRANSFER OF ASSETS OF EACH ACQUIRED FUND TO ITS CORRESPONDING
ACQUIRING FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES, THE
ASSUMPTION OF CERTAIN IDENTIFIED ACQUIRED FUND LIABILITIES AND THE
LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, each Acquired
Fund agrees to transfer all of the Acquired Fund's assets (as set forth in
paragraph 1.2) to its corresponding Acquiring Fund and each Acquiring Fund
agrees in exchange therefor:
(i) to deliver to the Acquired Fund the full and fractional number of
each class of Acquiring Fund Shares, determined to three decimal places by
dividing the value of each of the Acquired Fund's net assets that are so
conveyed and are attributable to each class of the Acquired Fund, computed in
the manner and as of the time and date set forth in paragraph 2.1 by the net
asset value of one Acquiring Fund Share of the particular class that is to be
delivered with respect thereto computed in the manner and as of the time and
date set forth in paragraph 2.2; and
(ii) to assume the liabilities of the Acquired Fund, as set forth in
paragraph 1.6. Such transactions shall take place at the Closing provided
for in paragraph 3.1 (the "Closing").
1.2. The assets of each Acquired Fund to be acquired by the
corresponding Acquiring Fund shall consist of all property, including without
limitation, all cash, securities, commodities and futures interests and
dividends or interest receivable which are owned by the Acquired Fund and any
deferred or prepaid expenses shown as an asset on the books of the Acquired
Fund on the date provided in paragraph 3.1 (the "Closing Date").
1.3. Delivery of the assets of each Acquired Fund to be transferred
shall be made on the Closing Date and to the Custodians (as defined in
paragraph 3.2) for the account of the corresponding Acquiring Fund, together
with proper instructions and all documents necessary to transfer such assets
to the account of the corresponding Acquiring Fund, free and clear of all
liens, encumbrances, rights, restrictions and claims, except as may be
indicated in a schedule delivered by an Acquired Fund to the Acquiring Fund
immediately prior to the Closing. All cash delivered shall be in the form of
currency or immediately available funds payable to the order of the
appropriate Custodian.
1.4. Following the transfer of assets by each Acquired Fund to its
corresponding Acquiring Fund, the assumption of the Acquired Fund's
liabilities set forth in paragraph 1.6 by the Acquiring Fund, and the
distribution by the Acquired Fund of the Acquiring Fund Shares to the
shareholders of the respective classes of the Acquired Fund, the TVP Trust
shall terminate the registration of such Acquired Fund and its shares at all
appropriate federal and state agencies. Any reporting responsibility of an
Acquired Fund is and shall remain the exclusive responsibility of the
Acquired Fund up to and including the date on which the particular Acquired
Fund is terminated, dissolved and deregistered with federal and state
securities or "blue sky" authorities.
1.5. Immediately after the transfer of its assets, each Acquired Fund
will distribute pro rata to the Acquired Fund's shareholders of record,
determined as of immediately after the close of business on the Closing Date
(the "Acquired Fund Shareholders"), the Acquiring Fund Shares of the
respective classes received by the Acquired Fund pursuant to paragraph 1.1
and will completely liquidate. Such distribution and liquidation will be
accomplished by the transfer of the Acquiring Fund Shares then credited to
the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the
Acquired Fund Shareholders. Acquired Fund Shareholders will be credited with
full and fractional shares of the class that is issued by its corresponding
Acquiring Fund under this Agreement with respect to the shares of the
Acquired Fund that are held by the Acquired Fund Investor. The aggregate net
asset value of Acquiring Fund Shares to be so credited to the Acquired Fund
Shareholders shall be equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholders as of immediately after the close of
business of the New York Stock Exchange on the Valuation Date and the
outstanding shares of the Acquired Fund will simultaneously be canceled on
the books of the Acquired Fund. From and after the Closing, all of the share
certificates representing interests in the Acquired Fund will represent a
number of Acquiring Fund Shares after the Closing Date as determined in
accordance with paragraph 2.3. An Acquiring Fund will not issue certificates
representing the Acquiring Fund Shares in connection with such exchange
except upon request by an Acquired Fund Shareholder.
1.6. Each Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. Each Acquiring Fund
shall assume all liabilities, expenses, costs, charges and reserves of its
corresponding Acquired Fund (which shall include expenses incurred in the
ordinary course of the Acquired Fund's operations, such as accounts payable
relating to custodian and transfer agency fees, legal and audit fees, and
expenses of state securities registration of the Acquired Fund's Shares)
reflected on an unaudited statement of assets and liabilities of the Acquired
Fund prepared by Franklin Templeton Services, Inc., the business manager of
the Acquired Fund, as of the Valuation Date (as defined in paragraph 2.1) in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. Each Acquiring Fund shall assume only those
liabilities of its corresponding Acquired Fund reflected on that unaudited
statement of assets and liabilities and shall not assume any other
liabilities.
1.7. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund and they will be issued in the manner described in the
Acquiring Fund's then-current prospectus and statement of additional
information.
1.8. Any reporting responsibility of each Acquired Fund including, but
not limited to, the responsibility for any periods ending on or before the
Closing Date for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "SEC"), any state
securities or any other relevant regulatory authority, is and shall remain
the responsibility of that Acquired Fund.
1.9. At least ____ business days prior to the Closing Date, each
Acquired Fund will provide its corresponding Acquiring Fund with a schedule
of its assets and liabilities as of _________, and each Acquiring Fund will
provide its corresponding Acquired Fund with a copy of its current investment
objective and policies. Each Acquired Fund reserves the right to sell any of
the securities or other assets shown on the schedule prior to the Closing
Date but will not, without the prior approval of the corresponding Acquiring
Fund, acquire any additional securities other than securities which the
Acquiring Fund is permitted to purchase in accordance with its stated
investment objective and policies. As used herein, with respect to the VIP
Trust Templeton Global Asset Allocation Fund, Templeton Developing Markets
Equity Fund, and Templeton International Equity Fund references to an
Acquiring Fund's stated investment objectives and policies shall be the
stated investment objectives and policies of their respective corresponding
Acquired Fund that will be adhered to following the Closing Date. Within
____ business days after the receipt of the schedule of assets and
liabilities from its corresponding Acquired Fund, each Acquiring Fund will
advise its corresponding Acquired Fund of any investments shown on the
schedule provided by its corresponding Acquired Fund which the Acquiring Fund
would not be permitted to hold, pursuant to its stated investment objective
and policies or otherwise. In the event that any Acquired Fund holds any
investments that its corresponding Acquiring Fund would not be permitted to
hold under its stated investment objective or policies, the Acquired Fund, if
requested by the Acquiring Fund and, to the extent permissible and consistent
with the Acquired Fund's own investment objective and policies, will dispose
of such securities prior to the Closing Date. In addition, if it is
determined that the holdings of any Acquired Fund and its corresponding
Acquiring Fund, when aggregated, would contain investments exceeding certain
percentage limitations to which the corresponding Acquiring Fund is or will
be subject with respect to such investments, the Acquired Fund, if requested
by the corresponding Acquiring Fund and, to the extent permissible and
consistent with the Acquired Fund's own investment objective and policies,
will dispose of and/or reinvest a sufficient amount of such investments as
may be necessary.
2. VALUATION
2.1 The value of each Acquired Fund's assets to be acquired by its
corresponding Acquiring Fund hereunder shall be the value of such assets
computed as of the normal close of business of the New York Stock Exchange on
the Closing Date (the "Valuation Date"), using the valuation procedures set
forth in the TVP Trust's Declaration of Trust and then-current prospectus or
statement of additional information.
2.2 The net asset value of each of Acquiring Fund Share of the
particular class to be delivered with respect to the class of shares held by
an Acquired Fund Shareholder shall be the net asset value per share computed
as of immediately after the close of business of the New York Stock Exchange
on the Valuation Date, using the valuation procedures set forth in the VIP
Trust's Declaration of Trust and then-current prospectus or statement of
additional information.
2.3. The number of each Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for its corresponding Acquired Fund's
assets shall be determined by dividing the value of the net assets of its
corresponding Acquired Fund that are so conveyed and are attributable to each
class of the Acquired Fund determined using the same valuation procedures
referred to in paragraph 2.1 by the net asset value of an Acquiring Fund
Share of the particular class that is to be delivered with respect thereto
determined in accordance with paragraph 2.2.
2.4. All computations of value with respect to the Acquiring Fund shall
be made by Franklin Templeton Services, Inc..
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be April 30, 2000 or such later date as the
parties may agree in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date, unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of ______________. The
Closing shall be held at ______________________________ or at such other
place and time as the parties shall mutually agree.
3.2. The Bank of New York, Mutual Funds Division as custodian for the
VIP Funds and The Chase Manhattan Bank, N.A., as custodian for Templeton
Global Asset Allocation Fund, Templeton Developing Markets Equity Fund,
Templeton International Equity Fund, and Templeton Global Growth Fund, and as
custodian (collectively the "Custodians"), shall be instructed to deliver at
the Closing a certificate of an authorized officer stating that: (a) each
Acquired Fund's portfolio securities, cash, and any other assets shall have
been delivered in proper form to the corresponding Acquiring Fund; and (b)
all necessary taxes including without limitation all applicable federal and
state stock transfer stamps, if any, shall have been paid, or provision for
payment shall have been made, in conjunction with the delivery of portfolio
securities.
3.3. Franklin/Templeton Investor Services, Inc. (the "Transfer Agent"),
on behalf of the Acquired Funds, shall deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding shares by class owned by each such shareholder
immediately prior to the Closing. Each Acquiring Fund shall deliver a
certificate evidencing that the Acquiring Fund Shares to be credited on the
Closing Date to its corresponding Acquired Fund or provide evidence
satisfactory to the each Acquired Fund that such Acquiring Fund Shares have
been credited to each Acquired Fund's account on the books of each Acquiring
Fund. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.
3.4. If on the Valuation Date (a) the primary trading market for
portfolio securities of an Acquiring Fund or the applicable Acquired Fund
shall be closed to trading or trading thereon shall be restricted; or (b)
trading or the reporting of trading shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Funds or the
Acquired Funds is impracticable, the Closing Date shall be postponed with
respect to the affected Acquired Funds until the first business day after the
day when trading shall have been fully resumed and reporting shall have been
restored, or such other time as the parties may mutually agree.
3.5. With respect to each Acquired Fund, the TVP Trust shall provide the
VIP Trust and its Transfer Agent with immediate access from and after the
Closing Date to (a) the computer, electronic or such other forms of records
containing the names, addresses and taxpayer identification numbers of each
Acquired Fund's shareholders and the number and percentage ownership of each
outstanding Acquired Fund shares owned by such person, all as of the
Valuation Date, and (b) all original documentation (including all applicable
Internal Revenue Service forms, certificates, certifications and
correspondence) relating to each investor's taxpayer identification number
and their liability for or exemption from back-up withholding. Each
corresponding Acquiring Fund shall issue and deliver to the Secretary or
Assistant Secretary of the TVP Funds, acting on behalf of the Acquired Funds,
a confirmation evidencing the Acquiring Fund Shares credited on the Closing
Date or shall provide evidence satisfactory to each Acquired Fund that such
Acquiring Fund Shares have been credited to each Acquired Fund's account on
the books of each Acquiring Fund. At the Closing, each party shall deliver to
the other such bills of sale, checks, assignments, assumptions of liability
share certificates, if any, receipts or other documents of transfer,
assignment or conveyance as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES
4.1. The TVP Trust, on behalf of each Acquired Fund, represents and
warrants to the VIP Trust that for each taxable year of operation since
inception (including the taxable year ending on the Closing Date) each
Acquired Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected to be treated
as such and has met the diversification requirements under Section 817(h) of
the Code and the rules thereunder.
4.2. The VIP Trust, on behalf of each Acquiring Fund, represents and
warrants to the TVP Trust that for each taxable year of its operation, each
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected to be treated
as such and has met the diversification requirements under Section 817(h) of
the Code and the rules thereunder.
5. CONVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Funds and the Acquired Funds will operate their
business in the ordinary course between the date hereof and the Closing Date,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any
other distributions that may be advisable.
5.2. The Acquired Funds covenant that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
5.3. Subject to the provisions of this Agreement, the TVP Trust and the
VIP Trust will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.4. As promptly as practicable, but in any case within ______ days
after the Closing Date, the TVP Trust, on behalf of each Acquired Fund, shall
furnish its corresponding Acquiring Fund, in such form as is reasonably
satisfactory to VIP Trust, a statement of the earnings and profits of each
Acquired Fund for federal income tax purposes which will be carried over to
the applicable Acquiring Fund as a result of Section 381 of the Code and
which will be certified by an authorizer officer of the TVP Trust.
5.5. On the Closing Date, the TVP Trust, on behalf of each Acquired
Fund, shall furnish to its corresponding Acquiring Fund, a final statement of
the total amount of fund assets and stated liabilities of each Acquired Fund
as of the Closing Date, which statement shall be certified by an officer of
the TVP Trust as being determined in accordance with generally accepted
accounting principles consistently applied.
5.6. As promptly as practicable after the date hereof, the TVP Trust
will call a meeting of each Acquired Fund's shareholders to consider and act
upon this Agreement and to take all other action necessary and appropriate to
obtain approval of the transactions contemplated herein. The VIP Trust shall
prepare and file with the SEC a Registration Statement on Form N-14 complying
in all material respects with the requirements of the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended,
the Investment Company Act of 1940, as amended, and applicable rules and
regulations thereunder (the "Registration Statement"), relating to such
meeting of the shareholders of each Acquired Fund. The VIP Trust shall take
all necessary and reasonable actions to have such Registration Statement
declared effective by the SEC. The TVP Trust agrees to provide all
information relating to each Acquired Fund which the VIP Trust deems
necessary, proper or advisable in the preparation of the Registration
Statement or consummation of the transactions contemplated herein.
5.7. Prior to the Closing, each Acquired Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its shareholders all of its investment
company taxable income for its taxable year ended ______________ and the
short taxable year beginning ______________ and ending on the Closing Date
(computed without regard to any deduction for dividends paid), and all of its
net capital gain realized in its taxable year beginning on ______________and
ending on the Closing Date (after reduction for any capital loss carryover.)
5.8. As soon after the Closing Date as is reasonably practicable, the
TVP Trust, on behalf of each Acquired Fund shall (i) prepare and file all
federal and other tax returns and reports of each Acquired Fund required by
law to be filed with respect to all period ending on or before the Closing
Date but not previously filed, and (ii) pay all federal and other taxes shown
as due and/or all federal and other taxes that were unpaid as of the Closing
Date.
6. CONDITIONS PRECEDENT
Each party's obligations hereunder shall be subject to (1) performance
by the other party of all the obligations to be performed hereunder at or
before the Closing Date, (2) all representations and warranties of the other
party contained herein being true and correct in all material respects as of
the date hereof, and, except as they may be affected by the transactions
contemplated hereby, as of the Closing Date, with the same force and effect
as if made at and as of the Closing Date, and (3) the following further
conditions that, at or before the Closing Date:
6.1. The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of each Acquired Fund in accordance with the provisions of the TVP Trust's
Declaration of Trust and Bylaws and certified copies of the resolutions
evidencing such approval shall have been delivered to the corresponding
Acquiring Fund;
6.2. On the Closing Date, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein;
6.3. All consents of other parties and all other consents, orders and
permits of Federal, state, and local regulatory authorities deemed necessary
by the Acquiring Funds or the Acquired Funds to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Funds or the Acquired Funds, provided that either
party hereto may for itself waive any of such conditions;
6.4. The VIP Trust's registration statement shall have become effective
under the 1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act; and
6.5 The TVP Trust shall have received on the Closing Date the opinion
of [NAME] in a form reasonably satisfactory to the TVP Trust, and dated as
of the Closing Date, to the effect that: (a) the VIP Trust has been duly
formed and is validly existing and in good standing under the laws of the
Commonwealth of Massachusetts; and (b) the Agreement has been duly
authorized, executed and delivered by the VIP Trust on behalf of each
Acquiring Fund and constitutes a valid and legally binding obligation of each
Acquiring Fund; and (c) the Agreement is enforceable against the VIP Trust in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
6.6. The VIP Trust shall have received on the Closing Date the opinion
of [NAME] in a form reasonably satisfactory to the VIP Trust, dated as of
the Closing Date, to the effect that: (a) the TVP Trust has been duly formed
and is in good standing under the laws of the Commonwealth of Massachusetts;
(b) the Agreement has been duly authorized, executed and delivered by the TVP
Trust, on behalf of each Acquired Fund, and constitutes a valid and legally
binding obligation of each Acquired Fund; and (c) the Agreement is
enforceable against each Acquired Fund in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
6.7. The parties shall have received the opinion of Jorden, Burt, Boros,
Cicchetti, Berenson & Johnson LLP addressed to the TVP Trust and the VIP as
to the federal income tax consequences of the Reorganization (the "Tax
Opinion"). In rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations made in this Agreement and each Fund's separate covenants.
The Tax Opinion shall be substantially to the effect that, based on the facts
and assumptions stated therein and conditioned on consummation of the
Reorganization in accordance with this Agreement, for federal income tax
purposes:
6.7.1The transfer of all or substantially all of the Acquired
Funds' assets in exchange for shares of the applicable Acquiring Funds
and the distribution of such shares to the shareholders of the Acquired
Funds in liquidation of the Acquired Funds will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code;
6.7.2. No gain or loss will be recognized by an Acquiring Fund
upon the receipt of the assets of the applicable Acquired Fund solely in
exchange or the Acquiring Fund Shares
6.7.3. No gain or loss will be recognized by an Acquired Fund
upon the transfer of the applicable Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund
Shares to Acquired Fund shareholders in exchange for their shares of the
Acquired Fund
6.7.4. No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund shares for the
applicable Acquiring Fund Shares;
6.7.5. The tax basis of each Acquired Fund's assets acquired by
the applicable Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization
6.7.6. The tax basis of the Acquiring Fund Shares received by
each of the Acquired Fund shareholders pursuant to the Reorganization
will be the same as the tax basis of the Acquired Fund shares held by
such shareholder immediately prior to the Reorganization
6.7.7. The holding period of the assets of each Acquired Fund in
the hands of the applicable Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and
6.7.8. The holding period of the Acquiring Fund Shares to be
received by each Acquired Fund's shareholders will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
7. BROKERAGE FEES AND EXPENSES
7.1. Each Acquiring Fund and each Acquired Fund represents and warrants
to the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
7.2. Each party to this Agreement shall bear or cause to be borne by an
appropriate affiliate its own expenses in connection with carrying out the
terms of this Agreement.
8. TERMINATION
8.1. This Agreement may be terminated by the mutual agreement of the VIP
Trust and the TVP Trust. In addition, this Agreement may be terminated as
follows at or prior to the Closing Date:
(a) This Agreement may be terminated as to any Acquired Fund by
resolution of the Board of Trustees of that Acquired Fund if, in good faith
opinion of such Board, proceeding with the Agreement is not in the best
interests of the Acquired Fund or its shareholders; or
(b) This Agreement may be terminated as to any Acquiring Fund by
resolution of the Board of Trustees of that Acquiring Fund if, in the good
faith opinion of such Board, proceeding with the Agreement is not in the best
interests of that Acquiring Fund or its shareholders.
The termination of a Reorganization between an Acquired Fund and its
corresponding Acquiring Fund, shall not affect the consummation or validity
of a Reorganization with respect to any other corresponding funds, and the
provisions of this Agreement shall be construed to effect this intent,
including, without limitation, as the context requires, construing the terms
"Acquiring Fund" and "Acquired Fund" as meaning only those TVP Funds and VIP
Funds, respectively, which are involved in a Reorganization as of a Closing
Date.
8.2. If this Agreement is terminated and the transactions contemplated
hereby are abandoned, this Agreement shall become void and have no effect,
without any liability on the part of any party hereto.
9. AMENDMENTS
9.1. This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers
of the TVP Trust and the VIP Trust; provided, however, that following the
meeting of the Acquired Funds' Shareholders, no such amendment may have the
effect of changing the provisions for determining the number of shares of
each Acquiring Fund shares to be issued to the shareholders of the
corresponding Acquired Fund under this Agreement to the detriment of such
shareholders without their further approval.
10. ENTIRE AGREEMENT
10.1.This Agreement constitutes the entire agreement between the parties
and supersedes any prior or contemporaneous understanding or arrangement with
respect to the subject matter hereof.
11. SURVIVAL OF WARRANTIES
11.1.The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein.
12. LIABILITY AND INDEMNIFICATION
12.1.The parties acknowledge that the TVP Trust and the VIP Trust are
business trusts, as defined by Massachusetts law. Notice is hereby given
that this Agreement is executed on behalf of each Fund's trustees solely in
their capacity as trustees, and not individually, and that each Fund's
obligations under this Agreement are not binding on or enforceable against
any of its trustees, officers, or shareholders, but are only binding on and
enforceable against the respective Funds' assets and property. Each Fund
agrees that, in asserting any rights or claims under this Agreement, it shall
look only to the other Fund's assets and property in settlement of such
rights or claims and not to such trustees, officers or trustees.
12.2.The Acquiring Funds agree to indemnify and hold harmless each
trustee of the Acquired Fund at the time of the execution of this Agreement,
whether or not such person is or becomes a trustee of the Acquiring Funds
subsequent to the Reorganization, against expenses, including reasonable
attorney's fees, judgments, fines and amount paid in settlement, actually and
reasonably incurred by such trustee in connection with any claim that is
asserted against such trustee arising out of such person's service as a
trustee of the Acquired Funds, provided that such indemnification shall be
limited to the full extent of indemnification that is available to the
trustees of the Acquiring Funds pursuant to the provisions of applicable law.
12.3.For a period beginning at the time of the Reorganization and ending
not less than ______ years thereafter, the Acquiring Funds shall provide for
a liability policy covering the actions of each trustee of the Acquired Funds
at the time of the execution of this Agreement for the period they served as
such, which may be accomplished by causing such persons to be added as
insured under the liability policy of the Acquiring Funds.
12.4.No Acquired Fund shall have any liability for the obligations of
any other Acquired Fund hereunder and no Acquiring Fund shall have any
liability for the obligation of any other Acquiring Fund hereunder.
13 WAIVER
13.1.At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Trustees of the VIP Trust or those of the TVP
Trust if, in the judgment of both Boards of Trustees, such waiver will not
alter the shares to be received by shareholders of the Acquired Funds or
otherwise have a material adverse effect on the benefits intended under this
Agreement to the shareholders of the Acquiring Funds or the Acquired Funds,
as the case may be.
14. NOTICES
14.1.Any notice, report, statement or demand required or permitted by
any provision of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy, certified mail or overnight express courier
addressed to:
For TVP Funds, on behalf of itself or each Acquired Fund:
=======================
=======================
For VIP Funds, on behalf of itself or each Acquiring Fund:
=======================
=======================
15. MISCELLANEOUS
15.1.The headings contained herein are for reference purposes only and
shall note affect in any way the meaning or interpretation or this Agreement.
15.2.Whenever the terms "hereto", "hereunder", "herein" or "hereof" are
used in this Agreement, they shall be construed as referring to this entire
Agreement.
15.3.This Agreement may be executed by any number of counterparts, each
of which shall be deemed an original.
15.4.This Agreement shall be governed by and construed in accordance
with the laws of the state of Massachusetts, without giving effect to the
conflict of laws principles otherwise applicable therein.
15.5.Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
15.6.Any announcement or similar publicity with respect to this
Agreement or the transactions contemplated herein shall be made only at such
time and in such manner as the parties shall agree, provided that nothing
herein shall prevent either party upon notice to the other party from making
such public announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
15.7.Subject to the conditions set forth in this Agreement, the failure
of one Acquired Fund to consummate the transactions contemplated hereby shall
not affect the consummation or validity of the Reorganization with respect to
any other Acquired Fund, and the provisions of this Agreement shall be
construed to effect this intent, including, without limitation, as the
context requires, construing the terms "Acquiring Funds" and "Acquired Funds"
to mean only those series of VIP Funds and TVP Funds, respectively, which are
involved in the Reorganization as of the Closing Date.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Templeton Variable Products Series Fund on behalf of:
Franklin Large Cap Growth Investments Fund
Franklin Small Cap Investments Fund
Mutual Shares Investments Fund
Templeton Asset Allocation Fund
Templeton Bond Fund
Templeton Developing Markets Fund
Templeton International Fund
Templeton Stock Fund
Franklin S&P 500 Index Fund
Franklin Strategic Income Investments Fund
By: ___________________________________
Franklin Templeton Variable Insurance Products Trust on behalf of:
Franklin Large Cap Growth Securities Fund
Franklin Small Cap Fund
Mutual Shares Securities Fund
Templeton Global Asset Allocation Fund
Templeton Global Income Securities Fund
Templeton Developing Markets Equity Fund
Templeton International Equity Fund
Templeton Global Growth Fund
Franklin S&P 500 Index Fund
Franklin Strategic Income Securities Fund
By: ___________________________________
EXHIBIT IIa
PROSPECTUS
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
CLASS 1 SHARES
MAY 1, 1999
AS AMENDED NOVEMBER 1, 1999
INVESTMENT STRATEGY
Capital Growth Franklin Capital Growth Fund (EFFECTIVE
12/15/99 THE NAME WILL BE FRANKLIN LARGE CAP
GROWTH SECURITIES FUND)
Capital Growth Franklin Small Cap Fund
Growth and Income Mutual Shares Securities Fund
Growth and Income Templeton Global Asset Allocation Fund
Income Templeton Global Income Securities Fund
Capital Growth Templeton Developing Markets Equity Fund
Capital Growth Templeton International Equity Fund
Capital Growth Templeton Global Growth Fund
[Insert 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.
<PAGE>
CONTENTS
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
[insert page #] Overview of the Trust
[insert page #] Franklin Large Cap Growth Securities Fund
(PREVIOUSLY FRANKLIN CAPITAL GROWTH FUND)
[insert page #] Franklin Small Cap Fund
[insert page #] Mutual Shares Securities Fund
[insert page #] Templeton Developing Markets Equity Fund
[insert page #] Templeton Global Asset Allocation Fund
[insert page #] Templeton Global Growth Fund
[insert page #] Templeton Global Income Securities Fund
[insert page #] Templeton International Equity Fund
ADDITIONAL INFORMATION, ALL FUNDS
[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
<PAGE>
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]
Back Cover
<PAGE>
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
[Insert graphic of pyramid]OVERVIEW OF THE TRUST
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (THE TRUST), FORMERLY
FRANKLIN VALUEMARK FUNDS, CURRENTLY CONSISTS OF TWENTY-SIX SEPARATE FUNDS,
OFFERING A WIDE VARIETY OF INVESTMENT CHOICES. EACH FUND HAS TWO CLASSES OF
SHARES, CLASS 1 AND CLASS 2. THE FUNDS ARE ONLY AVAILABLE AS INVESTMENT
OPTIONS IN VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACTS. THE
ACCOMPANYING CONTRACT PROSPECTUS INDICATES WHICH FUNDS AND CLASSES ARE
AVAILABLE TO YOU.
INVESTMENT CONSIDERATIONS
o Each fund has its own investment strategy 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 each fund in relation to your personal financial
situation, investment goals, and comfort with risk. Your investment
representative can help you determine which funds are right for you.
RISKS
o There can be no assurance that any fund will achieve its investment goal.
o Because you could lose money by investing in a fund, take the time to
read each fund description 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 investments 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 EACH FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION (SAI).
MANAGEMENT
The funds' investment managers and their affiliates manage over $218 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.
<PAGE>
Franklin Capital Growth Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
Effective December 15, 1999, the fund's name will be changed to Franklin
Large Cap Growth Securities Fund and the fund's strategy will be restated to
one of investing, under normal market conditions, at least 65% of its total
assets in equity securities of U.S. large-cap growth companies ($8.5 billion
or more), focusing on those companies that are expected to have revenue
growth in excess of the economy as a whole either through above-average
industry expansion or market share gains. These companies generally dominate,
or are gaining market share, in their respective industries and have a
reputation for quality of management, as well as superior products and
services.
GOAL The fund's investment goal is capital appreciation.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies believed
to be globally competitive and to offer favorable opportunities for long-term
capital appreciation. Following this policy, the fund will typically invest
predominantly in established, large- to medium-cap companies with market
capitalization values (share price times the number of common stock shares
outstanding) greater than $1.5 billion. Equities represent ownership
interests in individual companies and give shareholders a claim in the
company's earnings and assets. They include common and preferred stocks, and
securities convertible into common stock.
[Begin callout]
The fund invests primarily in large cap growth companies' equity securities.
[End callout]
In choosing equity investments, the manager will focus on companies that have
exhibited above average growth, strong financial records, and large market
capitalization. In addition, management expertise, industry leadership,
growth in market share and sustainable competitive advantage are factors the
manager also considers. Although the manager will search for investments
across a large number of industries, it expects to have significant positions
(but not in excess of 25% of its total assets in a given sector) in the
technology (including computers, telecommunications, and electronics), health
care, and finance industries.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Growth stock prices reflect
projections of future earnings or revenues, and can, therefore, fall
dramatically if the company fails to meet those projections.
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.
TECHNOLOGY COMPANIES The technology sector has historically been volatile
due to the rapid pace of product change and development within the sector.
The stock prices of companies operating within this sector may be subject to
abrupt or erratic movements. In addition, the activities of
telecommunications companies fall under international, federal and state
regulations. These companies may be adversely affected by changes in
government regulations.
HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal and state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies may also be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. They are also subject
to legislative risk, i.e., the risk of a reform of the health care system
through legislation.
FINANCIAL SERVICES COMPANIES Financial services companies are subject to
extensive government regulation which tends to limit both the amount and
types of loans and other financial commitments such companies can make, and
the interest rates and fees they can charge. These limitations can have a
significant impact on the profitability of a financial services company since
profitability is impacted by the company's ability to make financial
commitments such as loans.
The financial services industry is currently undergoing a number of changes
such as continuing consolidations, development of new products and structures
and changes to its regulatory framework. These changes are likely to have a
significant impact on the financial services industry.
See "Important Recent Developments," in this prospectus for Year 2000
discussion, 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 SAI.
[Insert graph of a bull and a bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
FRANKLIN CAPITAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
- ---------------------
18.31% 20.29%
- ---------------------
- ---------------------
97 98
- ---------------------
YEAR
[Begin callout]
Best
Quarter:
Q4 '98
19.73%
Worst
Quarter:
Q3 '98
- -10.47%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR (05/01/96)
- -------------------------------------------------------------------------------
FRANKLIN CAPITAL GROWTH FUND -
CLASS 11 20.29% 19.72%
S&P 500(R) INDEX2 28.58% 29.00%
RUSSELL 1000 INDEX(R)2 27.02% 27.92%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Russell 1000 Index measures the 1,000 largest companies in the Russell 3000
Index. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
KENT SHEPHERD, CFA
Vice President, Advisers
Mr. Shepherd has been a manager of the fund since its inception in 1999, and
has been with the Franklin Templeton Group since 1991.
JASON R. NUNN
Portfolio Manager, Advisers
Mr. Nunn has been a manager of the fund since September 1999. Before joining
the Franklin Templeton Group in 1998 he worked in corporate finance with
Alex, Brown & Sons.
CONRAD B. HERRMANN, CFA
Senior Vice President, Advisers
Mr. Herrmann has been a manager of the fund since its inception in 1996, and
has been with the Franklin Templeton Group since 1989.
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.75% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------- --------------------------------------
RATIO OF
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
FRANKLIN CAPITAL GROWTH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996(1) 10.00 .0 1.33 1.36 - - - 11.36 13.60 44,667 .77* .96* 3.91
1997 11.36 .06 2.02 2.08 (.02) - (.02) 13.42 18.31 109,355 .77 .721 9.90
1998 13.42 .10 2.62 2.72 (.06) - (.06) 16.08 20.29 220,952 .771 .001 2.17
</TABLE>
*Annualized
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administrative charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
1. For the period May 1, 1996 (effective date) to December 31, 1996.
<PAGE>
Franklin Small Cap Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) growth companies. Small cap companies are
generally those with market cap values (share price times the number of
common stock shares outstanding) of less than $1.5 billion, at the time of
purchase. Equities represent ownership interests in individual companies and
give shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.
[Begin callout]
The fund invests primarily in common stocks of small cap U.S. companies.
[End callout]
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined "growth at a reasonable price" strategy. As a
"bottom-up" investor focusing primarily on individual securities, the manager
chooses small cap companies that it believes are positioned for rapid growth
in revenues, earnings or assets, and are selling at reasonable prices. The
manager relies on a team of analysts to provide in-depth industry expertise
and uses both qualitative and quantitative analysis to evaluate companies for
distinct and sustainable competitive advantages. Such advantages as a
particular marketing or product niche, proven technology, and industry
leadership are all factors the manager believes point to strong long-term
growth potential. The manager diversifies the fund's assets across many
industries, and from time to time may invest substantially in certain
sectors, including technology and biotechnology.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short term.
These price movements may result from factors affecting individual companies,
industries, or securities markets. Growth stock prices reflect projections of
future earnings or revenues, and can, therefore, fall dramatically if the
company fails to meet those projections.
SMALLER COMPANIES While smaller companies may offer greater opportunities
for capital growth than larger, more established companies, they also have
more risk. Historically, smaller company securities have been more volatile
in price and have fluctuated independently from larger company securities,
especially over the shorter-term. Smaller or relatively new companies can be
particularly sensitive to changing economic conditions, and their growth
prospects are less certain.
For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies may also suffer significant
losses, their securities can be less liquid, and investments in these
companies may be speculative. Technology and biotechnology industry stocks,
in particular, can be subject to erratic or abrupt price movements.
[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]
See "Important Recent Developments" in this prospectus for Year 2000
discussion, 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 SAI.
[Insert graphic of a bull and a bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
FRANKLIN SMALL CAP FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
- ---------------------------------
28.95% 17.42% -0.98%
- ---------------------------------
- ---------------------------------
96 97 98
- ---------------------------------
YEAR
[Begin callout]
Best
Quarter:
Q4 '98
24.39%
Worst
Quarter:
Q3 '98
- -24.40%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR (11/01/95)
- -----------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND -
CLASS 11 -0.98% 14.51%
S&P 500(R) INDEX2 28.58% 29.09%
RUSSELL 2500(R) INDEX2 0.38% 15.45%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks, whereas the Russell 2500(R) Index is an
index of 2,500 companies with small market capitalizations, both covering a
variety of industries. Indices include reinvested dividends and/or interest.
One cannot invest directly in an index, nor is an index representative of the
fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
EDWARD B. JAMIESON
Executive Vice President, Advisers
Mr. Jamieson has been a manager of the fund since its inception in 1995, and
has been with the Franklin Templeton Group since 1987.
MICHAEL MCCARTHY
VICE PRESIDENT, Advisers
Mr. McCarthy has been a manager of the fund since its inception in 1995. He
joined the Franklin Templeton Group in 1992.
AIDAN O'CONNELL
Portfolio Manager, Advisers
Mr. O'Connell has been a manager of the fund since September 1998. Before
joining Franklin Templeton in May 1998, Mr. O'Connell was a research analyst
and a corporate financial analyst at Hambrecht & Quist.
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.75% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------- --------------------------------------
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19951 10.00 .03 .21 .24 - - - 10.24 2.30 13,301 .90* 2.70* 16.04
1996 10.24 .02 2.95 2.97 (.01) - (.01) 13.20 28.95 170,969 .77 .63 63.72
1997 13.20 .01 2.24 2.25 (.03) (.37) (.40) 15.05 17.42 313,462 .77 .06 64.07
1998 15.05 .07 (.20) (.13) (.01) (1.19) (1.20) 13.72 (.98)315,460 .77 .51 53.01
</TABLE>
* Annualized
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
1. For the period November 1, 1995 (effective date) to December 31, 1995.
<PAGE>
Mutual Shares Securities Fund
[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
GOALS The fund's principal goal is capital appreciation. Its secondary goal
is income.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies that the
manager believes are available at market prices less than their actual value
based on certain recognized or objective criteria (intrinsic value).
Following this value-oriented strategy, the fund will primarily invest in:
o UNDERVALUED STOCKS Stocks trading at a discount to asset value.
O Reorganizing Companies SECURITIES OF COMPANIES IN THE MIDST OF CHANGE
SUCH AS MERGERS, CONSOLIDATIONS, LIQUIDATIONS, REORGANIZATIONS, FINANCIAL
RESTRUCTURINGS, OR COMPANIES WITH TAKEOVER, TENDER OR EXCHANGE OFFERS OR
LIKELY TO RECEIVE SUCH OFFERS (REORGANIZING COMPANIES). THE FUND MAY
PARTICIPATE IN SUCH TRANSACTIONS.
o DISTRESSED COMPANIES Securities of companies that are distressed or even in
bankruptcy.
[Begin callout]
The fund invests primarily in common stocks of companies the manager believes
are significantly undervalued.
[End callout]
The fund invests primarily in companies with market capitalization values
(share price times the number of common stock shares outstanding) greater
than $1.5 billion, but may invest a small portion in small-cap companies,
which have more risk. Equities represent ownership interests in individual
companies and give shareholders a claim in the company's earnings and assets.
They include common and preferred stocks, and securities convertible into
common stock.
While the fund generally purchases securities for investment purposes, the
manager may use the fund's ownership in a company to seek to influence or
control management, or invest in other companies that do so, when the manager
believes the fund may benefit.
The fund may invest in debt securities rated in any rating category
established by an independent rating agency, including high yield, lower
rated or defaulted debt securities ("junk bonds"), or if unrated, determined
by the manager to be comparable. A debt security obligates the issuer to the
bondholders, both to repay a loan of money at a future date and generally to
pay interest. Common debt securities are bonds, including bonds convertible
into common stock or unsecured bonds; notes; and short-term investments,
including cash or cash equivalents.
The fund typically invests in unrated and lower rated debt securities of
Reorganizing Companies or Distressed Companies. Such debt securities are
primarily secured or unsecured indebtedness or participations in the
indebtedness, including loan participations and trade claims. Indebtedness
represents a specific commercial loan or portion of a loan which has been
given to a company by a financial institution such as a bank or insurance
company. By purchasing direct indebtedness of companies, a fund steps into
the shoes of a financial institution. Participation interests in indebtedness
represent fractional interests in a company's indebtedness.
The fund currently intends to invest up to approximately 20% of its total
assets in foreign equity and debt securities, including American, European
and Global Depositary Receipts. Depositary receipts are certificates
typically issued by a bank or trust company that give their holders the right
to receive securities issued by a foreign or domestic company. The fund
generally seeks to hedge (protect) against currency risks, largely using
forward foreign currency exchange contracts, where available, and in the
manager's opinion, it is economical to do so (Hedging Instruments).
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value strategy. In choosing equity investments, the
manager focuses on the market price of a company's securities relative to its
evaluation of the company's asset value, including an analysis of book value,
cash flow potential, long-term earnings, and multiples of earnings of
comparable securities. Similarly, debt securities are generally selected
based on the manager's own analysis of the security's intrinsic value rather
than the coupon rate or rating. Thus, each security is examined separately
and there are no set criteria as to asset size, earnings or industry type.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goals.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
REORGANIZING OR DISTRESSED COMPANIES The fund's bargain-driven focus may
result in the fund choosing securities that are not widely followed by other
investors, including companies reporting poor earnings, companies whose share
prices have declined sharply, turnarounds, cyclical companies, or companies
emerging from bankruptcy, which may have higher risk. There can be no
assurance that any merger or other restructuring, or tender or exchange offer
proposed at the time the fund invests in a Reorganizing Company will be
completed on the terms contemplated and therefore, benefit the fund.
[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]
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
CURRENCY Where the fund's investments are denominated in foreign currencies,
changes in foreign currency exchange rates, including devaluation of currency
by a country's government, will increase or decrease the fund's returns from
its foreign portfolio holdings. Currency markets generally are not as
regulated as securities markets.
COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations by a country's government or banking
authority, the imposition of exchange controls, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks. Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies, or may become illiquid. Non-U.S. stock exchanges, trading
systems, brokers, and companies generally have less government supervision
and regulation than in the U.S.
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 the security's value and, thus, impact the value of fund
shares.
INDEBTEDNESS AND PARTICIPATIONS The purchase of debt securities of
Reorganizing or Distressed Companies always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may be
lost. There are no established markets for indebtedness, making them less
liquid than other securities, and purchasers of participations, such as the
fund, must rely on the financial institution issuing the participation to
assert any rights against the borrower with respect to the underlying
indebtedness. In addition, the fund takes on the risk as to the
creditworthiness of the bank or other financial intermediary issuer, as well
as of the issuer of the underlying indebtedness.
LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.
HEDGING INSTRUMENTS Hedging Instruments used by this fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out a position because the trading market becomes illiquid.
ILLIQUID SECURITIES The fund may invest up to 15% of its net assets in
illiquid securities, which are securities with a limited trading market.
There is a possible risk that the securities cannot be readily sold or can
only be resold at a price significantly lower than their value.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of a bull and a bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
MUTUAL SHARES SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
- -----------------------------
17.73% 0.09%
- -----------------------------
- -----------------------------
97 98
- -----------------------------
YEAR
[Begin callout]
Best
Quarter:
Q4 '98
12.94%
Worst
Quarter:
Q3 '98
- -17.65%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR (11/08/96)
- ----------------------------------------------------------------------------
MUTUAL SHARES SECURITIES
FUND - CLASS 11 0.09% 9.70%
S&P 500(R) INDEX2 28.58% 30.66%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard and Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Mutual Advisers, LLC (Franklin Mutual), 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078, is the fund's investment manager.
MANAGEMENT TEAM The team members primarily responsible for the fund's
management are:
LAWRENCE N. SONDIKE
Senior Vice President
Franklin Mutual
Mr. Sondike has been a manager of the fund since its inception in 1996.
Before joining the Franklin Templeton Group in 1996, he was a research
analyst for Heine Securities Corporation, the predecessor of Franklin Mutual
(Heine).
DAVID E. MARCUS
Senior Vice President
Franklin Mutual
Mr. Marcus has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.
Michael F. Price is Chairman of the Board of Directors which oversees the
management of Franklin Mutual. The managers listed above are part of a larger
team of investment professionals with management responsibility for all of
the funds managed by Franklin Mutual, including this fund. Peter A. Langerman
is Chief Executive Officer and Robert L. Friedman is Chief Investment Officer
of Franklin Mutual. Mr. Friedman has overall supervisory responsibility for
the day to day management of the funds managed by Franklin Mutual.
The team also includes:
PETER A. LANGERMAN
Chief Executive Officer
Franklin Mutual
Mr. Langerman has been involved with the management of the fund since its
President and inception in 1996. Before joining the Franklin Templeton Group
in 1996, he was a research analyst for Heine.
ROBERT L. FRIEDMAN
Chief Investment Officer
Senior Vice President
Franklin Mutual
Mr. Friedman has been involved with the management of the fund since its
inception in 1996. Before joining the Franklin Templeton Group in 1996, he
was a research analyst for Heine.
JEFFREY A. ALTMAN
Senior Vice President
Franklin Mutual
Mr. Altman has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.
RAYMOND GAREA
Senior Vice President
Franklin Mutual
Mr. Garea has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.
DAVID J. WINTERS
Senior Vice President
Franklin Mutual
Mr. Winters has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1996, he was a research analyst for Heine.
In addition, the following Franklin Mutual employees serve as Assistant
Portfolio Managers:
JIM AGAH
Assistant Portfolio Manager
Franklin Mutual
Mr. Agah has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1997, he was vice president of equity sales at
Keefe, Bryette & Woods.
JEFF DIAMOND
Assistant Portfolio Manager
Franklin Mutual
Mr. Diamond has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1998, he was a vice president and co-manager of
Prudential Conservative Stock Fund.
The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.60% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------
RATIO OF
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
MUTUAL SHARES SECURITIES FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19961 10.00 .02 .33 .35 - - - 10.35 3.50 27,677 1.00* 2.56* 1.31
1997 10.35 .13 1.71 1.84 (.01) - (.01) 12.18 17.73 387,787 .80 2.10 49.01
1998 12.18 .28 (.25) .03 (.13) (.12) (.25) 11.96 .09 482,444 .77 2.60 70.19
</TABLE>
* Annualized
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
1. For the period November 8, 1996 (effective date) to December 31, 1996.
<PAGE>
Templeton Developing Markets Equity Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital appreciation.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in emerging markets equity securities.
Emerging market equity securities generally include equity securities that
trade in emerging markets or are issued by companies that have their
principal activities in emerging market countries.
Emerging market countries generally include those considered to be emerging
by the World Bank, the International Finance Corporation, the United Nations,
or the countries' authorities. These countries are typically located in the
Asia-Pacific region, Eastern Europe, Central and South America, and Africa.
Emerging market equity securities and emerging market countries are more
fully described in the SAI.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stock, and securities convertible into common stock. The
fund also invests in American, European and Global Depositary Receipts, which
are certificates issued by a bank or trust company that give their holders
the right to receive securities issued by a foreign or domestic company.
[Begin callout]
The fund invests primarily in the common stocks of companies located in
emerging market countries.
[End callout]
In addition to its principal investments, the fund may invest significantly
in securities of issuers in developed market countries, and particularly
those developed market countries that are linked by tradition, economic
markets, geography or political events to emerging market countries.
Depending upon current market conditions, or for capital appreciation, the
fund may also invest a substantial portion of its assets in rated or unrated
debt securities of companies and governments located anywhere in the world. A
debt security obligates the issuer to the bondholders, both to repay a loan
of money at a future date and generally to pay interest. Common debt
securities are bonds, including bonds convertible into common stock or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents. The fund may also invest up to 10% of its total assets in
securities of closed-end investment companies to facilitate foreign
investment.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual companies and
securities, the fund may from time to time have significant investments in
particular countries. The manager intends to manage the fund's exposure to
various geographic regions and their currencies based on its assessment of
changing market and political conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
investments. Such investments may be medium-term (less than 5 years for this
fund) or short-term, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund. Emerging markets in particular can
experience significant price volatility in any given year, and even daily.
The fund should be thought of as a long-term investment for the aggressive
portion of a well diversified portfolio.
[Begin callout]
Because the stocks the fund holds fluctuate in price with emerging market
conditions and currencies, 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]
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the debt security's value and, thus, impact the value of
fund shares.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON DEVELOPING MARKETS EQUITY FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
2.77% 21.59% -8.72% -21.61%
95 96 97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
20.59%
WORST
QUARTER:
Q4 '97
- -23.44%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
1 YEAR (03/15/94)
- ----------------------------------------------------------------------
Templeton Developing Markets
Equity Fund - Class 11 21.61% -3.22%
MSCI Emerging Markets Free Index2 -25.34% -8.80%
IFC Investable Composite Index2 -22.01% -9.24%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI Emerging Markets
Free Index measures the performance of securities located in 25 emerging
market countries such as Brazil, China, Korea and Poland. The International
Finance Corporation's Investable Composite Index is an emerging markets index
that includes 650 stocks from 18 countries including Mexico, South Korea,
Brazil, Jordan and Turkey. Indices include reinvested dividends and/or
interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Templeton Asset Management Ltd. (TAML), 7 Temasek Blvd., #38-03 Suntec Tower
One, Singapore, 038987, is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
DR. J. MARK MOBIUS.
Managing Director, TAML
Dr. Mobius has been a manager of the fund since its inception in 1994, and
has been with the Franklin Templeton Group since 1987.
TOM WU
Director, TAML
Mr. Wu has been a manager of the fund since its inception in 1994, and has
been with the Franklin Templeton Group since 1987.
H. ALLAN LAM
Portfolio Manager, TAML
Mr. Lam has been a manager of the fund since its inception in 1994, and has
been with the Franklin Templeton Group since 1987.
EDDIE CHOW
portfolio manager, TAML
Mr. Chow has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1994.
DENNIS LIM
director, TAML
Mr. Lim has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1990.
TEK-KHOAN ONG
Portfolio Manager, TAML
Mr. Ong has been a manager if the fund since 1996, and has been with the
Franklin Templeton Group since 1993.
The fund pays the manager a fee for managing its assets, making its
investment decisions and providing certain administrative facilities and
services to the fund. For the fiscal year ended December 31, 1998, the fund
paid 1.25% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------- ------------------------------------
RATIO OF
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS EQUITY FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19941 10.00 .07 (.51) (.44) - - - 9.56 (4.40) 98,189 1.53* 1.85* 1.15
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78 2.77 158,084 1.41 2.011 9.96
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59 21.59 272,098 1.49 1.681 2.42
1997 11.59 .18 (1.10) (.92) (.15) (.23) (.38) 10.29 (8.72) 279,680 1.42 1.57 20.59
1998 10.29 .20 (2.35) (2.15) (.29) (.94) (1.23) 6.91 (21.61) 162,433 1.41 2.04 36.58
</TABLE>
* Annualized
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
1. For the period March 15, 1994 (effective date) to December 31, 1994.
<PAGE>
Templeton Global Asset Allocation Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is high total return.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
in equity securities of companies in any nation, debt securities of companies
and governments of any nation, and in money market instruments. The mix of
investments will be adjusted to capitalize on total return potential produced
by changing economic conditions throughout the world, including emerging
market countries. While there are no minimum or maximum percentage targets
for each asset class, historically stocks have been the predominant
investment.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, securities convertible into common stock, and
American, European and Global Depositary Receipts. Depositary Receipts are
certificates issued by a bank or trust company that give their holders the
right to receive securities issued by a foreign or domestic company. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.
[Begin callout]
The fund invests primarily in common stocks and bonds of U.S. and non-U.S.
countries.
[End callout]
The fund focuses on "investment grade" debt securities. These are issues
rated in the top four rating categories (AAA to BBB) by independent rating
agencies such as Standard & Poor's Corporation (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined by the fund's manager to
be comparable. The fund may also invest up to 25% of its total assets in high
yield, medium and lower rated debt securities ("junk bonds"), or, if unrated,
determined by the fund's manager to be comparable. The fund will not invest
in defaulted securities. During 1998, about 10.2% of the fund's portfolio was
invested in lower rated and comparable quality unrated debt securities. Many
debt securities of non-U.S. issuers, and especially emerging market issuers,
are rated below investment grade or are unrated so that their selection
depends on the manager's internal analysis.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins, and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
In choosing debt investments, the fund's manager allocates its assets among
issuers, geographic regions, and currencies based upon its assessment of
relative interest rates among currencies, the manager's outlook for changes
in interest rates, and credit risks. The manager intends to manage the fund's
exposure to various geographic regions and their currencies based on its
assessment of changing market and political conditions; with respect to debt
securities, the manager may also from time to time make use of forward
currency exchange contracts for hedging (protection) purposes (Hedging
Instruments).
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
[Begin callout]
Because the stocks and bonds the fund holds fluctuate in price with foreign
market conditions and currencies, 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]
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the security's value and, thus, impact the value of fund
shares.
LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.
HEDGING INSTRUMENTS Hedging Instruments used by this fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, risks, and bond
ratings can be found in the SAI.
[Insert graphic of a bull and a bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON GLOBAL ASSET ALLOCATION FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
- ----------------------------------------
19.84% 11.71% -0.04%
- ----------------------------------------
- ----------------------------------------
96 97 98
- ----------------------------------------
YEAR
[Begin callout]
Best
Quarter:
Q4 '98
11.93%
Worst
Quarter:
Q3 '98
- -13.12%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR (05/01/95 )
- -------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET
ALLOCATION FUND - CLASS 11 -0.04% 10.25%
MSCI WORLD INDEX(R)2 24.80% 18.24%
JP MORGAN GLOBAL GOVERNMENT
BOND INDEX2 15.31% 7.49%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index(R)
tracks the performance of approximately 1500 securities in 23 countries and
is designed to measure world stock market performance. The unmanaged JP
Morgan Global Government Bond Index tracks the performance of government bond
markets in 13 countries. Indices include reinvested dividends and/or
interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Templeton Global Advisors Limited (TGAL), Lyford Cay, Nassau, N.P., Bahamas,
is the fund's investment manager.
Under an agreement with TGAL, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, through
its Templeton Global Bond Managers division (Global Bond Managers), is the
fund's sub-advisor.
MANAGEMENT TEAM The team responsible for managing the equity portion of the
fund is:
DALE WINNER, CFA
Portfolio Manager, TGAL
Mr. Winner has been a manager of the fund since 1997. Before joining Franklin
Templeton in 1995, he was a trust officer at J.P. Morgan.
MARK G. HOLOWESKO, CFA
President, TGAL
Mr. Holowesko has been a manager of the fund since 1999, and has been with
the Franklin Templeton Group since 1985.
A team from Global Bond Managers is responsible for managing the debt portion
of the fund's investments.
The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.65% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------- -------------------------------------
RATIO OF
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON GLOBAL ASSET ALLOCATION FUND
19951 10.00 .18 .52 .70 (.18) - (.18) 10.52 7.01 14,729 .90* 3.84* 30.00
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59 19.84 56,274 .86 4.21 52.35
1997 12.59 .42 1.04 1.46 (.26) (.07) (.33) 13.72 11.71 93,402 .94 4.22 61.93
1998 13.72 .61 (.59) .02 (.49) (.58) (1.07) 12.67 (.04) 81,670 .84 4.32 59.03
</TABLE>
* Annualized
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
1. For the period April 19, 1995 (effctive date) to December 31, 1995.
<PAGE>
Templeton Global Growth Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of companies
located anywhere in the world, including in the U.S. and emerging markets.
While there are no set percentage targets, the fund generally invests in
large- to medium-cap companies with market capitalization values (share
price times the number of common stock shares outstanding) greater than $1.5
billion, but may invest a small portion in small-cap companies which have
more risk. Equities represent ownership interests in individual companies and
give shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.
The fund also invests in American, European, and Global Depositary Receipts,
which are certificates issued by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic
company.
[Begin callout]
The fund invests primarily in a diversified portfolio of U.S. and non-U.S.
common stocks.
[End callout]
Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of companies and governments located
anywhere
in the world. A debt security obligates the issuer to the bondholders, to
repay a loan of money at a future date and generally to pay interest. Common
debt securities are bonds, including bonds convertible into common stocks or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
The manager intends to manage the fund's exposure to various geographic
regions and their currencies based on its assessment of changing market and
political conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short term.
These price movements may result from factors affecting individual companies,
industries, or securities markets. Value stock prices are considered "cheap"
relative to the company's perceived value and are often out of favor with other
investors. If other investors fail to recognize the company's value and do not
become buyers, or if they become sellers, or in markets favoring faster-growing
companies, value stocks may not increase in value as anticipated by the manager
or may decline further.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
[Begin callout]
Because the stocks the fund holds fluctuate in price with foreign market
conditions and currencies, 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]
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the debt security's value and, thus, impact the value of
fund shares.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON GLOBAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
12.72% 21.28% 13.50% 8.98%
95 96 97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
16.30%
WORST
QUARTER:
Q3 '98
- -13.78%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR (03/15/94)
- -------------------------------------------------------------------------
Templeton Global Growth Fund - Class 11 8.98% 12.30%
MSCI All Country World Free(R)Index2 21.97% 14.79%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI All Country World
Free(R) Index measures the performance of securities located in 48 countries,
including emerging markets in Latin America, Asia and Eastern Europe. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Templeton Global Advisors Limited (TGAL), Lyford Cay, Nassau, N.P., Bahamas,
is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
RICHARD SEAN FARRINGTON, CFA
Senior Vice President, TGAL
Mr. Farrington has been a manager of the fund since 1995, and has been with
the Franklin Templeton Group since 1990.
JEFFREY A. EVERETT, CFA
Executive Vice President, TGAL
Mr. Everett has been a manager of the fund since its inception in 1994, and
has been with the Franklin Templeton Group since 1990.
The fund pays the manager a fee for managing its assets, making its
investment decisions and providing certain administrative facilities and
services to the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.83% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------- -----------------------------------
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL GROWTH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19941 10.15 .07 .26 .33 - - - 10.48 3.25 158,856 1.14* 2.49* 7.14
1995 10.48 .16 1.17 1.33 (.06) - (.06) 11.75 12.72 338,755 .972 .46 30.92
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80 21.28 579,877 .932 .20 12.32
1997 13.80 .33 1.53 1.86 (.24) (.08) (.32) 15.34 13.50 758,445 .882 .49 24.81
1998 15.34 .35 .98 1.33 (.41) (1.49) (1.90) 14.77 8.98 747,080 .88 2.27 32.30
</TABLE>
* Annualized
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
1. For the period March 15, 1994 (effective date) to December 31, 1994.
<PAGE>
Templeton Global Income Securities Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is high current income. Capital appreciation
is a secondary consideration.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the debt securities of governments and
their political subdivisions and agencies, supranational organizations, and
companies located anywhere in the world, including emerging markets. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.
[Begin callout]
The fund invests primarily in bonds of governments located around the world.
[End callout]
The fund focuses on "investment grade" debt securities. These are issues
rated in the top four rating categories (AAA to BBB) by independent rating
agencies such as Standard & Poor's Corporation (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined by the fund's manager to
be comparable. The fund may also invest up to 30% of its net assets in high
yield, lower rated debt securities ("junk bonds") that are rated at least B,
including emerging market debt, or if unrated, determined by the fund's
manager to be comparable. The fund will not purchase defaulted securities.
If, however, a security is downgraded in rating or goes into default, the
fund will not automatically sell the security. During 1998, about 20.2% of
the fund's portfolio was invested in lower rated and comparable quality
unrated debt securities.
Many debt securities of non-U.S. issuers, and especially emerging market
issuers, are rated below investment grade or are unrated so that their
selection depends on the manager's internal analysis. The average maturity of
debt securities in the fund's portfolio is medium-term (about 5 to 15 years)
but will fluctuate depending on the manager's outlook on the country and
future interest rate changes.
PORTFOLIO SELECTION The fund's manager allocates its assets among issuers,
geographic regions, and currencies based upon its assessment of relative
interest rates among currencies, the manager's outlook for changes in
interest rates, and credit risks. In considering these factors, a country's
changing market, economic, and political conditions, such as inflation rate,
growth prospects, global trade patterns, and government policies will be
evaluated. The manager intends to manage the fund's exposure to various
currencies, and may from time to time seek to hedge (protect) against
currency risk by using forward currency exchange contracts (Hedging
Instruments).
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.
FOREIGN SECURITIES Securities of governments and companies located outside
the U.S. involve risks that can increase the potential for losses in the fund.
Changes in global interest rates affect the prices of the fund's debt
securities.
[Begin callout]
If rates rise, the value of the fund's debt securities will fall and so too
will the fund's share price. This means you could
lose money.
[End callout]
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets are generally not as regulated as
securities markets.
COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 the security's value and, thus, impact the value of fund
shares.
LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.
HEDGING INSTRUMENTS Hedging Instruments used by the fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out a position because the trading market becomes illiquid.
DIVERSIFICATION The fund is non-diversified under federal securities laws.
As such, it may invest a greater portion of its assets in one issuer and have
a smaller number of issuers than a diversified fund. Therefore, the fund may
be more sensitive to economic, business, political or other changes affecting
similar issuers or securities. The fund will, however, meet tax
diversification requirements.
PORTFOLIO TURNOVER The manager's rebalancing of the portfolio to keep
interest rate risk and country allocations at desired levels, as well as bond
maturities, may cause the fund's portfolio turnover rate to be high. High
turnover generally increases the fund's transaction costs.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, risks, and bond
ratings can be found in the SAI.
[Insert graphic of a bull and a bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON GLOBAL INCOME FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
- ----------------------------------------------------------------------
9.83% 12.34% -0.40% 16.68% -4.99% 14.68% 9.56% 2.55% 7.08%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------
YEAR
[Begin callout]
Best
Quarter:
Q1 '93
5.33%
Worst
Quarter:
Q3 '92
- -4.84%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/24/89)
- ----------------------------------------------------------------------------
TEMPLETON GLOBAL INCOME
SECURITIES FUND - CLASS 11 7.08% 5.56% 7.52%
JP MORGAN GLOBAL
GOVERNMENT BOND INDEX2 15.31% 8.09% 9.23%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged JP Morgan Global
Government Bond Index tracks the performance of government bond markets in 13
countries. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, through
its Templeton Global Bond Managers division (Global Bond Managers), is the
fund's sub-advisor. A team from Global Bond Managers provides Advisers with
investment management advice and assistance and is responsible for the
day-to-day management of
the fund.
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.57% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------- ------------------------------------------
RATIO OF
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL INCOME SECURITIES FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46) 12.19 (4.99) 254,311 .71 7.99 79.38
1995 12.19 .29 1.47 1.76 (.49) - (.49) 13.46 14.68 243,194 .64 7.59 152.89
1996 13.46 1.02 .17 1.19 (1.04) - (1.04) 13.61 9.56 221,722 .61 7.30 140.96
1997 13.61 1.05 (.73) .32 (.96) - (.96) 12.97 2.55 185,016 .62 7.03 181.61
1998 12.97 1.07 (.19) .88 (.98) - (.98) 12.87 7.08 150,941 .63 6.86 84.17
</TABLE>
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
<PAGE>
Templeton International Equity Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities that trade in non-U.S.
markets, including emerging markets, and that are issued by companies that
have their principal activities outside the U.S. While there are no set
percentage targets, the fund generally invests in large- to medium-cap
companies with market capitalization values (share price times the number of
common stock shares outstanding) greater than $1.5 billion, but may invest a
small portion in small-cap companies which have more risk. Equities represent
ownership interests in individual companies and give shareholders a claim in
the company's earnings and assets. They include common and preferred stocks,
and securities convertible into common stock. The fund also invests in
American, European, and Global Depositary Receipts, which are certificates
issued by a bank or trust company that give their holders the right to
receive securities issued by a foreign or domestic company.
[Begin callout]
The fund invests primarily in a diversified portfolio of non-U.S. common
stocks.
[End callout]
Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of companies and governments located
anywhere in the world. A debt security obligates the issuer to the
bondholders, both to repay a loan of money at a future date and generally to
pay interest. Common debt securities are bonds, including bonds convertible
into common stock or unsecured bonds; notes; and short-term investments,
including cash or cash equivalents.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
The manager intends to manage the fund's exposure to various geographic
regions and their currencies based on its assessment of changing market and
political conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
Because the stocks the fund holds fluctuate in price with foreign market
conditions and currencies, 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.
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to
the same disclosure, accounting, auditing and financial reporting standards
and practices as U.S. companies and their securities may not be as liquid as
securities of similar U.S. companies. Non-U.S. stock exchanges, trading
systems, brokers, and companies generally have less government supervision
and regulation than in the U.S. The fund may have greater difficulty voting
proxies, exercising shareholder rights, pursuing legal remedies and obtaining
judgments with respect to non-U.S. investments in non-U.S. courts than with
respect to U.S. companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the debt security's value and, thus, impact the value of
fund shares.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear] PAST PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
[Insert bar graph]
93 94 95 96 97 98
28.56% 0.87% 10.59% 22.98% 11.69% 5.56%
YEAR
TEMPLETON INTERNATIONAL EQUITY FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Begin callout]
BEST
QUARTER:
Q4 '93
13.64%
WORST
QUARTER:
Q3 '98
- -16.86%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
PAST 1 YEAR PAST 5 YEARS (01/27/92)
- -------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL EQUITY
FUND - CLASS 11 5.56% 10.09% 10.75%
MSCI ALL COUNTRY WORLD
EX-U.S. FREE INDEX2 14.46% 7.87% 8.64%
1. All fund performance assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI All Country World
Ex-U.S. Free Index measures the performance of securities located in 48
countries, both developed and emerging markets, except the U.S. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, Templeton Investment Counsel, Inc., (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, is the
fund's sub-advisor. TICI provides Advisers with investment management advice
and assistance.
MANAGEMENT TEAM The team responsible for the fund's management is:
HOWARD J. LEONARD CFA
Executive Vice President, TICI
Mr. Leonard has been a manager of the fund since 1997, and has been with the
Franklin Templeton Group since 1989.
MARK R. BEVERIDGE CFA
Senior Vice President, TICI
Mr. Beveridge has been a manager of the fund since 1994, and has been with
the Franklin Templeton Group since 1994
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.80% of its average daily net assets to the manager.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
The financial highlights table provides further details to help you
understand the financial performance of the fund's Class 1 shares since
inception. The table shows certain information on a single share basis (per
share performance). It also shows some key fund statistics, such as total
return (past performance) and expense ratios. Total return represents the
annual change in value of a share assuming reinvestment of dividends and
capital gains. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their report, along with the financial statements,
are included in the fund's Annual Report (available upon request).
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE ($) RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------ ------------------------------------
RATIO OF
DISTRI- DISTRI- NET
NET NET BUTIONS BUTIONS NET RATIO OF INVEST-
ASSET REALIZED & TOTAL FROM FROM ASSET NET EXPENSES MENT PORT-
VALUE, NET UNREAL- FROM NET NET VALUE, ASSETS, TO INCOME TO FOLIO
BEGIN- INVEST- IZED INVEST- INVEST- REAL- TOTAL END TOTAL END OF AVERAGE AVERAGE TURN-
PERIOD NING MENT GAINS MENT MENT IZED DISTRI- OF RETURN+ YEAR NET NET OVER
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS PERIOD (%) (000'S)($) ASSETS(%)ASSETS(%)RATE(%)
- --------------------------------------------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51 .87 785,124 .99 2.17 12.22
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.59 850,117 .92 2.87 16.42
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98 1,108,099 .89 3.07 27.52
1997 15.45 .30 1.51 1.81 (.45) (.69) (1.14) 16.12 11.69 1,161,430 .89 3.01 26.96
1998 16.12 .56 .42 .98 (.53) (1.05) (1.58) 15.52 5.56 955,900 .88 2.90 5.98
</TABLE>
+ Total return does not include deductions at the contract level for cost of
insurance charges, premium load, administratvie charges, mortality and
expense risk charges or other charges that may be incurred under the variable
insurance contracts for which the funds serve as underlying investments. If
they had been included, total return would be lower. Total return is not
annulized.
<PAGE>
[Insert graphic of STAR] IMPORTANT RECENT DEVELOPMENTS
o Year 2000 problem The funds' 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 funds' operations could be adversely affected
if the computer systems used by their managers, their service providers and
other third parties they do business with are not Year 2000 ready. For
example, the funds' 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 funds could experience difficulties in effecting
transactions if any of their foreign subcustodians, or 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 funds' 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 any 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 a fund's portfolio
holdings will have similar impact on the price of the funds' shares.
The funds' 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 funds' ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the funds and their managers may have no control.
o Euro On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which replaced the national currency for
participating member countries.
Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the funds may hold in their portfolios,
and their impact on fund performance. To the extent a fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S. dollar.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each fund will declare as dividends
substantially all of its net investment income. Except for the Money Fund,
each 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 funds will reduce the per share net asset value (NAV) by
the per share amount paid.
The Money Fund declares a dividend each day the fund's NAV is calculated,
equal to all of its daily net income, payable as of the close of business the
preceding day. The amount of dividend may fluctuate from day to day and may
be omitted on some days, depending on changes in the factors that comprise
the fund's net income.
Dividends paid by a fund will be automatically reinvested in additional
shares of that 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 funds. For more information, please
consult the accompanying contract prospectus.
Fund Account Information
[Insert graphic of paper with lines
and someone writing] BUYING SHARES
Shares of each fund are sold at net asset value (NAV) to insurance company
separate accounts to serve as investment options for variable annuity or
variable life insurance contracts. The funds' Board monitors this to be sure
there are no material conflicts of interest between the two different types
of contract owners. 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 each fund chosen by the contract owner, 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 funds do not issue share certificates.
[Insert graphic of a certificate] SELLING SHARES
Each insurance company shareholder sells shares of the applicable fund to
make benefit or surrender payments or to execute exchanges (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 going
in different directions] EXCHANGING SHARES
Contract owners may exchange shares of any one class or fund for shares of
other classes or 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 fund exchanges that may be made (please see "Market Timers" below).
[Insert graphic of paper and pen] FUND ACCOUNT POLICIES
CALCULATING SHARE PRICE The funds calculate their 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' NAV is calculated by dividing its net
assets by the number of its shares outstanding.
The funds' assets are generally valued at their market value, except that the
Money Fund's assets are generally valued at their amortized cost. 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. If a fund holds securities listed primarily on a foreign exchange that
trades on days when the fund is not open for business, the value of the
shares may change on days that the insurance company shareholders cannot buy
or sell shares.
Requests to buy and sell shares are processed on any day the funds are open
for business at the NAV next calculated after we receive the request in
proper form.
STATEMENTS AND REPORTS Contract owners will receive confirmations and
account statements that show account transactions. Insurance company
shareholders will receive the fund's financial reports every six months. To
reduce fund expenses, if you need additional copies, please call
1-800/342-3863.
If there is a dealer or other investment representative of record on the
account, he or she will also receive confirmations, account statements and
other information about the contract owner's account directly from the
contract's administrator.
MARKET TIMERS The funds are not designed for market timers, large or
frequent transfers. The funds 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 funds maintain additional policies
and reserves certain rights, including:
o Each fund may refuse any order to buy shares.
o At any time, each fund may establish or change investment minimums.
o Each fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.
o You may only buy shares of a fund eligible for sale in your 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 TO PERMIT INVESTORS TO OBTAIN THE CURRENT PRICE, INSURANCE COMPANIES ARE
RESPONSIBLE FOR TRANSMITTING ALL ORDERS TO THE FUND PROMPTLY.
SHARE CLASSES Each fund has two classes of shares, class 1 and class 2. Each
class is identical except that class 2 has a distribution plan or "rule
12b-1" plan which is described in prospectuses offering class 2 shares.
[Insert graphic of question mark] QUESTIONS
More detailed information about the Trust and the funds' account policies can
be found in the funds' Statement of Additional Information (SAI). If you have
any questions about the funds, you can write to us at 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You can also call us at
1-800/342-3863. 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 Franklin Templeton Variable Insurance Products Trust (the
Trust), formerly Franklin Valuemark Funds, are only available as investment
options in variable annuity or variable life insurance contracts. Please
consult the accompanying contract prospectus 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 funds, their 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)
1-800/342-3863
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 #811-5583
EXHIBIT IIb
PROSPECTUS
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
CLASS 2 SHARES
MAY 1, 1999
AS AMENDED NOVEMBER 1, 1999
INVESTMENT STRATEGY
Capital Growth Franklin Capital Growth Fund (EFFECTIVE
12/15/99 THE NAME WILL BE FRANKLIN LARGE CAP
GROWTH SECURITIES FUND)
Capital Growth Franklin Small Cap Fund
Growth and Income Mutual Shares Securities Fund
Growth and Income Templeton Global Asset Allocation Fund
Income Templeton Global Income Securities Fund
Capital Growth Templeton Developing Markets Equity Fund
Capital Growth Templeton International Equity Fund
Capital Growth Templeton Global Growth Fund
[Insert 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.
<PAGE>
CONTENTS
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
[insert page #] Overview of the Trust
[insert page #] Franklin Large Cap Growth Securities Fund
(PREVIOUSLY FRANKLIN CAPITAL GROWTH FUND)
[insert page #] Franklin Small Cap Fund
[insert page #] Mutual Shares Securities Fund
[insert page #] Templeton Developing Markets Equity Fund
[insert page #] Templeton Global Asset Allocation Fund
[insert page #] Templeton Global Growth Fund
[insert page #] Templeton Global Income Securities Fund
[insert page #] Templeton International Equity Fund
ADDITIONAL INFORMATION, ALL FUNDS
[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
<PAGE>
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]
Back Cover
<PAGE>
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
[Insert graphic of pyramid]OVERVIEW OF THE TRUST
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (THE TRUST), FORMERLY
FRANKLIN VALUEMARK FUNDS, CURRENTLY CONSISTS OF TWENTY-SIX SEPARATE FUNDS,
OFFERING A WIDE VARIETY OF INVESTMENT CHOICES. EACH FUND HAS TWO CLASSES OF
SHARES, CLASS 1 AND CLASS 2. THE FUNDS ARE ONLY AVAILABLE AS INVESTMENT
OPTIONS IN VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACTS. THE
ACCOMPANYING CONTRACT PROSPECTUS INDICATES WHICH FUNDS AND CLASSES ARE
AVAILABLE TO YOU.
INVESTMENT CONSIDERATIONS
o Each fund has its own investment strategy 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 each fund in relation to your personal financial
situation, investment goals, and comfort with risk. Your investment
representative can help you determine which funds are right for you.
RISKS
o There can be no assurance that any fund will achieve its investment goal.
o Because you could lose money by investing in a fund, take the time to
read each fund description 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 investments 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 EACH FUND, ITS INVESTMENT POLICIES, AND ITS
PARTICULAR RISKS CAN BE FOUND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION (SAI).
MANAGEMENT
The funds' investment managers and their affiliates manage over $218 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.
<PAGE>
Franklin Capital Growth Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
Effective December 15, 1999, the fund's name will be changed to Franklin
Large Cap Growth Securities Fund and the fund's strategy will be restated to
one of investing, under normal market conditions, at least 65% of its total
assets in equity securities of U.S. large-cap growth companies ($8.5 billion
or more), focusing on those companies that are expected to have revenue
growth in excess of the economy as a whole either through above-average
industry expansion or market share gains. These companies generally dominate,
or are gaining market share, in their respective industries and have a
reputation for quality of management, as well as superior products and
services.
GOAL The fund's investment goal is capital appreciation.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies believed
to be globally competitive and to offer favorable opportunities for long-term
capital appreciation. Following this policy, the fund will typically invest
predominantly in established, large- to medium-cap companies with market
capitalization values (share price times the number of common stock shares
outstanding) greater than $1.5 billion. Equities represent ownership
interests in individual companies and give shareholders a claim in the
company's earnings and assets. They include common and preferred stocks, and
securities convertible into common stock.
[Begin callout]
The fund invests primarily in large cap growth companies' equity securities.
[End callout]
In choosing equity investments, the manager will focus on companies that have
exhibited above average growth, strong financial records, and large market
capitalization. In addition, management expertise, industry leadership,
growth in market share and sustainable competitive advantage are factors the
manager also considers. Although the manager will search for investments
across a large number of industries, it expects to have significant positions
(but not in excess of 25% of its total assets in a given sector) in the
technology (including computers, telecommunications, and electronics), health
care, and finance industries.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Growth stock prices reflect
projections of future earnings or revenues, and can, therefore, fall
dramatically if the company fails to meet those projections.
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.
TECHNOLOGY COMPANIES The technology sector has historically been volatile
due to the rapid pace of product change and development within the sector.
The stock prices of companies operating within this sector may be subject to
abrupt or erratic movements. In addition, the activities of
telecommunications companies fall under international, federal and state
regulations. These companies may be adversely affected by changes in
government regulations.
HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal and state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies may also be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. They are also subject
to legislative risk, i.e., the risk of a reform of the health care system
through legislation.
FINANCIAL SERVICES COMPANIES Financial services companies are subject to
extensive government regulation which tends to limit both the amount and
types of loans and other financial commitments such companies can make, and
the interest rates and fees they can charge. These limitations can have a
significant impact on the profitability of a financial services company since
profitability is impacted by the company's ability to make financial
commitments such as loans.
The financial services industry is currently undergoing a number of changes
such as continuing consolidations, development of new products and structures
and changes to its regulatory framework. These changes are likely to have a
significant impact on the financial services industry.
See "Important Recent Developments," in this prospectus for Year 2000
discussion, 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 SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
FRANKLIN CAPITAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
18.31% 20.29%
97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
19.73%
WORST
QUARTER:
Q3 '98
- -10.47%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
PAST 1 YEAR SINCE INCEPTION
(05/01/96)
- -----------------------------------------------------------------------
FRANKLIN CAPITAL GROWTH FUND -
CLASS 11
20.29% 19.72%
S&P 500(R)2 INDEX 28.58% 29.00%
RUSSELL 1000 INDEX(R)2 27.02% 27.92%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Russell 1000 Index measures the 1,000 largest companies in the Russell 3000
Index. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
KENT SHEPHERD, CFA
Vice President, Advisers
Mr. Shepherd has been a manager of the fund since its inception in 1999, and
has been with the Franklin Templeton Group since 1991.
JASON R. NUNN
Portfolio Manager, Advisers
Mr. Nunn has been a manager of the fund since September 1999. Before joining
the Franklin Templeton Group in 1998 he worked in corporate finance with
Alex, Brown & Sons.
CONRAD B. HERRMANN, CFA
Senior Vice President, Advisers
Mr. Herrmann has been a manager of the fund since its inception in 1996, and
has been with the Franklin Templeton Group since 1989.
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.75% of its average daily net assets to the manager.
<PAGE>
Franklin Small Cap Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) growth companies. Small cap companies are
generally those with market cap values (share price times the number of
common stock shares outstanding) of less than $1.5 billion, at the time of
purchase. Equities represent ownership interests in individual companies and
give shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.
[Begin callout]
The fund invests primarily in common stocks of small cap U.S. companies.
[End callout]
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined "growth at a reasonable price" strategy. As a
"bottom-up" investor focusing primarily on individual securities, the manager
chooses small cap companies that it believes are positioned for rapid growth
in revenues, earnings or assets, and are selling at reasonable prices. The
manager relies on a team of analysts to provide in-depth industry expertise
and uses both qualitative and quantitative analysis to evaluate companies for
distinct and sustainable competitive advantages. Such advantages as a
particular marketing or product niche, proven technology, and industry
leadership are all factors the manager believes point to strong long-term
growth potential. The manager diversifies the fund's assets across many
industries, and from time to time may invest substantially in certain
sectors, including technology and biotechnology.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short term. These price movements may
result from factors affecting individual companies, industries, or securities
markets. Growth stock prices reflect projections of future earnings or
revenues, and can, therefore, fall dramatically if the company fails to meet
those projections.
SMALLER COMPANIES While smaller companies may offer greater opportunities
for capital growth than larger, more established companies, they also have
more risk. Historically, smaller company securities have been more volatile
in price and have fluctuated independently from larger company securities,
especially over the shorter-term. Smaller or relatively new companies can be
particularly sensitive to changing economic conditions, and their growth
prospects are less certain.
For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies may also suffer significant
losses, their securities can be less liquid, and investments in these
companies may be speculative. Technology and biotechnology industry stocks,
in particular, can be subject to erratic or abrupt price movements.
[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]
See "Important Recent Developments" in this prospectus for Year 2000
discussion, 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 SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
FRANKLIN CAPITAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
18.31% 20.29%
97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
19.73%
WORST
QUARTER:
Q3 '98
- -10.47%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
PAST 1 YEAR SINCE INCEPTION
(05/01/96)
- -----------------------------------------------------------------------
FRANKLIN CAPITAL GROWTH FUND -
CLASS 11
20.29% 19.72%
S&P 500(R)2 INDEX 28.58% 29.00%
RUSSELL 1000 INDEX(R)2 27.02% 27.92%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. The
Russell 1000 Index measures the 1,000 largest companies in the Russell 3000
Index. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
EDWARD B. JAMIESON
Executive Vice President, Advisers
Mr. Jamieson has been a manager of the fund since its inception in 1995, and
has been with the Franklin Templeton Group since 1987.
MICHAEL MCCARTHY
VICE PRESIDENT, Advisers
Mr. McCarthy has been a manager of the fund since its inception in 1995. He
joined the Franklin Templeton Group in 1992.
AIDAN O'CONNELL
Portfolio Manager, Advisers
Mr. O'Connell has been a manager of the fund since September 1998. Before
joining Franklin Templeton in May 1998, Mr. O'Connell was a research analyst
and a corporate financial analyst at Hambrecht & Quist.
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.75% of its average daily net assets to the manager.
Mutual Shares Securities Fund
[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
GOALS The fund's principal goal is capital appreciation. Its secondary goal
is income.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities of companies that the
manager believes are available at market prices less than their actual value
based on certain recognized or objective criteria (intrinsic value).
Following this value-oriented strategy, the fund will primarily invest in:
o UNDERVALUED STOCKS Stocks trading at a discount to asset value.
O Reorganizing Companies SECURITIES OF COMPANIES IN THE MIDST OF CHANGE
SUCH AS MERGERS, CONSOLIDATIONS, LIQUIDATIONS, REORGANIZATIONS, FINANCIAL
RESTRUCTURINGS, OR COMPANIES WITH TAKEOVER, TENDER OR EXCHANGE OFFERS OR
LIKELY TO RECEIVE SUCH OFFERS (REORGANIZING COMPANIES). THE FUND MAY
PARTICIPATE IN SUCH TRANSACTIONS.
o DISTRESSED COMPANIES Securities of companies that are distressed or even in
bankruptcy.
[Begin callout]
The fund invests primarily in common stocks of companies the manager believes
are significantly undervalued.
[End callout]
The fund invests primarily in companies with market capitalization values
(share price times the number of common stock shares outstanding) greater
than $1.5 billion, but may invest a small portion in small-cap companies,
which have more risk. Equities represent ownership interests in individual
companies and give shareholders a claim in the company's earnings and assets.
They include common and preferred stocks, and securities convertible into
common stock.
While the fund generally purchases securities for investment purposes, the
manager may use the fund's ownership in a company to seek to influence or
control management, or invest in other companies that do so, when the manager
believes the fund may benefit.
The fund may invest in debt securities rated in any rating category
established by an independent rating agency, including high yield, lower
rated or defaulted debt securities ("junk bonds"), or if unrated, determined
by the manager to be comparable. A debt security obligates the issuer to the
bondholders, both to repay a loan of money at a future date and generally to
pay interest. Common debt securities are bonds, including bonds convertible
into common stock or unsecured bonds; notes; and short-term investments,
including cash or cash equivalents.
The fund typically invests in unrated and lower rated debt securities of
Reorganizing Companies or Distressed Companies. Such debt securities are
primarily secured or unsecured indebtedness or participations in the
indebtedness, including loan participations and trade claims. Indebtedness
represents a specific commercial loan or portion of a loan which has been
given to a company by a financial institution such as a bank or insurance
company. By purchasing direct indebtedness of companies, a fund steps into
the shoes of a financial institution. Participation interests in indebtedness
represent fractional interests in a company's indebtedness.
The fund currently intends to invest up to approximately 20% of its total
assets in foreign equity and debt securities, including American, European
and Global Depositary Receipts. Depositary receipts are certificates
typically issued by a bank or trust company that give their holders the right
to receive securities issued by a foreign or domestic company. The fund
generally seeks to hedge (protect) against currency risks, largely using
forward foreign currency exchange contracts, where available, and in the
manager's opinion, it is economical to do so (Hedging Instruments).
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined value strategy. In choosing equity investments, the
manager focuses on the market price of a company's securities relative to its
evaluation of the company's asset value, including an analysis of book value,
cash flow potential, long-term earnings, and multiples of earnings of
comparable securities. Similarly, debt securities are generally selected
based on the manager's own analysis of the security's intrinsic value rather
than the coupon rate or rating. Thus, each security is examined separately
and there are no set criteria as to asset size, earnings or industry type.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goals.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
REORGANIZING OR DISTRESSED COMPANIES The fund's bargain-driven focus may
result in the fund choosing securities that are not widely followed by other
investors, including companies reporting poor earnings, companies whose share
prices have declined sharply, turnarounds, cyclical companies, or companies
emerging from bankruptcy, which may have higher risk. There can be no
assurance that any merger or other restructuring, or tender or exchange offer
proposed at the time the fund invests in a Reorganizing Company will be
completed on the terms contemplated and therefore, benefit the fund.
[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]
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
CURRENCY Where the fund's investments are denominated in foreign currencies,
changes in foreign currency exchange rates, including devaluation of currency
by a country's government, will increase or decrease the fund's returns from
its foreign portfolio holdings. Currency markets generally are not as
regulated as securities markets.
COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country. The political, economic, and social structures of
some countries the fund invests in may be less stable and more volatile than
those in the U.S. The risks of investing in these countries include the
possibility of currency devaluations by a country's government or banking
authority, the imposition of exchange controls, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks. Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies, or may become illiquid. Non-U.S. stock exchanges, trading
systems, brokers, and companies generally have less government supervision
and regulation than in the U.S.
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 the security's value and, thus, impact the value of fund
shares.
INDEBTEDNESS AND PARTICIPATIONS The purchase of debt securities of
Reorganizing or Distressed Companies always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may be
lost. There are no established markets for indebtedness, making them less
liquid than other securities, and purchasers of participations, such as the
fund, must rely on the financial institution issuing the participation to
assert any rights against the borrower with respect to the underlying
indebtedness. In addition, the fund takes on the risk as to the
creditworthiness of the bank or other financial intermediary issuer, as well
as of the issuer of the underlying indebtedness.
LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.
HEDGING INSTRUMENTS Hedging Instruments used by this fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out a position because the trading market becomes illiquid.
ILLIQUID SECURITIES The fund may invest up to 15% of its net assets in
illiquid securities, which are securities with a limited trading market.
There is a possible risk that the securities cannot be readily sold or can
only be resold at a price significantly lower than their value.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
MUTUAL SHARES SECURITIES FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
17.73% 0.09%
97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
12.94%
WORST
QUARTER:
Q3 '98
- -17.65%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
PAST 1 YEAR SINCE INCEPTION
(11/08/96)
- ----------------------------------------------------------------------
MUTUAL SHARES SECURITIES
FUND - CLASS 11 0.09% 9.70%
S&P 500(R)INDEX2 28.58% 30.66%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard and Poor's(R) Micropal. The S&P 500(R) Index is an unmanagEd
group of widely held common stocks covering a variety of industries. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Mutual Advisers, LLC (Franklin Mutual), 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078, is the fund's investment manager.
MANAGEMENT TEAM The team members primarily responsible for the fund's
management are:
LAWRENCE N. SONDIKE
Senior Vice President
Franklin Mutual
Mr. Sondike has been a manager of the fund since its inception in 1996.
Before joining the Franklin Templeton Group in 1996, he was a research
analyst for Heine Securities Corporation, the predecessor of Franklin Mutual
(Heine).
DAVID E. MARCUS
Senior Vice President
Franklin Mutual
Mr. Marcus has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.
Michael F. Price is Chairman of the Board of Directors which oversees the
management of Franklin Mutual. The managers listed above are part of a larger
team of investment professionals with management responsibility for all of
the funds managed by Franklin Mutual, including this fund. Peter A. Langerman
is Chief Executive Officer and Robert L. Friedman is Chief Investment Officer
of Franklin Mutual. Mr. Friedman has overall supervisory responsibility for
the day to day management of the funds managed by Franklin Mutual.
The team also includes:
PETER A. LANGERMAN
Chief Executive Officer
Franklin Mutual
Mr. Langerman has been involved with the management of the fund since its
President and inception in 1996. Before joining the Franklin Templeton Group
in 1996, he was a research analyst for Heine.
ROBERT L. FRIEDMAN
Chief Investment Officer
Senior Vice President
Franklin Mutual
Mr. Friedman has been involved with the management of the fund since its
inception in 1996. Before joining the Franklin Templeton Group in 1996, he
was a research analyst for Heine.
JEFFREY A. ALTMAN
Senior Vice President
Franklin Mutual
Mr. Altman has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.
RAYMOND GAREA
Senior Vice President
Franklin Mutual
Mr. Garea has been a manager of the fund since its inception in 1996. Before
joining the Franklin Templeton Group in 1996, he was a research analyst for
Heine.
DAVID J. WINTERS
Senior Vice President
Franklin Mutual
Mr. Winters has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1996, he was a research analyst for Heine.
In addition, the following Franklin Mutual employees serve as Assistant
Portfolio Managers:
JIM AGAH
Assistant Portfolio Manager
Franklin Mutual
Mr. Agah has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1997, he was vice president of equity sales at
Keefe, Bryette & Woods.
JEFF DIAMOND
Assistant Portfolio Manager
Franklin Mutual
Mr. Diamond has been a manager of the fund since 1998. Before joining the
Franklin Templeton Group in 1998, he was a vice president and co-manager of
Prudential Conservative Stock Fund.
The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.60% of its average daily net assets to the manager.
<PAGE>
Templeton Developing Markets Equity Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital appreciation.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in emerging markets equity securities.
Emerging market equity securities generally include equity securities that
trade in emerging markets or are issued by companies that have their
principal activities in emerging market countries.
Emerging market countries generally include those considered to be emerging
by the World Bank, the International Finance Corporation, the United Nations,
or the countries' authorities. These countries are typically located in the
Asia-Pacific region, Eastern Europe, Central and South America, and Africa.
Emerging market equity securities and emerging market countries are more
fully described in the SAI.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stock, and securities convertible into common stock. The
fund also invests in American, European and Global Depositary Receipts, which
are certificates issued by a bank or trust company that give their holders
the right to receive securities issued by a foreign or domestic company.
[Begin callout]
The fund invests primarily in the common stocks of companies located in
emerging market countries.
[End callout]
In addition to its principal investments, the fund may invest significantly
in securities of issuers in developed market countries, and particularly
those developed market countries that are linked by tradition, economic
markets, geography or political events to emerging market countries.
Depending upon current market conditions, or for capital appreciation, the
fund may also invest a substantial portion of its assets in rated or unrated
debt securities of companies and governments located anywhere in the world. A
debt security obligates the issuer to the bondholders, both to repay a loan
of money at a future date and generally to pay interest. Common debt
securities are bonds, including bonds convertible into common stock or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents. The fund may also invest up to 10% of its total assets in
securities of closed-end investment companies to facilitate foreign
investment.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual companies and
securities, the fund may from time to time have significant investments in
particular countries. The manager intends to manage the fund's exposure to
various geographic regions and their currencies based on its assessment of
changing market and political conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
investments. Such investments may be medium-term (less than 5 years for this
fund) or short-term, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund. Emerging markets in particular can
experience significant price volatility in any given year, and even daily.
The fund should be thought of as a long-term investment for the aggressive
portion of a well diversified portfolio.
[Begin callout]
Because the stocks the fund holds fluctuate in price with emerging market
conditions and currencies, 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]
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the debt security's value and, thus, impact the value of
fund shares.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON DEVELOPING MARKETS EQUITY FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
2.77% 21.59% -8.72% -21.61%
95 96 97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
20.59%
WORST
QUARTER:
Q4 '97
- -23.44%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR SINCE INCEPTION
(03/15/94)
- ---------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS
EQUITY FUND - CLASS 11 -21.61% -3.22%
MSCI EMERGING MARKETS FREE INDEX2 -25.34% -8.80%
IFC INVESTABLE COMPOSITE INDEX2 -22.01% -9.24%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI Emerging Markets
Free Index measures the performance of securities located in 25 emerging
market countries such as Brazil, China, Korea and Poland. The International
Finance Corporation's Investable Composite Index is an emerging markets index
that includes 650 stocks from 18 countries including Mexico, South Korea,
Brazil, Jordan and Turkey. Indices include reinvested dividends and/or
interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Templeton Asset Management Ltd. (TAML), 7 Temasek Blvd., #38-03 Suntec Tower
One, Singapore, 038987, is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
DR. J. MARK MOBIUS.
Managing Director, TAML
Dr. Mobius has been a manager of the fund since its inception in 1994, and
has been with the Franklin Templeton Group since 1987.
TOM WU
Director, TAML
Mr. Wu has been a manager of the fund since its inception in 1994, and has
been with the Franklin Templeton Group since 1987.
H. ALLAN LAM
Portfolio Manager, TAML
Mr. Lam has been a manager of the fund since its inception in 1994, and has
been with the Franklin Templeton Group since 1987.
EDDIE CHOW
portfolio manager, TAML
Mr. Chow has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1994.
DENNIS LIM
director, TAML
Mr. Lim has been a manager of the fund since 1996, and has been with the
Franklin Templeton Group since 1990.
TEK-KHOAN ONG
Portfolio Manager, TAML
Mr. Ong has been a manager if the fund since 1996, and has been with the
Franklin Templeton Group since 1993.
The fund pays the manager a fee for managing its assets, making its
investment decisions and providing certain administrative facilities and
services to the fund. For the fiscal year ended December 31, 1998, the fund
paid 1.25% of its average daily net assets to the manager.
Templeton Global Asset Allocation Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is high total return.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
in equity securities of companies in any nation, debt securities of companies
and governments of any nation, and in money market instruments. The mix of
investments will be adjusted to capitalize on total return potential produced
by changing economic conditions throughout the world, including emerging
market countries. While there are no minimum or maximum percentage targets
for each asset class, historically stocks have been the predominant
investment.
Equities represent ownership interests in individual companies and give
shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, securities convertible into common stock, and
American, European and Global Depositary Receipts. Depositary Receipts are
certificates issued by a bank or trust company that give their holders the
right to receive securities issued by a foreign or domestic company. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.
[Begin callout]
The fund invests primarily in common stocks and bonds of U.S. and non-U.S.
countries.
[End callout]
The fund focuses on "investment grade" debt securities. These are issues
rated in the top four rating categories (AAA to BBB) by independent rating
agencies such as Standard & Poor's Corporation (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined by the fund's manager to
be comparable. The fund may also invest up to 25% of its total assets in high
yield, medium and lower rated debt securities ("junk bonds"), or, if unrated,
determined by the fund's manager to be comparable. The fund will not invest
in defaulted securities. During 1998, about 10.2% of the fund's portfolio was
invested in lower rated and comparable quality unrated debt securities. Many
debt securities of non-U.S. issuers, and especially emerging market issuers,
are rated below investment grade or are unrated so that their selection
depends on the manager's internal analysis.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins, and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
In choosing debt investments, the fund's manager allocates its assets among
issuers, geographic regions, and currencies based upon its assessment of
relative interest rates among currencies, the manager's outlook for changes
in interest rates, and credit risks. The manager intends to manage the fund's
exposure to various geographic regions and their currencies based on its
assessment of changing market and political conditions; with respect to debt
securities, the manager may also from time to time make use of forward
currency exchange contracts for hedging (protection) purposes (Hedging
Instruments).
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
[Begin callout]
Because the stocks and bonds the fund holds fluctuate in price with foreign
market conditions and currencies, 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]
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the security's value and, thus, impact the value of fund
shares.
LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.
HEDGING INSTRUMENTS Hedging Instruments used by this fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, risks, and bond
ratings can be found in the SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON GLOBAL ASSET ALLOCATION FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
19.84% 11.71% -0.04%
96 97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
11.93%
WORST
QUARTER:
Q3 '98
- -13.12%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
PAST 1 YEAR SINCE INCEPTION
(05/01/95 )
- ----------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET
ALLOCATION FUND - CLASS 11 -0.04% 10.25%
MSCI WORLD INDEX(R)2 24.80% 18.24%
JP MORGAN GLOBAL GOVERNMENT
BOND INDEX2 15.31% 7.49%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index(R)
tracks the performance of approximately 1500 securities in 23 countries and
is designed to measure world stock market performance. The unmanaged JP
Morgan Global Government Bond Index tracks the performance of government bond
markets in 13 countries. Indices include reinvested dividends and/or
interest. One cannot invest directly in an index, nor is an index
representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Templeton Global Advisors Limited (TGAL), Lyford Cay, Nassau, N.P., Bahamas,
is the fund's investment manager.
Under an agreement with TGAL, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, through
its Templeton Global Bond Managers division (Global Bond Managers), is the
fund's sub-advisor.
MANAGEMENT TEAM The team responsible for managing the equity portion of the
fund is:
DALE WINNER, CFA
Portfolio Manager, TGAL
Mr. Winner has been a manager of the fund since 1997. Before joining Franklin
Templeton in 1995, he was a trust officer at J.P. Morgan.
MARK G. HOLOWESKO, CFA
President, TGAL
Mr. Holowesko has been a manager of the fund since 1999, and has been with
the Franklin Templeton Group since 1985.
A team from Global Bond Managers is responsible for managing the debt portion
of the fund's investments.
The fund pays the manager a fee for managing its assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund
paid 0.65% of its average daily net assets to the manager.
<PAGE>
Templeton Global Growth Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the equity securities of companies
located anywhere in the world, including in the U.S. and emerging markets.
While there are no set percentage targets, the fund generally invests in
large- to medium-cap companies with market capitalization values (share
price times the number of common stock shares outstanding) greater than $1.5
billion, but may invest a small portion in small-cap companies which have
more risk. Equities represent ownership interests in individual companies and
give shareholders a claim in the company's earnings and assets. They include
common and preferred stocks, and securities convertible into common stock.
The fund also invests in American, European, and Global Depositary Receipts,
which are certificates issued by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic
company.
[Begin callout]
The fund invests primarily in a diversified portfolio of U.S. and non-U.S.
common stocks.
[End callout]
Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of companies and governments located
anywhere
in the world. A debt security obligates the issuer to the bondholders, to
repay a loan of money at a future date and generally to pay interest. Common
debt securities are bonds, including bonds convertible into common stocks or
unsecured bonds; notes; and short-term investments, including cash or cash
equivalents.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing investments, the fund's manager
will focus on the market price of a company's securities relative to its
evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
The manager intends to manage the fund's exposure to various geographic
regions and their currencies based on its assessment of changing market and
political conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or
if they become sellers, or in markets favoring faster-growing companies,
value stocks may not increase in value as anticipated by the manager or may
decline further.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
[Begin callout]
Because the stocks the fund holds fluctuate in price with foreign market
conditions and currencies, 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]
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the debt security's value and, thus, impact the value of
fund shares.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON GLOBAL GROWTH FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[Insert bar graph]
12.72% 21.28% 13.50% 8.98%
95 96 97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '98
16.30%
WORST
QUARTER:
Q3 '98
- -13.78%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
PAST 1 SINCE INCEPTION
YEAR (03/15/94)
- --------------------------------------------------------------------------
TEMPLETON GLOBAL GROWTH FUND - CLASS 11 8.98% 12.30%
MSCI ALL COUNTRY WORLD FREE(R)INDEX2 21.97% 14.79%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI All Country World
Free(R) Index measures the performance of securities located in 48 countries,
including emerging markets in Latin America, Asia and Eastern Europe. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Templeton Global Advisors Limited (TGAL), Lyford Cay, Nassau, N.P., Bahamas,
is the fund's investment manager.
MANAGEMENT TEAM The team responsible for the fund's management is:
RICHARD SEAN FARRINGTON, CFA
Senior Vice President, TGAL
Mr. Farrington has been a manager of the fund since 1995, and has been with
the Franklin Templeton Group since 1990.
JEFFREY A. EVERETT, CFA
Executive Vice President, TGAL
Mr. Everett has been a manager of the fund since its inception in 1994, and
has been with the Franklin Templeton Group since 1990.
The fund pays the manager a fee for managing its assets, making its
investment decisions and providing certain administrative facilities and
services to the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.83% of its average daily net assets to the manager.
<PAGE>
Templeton Global Income Securities Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is high current income. Capital appreciation
is a secondary consideration.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in the debt securities of governments and
their political subdivisions and agencies, supranational organizations, and
companies located anywhere in the world, including emerging markets. A debt
security obligates the issuer to the bondholders, both to repay a loan of
money at a future date and generally to pay interest. Common debt securities
are bonds, including bonds convertible into common stock or unsecured bonds;
notes; and short-term investments, including cash or cash equivalents.
[Begin callout]
The fund invests primarily in bonds of governments located around the world.
[End callout]
The fund focuses on "investment grade" debt securities. These are issues
rated in the top four rating categories (AAA to BBB) by independent rating
agencies such as Standard & Poor's Corporation (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined by the fund's manager to
be comparable. The fund may also invest up to 30% of its net assets in high
yield, lower rated debt securities ("junk bonds") that are rated at least B,
including emerging market debt, or if unrated, determined by the fund's
manager to be comparable. The fund will not purchase defaulted securities.
If, however, a security is downgraded in rating or goes into default, the
fund will not automatically sell the security. During 1998, about 20.2% of
the fund's portfolio was invested in lower rated and comparable quality
unrated debt securities.
Many debt securities of non-U.S. issuers, and especially emerging market
issuers, are rated below investment grade or are unrated so that their
selection depends on the manager's internal analysis. The average maturity of
debt securities in the fund's portfolio is medium-term (about 5 to 15 years)
but will fluctuate depending on the manager's outlook on the country and
future interest rate changes.
PORTFOLIO SELECTION The fund's manager allocates its assets among issuers,
geographic regions, and currencies based upon its assessment of relative
interest rates among currencies, the manager's outlook for changes in
interest rates, and credit risks. In considering these factors, a country's
changing market, economic, and political conditions, such as inflation rate,
growth prospects, global trade patterns, and government policies will be
evaluated. The manager intends to manage the fund's exposure to various
currencies, and may from time to time seek to hedge (protect) against
currency risk by using forward currency exchange contracts (Hedging
Instruments).
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect the fund's share price,
its distributions or income, and therefore, the fund's performance.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes. A sub-category
of interest rate risk is reinvestment risk, which is the risk that interest
rates will be lower when the fund seeks to reinvest interest payments, or the
proceeds from a matured debt security, resulting in less income received by
the fund.
FOREIGN SECURITIES Securities of governments and companies located outside
the U.S. involve risks that can increase the potential for losses in the fund.
Changes in global interest rates affect the prices of the fund's debt
securities.
[Begin callout]
If rates rise, the value of the fund's debt securities will fall and so too
will the fund's share price. This means you could
lose money.
[End callout]
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the investment is
worth fewer dollars. Currency markets are generally not as regulated as
securities markets.
COUNTRY General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns
that trade in that country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Non-U.S. stock exchanges, trading systems, brokers, and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to non-U.S. investments in non-U.S. courts than with respect to U.S.
companies in U.S. courts.
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 the security's value and, thus, impact the value of fund
shares.
LOWER-RATED SECURITIES Junk bonds generally have more risk than higher-rated
securities, and can be considered speculative. Companies issuing high yield
debt securities are not as strong financially, and are more likely to
encounter financial difficulties and be more vulnerable to changes in the
economy, such as a recession or a sustained period of rising interest rates.
If an issuer stops paying interest and/or principal, payments may never
resume. The fund may lose its entire investment on bonds that may be, or are,
in default.
The prices of high yield debt securities fluctuate more than higher quality
securities. Prices are especially sensitive to developments affecting the
company's business and to rating changes, and typically rise and fall in
response to factors that affect the company's stock prices. In addition, the
entire high yield securities market can experience sudden and sharp price
swings due to changes in economic conditions, market activity, large
sustained sales, a high-profile default, or other factors. High yield
securities generally are less liquid than higher-quality bonds, and
infrequent trades can make accurate pricing more difficult. At times, it may
be difficult to sell these securities promptly at an acceptable price.
HEDGING INSTRUMENTS Hedging Instruments used by the fund are considered
derivative investments. Their successful use will depend on the manager's
ability to predict market movements, and losses from their use can be greater
than if they had not been used. Risks include potential loss to the fund due
to the imposition of controls by a government on the exchange of foreign
currencies, delivery failure, default by the other party, or inability to
close out a position because the trading market becomes illiquid.
DIVERSIFICATION The fund is non-diversified under federal securities laws.
As such, it may invest a greater portion of its assets in one issuer and have
a smaller number of issuers than a diversified fund. Therefore, the fund may
be more sensitive to economic, business, political or other changes affecting
similar issuers or securities. The fund will, however, meet tax
diversification requirements.
PORTFOLIO TURNOVER The manager's rebalancing of the portfolio to keep
interest rate risk and country allocations at desired levels, as well as bond
maturities, may cause the fund's portfolio turnover rate to be high. High
turnover generally increases the fund's transaction costs.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, and any potential impact on the fund's portfolio and operations.
More detailed information about the fund, its policies, risks, and bond
ratings can be found in the SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON GLOBAL INCOME SECURITIES FUND -
CLASS 1
CALENDAR YEAR TOTAL RETURNS1
- ----------------------------------------------------------------------
9.83% 12.34% -0.40% 16.68% -4.99% 14.68% 9.56% 2.55% 7.08%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98
- ----------------------------------------------------------------------
YEAR
[Begin callout]
BEST
QUARTER:
Q1 '93
5.33%
WORST
QUARTER:
Q3 '92
- -4.84%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE
PAST 1 YEAR PAST 5 YEARS INCEPTION
(01/24/89)
- ----------------------------------------------------------------------
TEMPLETON GLOBAL INCOME
SECURITIES FUND - CLASS 11 7.08% 5.56% 7.52%
JP MORGAN GLOBAL
GOVERNMENT BOND INDEX2 15.31% 8.09% 9.23%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The unmanaged JP Morgan Global
Government Bond Index tracks the performance of government bond markets in 13
countries. Indices include reinvested dividends and/or interest. One cannot
invest directly in an index, nor is an index representative of the fund's
investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, Templeton Investment Counsel, Inc. (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, through
its Templeton Global Bond Managers division (Global Bond Managers), is the
fund's sub-advisor. A team from Global Bond Managers provides Advisers with
investment management advice and assistance and is responsible for the
day-to-day management of
the fund.
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.57% of its average daily net assets to the manager.
<PAGE>
Templeton International Equity Fund
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
at least 65% of its total assets in equity securities that trade in non-U.S.
markets, including emerging markets, and that are issued by companies that
have their principal activities outside the U.S. While there are no set
percentage targets, the fund generally invests in large- to medium-cap
companies with market capitalization values (share price times the number of
common stock shares outstanding) greater than $1.5 billion, but may invest a
small portion in small-cap companies which have more risk. Equities represent
ownership interests in individual companies and give shareholders a claim in
the company's earnings and assets. They include common and preferred stocks,
and securities convertible into common stock. The fund also invests in
American, European, and Global Depositary Receipts, which are certificates
issued by a bank or trust company that give their holders the right to
receive securities issued by a foreign or domestic company.
[Begin callout]
The fund invests primarily in a diversified portfolio of non-U.S. common
stocks.
[End callout]
Depending upon current market conditions, the fund may invest a significant
portion of its assets in debt securities of companies and governments located
anywhere in the world. A debt security obligates the issuer to the
bondholders, both to repay a loan of money at a future date and generally to
pay interest. Common debt securities are bonds, including bonds convertible
into common stock or unsecured bonds; notes; and short-term investments,
including cash or cash equivalents.
PORTFOLIO SELECTION The Templeton investment philosophy is "bottom-up,"
value-oriented, and long-term. In choosing equity investments, the fund's
manager will focus on the market price of a company's securities relative to
its evaluation of the company's long-term earnings, asset value and cash flow
potential. A company's historical value measures, including price/earnings
ratio, profit margins and liquidation value, will also be considered. As a
"bottom-up" investor focusing primarily on individual securities, the fund
may from time to time have significant investments in particular countries.
The manager intends to manage the fund's exposure to various geographic
regions and their currencies based on its assessment of changing market and
political conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in U.S. or non-U.S. currency
short-term investments, including cash or cash equivalents. Under these
circumstances, the fund may temporarily be unable to pursue its investment
goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect 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 short
term. These price movements may result from factors affecting individual
companies, industries, or securities markets. Value stock prices are
considered "cheap" relative to the company's perceived value and are often
out of favor with other investors. If other investors fail to recognize the
company's value and do not become buyers, or if they become sellers, or in
markets favoring faster-growing companies, value stocks may not increase in
value as anticipated by the manager or may decline further.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S., including Depositary Receipts, involve risks that can increase the
potential for losses in the fund.
Because the stocks the fund holds fluctuate in price with foreign market
conditions and currencies, 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.
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because that currency is
worth fewer U.S. dollars. Currency markets generally are not as regulated as
securities markets.
COUNTRY General securities market movements in
any country where the fund has investments are likely
to affect the value of the securities the fund owns that trade in that
country.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of currency
devaluations by a country's government or banking authority, the imposition
of exchange controls, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets, punitive taxes, and certain custody and settlement risks. In
addition, political or economic conditions can cause previously established
securities markets to become limited trading markets, potentially causing
liquid securities to become illiquid, particularly in emerging market
countries.
Emerging market countries are subject to all of the risks of foreign
investing generally, and have additional heightened risks due to a lack of
established legal, business, and social frameworks to support securities
markets, and a greater likelihood of currency devaluations. Non-U.S.
securities markets, particularly emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity and more
volatility than experienced in the U.S. While short-term volatility in these
markets can be disconcerting, declines in excess of 50% are not unusual.
COMPANY Non-U.S. companies are not subject to
the same disclosure, accounting, auditing and financial reporting standards
and practices as U.S. companies and their securities may not be as liquid as
securities of similar U.S. companies. Non-U.S. stock exchanges, trading
systems, brokers, and companies generally have less government supervision
and regulation than in the U.S. The fund may have greater difficulty voting
proxies, exercising shareholder rights, pursuing legal remedies and obtaining
judgments with respect to non-U.S. investments in non-U.S. courts than with
respect to U.S. companies in U.S. courts.
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 can gain value. In general, securities with
longer maturities are more sensitive to these price changes.
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 the debt security's value and, thus, impact the value of
fund shares.
See "Important Recent Developments" in this prospectus for Year 2000 and euro
discussion, 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 SAI.
[Insert graphic of bull and bear]PAST PERFORMANCE
Because class 2 shares were not offered until January 6th, 1999, the fund's
class 1 performance is shown.
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns for each full calendar year over the past ten
years or since the fund's inception. The table shows how the fund's average
annual total returns compare to those of a broad-based securities index. Of
course, past performance cannot predict or guarantee future results.
PERFORMANCE REFLECTS ALL FUND EXPENSES BUT DOES NOT INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD BE LOWER.
TEMPLETON INTERNATIONAL EQUITY FUND - CLASS 1
CALENDAR YEAR TOTAL RETURNS1
[INSERT BAR GRAPH]
28.56% 0.87% 10.59% 22.98% 11.69% 5.56%
93 94 95 96 97 98
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '93
13.64%
WORST
QUARTER:
Q3 '98
- -16.86%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
PAST 1 PAST 5 YEARS SINCE INCEPTION
YEAR (01/27/92)
- -------------------------------------------------------------------------
TEMPLETON INTERNATIONAL
EQUITY FUND - CLASS 11 5.56% 10.09% 10.75%
MSCI ALL COUNTRY WORLD
EX-U.S. FREE INDEX2 14.46% 7.87% 8.64%
1. All fund performance assumes reinvestment of dividends and capital gains.
Because class 2 shares were not offered until January 6th, 1999, performance
shown represents class 1 shares, which are not offered in this prospectus.
Although invested in the same portfolio of securities as class 1, class 2
performance will differ because of class 2's higher annual fees and expenses
resulting from its rule 12b-1 plan. Current annual 12b-1 expenses are 0.25%.
2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI All Country World
Ex-U.S. Free Index measures the performance of securities located in 48
countries, both developed and emerging markets, except the U.S. Indices
include reinvested dividends and/or interest. One cannot invest directly in
an index, nor is an index representative of the fund's investments.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo,
California 94403-7777, is the fund's investment manager.
Under an agreement with Advisers, Templeton Investment Counsel, Inc., (TICI),
Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida 33394, is the
fund's sub-advisor. TICI provides Advisers with investment management advice
and assistance.
MANAGEMENT TEAM The team responsible for the fund's management is:
HOWARD J. LEONARD CFA
Executive Vice President, TICI
Mr. Leonard has been a manager of the fund since 1997, and has been with the
Franklin Templeton Group since 1989.
MARK R. BEVERIDGE CFA
Senior Vice President, TICI
Mr. Beveridge has been a manager of the fund since 1994, and has been with
the Franklin Templeton Group since 1994
The fund pays the manager a fee for managing its assets, making its
investment decisions, and providing certain administrative facilities and
services for the fund. For the fiscal year ended December 31, 1998, the fund
paid 0.80% of its average daily net assets to the manager.
<PAGE>
[Insert graphic of STAR] IMPORTANT RECENT DEVELOPMENTS
o Year 2000 problem The funds' 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 funds' operations could be adversely affected
if the computer systems used by their managers, their service providers and
other third parties they do business with are not Year 2000 ready. For
example, the funds' 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 funds could experience difficulties in effecting
transactions if any of their foreign subcustodians, or 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 funds' 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 any 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 a fund's portfolio
holdings will have similar impact on the price of the funds' shares.
The funds' 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 funds' ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the funds and their managers may have no control.
o Euro On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which replaced the national currency for
participating member countries.
Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the funds may hold in their portfolios,
and their impact on fund performance. To the extent a fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S. dollar.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each fund will declare as dividends
substantially all of its net investment income. Except for the Money Fund,
each 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 funds will reduce the per share net asset value (NAV) by
the per share amount paid.
The Money Fund declares a dividend each day the fund's NAV is calculated,
equal to all of its daily net income, payable as of the close of business the
preceding day. The amount of dividend may fluctuate from day to day and may
be omitted on some days, depending on changes in the factors that comprise
the fund's net income.
Dividends paid by a fund will be automatically reinvested in additional
shares of that 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 funds. For more information, please
consult the accompanying contract prospectus.
Fund Account Information
[Insert graphic of paper with lines
and someone writing] BUYING SHARES
Shares of each fund are sold at net asset value (NAV) to insurance company
separate accounts to serve as investment options for variable annuity or
variable life insurance contracts. The funds' Board monitors this to be sure
there are no material conflicts of interest between the two different types
of contract owners. 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 each fund chosen by the contract owner, 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 funds do not issue share certificates.
[Insert graphic of a certificate] SELLING SHARES
Each insurance company shareholder sells shares of the applicable fund to
make benefit or surrender payments or to execute exchanges (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 going
in different directions] EXCHANGING SHARES
Contract owners may exchange shares of any one class or fund for shares of
other classes or 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 fund exchanges that may be made (please see "Market Timers" below).
[Insert graphic of paper and pen] FUND ACCOUNT POLICIES
CALCULATING SHARE PRICE The funds calculate their 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' NAV is calculated by dividing its net
assets by the number of its shares outstanding.
The funds' assets are generally valued at their market value, except that the
Money Fund's assets are generally valued at their amortized cost. 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. If a fund holds securities listed primarily on a foreign exchange that
trades on days when the fund is not open for business, the value of the
shares may change on days that the insurance company shareholders cannot buy
or sell shares.
Requests to buy and sell shares are processed on any day the funds are open
for business at the NAV next calculated after we receive the request in
proper form.
STATEMENTS AND REPORTS Contract owners will receive confirmations and
account statements that show account transactions. Insurance company
shareholders will receive the fund's financial reports every six months. To
reduce fund expenses, if you need additional copies, please call
1-800/342-3863.
If there is a dealer or other investment representative of record on the
account, he or she will also receive confirmations, account statements and
other information about the contract owner's account directly from the
contract's administrator.
MARKET TIMERS The funds are not designed for market timers, large or
frequent transfers. The funds 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 funds maintain additional policies
and reserves certain rights, including:
o Each fund may refuse any order to buy shares.
o At any time, each fund may establish or change investment minimums.
o Each fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.
o You may only buy shares of a fund eligible for sale in your 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 TO PERMIT INVESTORS TO OBTAIN THE CURRENT PRICE, INSURANCE COMPANIES ARE
RESPONSIBLE FOR TRANSMITTING ALL ORDERS TO THE FUND PROMPTLY.
SHARE CLASSES Each fund has two classes of shares, class 1 and class 2. Each
class is identical except that class 2 has a distribution plan or "rule
12b-1" plan which is described below.
DISTRIBUTION AND SERVICE (12B-1) FEES Class 2 of each fund has a
distribution plan, sometimes known as a rule 12b-1 plan, that allows class 2
to pay distribution and other fees to those who sell and distribute class 2
shares, or contracts funded by class 2 shares or for services provided to
contract owners. Because these fees are paid out of class 2's assets on an
on-going basis, these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. While the maximum fee
is up to 0.35% per year, the Board of Trustees has set the current rate of
0.25% of a fund's class 2 average daily net assets effective July 1, 1999.
[Insert graphic of question mark] QUESTIONS
More detailed information about the Trust and the funds' account policies can
be found in the funds' Statement of Additional Information (SAI). If you have
any questions about the funds, you can write to us at 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You can also call us at
1-800/342-3863. 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 Franklin Templeton Variable Insurance Products Trust (the
Trust), formerly Franklin Valuemark Funds, are only available as investment
options in variable annuity or variable life insurance contracts. Please
consult the accompanying contract prospectus 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 funds, their 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)
1-800/342-3863
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 #811-5583
EXHIBIT III
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated as of the __ day of _________, 2000, between FRANKLIN
TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST, a Massachusetts business trust
(the "Trust"), on behalf of Templeton Global Asset Allocation Fund, a series
of the Trust (the "Fund"), and TEMPLETON INVESTMENT COUNSEL, INC., a Florida
Corporation (the "Adviser").
In consideration of the mutual agreements herein made, the Trust and the
Adviser understand and agree as follows:
(1) The Adviser agrees, during the life of this Agreement, to manage
the investment and reinvestment of the Fund's assets consistent with the
provisions of the Declaration of Trust of the Trust and the investment
policies adopted and declared by the Trust's Board of Trustees. In pursuance
of the foregoing, the 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 all such steps as may be necessary to
implement those determinations.
(2) The Adviser is not required to furnish any personnel, overhead
items or facilities for the Fund, including trading desk facilities or daily
pricing of the Fund's portfolio.
(3) The Adviser shall be responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers and dealers
being hereinafter referred to as "brokers") for the execution of the Fund's
portfolio transactions consistent with the Fund's brokerage policies and,
when applicable, the negotiation of commissions in connection therewith. All
decisions and placements shall be made in accordance with the following
principles:
A. Purchase and sale orders will usually be placed with brokers which
are selected by the Adviser as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and reliable execution at the
most favorable security price, taking into account the other provisions
hereinafter set forth. The determination of what may constitute best
execution and price in the execution of a securities transaction by a broker
involves a number of considerations, including, without limitation, the
overall direct net economic result to the Fund (involving both price paid or
received and any commissions and other costs paid), the efficiency with which
the transaction is effected, the ability to effect the transaction at all
where a large block is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are judgmental and
are weighed by the Adviser in determining the overall reasonableness of
brokerage commissions.
B. In selecting brokers for portfolio transactions, the Adviser shall
take into account its past experience as to brokers qualified to achieve
"best execution," including brokers who specialize in any foreign securities
held by the Fund.
C. The Adviser is authorized to allocate brokerage business to brokers
who have provided brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934
Act"), for the Fund and/or other accounts, if any, for which the Adviser
exercises investment discretion (as defined in Section 3(a)(35) of the 1934
Act) and, as to transactions for which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for effecting a securities
transaction in excess of the amount another broker would have charged for
effecting that transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect
to the Trust and the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination, the Adviser will not
be required to place or attempt to place a specific dollar value on the
research or execution services of a broker or on the portion of any
commission reflecting either of said services. In demonstrating that such
determinations were made in good faith, the Adviser shall be prepared to show
that all commissions were allocated and paid for purposes contemplated by the
Trust's brokerage policy; that the research services provide lawful and
appropriate assistance to the Adviser in the performance of its investment
decision-making responsibilities; and that the commissions paid were within a
reasonable range. Whether commissions were within a reasonable range shall
be based on any available information as to the level of commission known to
be charged by other brokers on comparable transactions, but there shall be
taken into account the Trust's policies that (i) obtaining a low commission
is deemed secondary to obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Fund to obtain a
favorable price than to pay the lowest commission; and (ii) the quality,
comprehensiveness and frequency of research studies that are provided for the
Adviser are useful to the Adviser in performing its advisory services under
this Agreement. Research services provided by brokers to the Adviser are
considered to be in addition to, and not in lieu of, services required to be
performed by the Adviser under this Agreement. Research furnished by brokers
through which the Fund effects securities transactions may be used by the
Adviser for any of its accounts, and not all research may be used by the
Adviser for the Fund. When execution of portfolio transactions is allocated
to brokers trading on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by the broker.
D. Purchases and sales of portfolio securities within the United States
other than on a securities exchange shall be executed with primary market
makers acting as principal, except where, in the judgment of the Adviser,
better prices and execution may be obtained on a commission basis or from
other sources.
E. Sales of the Fund's shares (which shall be deemed to include also
shares of other registered investment companies which have either the same
adviser or an investment adviser affiliated with the Adviser) by a broker are
one factor among others to be taken into account in deciding to allocate
portfolio transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in subparagraph A above, and that
such allocation shall be within the scope of the Trust's policies as stated
above; provided further, that in every allocation made to a broker in which
the sale of Fund shares is taken into account, there shall be no increase in
the amount of the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation determined, as set forth
in subparagraph C above, on the basis of best execution alone or best
execution plus research services, without taking account of or placing any
value upon such sale of the Fund's shares.
(4) In addition to the investment management services provided pursuant
to paragraph (1) above, the Adviser agrees, during the life of this
Agreement, to furnish or provide for the Fund, at the Adviser's expenses,
such administrative services as are required to facilitate investment in the
shares of the Fund by an insurance company, on behalf of one or more of its
separate accounts, pursuant to a fund participation agreement among the Fund,
Franklin Templeton Distributors, Inc. and such insurance company. Such
services may include, but are not limited to, the following: maintaining
books and records required by applicable state or federal laws; assisting in
processing purchase and redemption transactions; transmitting to the Fund
periodic reports necessary to enable the Fund to comply with applicable
laws; processing Fund distributions; answering questions and handling
correspondence from contractowners about their accounts; providing
information about the Fund; acting as sole shareholder of record and nominee
for shareholders; and similar administrative, recordkeeping, and
contractowner services.
(5) The Fund agrees to pay to the Adviser a monthly fee in dollars
based on a percentage of the Fund's average daily net assets, payable at the
end of each calendar month. This fee shall be calculated daily at the
following annual rates:
0.65% of the value of the Fund's net assets up to an including $200
million;
0.585% of the value of the Fund's net assets over $200 million up
to and including $1.3 billion;
0.52% of the value of the Fund's net assets over $1.3 billion.
The Adviser may waive in advance all or a portion of its fee provided
for hereunder and such waiver will 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 fully set forth
herein. Notwithstanding the foregoing, if the total expenses of the Fund
(including the fee to the Adviser) in any fiscal year of the Trust exceed any
expense limitation imposed by applicable State law, the Adviser shall
reimburse the Fund for such excess in the manner and to the extent required
by applicable State law. The term "total expenses," as used in this
paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of acquiring or
disposing of any of the Fund's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Fund's business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Adviser's fee will be reduced by the amount
of such excess, subject to adjustment month by month during the balance of
the Trust's fiscal year if accrued expenses thereafter fall below the limit.
(6) This Agreement shall become effective on May 1, 2000 and shall
continue in effect until April 30, 2002. If not sooner terminated, this
Agreement shall continue in effect for successive periods of 12 months each
thereafter, provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Trust's Board of Trustees
who are not parties to this Agreement or "interested persons" (as defined in
Investment Company Act of 1940 (the "1940 Act")) of any such party, cast in
person at a meeting called for the purpose of voting on such approval and
either the vote of (a) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, or (b) a majority of the Trust's Board of
Trustees as a whole.
(7) Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time, without the payment of any penalty, on sixty (60)
days' written notice to the other party, provided that termination by the
Trust is approved by vote of a majority of the Trust's Board of Trustees in
office at the time or by vote of a majority of the outstanding voting
securities of the Fund (as defined by the 1940 Act).
(8) This Agreement will terminate automatically and immediately in the
event of its assignment (as defined in the 1940 Act).
(9) In the event this Agreement is terminated and the Adviser no longer
acts as Adviser to the Fund, the Adviser reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly implying a
continuing relationship between the Fund and the Adviser or any of its
affiliates.
(10) Except as may otherwise be provided by the 1940 Act, neither the
Adviser nor its officers, directors, employees or agents shall be subject to
any liability for any error of judgment, mistake of law, or any loss arising
out of any investment or other act or omission in the performance by the
Adviser of its duties under the Agreement or for any loss or damage resulting
from the imposition by any government of exchange control restrictions which
might affect the liquidity of the Trust's assets, or from acts or omissions
of custodians, or securities depositories, or from any war or political act
of any foreign government to which such assets might be exposed, or failure,
on the part of the custodian or otherwise, timely to collect payments, except
for any liability, loss or damage resulting from willful misfeasance, bad
faith or gross on the Adviser's part or by reason of disregard of the
Adviser's duties under this Agreement. It is hereby understood and
acknowledged by the Trust that the value of the investments made for the Fund
may increase as well as decrease and are not guaranteed by the Adviser. It
is further understood and acknowledged by the Trust that investment decisions
made on behalf of the Fund by the Adviser are subject to a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions, market factors and
currency exchange rates, and that investment decisions made by the Adviser
will not always be profitable or prove to have been correct.
(11) It is understood that the services of Adviser are not deemed to be
exclusive, and nothing in this Agreement shall prevent the Adviser, or any
affiliate thereof, from providing similar services to other investment
companies and other clients, including clients which may invest in the same
types of securities as the Fund, or, in providing such services, from using
information furnished by others. When the Adviser determines to buy or sell
the same security for the Fund that the Adviser or one or more of its
affiliates has selected for clients of the Adviser or its affiliates, the
orders for all such security transactions shall be placed for execution by
methods determined by the Adviser, with approval by the Trust's Board of
Trustees, to be impartial and fair.
(12) This Agreement shall be construed in accordance with the laws of
State of Florida, provided that nothing herein shall be construed as being
inconsistent with applicable Federal and state securities laws and any rules,
regulations and orders thereunder.
(13) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
(14) Nothing herein shall be construed as constituting the Adviser an
agent of the Trust.
(15) It is understood and expressly stipulated that neither the holders
of shares of the Fund nor any Trustee, officer, agent or employee of the
Trust shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective
corporate seals to be hereunto duly affixed and attested.
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
on behalf of Templeton Global Allocation Fund
By:_______________________________
TEMPLETON INVESTMENT COUNSEL, INC.
By:_________________________________
EXHIBIT IV
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated as of the __ day of _________, 2000, between FRANKLIN
TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST, a Massachusetts business trust
(the "Trust"), on behalf of Templeton Developing Markets Equity Fund, a
series of the Trust (the "Fund"), and TEMPLETON ASSET MANAGEMENT LTD., a
company organized under the laws of Singapore (the "Adviser").
In consideration of the mutual agreements herein made, the Trust and the
Adviser understand and agree as follows:
(1) The Adviser agrees, during the life of this Agreement, to manage
the investment and reinvestment of the Fund's assets consistent with the
provisions of the Declaration of Trust of the Trust and the investment
policies adopted and declared by the Trust's Board of Trustees. In pursuance
of the foregoing, the 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 all such steps as may be necessary to
implement those determinations. It is understood that all acts of the
Adviser in performing this Agreement are performed by it outside the United
States.
(2) The Adviser is not required to furnish any personnel, overhead
items or facilities for the Fund, including trading desk facilities or daily
pricing of the Fund's portfolio.
(3) The Adviser shall be responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers and dealers
being hereinafter referred to as "brokers") for the execution of the Fund's
portfolio transactions consistent with the Fund's brokerage policies and,
when applicable, the negotiation of commissions in connection therewith. All
decisions and placements shall be made in accordance with the following
principles:
A. Purchase and sale orders will usually be placed with brokers which
are selected by the Adviser as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and reliable execution at the
most favorable security price, taking into account the other provisions
hereinafter set forth. The determination of what may constitute best
execution and price in the execution of a securities transaction by a broker
involves a number of considerations, including, without limitation, the
overall direct net economic result to the Fund (involving both price paid or
received and any commissions and other costs paid), the efficiency with which
the transaction is effected, the ability to effect the transaction at all
where a large block is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are judgmental and
are weighed by the Adviser in determining the overall reasonableness of
brokerage commissions.
B. In selecting brokers for portfolio transactions, the Adviser shall
take into account its past experience as to brokers qualified to achieve
"best execution," including brokers who specialize in any foreign securities
held by the Fund.
C. The Adviser is authorized to allocate brokerage business to brokers
who have provided brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934
Act"), for the Fund and/or other accounts, if any, for which the Adviser
exercises investment discretion (as defined in Section 3(a)(35) of the 1934
Act) and, as to transactions for which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for effecting a securities
transaction in excess of the amount another broker would have charged for
effecting that transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect
to the Trust and the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination, the Adviser will not
be required to place or attempt to place a specific dollar value on the
research or execution services of a broker or on the portion of any
commission reflecting either of said services. In demonstrating that such
determinations were made in good faith, the Adviser shall be prepared to show
that all commissions were allocated and paid for purposes contemplated by the
Trust's brokerage policy; that the research services provide lawful and
appropriate assistance to the Adviser in the performance of its investment
decision-making responsibilities; and that the commissions paid were within a
reasonable range. Whether commissions were within a reasonable range shall
be based on any available information as to the level of commission known to
be charged by other brokers on comparable transactions, but there shall be
taken into account the Trust's policies that (i) obtaining a low commission
is deemed secondary to obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Fund to obtain a
favorable price than to pay the lowest commission; and (ii) the quality,
comprehensiveness and frequency of research studies that are provided for the
Adviser are useful to the Adviser in performing its advisory services under
this Agreement. Research services provided by brokers to the Adviser are
considered to be in addition to, and not in lieu of, services required to be
performed by the Adviser under this Agreement. Research furnished by brokers
through which the Fund effects securities transactions may be used by the
Adviser for any of its accounts, and not all research may be used by the
Adviser for the Fund. When execution of portfolio transactions is allocated
to brokers trading on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by the broker.
D. Purchases and sales of portfolio securities within the United States
other than on a securities exchange shall be executed with primary market
makers acting as principal, except where, in the judgment of the Adviser,
better prices and execution may be obtained on a commission basis or from
other sources.
E. Sales of the Fund's shares (which shall be deemed to include also
shares of other registered investment companies which have either the same
adviser or an investment adviser affiliated with the Adviser) by a broker are
one factor among others to be taken into account in deciding to allocate
portfolio transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in subparagraph A above, and that
such allocation shall be within the scope of the Trust's policies as stated
above; provided further, that in every allocation made to a broker in which
the sale of Fund shares is taken into account, there shall be no increase in
the amount of the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation determined, as set forth
in subparagraph C above, on the basis of best execution alone or best
execution plus research services, without taking account of or placing any
value upon such sale of the Fund's shares.
(4) In addition to the investment management services provided pursuant
to paragraph (1) above, the Adviser agrees, during the life of this
Agreement, to furnish or provide for the Fund, at the Adviser's expenses,
such administrative services as are required to facilitate investment in the
shares of the Fund by an insurance company, on behalf of one or more of its
separate accounts, pursuant to a fund participation agreement among the Fund,
Franklin Templeton Distributors, Inc. and such insurance company. Such
services may include, but are not limited to, the following: maintaining
books and records required by applicable state or federal laws; assisting in
processing purchase and redemption transactions; transmitting to the Fund
periodic reports necessary to enable the Fund to comply with applicable
laws; processing Fund distributions; answering questions and handling
correspondence from contractowners about their accounts; providing
information about the Fund; acting as sole shareholder of record and nominee
for shareholders; and similar administrative, recordkeeping, and
contractowner services.
(5) The Fund agrees to pay to the Adviser a monthly fee in dollars at
an annual rate of 1.25% of the Fund's average daily net assets payable at the
end of each calendar month. The Adviser may waive in advance all or a
portion of its fee provided for hereunder and such waiver will 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 fully set forth herein. Notwithstanding the foregoing, if
the total expenses of the Fund (including the fee to the Adviser) in any
fiscal year of the Trust exceed any expense limitation imposed by applicable
State law, the Adviser shall reimburse the Fund for such excess in the manner
and to the extent required by applicable State law. The term "total
expenses," as used in this paragraph, does not include interest, taxes,
litigation expenses, distribution expenses, brokerage commissions or other
costs of acquiring or disposing of any of the Fund's portfolio securities or
any costs or expenses incurred or arising other than in the ordinary and
necessary course of the Fund's business. When the accrued amount of such
expenses exceeds this limit, the monthly payment of the Adviser's fee will be
reduced by the amount of such excess, subject to adjustment month by month
during the balance of the Trust's fiscal year if accrued expenses thereafter
fall below the limit.
(6) This Agreement shall become effective on May 1, 2000 and shall
continue in effect until April 30, 2002. If not sooner terminated, this
Agreement shall continue in effect for successive periods of 12 months each
thereafter, provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Trust's Board of Trustees
who are not parties to this Agreement or "interested persons" (as defined in
Investment Company Act of 1940 (the "1940 Act")) of any such party, cast in
person at a meeting called for the purpose of voting on such approval and
either the vote of (a) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, or (b) a majority of the Trust's Board of
Trustees as a whole.
(7) Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time, without the payment of any penalty, on sixty (60)
days' written notice to the other party, provided that termination by the
Trust is approved by vote of a majority of the Trust's Board of Trustees in
office at the time or by vote of a majority of the outstanding voting
securities of the Fund (as defined by the 1940 Act).
(8) This Agreement will terminate automatically and immediately in the
event of its assignment (as defined in the 1940 Act).
(9) In the event this Agreement is terminated and the Adviser no longer
acts as Adviser to the Fund, the Adviser reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly implying a
continuing relationship between the Fund and the Adviser or any of its
affiliates.
(10) Except as may otherwise be provided by the 1940 Act, neither the
Adviser nor its officers, directors, employees or agents shall be subject to
any liability for any error of judgment, mistake of law, or any loss arising
out of any investment or other act or omission in the performance by the
Adviser of its duties under the Agreement or for any loss or damage resulting
from the imposition by any government of exchange control restrictions which
might affect the liquidity of the Trust's assets, or from acts or omissions
of custodians, or securities depositories, or from any war or political act
of any foreign government to which such assets might be exposed, or failure,
on the part of the custodian or otherwise, timely to collect payments, except
for any liability, loss or damage resulting from willful misfeasance, bad
faith or gross on the Adviser's part or by reason of disregard of the
Adviser's duties under this Agreement. It is hereby understood and
acknowledged by the Trust that the value of the investments made for the Fund
may increase as well as decrease and are not guaranteed by the Adviser. It
is further understood and acknowledged by the Trust that investment decisions
made on behalf of the Fund by the Adviser are subject to a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions, market factors and
currency exchange rates, and that investment decisions made by the Adviser
will not always be profitable or prove to have been correct.
(11) It is understood that the services of Adviser are not deemed to be
exclusive, and nothing in this Agreement shall prevent the Adviser, or any
affiliate thereof, from providing similar services to other investment
companies and other clients, including clients which may invest in the same
types of securities as the Fund, or, in providing such services, from using
information furnished by others. When the Adviser determines to buy or sell
the same security for the Fund that the Adviser or one or more of its
affiliates has selected for clients of the Adviser or its affiliates, the
orders for all such security transactions shall be placed for execution by
methods determined by the Adviser, with approval by the Trust's Board of
Trustees, to be impartial and fair.
(12) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, provided that nothing herein shall be
construed as being inconsistent with applicable Federal and state securities
laws and any rules, regulations and orders thereunder.
(13) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
(14) Nothing herein shall be construed as constituting the Adviser an
agent of the Trust.
(15) It is understood and expressly stipulated that neither the holders
of shares of the Fund nor any Trustee, officer, agent or employee of the
Trust shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective
corporate seals to be hereunto duly affixed and attested.
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
on behalf of Templeton Developing Markets
Equity Fund
By:_______________________________
TEMPLETON ASSET MANAGEMENT LTD.
By:_________________________________
EXHIBIT V
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated as of the __ day of _________, 2000, between FRANKLIN
TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST, a Massachusetts business trust
(the "Trust"), on behalf of Templeton International Equity Fund, a series of
the Trust (the "Fund"), and TEMPLETON GLOBAL ADVISORS LIMITED, a corporation
organized under the laws of the Bahamas (the "Adviser").
In consideration of the mutual agreements herein made, the Trust and the
Adviser understand and agree as follows:
(1) The Adviser agrees, during the life of this Agreement, to manage
the investment and reinvestment of the Fund's assets consistent with the
provisions of the Declaration of Trust of the Trust and the investment
policies adopted and declared by the Trust's Board of Trustees. In pursuance
of the foregoing, the 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 all such steps as may be necessary to
implement those determinations. It is understood that all acts of the
Adviser in performing this Agreement are performed by it outside the United
States.
(2) The Adviser is not required to furnish any personnel, overhead
items or facilities for the Fund, including trading desk facilities or daily
pricing of the Fund's portfolio.
(3) The Adviser shall be responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers and dealers
being hereinafter referred to as "brokers") for the execution of the Fund's
portfolio transactions consistent with the Fund's brokerage policies and,
when applicable, the negotiation of commissions in connection therewith. All
decisions and placements shall be made in accordance with the following
principles:
A. Purchase and sale orders will usually be placed with brokers which
are selected by the Adviser as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and reliable execution at the
most favorable security price, taking into account the other provisions
hereinafter set forth. The determination of what may constitute best
execution and price in the execution of a securities transaction by a broker
involves a number of considerations, including, without limitation, the
overall direct net economic result to the Fund (involving both price paid or
received and any commissions and other costs paid), the efficiency with which
the transaction is effected, the ability to effect the transaction at all
where a large block is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are judgmental and
are weighed by the Adviser in determining the overall reasonableness of
brokerage commissions.
B. In selecting brokers for portfolio transactions, the Adviser shall
take into account its past experience as to brokers qualified to achieve
"best execution," including brokers who specialize in any foreign securities
held by the Fund.
C. The Adviser is authorized to allocate brokerage business to brokers
who have provided brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934
Act"), for the Fund and/or other accounts, if any, for which the Adviser
exercises investment discretion (as defined in Section 3(a)(35) of the 1934
Act) and, as to transactions for which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for effecting a securities
transaction in excess of the amount another broker would have charged for
effecting that transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect
to the Trust and the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination, the Adviser will not
be required to place or attempt to place a specific dollar value on the
research or execution services of a broker or on the portion of any
commission reflecting either of said services. In demonstrating that such
determinations were made in good faith, the Adviser shall be prepared to show
that all commissions were allocated and paid for purposes contemplated by the
Trust's brokerage policy; that the research services provide lawful and
appropriate assistance to the Adviser in the performance of its investment
decision-making responsibilities; and that the commissions paid were within a
reasonable range. Whether commissions were within a reasonable range shall
be based on any available information as to the level of commission known to
be charged by other brokers on comparable transactions, but there shall be
taken into account the Trust's policies that (i) obtaining a low commission
is deemed secondary to obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Fund to obtain a
favorable price than to pay the lowest commission; and (ii) the quality,
comprehensiveness and frequency of research studies that are provided for the
Adviser are useful to the Adviser in performing its advisory services under
this Agreement. Research services provided by brokers to the Adviser are
considered to be in addition to, and not in lieu of, services required to be
performed by the Adviser under this Agreement. Research furnished by brokers
through which the Fund effects securities transactions may be used by the
Adviser for any of its accounts, and not all research may be used by the
Adviser for the Fund. When execution of portfolio transactions is allocated
to brokers trading on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by the broker.
D. Purchases and sales of portfolio securities within the United States
other than on a securities exchange shall be executed with primary market
makers acting as principal, except where, in the judgment of the Adviser,
better prices and execution may be obtained on a commission basis or from
other sources.
E. Sales of the Fund's shares (which shall be deemed to include also
shares of other registered investment companies which have either the same
adviser or an investment adviser affiliated with the Adviser) by a broker are
one factor among others to be taken into account in deciding to allocate
portfolio transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in subparagraph A above, and that
such allocation shall be within the scope of the Trust's policies as stated
above; provided further, that in every allocation made to a broker in which
the sale of Fund shares is taken into account, there shall be no increase in
the amount of the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation determined, as set forth
in subparagraph C above, on the basis of best execution alone or best
execution plus research services, without taking account of or placing any
value upon such sale of the Fund's shares.
(4) In addition to the investment management services provided pursuant
to paragraph (1) above, the Adviser agrees, during the life of this
Agreement, to furnish or provide for the Fund, at the Adviser's expenses,
such administrative services as are required to facilitate investment in the
shares of the Fund by an insurance company, on behalf of one or more of its
separate accounts, pursuant to a fund participation agreement among the Fund,
Franklin Templeton Distributors, Inc. and such insurance company. Such
services may include, but are not limited to, the following: maintaining
books and records required by applicable state or federal laws; assisting in
processing purchase and redemption transactions; transmitting to the Fund
periodic reports necessary to enable the Fund to comply with applicable
laws; processing Fund distributions; answering questions and handling
correspondence from contractowners about their accounts; providing
information about the Fund; acting as sole shareholder of record and nominee
for shareholders; and similar administrative, recordkeeping, and
contractowner services.
(5) The Fund agrees to pay to the Adviser a monthly fee in dollars
based on a percentage of the Fund's average daily net assets, payable at the
end of each calendar month. This fee shall be calculated daily at the
following annual rates:
0.75% of the value of the Fund's net assets up to an including $200
million;
0.675% of the value of the Fund's net assets over $200 million up
to and including $1.3 billion;
0.60% of the value of the Fund's net assets over $1.3 billion.
The Adviser may waive in advance all or a portion of its fee provided
for hereunder and such waiver will 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 fully set forth
herein. Notwithstanding the foregoing, if the total expenses of the Fund
(including the fee to the Adviser) in any fiscal year of the Trust exceed any
expense limitation imposed by applicable State law, the Adviser shall
reimburse the Fund for such excess in the manner and to the extent required
by applicable State law. The term "total expenses," as used in this
paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of acquiring or
disposing of any of the Fund's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Fund's business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Adviser's fee will be reduced by the amount
of such excess, subject to adjustment month by month during the balance of
the Trust's fiscal year if accrued expenses thereafter fall below the limit.
(6) This Agreement shall become effective on May 1, 2000 and shall
continue in effect until April 30, 2002. If not sooner terminated, this
Agreement shall continue in effect for successive periods of 12 months each
thereafter, provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Trust's Board of Trustees
who are not parties to this Agreement or "interested persons" (as defined in
Investment Company Act of 1940 (the "1940 Act")) of any such party, cast in
person at a meeting called for the purpose of voting on such approval and
either the vote of (a) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, or (b) a majority of the Trust's Board of
Trustees as a whole.
(7) Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time, without the payment of any penalty, on sixty (60)
days' written notice to the other party, provided that termination by the
Trust is approved by vote of a majority of the Trust's Board of Trustees in
office at the time or by vote of a majority of the outstanding voting
securities of the Fund (as defined by the 1940 Act).
(8) This Agreement will terminate automatically and immediately in the
event of its assignment (as defined in the 1940 Act).
(9) In the event this Agreement is terminated and the Adviser no longer
acts as Adviser to the Fund, the Adviser reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly implying a
continuing relationship between the Fund and the Adviser or any of its
affiliates.
(10) Except as may otherwise be provided by the 1940 Act, neither the
Adviser nor its officers, directors, employees or agents shall be subject to
any liability for any error of judgment, mistake of law, or any loss arising
out of any investment or other act or omission in the performance by the
Adviser of its duties under the Agreement or for any loss or damage resulting
from the imposition by any government of exchange control restrictions which
might affect the liquidity of the Trust's assets, or from acts or omissions
of custodians, or securities depositories, or from any war or political act
of any foreign government to which such assets might be exposed, or failure,
on the part of the custodian or otherwise, timely to collect payments, except
for any liability, loss or damage resulting from willful misfeasance, bad
faith or gross on the Adviser's part or by reason of disregard of the
Adviser's duties under this Agreement. It is hereby understood and
acknowledged by the Trust that the value of the investments made for the Fund
may increase as well as decrease and are not guaranteed by the Adviser. It
is further understood and acknowledged by the Trust that investment decisions
made on behalf of the Fund by the Adviser are subject to a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions, market factors and
currency exchange rates, and that investment decisions made by the Adviser
will not always be profitable or prove to have been correct.
(11) It is understood that the services of Adviser are not deemed to be
exclusive, and nothing in this Agreement shall prevent the Adviser, or any
affiliate thereof, from providing similar services to other investment
companies and other clients, including clients which may invest in the same
types of securities as the Fund, or, in providing such services, from using
information furnished by others. When the Adviser determines to buy or sell
the same security for the Fund that the Adviser or one or more of its
affiliates has selected for clients of the Adviser or its affiliates, the
orders for all such security transactions shall be placed for execution by
methods determined by the Adviser, with approval by the Trust's Board of
Trustees, to be impartial and fair.
(12) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, provided that nothing herein shall be
construed as being inconsistent with applicable Federal and state securities
laws and any rules, regulations and orders thereunder.
(13) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
(14) Nothing herein shall be construed as constituting the Adviser an
agent of the Trust.
(15) It is understood and expressly stipulated that neither the holders
of shares of the Fund nor any Trustee, officer, agent or employee of the
Trust shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective
corporate seals to be hereunto duly affixed and attested.
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
on behalf of Templeton International Equity Fund
By:_______________________________
TEMPLETON GLOBAL ADVISORS LIMITED
By:_________________________________
EXHIBIT VI
ADDITIONAL INFORMATION ON THE INVESTMENT ADVISERS AND
CERTAIN PORTFOLIO MANAGERS
THE INVESTMENT ADVISERS
The funds' investment managers and their affiliates manage over $218
billion in assets. 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. In 1992, Franklin, recognized as
a leader in managing domestic mutual funds, joined forces with Templeton, a
pioneer in international investing. The Mutual Advisers team, known for its
value-driven approach to domestic equity investing, became part of the
organization four years later.
o Franklin Advisers, Inc., 777 Mariners Island Blvd., P.O. Box 7777,
San Mateo, California, 94403-7777.
o Franklin Mutual Advisers, LLC, 51 John F. Kennedy Parkway, Short Hills,
New Jersey, 07078.
o Templeton Asset Management Ltd., 7 Temasek Blvd. #38-03, Suntec Tower
One, Singapore, 038987.
o Templeton Global Advisors Limited, Lyford Cay Nassau, N.P., Bahamas.
o Templeton Investment Counsel, Inc., Broward Financial Centre, Suite
2100, Fort Lauderdale, Florida, 33394.
FRANKLIN ADVISERS, INC. Franklin Advisers, Inc. ("FAV") is a
California corporation formed on October 31, 1985 and is based in San
Mateo, California. FAV is registered as an investment adviser with the
SEC under the Investment Advisers Act of 1940. It is also registered as
an investment adviser in the State of California. FAV is a wholly owned
subsidiary of Franklin Resources, Inc. ("Resources"), 777 Mariners
Island Blvd., San Mateo, California 94404-1585. Resources is primarily
engaged, through various subsidiaries, in providing investment
management, share distribution, transfer agent and administrative
services to a family of investment companies. Resources is an NYSE,
Inc. listed holding company (NYSE: BEN). Resources principal
shareholders are Charles B. Johnson and Rupert H. Johnson, both
principal officers and trustees of the Trust, who own approximately 20%
and 16%, respectively, of Resources outstanding shares. FAV provides
investment advisory and portfolio management services to most of the
funds in the Franklin Group of Funds.
The principal executive officers of FAV are:
NAME AND OFFICE PRINCIPAL OCCUPATION ADDRESS
- -----------------------------------------------------------------
Charles B. Johnson
Director and 777 Mariners Island
Chairman of the Board Executive Manager Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Rupert H. Johnson, Jr. 777 Mariners Island
Director and President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
R. Martin Wiskemann
Director and Senior 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Harmon E. Burns 777 Mariners Island
Executive Vice Attorney Blvd.
President San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Martin L. Flanagan 777 Mariners Island
Executive Vice Accountant Blvd.
President San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Deborah R. Gatzek
Executive Vice 777 Mariners Island
President Attorney Blvd.
and Assistant San Mateo,
Secretary California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Edward B. Jamieson 777 Mariners Island
Executive Vice Securities Analyst Blvd.
President San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Thomas J. Kenny 777 Mariners Island
Executive Vice Securities Analyst Blvd.
President San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Jack Lemein 777 Mariners Island
Executive Vice Securities Analyst Blvd.
President San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Sheila Amoroso 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Matt Avery 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Roger Bayston 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
David Capurro 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Rafael Costas 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Frank M. Felicelli 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Sally Haff 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Conrad Herrmann 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Chauncey Lufkin 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Christopher Molumphy 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Thomas Runkel 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Bernard Schroer 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Thomas Walsh 777 Mariners Island
Senior Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Benjamin Barber 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Doug Barton 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Catherine Bowman 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Kenneth Broad 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Molly Butler 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Canyon Chan 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Tony Coffey 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Lisa Costa 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Fred Fromm 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Shan Green 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
John Hopp 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Steven Hiatt 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Jeff Holbrook 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Charles E. Johnson 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Gregory E. Johnson 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Ian Link 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Michael McCarthy 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Evan McCulloch 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Thomas Orphanos 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Mark Orsi 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Scott Owens 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Serena Perin 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Ed Perks 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
John Pomeroy 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
David Rath 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Betsy Schwab 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Kent Shepherd 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Richard Smyth 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Theresa Spath 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Eric Takaha 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Kurt Von Emster 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Glenn Voyles 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
John Wiley 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Jeffrey Wilson 205 9th Street N.
Vice President Securities Analyst St. Petersburg,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Stella Wong 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Robert Yolland 777 Mariners Island
Vice President Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Charles R. Sims 777 Mariners Island
Vice President Accountant Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Kenneth A. Lewis 777 Mariners Island
Vice President Accountant Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Leslie M. Kratter 777 Mariners Island
Secretary Attorney Blvd.
San Mateo,
California
- -----------------------------------------------------------------
Some of trustees or officers of the VIP Trust (whose addresses and
biographical information are included in the VIP Trust's statement of
additional information) also serve as directors or officers of FAV. These
trustees and officers are listed below:
Charles B. Johnson
Charles E. Johnson
Rupert H. Johnson, Jr.
Harmon E. Burns
Martin L. Flanagan
Deborah R. Gatzek
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
<PAGE>
TEMPLETON ASSET MANAGEMENT LTD. Templeton Asset Management Ltd.
("TAML") is a corporation organized under the laws of and based in Singapore.
It is registered as an investment adviser in Singapore and Hong Kong. It is
also registered with the SEC under the Advisers Act. TAML is a wholly-owned
subsidiary of Templeton International Inc., which is a subsidiary of
Templeton Worldwide, Inc., which, in turn, is a wholly-owned subsidiary of
Franklin Resources, Inc. ("Resources"), 777 Mariners Island Blvd., San Mateo,
California 94404-1585. Resources is primarily engaged, through various
subsidiaries, in providing investment management, share distribution,
transfer agent and administrative services to a family of investment
companies. Resources is an NYSE, Inc. listed holding company (NYSE: BEN).
Resources principal shareholders are Charles B. Johnson and Rupert H.
Johnson, both principal officers and trustees of the Trust, who own
approximately 20% and 16%, respectively, of Resources outstanding shares.
TAML provides investment advisory and related services to certain Templeton
funds and portfolios. TAML is principally an investment adviser to emerging
market equity portfolios.
There are no officers of corporations per se in Singapore, only
directors and managing directors. They act in a capacity of an officer for
U.S. purposes, such actions constituting the actions of an officer.
DIRECTORS PRINCIPAL OCCUPATION ADDRESS
- -----------------------------------------------------------------
Martin L. Flanagan Accountant 777 Mariners Island
Director Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Mark G. Holowesko Securities Analyst Box N-7759 Lyford
Director Cay
Nassau, Bahamas
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Charles E. Johnson 777 Mariners Island
Director Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Lim Chong Boon 7 Temasek Blvd.,
(Dennis) Securities Analyst Suntec Tower One
Director Singapore
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Gregory E. McGowan 500 East Broward
Director Attorney Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
J. Mark Mobius 7 Temasek Blvd.,
Managing Director Suntec Tower One
Securities Analyst Singapore
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Murray L. Simpson 2701 Shui On Center
Director Attorney Hon Kong, China
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Wai Kwok (Tom) 7 Temasek Blvd.,
Director Securities Analyst Suntec Tower One
Singapore
- -----------------------------------------------------------------
Some of trustees or officers of the VIP Trust (whose addresses and
biographical information are included in the VIP Trust's statement of
additional information) also serve as directors of TAML. These trustees and
officers are listed below:
Marty L. Flanagan
Charles E. Johnson
<PAGE>
TEMPLETON GLOBAL ADVISORS LIMITED. Templeton Global Advisors Limited
("TGAL") is a Bahamian corporation located in Nassau, Bahamas. TGAL is
registered as an investment adviser with the SEC under the Advisers Act. .
TGAL is a wholly owned subsidiary of T.G.H. Holdings, Ltd., which is a
subsidiary of Templeton International, Inc., which, in turn, is a
wholly-owned subsidiary of Franklin Resources, Inc. ("Resources"), 777
Mariners Island Blvd., San Mateo, California 94404-1585. Resources is
primarily engaged, through various subsidiaries, in providing investment
management, share distribution, transfer agent and administrative services to
a family of investment companies. Resources is an NYSE, Inc. listed holding
company (NYSE: BEN). Resources principal shareholders are Charles B. Johnson
and Rupert H. Johnson, both principal officers and trustees of the Trust, who
own approximately 20% and 16%, respectively, of Resources outstanding shares.
TGAL provides investment advisory and portfolio management services to
certain of the Templeton funds and separate accounts. TGAL is the principal
investment adviser to the Templeton funds.
The principal executive officers of TGAL are:
NAME AND OFFICE PRINCIPAL OCCUPATION ADDRESS
- -----------------------------------------------------------------
Mark G. Holowesko Box N-7759 Lyford
Director and President Securities Analyst Cay
Nassau, Bahamas
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Martin L. Flanagan
Director and 777 Mariners Island
Executive Vice Accountant Blvd.
President San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
J. Mark Mobius 7 Temasek Blvd.,
Director and Suntec Tower One
Executive Vice Securities Analyst Singapore,
President
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Charles B. Johnson 777 Mariners Island
Director Executive Manager Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Charles E. Johnson 777 Mariners Island
Director Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Jeffrey A. Everett Box N-7759 Lyford
Executive Vice Securities Analyst Cay
President Nassau, Bahamas
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Gregory E. McGowan
Executive Vice 500 East Broward
President Attorney Blvd.
and Secretary Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Richard Sean Box N-7759 Lyford
Farrington Securities Analyst Cay
Senior Vice President Nassau, Bahamas
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Timothy Brown Box N-7759 Lyford
Vice President and Accountant Cay
Treasurer Nassau, Bahamas
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Deborah R. Gatzek 777 Mariners Island
Vice President Attorney Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Cindy Sweeting Box N-7759 Lyford
Vice President Securities Analyst Cay
Nassau, Bahamas
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Dale Winner Box N-7759 Lyford
Vice President Securities Analyst Cay
Nassau, Bahamas
- -----------------------------------------------------------------
Some of trustees or officers of the VIP Trust (whose addresses and
biographical information are included in the VIP Trust's statement of
additional information) also serve as directors or officers of TGAL. These
trustees and officers are listed below:
Marty L. Flanagan
Charles B. Johnson
Charles E. Johnson
Deborah R. Gatzek
Note: Charles B. Johnson is the father of Charles E. Johnson
<PAGE>
TEMPLETON INVESTMENT COUNSEL, INC. Templeton Investment Counsel, Inc.
("TICI") is a Florida corporation formed in October 1979 and whose address is
500 East Broward Boulevard, Suite 2100, Fort Lauderdale, Florida. TICI is a
wholly owned subsidiary of Templeton Global Investors, Inc., which is a
subsidiary of Templeton Worldwide, Inc., which, in turn, is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), 777 Mariners Island
Blvd., San Mateo, California 94404-1585. Resources is primarily engaged,
through various subsidiaries, in providing investment management, share
distribution, transfer agent and administrative services to a family of
investment companies. Resources is an NYSE, Inc. listed holding company
(NYSE: BEN). Resources principal shareholders are Charles B. Johnson and
Rupert H. Johnson, both principal officers and trustees of the Trust, who own
approximately 20% and 16%, respectively, of Resources outstanding shares.
TICI is the principal investment adviser to managed and institutional
accounts. In addition, it provides portfolio management services to certain
of the Templeton funds and sub-advisory services to certain of the Franklin
funds.
The principal executive officers of TICI are:
NAME AND OFFICE PRINCIPAL OCCUPATION ADDRESS
- -----------------------------------------------------------------
Charles E. Johnson 777 Mariners Island
Director and Chairman Securities Analyst Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Donald F. Reed 500 East Broward
President and Director Securities Analyst Blvd.
Ft. Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Martin L. Flanagan
Director, Executive
Vice President and 777 Mariners Island
Chief Operating Accountant Blvd.
Officer San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Howard Joseph Leonard P.O. Box 472867
Executive Vice Securities Analyst Charlotte, NC
President
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Gregory E. McGowan
Director and 500 East Broward
Executive Vice Attorney Blvd.
President Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Gary Paul Motyl
Director and 500 East Broward
Executive Vice Securities Analyst Blvd.
President Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
W. Denman Zirkle 500 East Broward
Executive Vice Sales & Client Blvd.
President Services Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Niels E. Andersen
Director and Senior
Vice President of 500 East Broward
Institutional Marketing Blvd.
Business Development Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Mark R. Beveridge 500 East Broward
Senior Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Gary R. Clemons 500 East Broward
Senior Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
William T. Howard, Jr. 500 East Broward
Senior Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Charles Reed Hutchens 500 East Broward
Senior Vice President Blvd.
Client Services Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Elizabeth M. Knoblock
Vice President, 500 East Broward
General Counsel and Attorney Blvd.
Secretary Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Peter A. Nori 500 East Broward
Senior Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Simon Rudolph 500 East Broward
Senior Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Catherine B. Alsop 500 East Broward
Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Heidi C. Andersen 500 East Broward
Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Peter D. Anderson 500 East Broward
Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Jean M. Cabot 500 East Broward
President Client Services Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Michael J. Corcoran 777 Mariners Island
Vice President and Accountant Blvd.
Controller San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Cristina Elias 500 East Broward
Vice President Client Services Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Norman R. Frisbie 777 Mariners Island
Vice President Sales Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Deborah R. Gatzek 777 Mariners Island
Vice President Attorney Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Douglas J. Gooding 500 East Broward
Vice President Client Services Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Robert G. Paulson 500 East Broward
Vice President Sales Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
John B. Rovick 500 East Broward
Vice President Marketing Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Sandra Schoren-Testa 500 East Broward
Vice President Client Services Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Edgerton Scott 500 East Broward
Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Catherine N. Triantis 500 East Broward
Vice President Sales Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Ann Margaret Ulrich 500 East Broward
Vice President Client Services Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Jeanne S. F. Wong 777 Mariners Island
Vice President Client Services Blvd.
San Mateo,
California
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Guang Yang 500 East Broward
Vice President Securities Analyst Blvd.
Fort Lauderdale,
Florida
- -----------------------------------------------------------------
Some of trustees or officers of the VIP Trust (whose addresses and
biographical information are included in the VIP Trust's statement of
additional information) also serve as directors or officers of TICI. These
trustees and officers are listed below:
Charles B. Johnson
Marty L. Flanagan
<PAGE>
PORTFOLIO MANAGEMENT TEAM
In general, the portfolio management team is the same between
corresponding funds, except in three pairs. The three pairs are: (1) the TVP
Templeton Asset Allocation Fund and the VIP Templeton Global Asset Allocation
Fund; (2) the TVP Templeton International Fund and the VIP Templeton
International Equity Fund; and (3) the TVP Templeton Stock Fund and the TVP
Templeton Global Growth Fund.
- -----------------------------------------------------------------
TVP TEMPLETON VIP TEMPLETON
ASSET GLOBAL ASSET COMBINED FUND
ALLOCATION FUND ALLOCATION FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Portfolio Gary Clemons Dale Winner Gary Clemons
Manager
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Other Team Peter Nori Mark Holowesko Peter Nori
Members Tucker Scott A team of Tucker Scott
A team of Templeton A team of
Templeton Global Bond Templeton
Global Bond Managers Global Bond
Managers Managers
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON VIP TEMPLETON
INTERNATIONAL INTERNATIONAL
FUND EQUITY FUND COMBINED FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Portfolio Peter Nori Howard Leonard Mark Holowesko
Manager
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Other Team Gary Motyl Mark Beveridge Jeffrey Everett
Members Heidi Anderson Christopher A.
Maura
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON VIP TEMPLETON
STOCK FUND GLOBAL GROWTH COMBINED FUND
FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Portfolio Mark Beveridge Sean Farrington Mark Holowesko
Manager
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Other Team William Howard Jeffrey Everett Jeffrey Everett
Members Edwin Lugo II
- -----------------------------------------------------------------
Information about each of these persons is set forth below.
HEIDI S. ANDERSEN, CFA
Ms. Andersen is a Vice President of TICI and has been a manager of the TVP
Templeton International Fund since 1998. Ms. Andersen has been with the
Franklin Templeton Group since 1995.
MARK R. BEVERIDGE, CFA
Mr. Beveridge is a Senior Vice President of TICI and has been a manager of
the VIP Templeton International Equity Fund since 1994 and of the TVP
Templeton Stock Fund since 1995. Mr. Beveridge has been with the Franklin
Templeton Group since 1985.
GARY CLEMONS
Mr. Clemens is a Senior Vice President of TICI and has managed the equity
portion of the TVP Templeton Asset Allocation Fund since 1995. Mr. Clemons
has been with the Franklin Templeton Group since 1990.
JEFFREY A. EVERETT, CFA
Mr. Everett is an Executive Vice President of TGAL and has been a manager of
the VIP Templeton Global Growth Fund since its inception in 1994 and will be
a manager of the VIP Templeton International Equity Fund effective May 1,
2000. Mr. Everett has been with the Franklin Templeton Group since 1989.
RICHARD SEAN FARRINGTON, CFA
Mr. Farrington is a Senior Vice President of TGAL and has been a manager of
the VIP Global Growth Fund since 1995. Mr. Farrington has been with the
Franklin Templeton Group since 1991.
MARK G. HOLOWESKO, CFA
Mr. Holowesko is President of TGAL and has been a manager of the VIP Global
Templeton Asset Allocation since 1999 and will be the manager of the VIP
Templeton International Equity Fund and the VIP Templeton Global Growth
Fund, effective May 1, 2000. Mr. Holowesko has been with the Franklin
Templeton Group since 1985.
WILLIAM T. HOWARD, JR., CFA
Mr. Howard is a Senior Vice President of TICI and has been a manager of the
TVP Stock Fund since 1996. Mr. Howard has been with the Franklin Templeton
Group since 1993.
HOWARD J. LEONARD, CFA
Mr. Leonard is a Executive Vice President of TICI and has been a manager of
the VIP Templeton International Equity Fund since 1997. Mr. Leonard has been
with the Franklin Templeton Group since 1989.
EDWIN LUGO II
Mr. Lugo is a portfolio manager of TICI and has been a manager of the TVP
Templeton Stock Fund since 1999. Mr. Lugo has been with the Franklin
Templeton Group since 1996. Prior to joining the Franklin Templeton Group,
he worked at the New Boston Group.
CHRISTOPHER A. MAURA
Mr. Maura is a portfolio manager of TGAL and will be the manager of VIP
Templeton International Equity Fund effective May 1, 2000. He joined the
Franklin Templeton Group in 1993.
GARY P. MOTYL, CFA
Mr. Motyl is a Director and a Executive Vice President of TICI and has been a
manager of the TVP Templeton International Fund since 1995. Mr. Motyl has
been with the Franklin Templeton Group since 1981.
PETER A. NORI, CFA
Mr. Nori is a Senior Vice President of TICI and has managed the equity
portion of the TVP Asset Allocation Fund since 1996 and has been a manager of
the TVP Templeton International Fund since 1996. Mr. Nori has been with the
Franklin Templeton Group since 1987.
TUCKER SCOTT, CFA
Mr. Scott is a Vice President of TICI and has been a manager of the TVP Asset
Allocation Fund since 1998 and has been with the Franklin Templeton Group
since 1996. Prior to joining the Franklin Templeton Group, Mr. Scott worked
for Aeltus Investment Management.
DALE WINNER, CFA
Mr. Winner has been a manager of the VIP Templeton Global Asset Allocation
Fund since 1997. Before joining Templeton Global Advisors Limited ("TGAL")
and Franklin Templeton in 1995, he was a trust officer at J.P. Morgan.
EXHIBIT VII
TVP FUNDS AND VIP FUNDS COMPARATIVE FEE TABLE EXAMPLES
The following examples are intended to help you compare the cost of
investing in each fund and in the combined funds. These examples assume you
invest $10,000 for the periods shown and then sell your shares at the end of
those periods. These examples also assume your investment has a 5% return
each year and the fund's operating expenses are BEFORE WAIVER, if applicable,
and remain the same. THESE EXAMPLES DO NOT INCLUDE ANY FEES OR SALES CHARGES
IMPOSED BY THE VARIABLE INSURANCE CONTRACT FOR WHICH THE FUNDS ARE INVESTMENT
OPTIONS. If they had been included, your costs would be higher. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
TVP FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND
VIP FRANKLIN LARGE CAP GROWTH SECURITIES FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP FRANKLIN LARGE CAP
GROWTH INVESTMENTS FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $294 $901 $1,533 $3,233
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares n/a n/a n/a n/a
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP FRANKLIN LARGE CAP
GROWTH SECURITIES FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $79 $246 $428 $954
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $109 $340 $590 $1,221
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $79 $246 $428 $954
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $109 $340 $590 $1,221
- -----------------------------------------------------------------
<PAGE>
TVP FRANKLIN SMALL CAP INVESTMENTS FUND
VIP FRANKLIN SMALL CAP FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP FRANKLIN SMALL CAP
INVESTMENTS FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $103 $323 $560 $1,240
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $129 $401 $694 $1,527
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP FRANKLIN SMALL CAP
FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $79 $246 $428 $954
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $104 $325 $563 $1,248
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $84 $262 $455 $1,014
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $109 $340 $590 $1,306
- -----------------------------------------------------------------
TVP MUTUAL SHARES INVESTMENTS FUND
VIP MUTUAL SHARES SECURITIES FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP MUTUAL SHARES
INVESTMENTS FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $290 $889 $1,513 $3,195
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $315 $963 $1,635 $3,430
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP MUTUAL SHARES
SECURITIES FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $79 $246 $428 $954
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $109 $340 $590 $1,221
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $79 $246 $428 $954
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $104 $325 $563 $1,248
- -----------------------------------------------------------------
<PAGE>
TVP TEMPLETON ASSET ALLOCATION FUND
VIP TEMPLETON GLOBAL ASSET ALLOCATION FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON ASSET
ALLOCATION FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $80 $249 $433 $966
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $105 $328 $569 $1,259
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP TEMPLETON GLOBAL
ASSET ALLOCATION FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $86 $268 $466 $1,037
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $116 $362 $628 $1,302
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $81 $252 $439 $978
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $106 $331 $574 $1,271
- -----------------------------------------------------------------
TVP TEMPLETON BOND FUND
VIP TEMPLETON GLOBAL INCOME SECURITIES FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON BOND FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $75 $233 $406 $906
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $90 $281 $488 $1,084
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP TEMPLETON GLOBAL
INCOME SECURITIES FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $64 $202 $351 $786
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $95 $296 $515 $1,058
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $63 $199 $346 $774
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $89 $278 $482 $1,073
- -----------------------------------------------------------------
<PAGE>
TVP TEMPLETON DEVELOPING MARKETS FUND
VIP TEMPLETON DEVELOPING MARKETS EQUITY FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON
DEVELOPING MARKETS FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $169 $523 $902 $1,965
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $194 $600 $1,032 $2,233
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP TEMPLETON
DEVELOPING MARKETS
EQUITY FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $144 $446 $771 $1,691
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $174 $539 $928 $1,940
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $159 $493 $850 $1,856
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $184 $569 $980 $2,127
- -----------------------------------------------------------------
TVP TEMPLETON INTERNATIONAL FUND
VIP TEMPLETON INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON
INTERNATIONAL FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $88 $274 $477 $1,061
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $113 $353 $612 $1,352
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP TEMPLETON
INTERNATIONAL EQUITY
FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $90 $281 $488 $1,084
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $120 $375 $649 $1,348
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $85 $265 $460 $1,025
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $110 $343 $595 $1,317
- -----------------------------------------------------------------
<PAGE>
TVP TEMPLETON STOCK FUND
VIP TEMPLETON GLOBAL GROWTH FUND
- -----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
- -----------------------------------------------------------------
TVP TEMPLETON STOCK
FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $91 $284 $493 $1,096
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $116 $362 $628 $1,386
- -----------------------------------------------------------------
- -----------------------------------------------------------------
VIP TEMPLETON GLOBAL
GROWTH FUND
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $90 $281 $488 $1,084
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $120 $375 $649 $1,348
- -----------------------------------------------------------------
- -----------------------------------------------------------------
COMBINED FUND PRO FORMA
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 1 Shares $87 $271 $471 $1,049
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Class 2 Shares $112 $350 $606 $1,340
- -----------------------------------------------------------------
TVP FRANKLIN S&P 500 INDEX FUND
VIP FRANKLIN S&P 500 INDEX FUND
- ---------------------------------------------
1 YEAR 3 YEARS
- ---------------------------------------------
- ---------------------------------------------
TVP FRANKLIN S&P 500
INDEX FUND
- ---------------------------------------------
- ---------------------------------------------
Class 1 Shares $54 $170
- ---------------------------------------------
- ---------------------------------------------
Class 2 Shares $80 $249
- ---------------------------------------------
- ---------------------------------------------
Class 3 Shares $82 $255
- ---------------------------------------------
- ---------------------------------------------
VIP FRANKLIN S&P 500
INDEX FUND
- ---------------------------------------------
- ---------------------------------------------
Class 1 Shares $0 $0
- ---------------------------------------------
- ---------------------------------------------
Class 2 Shares $0 $0
- ---------------------------------------------
- ---------------------------------------------
COMBINED FUND PRO FORMA
- ---------------------------------------------
- ---------------------------------------------
Class 1 Shares $54 $170
- ---------------------------------------------
- ---------------------------------------------
Class 2 Shares $80 $249
- ---------------------------------------------
- ---------------------------------------------
Class 3 Shares $82 $255
- ---------------------------------------------
<PAGE>
TVP FRANKLIN STRATEGIC INCOME INVESTMENTS FUND
VIP FRANKLIN STRATEGIC INCOME SECURITIES FUND
- ---------------------------------------------
1 YEAR 3 YEARS
- ---------------------------------------------
- ---------------------------------------------
TVP FRANKLIN STRATEGIC
INCOME INVESTMENTS FUND
- ---------------------------------------------
- ---------------------------------------------
Class 1 Shares $97 $303
- ---------------------------------------------
- ---------------------------------------------
Class 2 Shares $122 $381
- ---------------------------------------------
- ---------------------------------------------
VIP FRANKLIN STRATEGIC
INCOME SECURITIES FUND
- ---------------------------------------------
- ---------------------------------------------
Class 1 Shares $ $
- ---------------------------------------------
- ---------------------------------------------
Class 2 Shares $ $
- ---------------------------------------------
- ---------------------------------------------
COMBINED FUND PRO FORMA
- ---------------------------------------------
- ---------------------------------------------
Class 1 Shares $97 $303
- ---------------------------------------------
- ---------------------------------------------
Class 2 Shares $122 $381
- ---------------------------------------------
Exhibit VIII(a)
EXHIBIT VIII - TVP AND VIP
FUNDS - CLASS 1 COMPARATIVE
PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS CUMULATIVE TOTAL RETUNS
INCEP- 5- 10- INCEP-
5-YEARS 10-YEARS TION 1-YEAR YEARS YEAR TION
INCEPTION TO TO TO TO TO TO TO
FUNDS DATE SEPT. SEPT. SEPT. SEPT. SEPT. SEPT. SEPT.
99 99 99 99 99 99 99
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TVP Franklin Large Cap May-01-98 N/A N/A 21.98 37.81 N/A N/A 32.57
Growth Investments Fund*
VIP Franklin Large Cap May-01-96 N/A N/A 17.44 28.32 N/A N/A 73.26
Growth Investments Fund**
TVP Franklin Small Cap May-01-98 N/A N/A 10.65 51.70 N/A N/A 15.45
Investments Fund
VIP Franklin Small Cap Nov-01-95 N/A N/A 17.45 52.16 N/A N/A 87.81
Investments Fund
TVP Mutual Shares May-01-98 N/A N/A 0.47 16.92 N/A N/A 0.66
Investments Fund
VIP Mutual Shares Securities Nov-08-96 N/A N/A 8.84 18.30 N/A N/A 27.75
Fund
TVP Templeton Asset Aug-24-813.91 12.15 12.15 31.49 91.78 214.65 257.18
Allocation Fund
VIP Templeton Global Asset May-01-95 N/A N/A 8.58 12.55 N/A N/A 43.85
Allocation Fund
TVP Templeton Bond Fund Aug-24-885.62 6.31 6.34 -1.94 31.46 84.31 97.86
VIP Templeton Global Income Jan-24-895.52 6.19 6.37 -1.99 30.81 82.39 93.33
Securities Fund
TVP Templeton Developing Mar-04-96 N/A N/A -11.60 54.49 N/A N/A -35.64
Markets Fund
VIP Templeton Developing Mar-15-9-0.19 N/A 0.75 47.02 -0.94 N/A 4.21
Markets Equity Fund
TVP Templeton International May-01-913.30 N/A 13.95 24.62 86.69 N/A 163.33
Fund
VIP Templeton International Jan-27-910.77 N/A 10.88 21.93 66.73 N/A 120.90
Equity Fund
TVP Templeton Stock Fund Aug-24-812.79 11.76 12.18 27.47 82.53 203.99 258.17
VIP Templeton Global Growth Mar-15-912.49 N/A 12.15 25.91 80.15 N/A 88.83
Fund
* PREVIOUSLY NAMED THE
FRANKLIN GROWTH INVESTMENTS
FUND
** PREVIOUSLY NAMED THE
CAPITAL GROWTH FUND
The managers of the TVP
Franklin Large Cap Growth
Investments, Franklin Small
Cap Investments, and Mutual
Shares Investments Funds,
are contractually
obligated to limit class 1
expenses for these funds to
1.00% of total net assets
through 1999.
PERFORMANCE REFLECTS ALL
FUND EXPENSES BUT DOES NOT
INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE
VARIABLE INSURANCE CONTRACT
FOR WHICH THE FUND IS AN
INVESTMENT OPTION. IF THEY
HAD BEEN INCLUDED,
PERFORMANCE WOULD BE LOWER.
Total return figures are
based on the inception of
each TVP and VIP Fund, which
may have started before the
contract.
Total return represents the
cumulative or average annual
change in value, assuming
reinvestment of dividends
and capital gains.
Average returns smooth out
variations in returns, which
can be significant; they are
not the same as year by year
results.
</TABLE>
EXHIBIT VIII(b)
EXHIBIT VIII - TVP AND VIP
FUNDS - CLASS 2 COMPARATIVE
PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS CUMULATIVE TOTAL RETUNS
INCEP- 5- 10- INCEP-
5-YEARS 10-YEARS TION 1-YEAR YEARS YEAR TION
INCEPTION TO TO TO TO TO TO TO
FUNDS DATE SEPT. SEPT. SEPT. SEPT. SEPT. SEPT. SEPT.
99 99 99 99 99 99 99
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TVP Franklin Large Cap May-01-98 N/A N/A N/A N/A N/A N/A N/A
Growth Investments Fund*
VIP Franklin Large Cap May-01-96 N/A N/A 17.34 27.94 N/A N/A 72.76
Growth Investments Fund**
TVP Franklin Small Cap May-01-98 N/A N/A 10.43 51.27 N/A N/A 15.12
Investments Fund
VIP Franklin Small Cap Nov-01-95 N/A N/A 17.38 52.16 N/A N/A 87.36
Investments Fund
TVP Mutual Shares May-01-98 N/A N/A 0.31 16.66 N/A N/A 0.45
Investments Fund
VIP Mutual Shares Securities Nov-08-96 N/A N/A 8.93 18.59 N/A N/A 28.07
Fund
TVP Templeton Asset Aug-24-813.78 12.08 12.09 31.16 90.65 212.80 255.08
Allocation Fund
VIP Templeton Global Asset May-01-95 N/A N/A 8.56 12.38 N/A N/A 43.77
Allocation Fund
TVP Templeton Bond Fund Aug-24-885.60 6.30 6.33 -2.03 31.32 84.13 97.66
VIP Templeton Global Income Jan-24-895.47 6.26 6.43 -2.23 30.50 83.61 94.63
Securities Fund
TVP Templeton Developing Mar-04-96 N/A N/A -11.72 54.09 N/A N/A -36.01
Markets Fund
VIP Templeton Developing Mar-15-9-0.24 N/A 0.70 46.67 -1.17 N/A 3.96
Markets Equity Fund
TVP Templeton International May-01-913.20 N/A 13.90 24.30 85.50 N/A 161.60
Fund
VIP Templeton International Jan-27-910.69 N/A 10.83 21.49 66.18 N/A 120.17
Equity Fund
TVP Templeton Stock Fund Aug-24-812.64 11.69 12.12 27.14 81.34 202.01 255.84
VIP Templeton Global Growth Mar-15-912.47 N/A 12.12 25.76 79.94 N/A 88.83
Fund
</TABLE>
* PREVIOUSLY NAMED THE
FRANKLIN GROWTH INVESTMENTS
FUND
** PREVIOUSLY NAMED THE
CAPITAL GROWTH FUND
Standardized performance for
class 2 shares reflects a
"blended" figure, combining:
(a) for periods prior to
class 2's inception on
5/1/97 for the TVP Funds and
1/6/99 for the VIP Funds,
historical results of class
1 shares, and (b) for
periods after 5/1/97 for the
TVP Funds and
1/6/99 for the VIP Funds,
class 2's results reflecting
an additional 12b-1 fee
expense, which also affects
all future performance.
The managers of the TVP
Franklin Large Cap Growth
Investments, Franklin Small
Cap Investments, and Mutual
Shares Investments Funds,
are contractually obligated
to limit class 2 expenses
for these funds to 1.25% of
total net assets through
1999.
PERFORMANCE REFLECTS ALL
FUND EXPENSES BUT DOES NOT
INCLUDE ANY FEES OR SALES
CHARGES IMPOSED BY THE
VARIABLE
INSURANCE CONTRACT FOR WHICH
THE FUND IS AN INVESTMENT
OPTION. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD
BE LOWER.
Total return figures are
based on the inception of
each TVP and VIP Fund, which
may have started before the
contract.
Total return represents the
culmulative or average
annual change in value,
assuming reinvestment of
dividends and capital gains.
Average returns smooth out
variations in returns,
which can be significant;
they are not the same as
year by year results.
Statement of Additional Information
Special Meeting
To be held on February 1, 2000
Templeton Variable Products Series Fund
500 East Broward Boulevard, Suite 2100
Fort Lauderdale, Florida 33394-3091
1-(800) 774-5001
Franklin Templeton Variable Insurance Products Trust
777 Mariners Island Boulevard
San Mateo, California 94404
1-(800) 342-3863
This Statement of Additional Information is not a prospectus. A combined proxy
statement/prospectus, dated December 9, 1999, relating to the above matter may
be obtained from the office of Franklin Templeton Variable Insurance Products
Trust, 777 Mariners Island Boulevard, San Mateo, California 99404, or by calling
1-(800) 342-3863. This Statement of Additional Information relates to, and
should be read in conjunction with the combined proxy statement/prospectus and
is incorporated by reference into that document (which means that this statement
of additional Information is legally a part of the combined proxy
statement/prospectus).
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given in the combined proxy
statement/prospectus.
The date of this statement of additional information is December 9, 1999.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Information incorporated by reference
Pro forma financial statements
INFORMATION INCORPORATED BY REFERENCE
Each of the following documents is incorporated by reference into this Statement
of Additional Information:
1. Statement of Additional Information of the Franklin Templeton Variable
Insurance Products Series Trust, dated May 1, 1999, as supplemented July 1,
1999.
2. Annual Report of Franklin Templeton Variable Insurance Products Series Trust
for the period ended December 31, 1998.
3. Semi-annual Report of Franklin Templeton Variable Insurance Products Series
Trust for the period ended June 30, 1999.
4. Statement of Additional Information of the Templeton Variable Products Series
Fund, dated July 1, 1999.
5. Annual Report of Templeton Variable Products Series Fund for the period ended
December 31, 1998.
6. Semi-annual Report of Templeton Variable Products Series Fund for the period
ended June 30, 1999.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial information gives effect to the
proposed reorganization, accounted as if the reorganization had occurred as of
June 30, 1999. In addition, each pro forma combined statement has been prepared
based upon the structure of the proposed fee and expense structure after the
combination, as discussed in the combined proxy statement/prospectus.
Pro forma financial information has not been prepared for the VIP's Franklin S&P
500 Index Fund and the Franklin Strategic Income Securities Fund, because such
funds will be organized to facilitate the reorganization and have not commenced
operations. Moreover, the expenses of these funds are not expected to be
materially different from the expenses of the corresponding TVP funds, each of
which commenced operations after June 30, 1999.
The pro forma financial information should be read in conjunction with the
historical financial statements and notes thereto of the Franklin Templeton
Variable Insurance Products Series Trust and the Templeton Variable Products
Series Fund which are incorporated by reference in this Statement of Additional
Information. Each combination will be accounted for as a tax-free
reorganization.
>>
<<
VIP Capital Growth Fund
TVP Growth Investments Fund
Pro forma combined Statement of Investments, June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
VIP Capital Growth
VIP Capital Growth FundTVP Growth Investments Fund Pro Forma Combined
- -----------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks 88.2%
Commercial Services 3.2%
a Concord EFS Inc. 140,000 $5,923,750 200 $ 8,463 140,200$5,932,213
Equifax Inc. 100,000 3,568,750 200 7,138 100,200 3,575,888
a Robert Half International Inc. 75,000 1,950,000 200 5,200
75,200 1,955,200
------------ ------------ -------------
11,442,500 20,801 11,463,301
------------ ------------ -------------
Consumer Durables 2.0%
a Electronic Arts Inc. 50,000 2,712,500 -- -- 50,000 2,712,500
Mattel Inc. 160,000 4,230,000 200 5,288 160,200 4,235,288
------------ ------------ -------------
6,942,500 5,288 6,947,788
------------ ------------ -------------
Consumer Non-Durables 4.9%
Campbell Soup Co. 30,000 1,391,250 100 4,638 30,100 1,395,888
Coca-Cola Co. 17,000 1,062,500 -- -- 17,000 1,062,500
Hershey Foods Corp. 75,000 4,453,125 -- -- 75,000 4,453,125
Nike Inc., B 50,000 3,165,625 100 6,331 50,100 3,171,956
PepsiCo Inc. 30,000 1,160,625 -- -- 30,000 1,160,625
Philip Morris Cos. Inc. 85,000 3,415,938 200 8,038 85,200 3,423,976
Procter & Gamble Co. 30,000 2,677,500 -- -- 30,000 2,677,500
------------ ------------ ------------
17,326,563 19,007 17,345,570
------------ ------------ -------------
Consumer Services 3.0%
McDonald's Corp. 100,000 4,131,250 -- -- 100,000 4,131,250
a Mirage Resorts Inc. 110,000 1,842,500 300 5,025 110,300 1,847,525
Time Warner Inc. 64,000 4,704,000 -- -- 64,000 4,704,000
------------ ------------ ----------
10,677,750 5,025 10,682,775
------------ ------------ ----------
Electronic Technology 18.5%
a 3Com Corp. 85,000 2,268,438 100 2,669 85,100 2,271,107
aApplied Materials Inc. 55,000 4,063,125 100 7,388 55,100 4,070,513
a Cisco Systems Inc. 110,000 7,095,000 200 12,900 110,200 7,107,900
Compaq Computer Corp. 100,000 2,368,750 200 4,738 100,200 2,373,488
Hewlett-Packard Co. 65,000 6,532,500 100 10,050 65,100 6,542,550
Intel Corp. 50,000 2,975,000 200 11,900 50,200 2,986,900
International Business Machines 50,000 6,462,500 -- -- 50,000 6,462,500
Corp.
a KLA-Tencor Corp. 50,000 3,243,750 -- -- 50,000 3,243,750
Linear Technology Corp. 65,000 4,371,250 -- -- 65,000 4,371,250
Lucent Technologies Inc. 30,000 2,023,125 50 3,372 30,050 2,026,497
Molex Inc. 63,437 2,347,169 200 7,400 63,637 2,354,569
Nortel Networks Corp. (Canada) -- -- 50 4,341 50 4,341
a Synopsys Inc. 70,000 3,863,125 -- -- 70,000 3,863,125
a Tellabs Inc. 24,000 1,621,500 50 3,378 24,050 1,624,878
a Uniphase Corp. 40,000 6,640,000 100 16,600 40,100 6,656,600
United Technologies Corp. 60,000 4,301,250 -- -- 60,000 4,301,250
a Xilinx Inc. 100,000 5,725,000 -- -- 100,000 5,725,000
------------ ----------- ----------
65,901,482 84,736 65,986,218
------------ ------------ ---------
Energy Minerals 1.9%
aBarrett Resources Corp. 58,200 2,233,425 -- -- 58,200 2,233,425
Royal Dutch Petroleum Co., N.Y. shs.,
ADR (Netherlands) 75,000 4,518,750 100 6,025 75,100 4,524,775
------------ -----------
6,752,175 6,025 6,758,200
------------ ------------ ----------------
Finance 9.6%
American International 33,550 3,927,447 -- -- 33,550 3,927,447
Group Inc.
Associates First Capital 70,00 3,101,875 200 8,863 70,200 3,110,738
Corp., A
Bank One Corp. 85,00 5,062,813 -- -- 85,000 5,062,813
Charles Schwab Corp. 32,500 3,570,938 50 5,494 32,550 3,576,432
Citigroup Inc. 127,500 6,056,250 150 7,125 127,650 6,063,375
Fannie Mae 75,000 5,128,125 100 6,838 75,100 5,134,963
aGoldman Sachs Group Inc. 22,600 1,632,850 100 7,225 22,700 1,640,075
Providian Financial Corp. 38,000 3,553,000 -- -- 38,000 3,553,000
aTD Waterhouse Group Inc. 89,900 2,253,119 200 5,013 90,100 2,258,132
------------ ------------ ----------------
34,286,417 40,558 34,326,975
------------ ------------ ----------------
Health Services 1.0%
McKesson HBOC Inc. 59,000$1,895,375 50 $ 1,606 59,050$1,896,981
Omnicare Inc. 120,000 1,767,500 -- -- 120,000 1,767,500
------------ ----------- ----------------
3,662,875 1,606 3,664,481
------------ ------------ ----------------
Health Technology 13.8%
Abbott Laboratories 110,000 5,005,000 200 9,100 110,200 5,014,100
American Home Products Corp. 60,000 3,450,000 100 5,750 60,100 3,455,750
a Amgen Inc. 90,000 5,478,750 -- -- 90,000 5,478,750
Baxter International Inc. 70,000 4,243,750 100 6,063 70,100 4,249,813
aBoston Scientific Corp. 85,000 3,734,688 100 4,394 85,100 3,739,082
Bristol-Myers Squibb Co. 80,000 5,635,000 -- -- 80,000 5,635,000
a Centocor Inc. 21,000 979,125 -- -- 21,000 979,125
Eli Lilly & Co. 40,000 2,865,000 -- -- 40,000 2,865,000
a Guidant Corp. 5,000 257,188 100 5,144 5,100 262,332
Johnson & Johnson 55,000 5,390,000 100 9,800 55,100 5,399,800
Medtronic Inc. 50,000 3,893,750 -- -- 50,000 3,893,750
Merck & Co. Inc. 15,000 1,110,000 -- -- 15,000 1,110,000
Pfizer Inc. 22,000 2,414,500 -- -- 22,000 2,414,500
Schering-Plough Corp. 90,000 4,770,000 200 10,600 90,200 4,780,600
------------ ------------ ----------------
49,226,751 50,851 49,277,602
------------ ------------ ----------------
Industrial Services 3.6%
a AES Corp. 65,000 3,778,125 100 5,813 65,100 3,783,938
aRepublic Services Inc., A 164,500 4,071,375 200 4,950 164,700 4,076,325
Schlumberger Ltd. 75,000 4,776,563 -- -- 75,000 4,776,563
------------ ------------ ----------------
12,626,063 10,763 12,636,826
------------ ------------ ----------------
Non-Energy Minerals 1.0%
De Beers Consolidated Mines AG, ADR
(South Africa) 150,000 3,581,250 200 4,775 150,200 3,586,025
------------ ----------- ----------------
Process Industries 3.4%
Air Products Chemicals Inc 70,000 2,817,500 200 8,050 70,200 2,825,550
Millipore Corp. 60,000 2,433,750 -- -- 60,000 2,433,750
a Owens-Illinois Inc. 60,000 1,961,250 -- -- 60,000 1,961,250
Pall Corp. 110,000 2,440,625 200 4,438 110,200 2,445,063
Sigma-Aldrich Corp. 70,000 2,410,625 -- -- 70,000 2,410,625
----------- ------------ ----------------
12,063,750 12,488 12,076,238
------------ ------------ ----------------
Producer Manufacturing 1.8%
Avery Dennison Corp. 30,000 1,811,250 -- -- 30,000 1,811,250
Emerson Electric Co. 40,000 2,515,000 100 6,288 40,100 2,521,288
Minnesota Mining & 25,000 2,173,438 -- -- 25,00 2,173,438
Manufacturing Co. ------------ ------------ -------------
6,499,688 6,288 6,505,976
------------ ------------ ---------------
Retail Trade 4.5%
Albertson's Inc. 85,000 4,382,813 100 5,156 85,100 4,387,969
Tiffany & Co. 60,000 5,790,000 100 9,650 60,100 5,799,650
Wal-Mart Stores Inc. 120,000 5,790,000 -- -- 120,000 5,790,000
----------- ------------ ----------------
15,962,813 14,806 15,977,619
------------ ------------ ----------------
Technology Services 6.6%
Automatic Data 150,000 6,600,000 200 8,800
Processing Inc. 150,200 6,608,800
aComputer Sciences Corp. 50,000 3,459,375 -- -- 50,000 3,459,375
a EMC Corp. 50,000 2,750,000 -- -- 50,000 2,750,000
a Microsoft Corp. 80,000 7,215,000 200 18,038 80,200 7,233,038
a Oracle Corp. 90,000 3,341,250 -- -- 90,000 3,341,250
------------ ------------ ----------------
23,365,625 26,838 23,392,463
------------ ----------- ----------------
Telecommunications 2.4%
GTE Corp. 50,000 3,787,500 -- -- 50,000 3,787,500
Vodafone AirTouch PLC, ADR
(United Kingdom) 25,000 4,925,000 50 9,850 25,050 4,934,850
------------ ------------ ----------------
8,712,500 9,850 8,722,350
------------ ------------ ----------------
Transportation 2.6%
Air Express 150,000 $3,806,250 300 $ 7,613
International Corp. 150,300 $3,813,863
Expeditors International
of Washington Inc. 120,000 3,270,000 200 5,450 120,200 3,275,450
Southwest Airlines Co. 70,000 2,178,750 -- -- 70,000 2,178,750
------------ ------------- ---------------
9,255,000 13,063 9,268,063
------------ ------------ ----------------
Utilities 4.4%
CMS Energy Corp. 117,000 4,899,375 150 6,281 117,150 4,905,656
Dominion Resources Inc. 42,000 1,819,125 100 4,331 42,100 1,823,456
Enron Corp. 60,000 4,905,000 100 8,175 60,100 4,913,175
MCN Energy Group Inc. 90,100 1,869,570 150 3,113 90,250 1,872,683
PECO Energy Co. 50,000 2,093,750 100 4,189 50,100 2,097,939
------------ ------------ ----------------
15,586,820 26,089 15,612,909
------------ ------------ ----------------
Total Long Term Investments
(Cost $238,590,005) 313,872,522 358,857 314,231,379
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
----------- ----------- -----------
Repurchase Agreement 11.8%
Joint Repurchase Agreement,
4.767%, 7/01/99,
(Maturity Value $42,202,325)
<S> <C> <C> <C> <C> <C> <C> <C>
(Cost $42,196,737) $42,076,712 42,076,712 $120,025 120,025 $42,196,737 42,196,737
Barclays Capital Inc.
(Maturity Value $5,323,400)
Bear, Stearns & Co. Inc.
(Maturity Value $4,697,118)
Chase Securities Inc.
(Maturity Value $869,368)
CIBC Oppenheimer Corp.
(Maturity Value $5,323,400)
Donaldson, Lufkin & Jenrette
Securities Corp.
(Maturity Value $3,757,695)
Dresdner Kleinwort Benson,
North America LLC
(Maturity Value $3,757,695)
Goldman, Sachs & Co.
(Maturity Value $1,878,847)
NationsBanc Montgomery
Securities LLC
(Maturity Value $3,757,695)
Paine Webber Inc.
(Maturity Value $3,757,695)
Paribas Corp.
(Maturity Value $3,756,011)
Warburg Dillon Read LLC
(Maturity Value $5,323,401)
Collateralized by U.S. Treasury Bills
& Notes
------------ ------------ ----------------
Total Investments
(Cost $280,786,742) 100.0% 355,949,234 478,882 356,428,116
Other Assets, less (105,172) 9,707 (99,013)c
Liabilities ------------ ------------ ----------------
Net Assets 100.0% $355,844,062 $488,589 $356,329,103
------------ ------------ ----------------
</TABLE>
Non-income producing. bInvestment is through participation in a joint account
with other funds managed by the investment advisor. At 6/30/99, all repurchase
agreements had been entered into on that date.>>
See accompanying notes to pro forma combined financial statements.>>
VIP Capital Growth Fund
TVP Growth Investments Fund
Financial Statements
Pro forma combined Statements of Assets and Liabilities
June 30, 1999 (unaudited)>>
<TABLE>
<CAPTION>
VIP
Capital
VIP TVP Growth Fund
Capital Growth Pro Forma
Growth Fund Combined
- --------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost $238,302,547 $287,458$238,590,005
- --------------------------------------------------------------------------------------------
Value 313,872,522 358,857 314,231,379
Repurchase agreements, at value and cost 42,076,712 120,025 42,196,737
Receivables:
Investment securities sold 1,657,275 16,784 1,674,059
Capital shares sold 967,061 1,505 968,566
Dividends and interest 688,532 236 688,768
- --------------------------------------------------------------------------------------------
Total assets 359,262,102 497,407 359,759,509
Liabilities:
Payables:
Investment securities purchased 2,374,950 5,644 2,380,594
Capital shares redeemed 811,754 -- 811,754
Affiliates 210,988 -- 210,988
Custodian fees 881 -- 881
Postage and mailing fees 10,911 -- 10,911
Other liabilities 8,556 3,174 11,730
- --------------------------------------------------------------------------------------------
Total liabilities 3,418,040 8,818 3,426,858
Net assets, at value $355,844,062 $488,589$356,332,651
Class 1 :
Net assets, at value $355,536,656 $488,589$356,025,245
- --------------------------------------------------------------------------------------------
Shares outstanding** 19,689,451 37,220 19,716,505
Net asset value and offering price per share $18.06 $13.13 $18.06
Class 2 :
Net assets, at value $ 307,406 -- $ 307,406
- --------------------------------------------------------------------------------------------
Shares outstanding 17,055 -- 17,055
Net asset value and offering price per share $18.02 N/A $18.02
**See note 2 in the accompanying notes to pro forma combined financial statements.
</TABLE>
See accompanying notes to pro forma combined financial statements.>>
<PAGE>
VIP Capital Growth Fund
TVP Growth Investments Fund
Financial Statements (continued)
Pro forma combined Statements of Operations
for the six months ended June 30, 1999 (unaudited)>>
<TABLE>
<CAPTION>
VIP
Capital
VIP TVP Growth Fund
Capital Growth Pro Forma Pro Forma
Growth FundInvestments Adjustments Combined
- --------------------------------------------------------------------------------------------
Investment income:1
<S> <C> <C> <C> <C>
Dividends $ 1,166,373 $ 1,495 -- $ 1,167,868
Interest 1,245,140 1,997 -- 1,247,137
- --------------------------------------------------------------------------------------------
Total investment income 2,411,513 3,492 -- 2,415,005
Expenses:
Management fees 1,141,192 1,133 4722 1,142,797
Administrative fees -- 221 (221)3 --
Distribution fees - Class 2 198 -- (33) 165
Custodian fees 1,351 20 -- 1,371
Reports to shareholders 18,685 3,682 -- 22,367
Registration and filing fees -- 37 -- 37
Professional fees 4,961 261 -- 5,222
Trustees' fees and expenses 785 254 -- 1,039
Other 784 93 -- 877
- -------------------------------------------------------------------------------------------
Total expenses 1,167,956 5,701 218 1,173,875
Expenses waived/paid by affiliate -- (3,849) 3,8494 --
- -------------------------------------------------------------------------------------------
Net expenses 1,167,956 1,852 4,067 1,173,356
Net investment income 1,243,557 1,640 (4,067) 1,241,130
Realized and unrealized gains (losses):
Net realized gain from:
Investments 4,715,973 21,796 -- 4,737,769
Net unrealized appreciation on investments 30,659,765 38,157
- --30,697,922
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain 35,375,738 59,953 -- 35,435,691
Net increase in net assets resulting $36,619,295 $61,593 -- $36,676,821
from operations
</TABLE>
1Net of foreign taxes and fees of $13,674 for the VIP Capital Growth Fund.
2Pro Forma adjustment for difference in Management fee schedule. The Pro Forma
Combined VIP Fund's Management fee will be .75% of the first $500 million. Fees
are reduced on net assets over $500 million.
3Under an agreement with Advisers, FT Services will provide administrative
services to the Pro Forma Combined VIP Fund. The fee is paid by Advisers based
on average daily net assets, and is not an additional expense of the Pro Forma
Combined VIP Fund.
4The Pro Forma adjustment to remove TVP Growth Investments expense limitation.>>
<<
See accompanying notes to pro forma combined financial statements.>>
<PAGE>
VIP Capital Growth Fund
TVP Growth Investments Fund
Notes to Pro forma combined Statements (unaudited)
1. Basis of Combination:
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the TVP Growth Investments Fund
("Growth Investments Fund"), the VIP Capital Growth Fund ("Capital Growth Fund")
will acquire all the net assets of the Growth Investments Fund in exchange for
the Class 1 shares of Capital Growth Fund. The merger will be accounted for by
the method of accounting for tax free business combinations of investment
companies. The pro forma combined Statement of Assets and Liabilities reflects
the financial position of Capital Growth Fund and Growth Investments Fund at
June 30, 1999 as though the merger occurred as of that date. The pro forma
combined Statement of Operations reflects the results of operations of the
Capital Growth Fund and the Growth Investments Fund for the period January 1,
1999 to June 30, 1999 as though the merger occurred on January 1, 1999. The pro
forma financial statements do not reflect the expenses of either fund in
carrying out its obligations under the Agreement and Plan of Reorganization or
any adjustment with respect to additional distributions that may be made prior
to reorganization. The pro forma financial statements are presented for the
information of the reader, and should be read in conjunction with the historical
financial statements of the funds.
2. Shares of Beneficial Interest:
The number of Class 1 shares issued was calculated by dividing the Class 1 net
assets of the Growth Investments Fund at June 30, 1999 by the Class 1 net asset
values per share of the Capital Growth Fund at June 30, 1999.
VIP - SMALL CAP FUND
TVP - FRANKLIN SMALL CAP INVESTMENTS FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TVP FRANKLIN SMALL CAP FUND
VIP SMALL CAP FUND SMALL CAP INVESTMENTS FUND PRO FORMA COMBINED
- -------------------------------------------------------------------------------------------------------------
SHARES/ SHARES/ SHARES/
RIGHTS VALUE RIGHTS VALUE RIGHTS VALUE
- -------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND RIGHTS 96.1%
COMMERCIAL SERVICES 3.2%
<S> <C> <C> <C> <C> <C> <C> <C>
a24/7 Media Inc. 28,800 $ 1,108,800 500 $ 19,250 29,300 $ 1,128,050
aApplied Graphics Technologies
Inc. 88,700 1,119,838 88,700 1,119,838
aCorporate Executive Board Co. 5,700 202,706 2,200 78,238 7,900 280,944
aExchange Applications Inc. 13,500 550,125 700 28,525 14,200 578,650
aInet Technologies Inc. 24,300 583,200 1,400 33,600 25,700 616,800
aLamar Advertising Co., A -- -- 800 32,750 800 32,750
Norrell Corp. 82,100 1,544,506 -- -- 82,100 1,544,506
aNOVA Corp. 55,900 1,397,500 5,000 125,000 60,900 1,522,500
aProbusiness Services Inc. 700 25,113 700 25,113
aRemedyTemp Inc., A 29,500 398,250 -- -- 29,500 398,250
aSmith-Gardner & Associates
Inc. 4,100 33,056 3,300 26,606 7,400 59,662
aSOS Staffing Services Inc. 75,500 396,375 -- -- 75,500 396,375
aStamps.com Inc. -- -- 900 15,750 900 15,750
aSylvan Learning Systems Inc. 64,100 1,742,719 2,000 54,375 66,100 1,797,094
aViant Corp. -- -- 200 7,000 200 7,000
aWESCO International Inc. 29,100 596,550 1,500 30,750 30,600 627,300
---------- ------- ---------
9,673,625 476,957 10,150,582
---------- ------- -----------
CONSUMER DURABLES .4%
aActivision Inc. 75,700 1,102,381 75,700 1,102,381
Ethan Allen Interiors Inc. -- -- 3,000 113,250 3,000 113,250
------------ ------- ----------
1,102,381 113,250 1,215,631
------------ ------- ----------
CONSUMER NON-DURABLES 2.5%
Alberto-Culver Co., A 7,100 157,407 -- -- 7,100 157,407
aSola International Inc. 24,400 474,275 -- -- 24,400 474,275
aTommy Hilfiger Corp. 66,800 4,909,800 5,000 367,500 71,800 5,277,300
aTropical Sportswear
International Corp. 33,700 1,074,188 6,000 191,250 39,700 1,265,438
Wolverine World Wide Inc. 55,000 770,000 4,300 60,200 59,300 830,200
------------ ------- ----------
7,385,670 618,950 8,004,620
------------ ------- ----------
aCONSUMER SERVICES 4.4%
BEA Systems Inc. 2,900 82,831 2,900 82,831
DeVry Inc. 77,800 1,740,775 -- -- 77,800 1,740,775
Entercom Communications Corp. 1,300 55,575 1,000 42,750 2,300 98,325
Foodmaker Inc. 37,400 1,061,225 7,000 198,625 44,400 1,259,850
Harrah's Entertainment Inc. 59,900 1,317,800 6,900 151,800 66,800 1,469,600
Intelligent Life Corp. 61,600 404,250 4,400 28,875 66,000 433,125
Jones Intercable Inc. 2,100 100,800 -- -- 2,100 100,800
Jones Intercable Inc., A 29,100 1,425,900 2,000 98,000 31,100 1,523,900
MeriStar Hotels & Resorts
Inc. 120,000 412,500 -- -- 120,000 412,500
Prime Hospitality Corp. 238,000 2,856,000 4,600 55,200 242,600 2,911,200
Radio One Inc. 5,700 265,050 300 13,950 6,000 279,000
SFX Entertainment Inc. 39,300 2,515,200 2,550 163,200 41,850 2,678,400
Vail Resorts Inc. 51,700 904,750 3,500 61,250 55,200 966,000
------------ ------- ----------
13,059,825 896,481 13,956,306
------------ ------- ----------
aELECTRONIC TECHNOLOGY 22.8%
Advanced Energy Industries
Inc. 48,800 1,979,450 1,100 44,619 49,900 2,024,069
Alpha Industries Inc. 17,000 809,625 3,000 142,875 20,000 952,500
American Xtal Technology Inc. 4,500 107,156 4,500 107,156
ANTEC Corp. 5,000 160,313 200 6,413 5,200 166,726
Aspect Telecommunications Corp. 61,200 596,700 1,400 13,650 62,600 610,350
AVT Corp. 51,200 1,939,200 1,400 53,025 52,600 1,992,225
Brocade Communications Systems
Inc. 1,400 135,013 200 19,288 1,600 154,301
Carrier Access Corp. 23,300 1,020,831 2,700 118,294 26,000 1,139,125
Catapult Communications Corp. 37,000 698,375 1,100 20,763 38,100 719,138
Coherent Inc. 178,400 3,322,700 6,000 111,750 184,400 3,434,450
Com21 Inc. 75,000 1,279,688 3,400 58,013 78,400 1,337,701
Copper Mountain Networks Inc. 1,100 84,975 100 7,725 1,200 92,700
Cymer Inc. 6,500 162,500 300 7,500 6,800 170,000
Digital Microwave Corp. -- -- 600 7,650 600 7,650
EG&G Inc. -- -- 1,000 35,625 1,000 35,625
Electro Scientific Industries Inc. -- -- 2,500 104,453 2,500 104,453
aElectronic Technology (cont.)
EMCORE Corp. 28,400 $ 571,550 1,800 $ 36,225 30,200 $ 607,775
Etec Systems Inc. 38,100 1,266,825 1,700 56,525 39,800 1,323,350
E-Tek Dynamics Inc. 6,500 309,156 500 23,781 7,000 332,937
Excel Switching Corp. 23,800 712,513 600 17,963 24,400 730,476
Flextronics International Ltd. 52,000 2,886,000 1,500 83,250 53,500 2,969,250
FLIR Systems Inc. 90,000 1,361,250 1,500 22,688 91,500 1,383,938
FVC.COM Inc. 24,000 156,000 400 2,600 24,400 158,600
Gemstar International Group
Ltd. 70,400 4,593,600 2,300 150,075 72,700 4,743,675
Harmonic Inc. 30,500 1,751,844 -- -- 30,500 1,751,844
hi/fn Inc. 3,000 228,375 100 7,613 3,100 235,988
H.T.E. Inc. 47,500 160,313 -- -- 47,500 160,313
Itron Inc. 62,800 537,725 -- -- 62,800 537,725
Jabil Circuit Inc. 55,000 2,481,875 1,000 45,125 56,000 2,527,000
Javelin Systems Inc. 29,200 357,700 1,200 14,700 30,400 372,400
Juniper Networks Inc. -- -- 400 59,600 400 59,600
Komag Inc. 317,800 1,052,713 15,000 49,688 332,800 1,102,401
Ladish Co. Inc. 58,800 455,700 -- -- 58,800 455,700
Latitude Communications Inc. 5,800 75,400 300 3,900 6,100 79,300
Lattice Semiconductor Corp. 10,300 641,175 3,200 199,200 13,500 840,375
Level One Communications Inc. -- -- 900 44,044 900 44,044
Maker Communications Inc. 1,000 31,000 11,000 341,000 12,000 372,000
Mettler-Toledo International
Inc. 122,000 3,027,125 6,000 148,875 128,000 3,176,000
Micrel Inc. 7,500 555,000 600 44,400 8,100 599,400
Natural MicroSystems Corp. 80,900 773,606 900 8,606 81,800 782,212
Netopia Inc. -- -- 700 15,925 700 15,925
Novellus Systems Inc. 18,400 1,255,800 600 40,950 19,000 1,296,750
Perceptron Inc. 85,000 387,813 -- -- 85,000 387,813
Photronics Inc. 8,400 205,800 -- -- 8,400 205,800
PLX Technology Inc. 5,200 246,350 200 9,475 5,400 255,825
PMC-Sierra Inc. 106,000 6,247,375 5,000 294,688 111,000 6,542,063
Sanmina Corp. 26,800 2,033,450 2,500 189,688 29,300 2,223,138
Security Dynamics
Technologies Inc. 155,700 3,308,625 8,000 170,000 163,700 3,478,625
SIPEX Corp. 27,000 553,500 2,500 51,250 29,500 604,750
Synopsys Inc. 100,000 5,518,750 5,000 275,938 105,000 5,794,688
Tekelec 115,900 1,412,532 5,900 71,906 121,800 1,484,438
TriStar Aerospace Co. 31,400 259,050 -- -- 31,400 259,050
Uniphase Corp. 40,900 6,789,400 2,100 348,600 43,000 7,138,000
Veeco Instruments Inc. 6,800 231,200 300 10,200 7,100 241,400
Waters Corp. 70,000 3,718,750 4,000 212,500 74,000 3,931,250
Wavecom SA, ADR (France) 8,200 107,625 500 6,563 8,700 114,188
Western Digital Corp. 60,000 390,000 6,500 42,250 66,500 432,250
------------ -------- ---------
68,841,835 3,958,590 72,800,425
------------ --------- ---------
ENERGY MINERALS 4.6%
aBarrett Resources Corp. 113,900 4,370,913 5,200 199,550 119,100 4,570,463
aBasin Exploration Inc. -- -- 2,200 44,138 2,200 44,138
aDenbury Resources Inc. 85,800 375,375 -- -- 85,800 375,375
aForest Oil Corp. 56,700 712,294 3,300 41,456 60,000 753,750
aNewfield Exploration Co. 125,800 3,577,438 7,200 204,750 133,000 3,782,188
Range Resources Corp. 125,000 765,625 100 613 125,100 766,238
aSanta Fe Snyder Corp. 262,810 2,003,926 16,400 125,050 279,210 2,128,976
aTitan Exploration Inc. 128,300 641,500 -- -- 128,300 641,500
aTom Brown Inc. 95,000 1,478,438 6,600 102,713 101,600 1,581,151
------------ ---------- ------------
13,925,509 718,270 14,643,779
------------ --------- ------------
FINANCE 7.7%
aAffiliated Managers Group
Inc. 44,700 1,349,381 2,100 63,394 46,800 1,412,775
Allied Capital Corp. 40,000 960,000 -- -- 40,000 960,000
Bank United Corp., A 50,000 2,009,375 1,600 64,300 51,600 2,073,675
aDLJdirect 32,300 952,850 1,800 53,100 34,100 1,005,950
Espirito Santo Financial
Group SA, ADR
(Luxembourg) 25,900 424,113 200 3,275 26,100 427,388
Finance (cont.)
EVEREN Capital Corp. 42,000 $ 1,252,125 -- $-- 42,000 $ 1,252,125
E.W. Blanch Holdings Inc. 5,000 340,938 200 13,638 5,200 354,576
Federated Investors Inc., B 122,900 2,204,519 5,700 102,244 128,600 2,306,763
aFirst Sierra Financial Inc. 25,800 645,000 1,500 37,500 27,300 682,500
Freedom Securities Corp. 26,300 450,388 -- -- 26,300 450,388
aGolden State Bancorp Inc. 118,000 2,596,000 6,000 132,000 124,000 2,728,000
aHambrecht & Quist Group 20,000 742,500 800 29,700 20,800 772,200
aHealthCare Financial Partner
Inc. 39,100 1,339,175 1,200 41,100 40,300 1,380,275
Heller Financial Inc. 18,800 522,875 700 19,469 19,500 542,344
aKnight/Trimark Group Inc., A 25,100 1,513,844 1,100 66,344 26,200 1,580,188
Metris Cos. Inc. -- -- 300 12,225 300 12,225
Mutual Risk Management Ltd. 42,600 1,421,775 4,400 146,850 47,000 1,568,625
aNational Discount Brokers
Group Inc. -- -- 1,000 58,000 1,000 58,000
aRadian Group Inc 31,038 1,515,045 -- -- 31,038 1,515,045
aSilicon Valley Bancshares 97,400 2,410,650 4,000 99,000 101,400 2,509,650
Westamerica BanCorp. 27,900 1,018,350 600 21,900 28,500 1,040,250
aWIT Capital Group Inc. 3,800 129,200 300 10,200 4,100 139,400
------------ --------- ----------
23,798,103 974,239 24,772,342
------------ --------- ----------
aHEALTH SERVICES 2.8%
American Dental Partners Inc. 20,300 225,838 20,300 225,838
Beverly Enterprises Inc. 136,900 1,103,756 10,000 80,625 146,900 1,184,381
Careinsite Inc. -- -- 14,700 694,575 14,700 694,575
Eclipsys Corp. 1,422 34,039 -- -- 1,422 34,039
Integrated Health Services Inc. 54,000 432,000 5,000 40,000 59,000 472,000
New American Healthcare Corp. 8,100 18,731 8,100 18,731
PAREXEL International Corp. 65,000 865,313 3,000 39,938 68,000 905,251
Pediatrix Medical Group Inc. -- -- 1,300 27,625 1,300 27,625
Pharmaceutical Product
Development Inc. 85,000 2,326,875 6,700 183,413 91,700 2,510,288
Renal Care Group Inc. 94,650 2,449,069 2,700 69,863 97,350 2,518,932
Total Renal Care Holdings Inc. 15,933 247,957 -- -- 15,933 247,957
------------ ---------- --------
7,703,578 1,136,039 8,839,617
------------ ---------- ---------
aHEALTH TECHNOLOGY 1.1%
Heska Corp. 39,300 90,881 -- -- 39,300 90,881
Inhale Therapeutic Systems
Inc. 59,300 1,412,081 3,000 71,438 62,300 1,483,519
OrthoLogic Corp. 226,700 559,677 -- -- 226,700 559,677
Serologicals Corp. 138,750 1,127,344 17,000 138,125 155,750 1,265,469
SkyePharma PLC, ADR
(United Kingdom) 24,391 187,506 -- -- 24,391 187,506
SkyePharma PLC, rts., 3/31/00
(United Kingdom) 83,600 -- -- -- 83,600 --
Wesley Jessen VisionCare Inc. -- -- 1,300 42,088 1,300 42,088
------------ --------- ---------
3,377,489 251,651 3,629,140
------------ --------- ---------
aINDUSTRIAL SERVICES 4.5%
Atwood Oceanics Inc. 3,400 106,250 6,000 187,500 9,400 293,750
Casella Waste Systems Inc., A 12,700 330,200 3,500 91,000 16,200 421,200
Catalytica Inc. 193,733 2,712,262 5,000 70,000 198,733 2,782,262
Core Laboratories NV
(Netherlands) 110,400 1,538,700 3,000 41,813 113,400 1,580,513
Dycom Industries Inc. 15,700 879,200 5,200 291,200 20,900 1,170,400
KTI Inc. 3,000 42,750 200 2,850 3,200 45,600
Marine Drilling Cos. Inc. 71,100 973,181 3,000 41,063 74,100 1,014,244
Safety-Kleen Corp. 25,000 453,125 3,575 64,797 28,575 517,922
Tuboscope Inc. 121,300 1,660,294 -- -- 121,300 1,660,294
US Liquids Inc. 74,800 1,561,450 1,800 37,575 76,600 1,599,025
Varco International Inc. 300,800 3,290,000 16,000 175,000 316,800 3,465,000
------------ --------- ------------
13,547,412 1,002,798 14,550,210
------------ --------- ------------
INSURANCE 2.5%
Financial Security Assurance
Holdings Ltd. 63,000 3,276,000 4,000 208,000 67,000 3,484,000
HCC Insurance Holdings Inc. 32,300 732,806 4,200 95,288 36,500 828,094
Life USA Holding Inc. 21,200 429,300 -- -- 21,200 429,300
Reinsurance Group of America
Inc. 37,300 1,314,825 4,300 151,575 41,600 1,466,400
aRisk Capital Holdings Inc. 125,000 1,687,500 -- -- 125,000 1,687,500
------------ --------- ----------
7,440,431 454,863 7,895,294
------------ --------- ----------
NON-ENERGY MINERALS .5%
Carpenter Technology Corp. 50,000 1,428,125 1,200 34,275 51,200 1,462,400
------------ --------- ----------
PROCESS INDUSTRIES 1.5%
ChemFirst Inc. 85,100 2,068,994 -- -- 85,100 2,068,994
aCUNO Inc. 29,000 554,625 1,600 30,600 30,600 585,225
Optical Coating Laboratory Inc. 24,600 2,057,175 2,100 175,613 26,700 2,232,788
------------ --------- ----------
4,680,794 206,213 4,887,007
------------ --------- ----------
PRODUCER MANUFACTURING 3.6%
aGentex Corp. 127,800 3,578,400 5,400 151,200 133,200 3,729,600
Gibraltar Steel Corp. 100,000 2,475,000 2,800 69,300 102,800 2,544,300
JLG Industries Inc. 111,400 2,269,775 6,000 122,250 117,400 2,392,025
aPolycom Inc. 10,800 421,200 6,500 253,500 17,300 674,700
Reliance Steel & Aluminum Co. 9,000 351,000 -- -- 9,000 351,000
Roper Industries Inc. 57,400 1,836,800 4,600 147,200 62,000 1,984,000
------------ -------- -----------
10,932,175 743,450 11,675,625
------------ -------- -----------
REAL ESTATE 3.6%
Arden Realty Inc. 86,000 2,117,750 3,000 73,875 89,000 2,191,625
Camden Property Trust 75,000 2,081,250 3,600 99,900 78,600 2,181,150
Colonial Properties Trust 15,400 435,050 -- -- 15,400 435,050
FelCor Lodging Trust Inc. 50,000 1,037,500 800 16,600 50,800 1,054,100
Glenborough Realty Trust Inc. 54,100 946,750 3,000 52,500 57,100 999,250
Innkeepers USA Trust 98,900 989,000 -- -- 98,900 989,000
MeriStar Hospitality Corp. 130,000 2,916,875 8,000 179,500 138,000 3,096,375
SL Green Realty Corp. 30,900 631,519 -- -- 30,900 631,519
------------ -------- ------------
11,155,694 422,375 11,578,069
------------ -------- ------------
RETAIL TRADE 1.1%
aBeyond.com Corp. 54,500 1,563,469 1,300 37,294 55,800 1,600,763
Claire's Stores Inc. 34,000 871,250 6,700 171,688 40,700 1,042,938
aGuitar Center Inc. 55,000 574,063 2,500 26,094 57,500 600,157
aThe Men's Wearhouse Inc. -- -- 8,000 204,000 8,000 204,000
------------ --------- ------------
3,008,782 439,076 3,447,858
------------ --------- ------------
aTECHNOLOGY SERVICES 20.2%
Affiliated Computer Services
Inc., A 135,300 6,849,563 7,000 354,375 142,300 7,203,938
Ask Jeeves Inc. -- -- 100 1,400 100 1,400
AppNet Systems Inc. -- -- 3,900 52,406 3,900 52,406
BackWeb Technologies Ltd. 1,100 30,113 100 2,738 1,200 32,851
Brightpoint Inc. 12,900 78,206 2,100 12,731 15,000 90,937
Brio Technology Inc. 13,000 260,000 -- -- 13,000 260,000
BroadVision Inc. 26,600 1,961,750 1,200 88,500 27,800 2,050,250
Check Point Software
Technologies Ltd. 11,700 627,413 -- -- 11,700 627,413
Citrix Systems Inc. 37,800 2,135,700 1,400 79,100 39,200 2,214,800
Complete Business Solutions
Inc. 69,600 1,248,450 10,000 179,375 79,600 1,427,825
Concord Communications Inc. 30,000 1,350,000 1,000 45,000 31,000 1,395,000
Cybersourc Corp. -- -- 600 8,850 600 8,850
Deltek Systems Inc. 13,800 136,275 300 2,963 14,100 139,238
Digital Island Inc. -- -- 1,000 17,938 1,000 17,938
Documentum Inc. 40,000 522,500 1,500 19,594 41,500 542,094
DoubleClick Inc. 19,100 1,752,425 600 55,050 19,700 1,807,475
Entrust Technologies Inc. 55,200 1,835,400 3,000 99,750 58,200 1,935,150
Exodus Communications Inc. 9,600 1,151,400 1,200 143,925 10,800 1,295,325
High Speed Access Corp. 9,600 246,000 600 15,375 10,200 261,375
HNC Software Inc. 90,000 2,773,125 4,000 123,250 94,000 2,896,375
i2 Technologies Inc. 117,600 5,056,800 6,800 292,400 124,400 5,349,200
Integrated Systems Inc. 98,100 1,152,675 400 4,700 98,500 1,157,375
International Network Services 88,200 3,561,075 5,500 222,063 93,700 3,783,138
Intuit Inc. 21,800 1,964,725 800 72,100 22,600 2,036,825
ISS Group Inc. 8,000 302,000 400 15,100 8,400 317,100
Keane Inc. 30,000 678,750 1,600 36,200 31,600 714,950
Legato Systems Inc. 39,200 2,263,800 3,300 190,575 42,500 2,454,375
Marimba Inc. 900 47,419 100 5,269 1,000 52,688
Media Metrix Inc. 13,900 740,175 700 37,275 14,600 777,450
Micromuse Inc. 57,000 2,842,875 2,340 116,708 59,340 2,959,583
MicroStrategy Inc. 19,500 738,563 300 11,363 19,800 749,926
Mpath Interactive Inc. 2,000 44,000 100 2,200 2,100 46,200
Proxicom Inc. 8,400 215,775 300 7,706 8,700 223,481
Sapient Corp. 41,300 2,338,613 3,000 169,875 44,300 2,508,488
Serena Software Inc. 22,200 298,313 500 6,719 22,700 305,032
Software.com Inc. -- -- 500 11,594 500 11,594
SS&C Technologies Inc. 2,800 21,350 -- -- 2,800 21,350
StarMedia Network Inc. 23,500 1,506,938 1,300 83,363 24,800 1,590,301
Sykes Enterprises Inc. 5,300 176,888 800 26,700 6,100 203,588
TenFold Corp. 3,400 107,950 200 6,350 3,600 114,300
Transaction Systems
Architects Inc., A 42,000 1,638,000 -- -- 42,000 1,638,000
Vantive Corp. 50,400 576,450 -- -- 50,400 576,450
Verio Inc. 56,000 3,892,000 2,800 194,600 58,800 4,086,600
VRITAS Software Corp. 35,000 3,322,813 2,400 227,850 37,400 3,550,663
Vignette Corp. 13,800 1,035,000 1,500 112,500 15,300 1,147,500
Whittman-Hart Inc. 55,500 1,762,125 6,600 209,550 62,100 1,971,675
Wind River Systems Inc. 121,050 1,944,366 4,250 68,266 125,300 2,012,632
------------ ---------- -----------
61,187,758 3,433,346 64,621,104
------------ ---------- -----------
aTELECOMMUNICATIONS 5.9%
AT&T Canada Inc., B (Canada) 7,300 467,656 200 12,813 7,500 480,469
Clearnet Communications
Inc., A (Canada) 19,300 268,994 1,200 16,725 20,500 285,719
ICG Communications Inc. 126,000 2,693,250 5,000 106,875 131,000 2,800,125
ITC DeltaCom Inc. 18,500 518,000 900 25,200 19,400 543,200
Millicom International
Cellular SA (Luxembourg) 58,100 1,830,150 3,400 107,100 61,500 1,937,250
Pacific Gateway Exchange Inc. 54,300 1,581,488 -- -- 54,300 1,581,488
Pinnacle Holdings Inc. 65,600 1,607,200 2,100 51,450 67,700 1,658,650
Primus Telecommunications
Group Inc. 87,800 1,970,013 1,700 38,144 89,500 2,008,157
Rhythms NetConnections Inc. 2,900 169,288 100 5,838 3,000 175,126
Rural Cellular Corp., A 109,300 2,186,000 -- -- 109,300 2,186,000
Time Warner Telecom Inc. 11,000 319,000 600 17,400 11,600 336,400
VoiceStream Wireless Corp. 83,100 2,363,156 3,000 85,313 86,100 2,448,469
Western Wireless Corp., A 83,100 2,243,685 3,000 80,980 86,100 2,324,665
------------ ------- ------------
18,217,880 547,838 18,765,718
------------ ------- ------------
TRANSPORTATION 3.2%
Air Express International Corp. 60,000 1,522,500 1,400 35,525 61,400 1,558,025
aAlaska Air Group Inc. -- -- 2,200 91,850 2,200 91,850
aAtlantic Coast Airlines
Holdings Inc. 121,000 2,299,000 3,000 57,000 124,000 2,356,000
C.H. Robinson Worldwide Inc. 72,600 2,668,050 4,500 165,375 77,100 2,833,425
Expeditors International of
Washington Inc. 109,600 2,986,600 9,000 245,250 118,600 3,231,850
aMesaba Holdings Inc. 12,900 164,475 -- -- 12,900 164,475
------------ ------- ------------
9,640,625 595,000 10,235,625
------------ ------- ------------
TOTAL LONG TERM INVESTMENTS
(COST $260,455,695) 290,107,691 17,023,661 307,131,352
------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
TVP - Franklin Small Cap Fund
VIP - Small Cap FundSmall Cap Investments Fund Pro Forma Combined
- ------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
bREPURCHASE AGREEMENT 6.7%
Joint Repurchase Agreement,
4.767%, 7/01/99,
(Maturity Value $21,368,951)
<S> <C> <C> <C> <C> <C> <C>
(COST $21,366,121) $18,106,327$ 18,106,327 $3,259,794 $ 3,259,794 $21,366,121 $ 21,366,121
Barclays Capital Inc.
(Maturity Value $2,695,480)
Bear, Stearns & Co. Inc.
(Maturity Value $2,377,933)
Chase Securities Inc.
(Maturity Value $440,201)
CIBC Oppenheimer Corp.
(Maturity Value $2,695,480)
Donaldson, Lufkin & Jenrette
Securities Corp.
(Maturity Value $1,902,692)
Dresdner Kleinwort Benson,
North America LLC
(Maturity Value $1,902,692)
Goldman, Sachs & Co.
(Maturity Value $950,917)
NationsBanc Montgomery
Securities LLC
(Maturity Value $1,902,692)
Paine Webber Inc.
(Maturity Value $1,902,692)
Paribas Corp.
(Maturity Value $1,902,692)
Warburg Dillon Read LLC
(Maturity Value $2,695,480)
Collateralized by U.S. Treasury
Bills & Notes
TOTAL INVESTMENTS ------------ ------------ ----------------
(COST $281,821,816) 102.8% 308,214,018 20,283,455 328,497,473
OTHER ASSETS, LESS LIABILITIES (2.8%) (8,958,782) 67,017 (8,891,765)
------------ ------------ ----------------
NET ASSETS 100.0% $299,255,236 $20,350,472 $319,605,708
============ ============ ================
</TABLE>
aNon-income producing.
binvestment advisor. At 6/30/99, all repurchase agreements had been entered into
on that date.
See accompanying notes to pro forma combined financial statements.
VIP SMALL CAP FUND
TVP SMALL CAP INVESTMENTS FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VIP
VIP TVP SMALL CAP FUND
SMALL CAP SMALL CAP PRO FORMA
FUND INVESTMENTS FUND COMBINED
- ----------------------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost $246,346,501 $14,109,194 $260,455,695
-------------------------------------------------------------
Value 290,107,691 17,023,661 307,131,352
Repurchase agreements, at value and cost 18,106,327 3,259,794 21,366,121
Receivables:
Investment securities sold 846,042 84,288 930,330
Capital shares sold 450,470 96,826 547,296
Dividends and interest 147,406 5,151 152,557
--------------------------------------------------------------
Total assets 309,657,936 20,469,720 330,127,656
--------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 537,835 56,057 593,892
Capital shares redeemed -- -- --
Affiliates 179,512 20,960 200,472
Custodian fees 1,757 -- 1,757
Postage and mailing fees 9,648 -- 9,648
Payable upon return of securities loaned 9,656,982 -- 9,656,982
Other liabilities 16,966 42,231 59,197
-------------------------------------------------------------
Total liabilities 10,402,700 119,248 10,521,948
--------------------------------------------------------------
Net assets, at value $299,255,236 $20,350,472 $319,605,708
==============================================================
CLASS 1 :
Net assets, at value $299,177,022 $ 482,735 $299,659,757
==============================================================
Shares outstanding** 18,724,755 44,934 18,754,964 2
==============================================================
Net asset value and offering price per
share $15.98 $10.74 $15.97
==============================================================
CLASS 2 :
Net assets, at value $ 78,214 $19,867,737 $ 19,945,951
==============================================================
Shares outstanding** 4,903 1,852,384 1,250,529 3
==============================================================
Net asset value and offering price per share $15.95 $10.73 $15.95
</TABLE>
**See note 2 in the accompanying notes to pro forma combined financial
statements.
See accompanying notes to pro forma combined financial statements.
VIP SMALL CAP FUND
TVP SMALL CAP INVESTMENTS FUND
FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VIP
VIP TVP SMALL CAP FUND
SMALL CAP SMALL CAP PRO FORMA PRO FORMA
FUND INVESTMENTS FUND ADJUSTMENTS COMBINED
--------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C>
Dividends $ 695,579 $ 17,563 -- $ 713,142
Interest 321,047 60,320 -- 381,367
--------------------------------------------------------
Total investment income 1,016,626 77,883 -- 1,094,509
--------------------------------------------------------
Expenses:
Management fees 1,101,012 45,181 77,1591 1,223,352
Administrative fees -- 7,322 (7,322)2 --
Distribution fees - Class 2 32 14,812 (5) 14,839
Custodian fees 1,757 98 -- 1,855
Reports to shareholders 19,744 4,685 -- 24,429
Registration and filing fees -- 262 -- 262
Professional fees 7,859 1,135 -- 8,994
Trustees' fees and expenses 1,228 1,808 -- 3,036
Other 3,105 5,413 -- 8,518
------------------------------------------------------
Total expenses 1,134,737 80,716 69,832 1,285,285
Expenses waived/paid by affiliate -- (6,115) 6,1153 --
------------------------------------------------------
Net expenses 1,134,737 74,601 75,947 1,285,285
------------------------------------------------------
Net investment income (loss) (118,111) 3,282 (75,947) (190,776)
------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments 15,619,206 369,105 -- 15,988,311
Net unrealized depreciation on investments 27,500,843 2,449,410 -- 29,950,253
------------------------------------------------------
Net realized and unrealized gain 43,120,049 2,818,515 -- 45,938,564
------------------------------------------------------
Net increase in net assets resulting
from operations $43,001,938 $2,821,797 -- $45,747,788
======================================================
</TABLE>
1Pro Forma adjustment for difference in Management fee schedule. Apart from the
reorganization, the shareholders of the VIP Franklin Small Cap Fund are voting
to approve a new investment advisory agreement with Management fees of .80% of
the first $500 million. Fees are reduced on net assets over $500 million.
2Under an agreement with Advisers, FT Services will provide administrative
services to the Pro Forma Combined VIP Fund. The fee is paid by Advisers based
on average daily net assets, and is not an additional expense of the Pro Forma
Combined VIP Fund.
3The Pro Forma adjustment to remove TVP Small Cap Investments expense
limitation.
See accompanying notes to pro forma combined financial statements.
FRANKLIN SMALL CAP FUND
TEMPLETON SMALL CAP INVESTMENTS FUND
NOTES TO PRO FORMA COMBINED STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION:
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the Templeton Small Cap Investments
Fund ("Small Cap Investments Fund"), the Franklin Small Cap Fund ("Small Cap
Fund") will acquire all the net assets of the Small Cap Investments Fund Class 1
and 2 in exchange for the Classes 1 and 2 shares, respectively, of Small Cap
Fund. The merger will be accounted for by the method of accounting for tax free
business combinations of investment companies. The pro forma combined Statement
of Assets and Liabilities reflects the financial position of Small Cap Fund and
Small Cap Investments Fund at June 30, 1999 as though the merger occurred as of
that date. The pro forma combined Statement of Operations reflects the results
of operations of the Small Cap Fund and the Small Cap Investments Fund for the
period January 1, 1999 to June 30, 1999 as though the merger occurred on January
1, 1999. The pro forma financial statements do not reflect the expenses of
either fund in carrying out its obligations under the Agreement and Plan of
Reorganization or any adjustment with respect to additional distributions that
may be made prior to reorganization. The pro forma financial statements are
presented for the information of the reader, and should be read in conjunction
with the historical financial statements of the funds.
2. SHARES OF BENEFICIAL INTEREST:
The number of Class 1 and Class 2 shares issued was calculated by dividing the
Class 1 and Class 2 net assets of the Small Cap Investments Fund at June 30,
1999 by the Class 1 and Class 2 net asset values per share of the Small Cap Fund
at June 30, 1999.
<<
TVP MUTUAL SHARES INVESTMENTS FUND
VIP MUTUAL SHARES SECURITIES FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VIP Mutual Shares Securities Fund
TVP Mutual Shares Investments Fund VIP Mutual Shares Securities Fund Pro Forma Combined
- -----------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 78.2%
AEROSPACE & MILITARY TECHNOLOGY 3.2%
<S> <C> <C> <C> <C> <C> <C>
aColtec Industries Inc. 2,150 $ 46,628 168,800 $ 3,660,850 170,950 $ 3,707,478
aHexcel Corp. -- -- 42,000 425,250 42,000 425,250
aLockheed Martin Corp. 2,203 82,062 223,300 8,317,925 225,503 8,399,987
Northrop Grumman Corp. 627 41,578 48,000 3,183,000 48,627 3,224,578
---------- ------------ -------------
170,268 15,587,025 15,757,293
----------- ------------ --------------
APPLIANCES & HOUSEHOLD DURABLES .6%
Premark International Inc. 1,500 56,250 79,500 2,981,250 81,000 3,037,500
------------ ------------ --------------
AUTOMOBILES 4.5%
Borg-Warner Automotive Inc. 50,000 2,750,000 - - 50,000 2,750,000
aConsorcio G Grupo Dina SA de
CV, L, ADR 635,600 556,150 - - 635,600 556,150
Delphi Automotive Systems Corp. 3,653 67,809 254,557 4,725,214 258,210 4,793,023
aGeneral Motors Corp. 520 34,320 86,900 5,735,400 87,420 5,769,720
aLear Corp. 796 39,601 95,500 4,751,125 96,296 4,790,726
TRW Inc. 1,106 60,692 70,400 3,863,200 71,506 3,923,892
----------- ------------ ----------------
202,422 22,381,089 22,583,511
------------ ------------ ----------------
BANKING 6.9%
Bank One Corp. 774 46,101 216,600 12,901,238 217,374 12,947,339
Banknorth Group Inc. -- -- 8,900 293,700 8,900 293,700
Chase Manhattan Corp. 425 36,816 75,600 6,548,850 76,025 6,585,666
First American Corp. Tennessee 400 16,625 30,900 1,284,281 31,300 1,300,906
First Union Corp. 2,000 94,000 211,882 9,958,454 213,882 10,052,454
Peoples Heritage Financial Group Inc. 100 1,881 40,800 767,550 40,900 769,431
U.S. Bancorp 800 27,200 74,600 2,536,400 75,400 2,563,600
Western Bancorp -- -- 4,200 182,700 4,200 182,700
------------ ------------ ----------------
222,623 34,473,173 34,695,796
------------ ------------ ----------------
BEVERAGES & TOBACCO 3.2%
Allied Domecq PLC -- -- 118,400 1,144,958 118,400 1,144,958
Gallaher Group PLC 5,400 33,196 293,500 1,804,246 298,900 1,837,442
Gallaher Group PLC, ADR -- -- 14,300 349,456 14,300 349,456
Nabisco Group Holdings Corp. 100 1,956 74,600 1,459,363 74,700 1,461,319
Philip Morris Companies Inc. 800 32,150 164,500 6,610,844 165,300 6,642,994
UST Inc. 550 16,088 149,500 4,372,875 150,050 4,388,963
------------ ------------ ----------------
83,390 15,741,742 15,825,132
------------ ------------ ----------------
BROADCASTING & PUBLISHING 6.9%
aAT&T Corp. - Liberty Media Group, A -- -- 78,648 2,890,314 78,648 2,890,314
Central Newspapers Inc., A 1,600 60,200 115,900 4,360,738 117,500 4,420,938
Dow Jones & Co. Inc. -- -- 67,800 3,597,638 67,800 3,597,638
Media General Inc., A -- -- 53,900 2,748,900 53,900 2,748,900
aMediaOne Group Inc. 600 44,625 108,900 8,099,438 109,500 8,144,063
Meredith Corp. 500 17,313 41,100 1,423,088 41,600 1,440,401
NV Holdingsmig de Telegraaf 1,468 28,915 -- -- 1,468 28,915
Scripps Co., A 1,485 70,630 121,400 5,774,088 122,885 5,844,718
Washington Post Co., B 103 55,388 10,100 5,431,275 10,203 5,486,663
------------ ------------ ----------------
277,071 34,325,479 34,602,550
------------ ------------ ----------------
BUILDING MATERIALS & COMPONENTS .9%
aAmerican Standard Companies Inc. 650 31,200 78,800 3,782,400 79,450 3,813,600
Armstrong World Industries Inc. 320 18,500 15,100 872,969 15,420 891,469
------------ ------------ ----------------
49,700 4,655,369 4,705,069
------------ ------------ ----------------
BUSINESS & PUBLIC SERVICES 1.5%
Hillenbrand Industries Inc. 1,700 73,525 12,400 536,300 14,100 609,825
aRepublic Services Inc. 90 16,233 24,700 611,325 24,790 627,558
Suez Lyonnaise des Eaux SA -- -- 34,849 6,285,542 34,849 6,285,542
------------ ------------ ----------------
89,758 7,433,167 7,522,925
------------ ------------ ----------------
CHEMICALS 1.3%
Arch Chemicals Inc. -- -- 54,500 1,325,031 54,500 1,325,031
Crompton & Knowles Corp. 2,500 48,906 84,200 1,647,163 86,700 1,696,069
aCytec Industries Inc. -- -- 48,700 1,552,313 48,700 1,552,313
Olin Corp. 855 11,275 104,900 1,383,369 105,755 1,394,644
Chemicals (cont.)
aW.R. Grace & Co. -- -- 19,700 $ 361,988 19,700 $ 361,988
Witco Corp. -- -- 12,300 246,000 12,300 246,000
------------ ------------ ----------------
$ 60,181 6,515,864 6,576,045
------------ ------------ ----------------
DATA PROCESSING & REPRODUCTION .1%
aCadence Design Systems Inc. -- -- 43,600 577,575 43,600 577,575
------------ ----------------
ELECTRICAL & ELECTRONICS .1%
Honeywell Inc. -- -- 1,700 196,988 1,700 196,988
aLevel One Communications Inc. -- -- 4,000 195,750 4,000 195,750
------------ ------------ ----------------
-- 392,738 392,738
------------ ------------ ----------------
ELECTRONIC COMPONENTS & INSTRUMENTS .2%
aQuantum Corp. 2,000 48,250 44,300 1,068,738 46,300 1,116,988
------------ ------------ ----------------
ENERGY EQUIPMENT & SERVICES 1.1%
Baker Hughes Inc. -- -- 30,000 1,005,000 30,000 1,005,000
aCooper Cameron Corp. 690 25,573 68,900 2,553,606 69,590 2,579,179
aWeatherford International Inc. 900 32,963 48,750 1,785,469 49,650 1,818,432
------------ ------------ ----------------
58,536 5,344,075 5,402,611
------------ ------------ ----------------
ENERGY SOURCES 1.9%
Atlantic Richfield Co. -- -- 11,800 986,038 11,800 986,038
Shell Transport & Trading Co. PLC 2,130 15,956 521,300 3,905,107 523,430 3,921,063
Societe Elf Aquitaine SA, Br. 275 40,355 29,650 4,351,031 29,925 4,391,386
------------ ------------ ----------------
56,311 9,242,176 9,298,487
------------ ------------ ----------------
FINANCIAL SERVICES 9.1%
Bear Stearns Co. Inc. 1,525 71,294 124,775 5,833,231 126,300 5,904,525
CIT Group Inc., A 1,700 49,087 119,300 3,444,788 121,000 3,493,875
Finova Group Inc. -- -- 26,500 1,394,563 26,500 1,394,563
Greenpoint Financial Corp. 1,228 40,294 146,430 4,804,734 147,658 4,845,028
Greenpoint Financial Corp., 144A 3,800 124,688 3,800 124,688
Hell Financial Inc. 1,200 33,375 -- -- 1,200 33,375
Household International Inc. 735 34,821 133,730 6,335,459 134,465 6,370,280
aLaser Mortgage Management Inc. -- -- 186,700 641,781 186,700 641,781
Lehman Brothers Holdings Inc. 1,200 74,700 94,000 5,851,500 95,200 5,926,200
Liberty Financial Cos. Inc. 2,347 68,356 2,347 -- -- 68,356
aMFN Financial Corp. -- -- 39,765 395,167 39,765 395,167
Morgan Stanley, Dean Witter & Co. -- -- 28,400 2,911,000 28,400 2,911,000
Newcourt Credit Group Inc. 985 12,743 1,900 24,862 2,885 37,605
Newcourt Credit Group Inc., fgn. -- -- 104,000 1,345,500 104,000 1,345,500
Power Financial Corp. -- -- 10,700 204,715 10,700 204,715
The PMI Group Inc. -- -- 56,900 3,574,031 56,900 3,574,031
United Asset Management Corp. 1,700 38,675 362,000 8,235,500 363,700 8,274,175
------------ ------------ ----------------
423,345 45,121,519 45,544,864
------------ ------------ ----------------
FOOD & HOUSEHOLD PRODUCTS 1.7%
aFine Host Corp. -- -- 139,062 1,529,682 139,062 1,529,682
U.S. Industries Inc. 4,050 68,850 248,300 4,221,100 252,350 4,289,950
Van Melle NV -- -- 45,490 2,920,236 45,490 2,920,236
------------ ------------ ----------------
68,850 8,671,018 8,739,868
------------ ------------ ----------------
FOREST PRODUCTS & PAPER 1.4%
Rayonier Inc. -- -- 107,400 5,349,863 107,400 5,349,863
St. Joe Co. 750 37,359 55,400 1,495,800 56,150 1,533,159
------------ ------------ ----------------
37,359 6,845,663 6,883,022
------------ ------------ ----------------
HEALTH & PERSONAL CARE 4.1%
aBeverly Enterprises Inc. -- -- 166,400 1,341,600 166,400 1,341,600
aFoundation Health Systems, A -- -- 142,170 2,132,550 142,170 2,132,550
aHealthsouth Corp. -- -- 181,800 2,715,638 181,800 2,715,638
McKesson HBOC Inc. -- -- 47,800 1,535,575 47,800 1,535,575
aPacificare Health Systems Inc. 500 35,969 48,700 3,503,356 49,200 3,539,325
Rhone-Poulenc SA, A 1,647 75,259 112,800 5,154,345 114,447 5,229,604
Sankyo Co. Ltd. -- -- 11,600 292,300 11,600 292,300
HEALTH & PERSONAL CARE (CONT.)
aTenet Healthcare Corp. -- -- 198,100 $ 3,677,231 198,100 $ 3,677,231
Ventas Inc. -- -- 31,800 170,925 31,800 170,925
------------ ------------ ------------
$ 111,228 20,523,520 20,634,748
------------ ------------ ------------
INDUSTRIAL COMPONENTS 1.9%
a Owens-Illinois Inc. 2,000 65,375 206,600 6,753,238 208,600 6,818,613
a Thermo Electron Corp. -- -- 132,600 2,660,288 132,600 2,660,288
------------ ------------ ------------
65,375 9,413,526 9,478,901
----------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
INSURANCE 1.6%
<S> <C> <C> <C> <C> <C> <C>
Allmerica Financial Corp. -- -- 49,900 3,034,544 49,900 3,034,544
American Bankers Insurance
Group Inc. -- -- 10,300 560,706 14,600 635,150
a Old Republic International Corp. 4,300 74,444 11,700 202,556 11,700 202,556
Provident Companies Inc. -- -- 11,800 472,000 11,800 472,000
Sampo Insurance Co. PLC., A -- -- 6,800 197,051 6,800 197,051
Torchmark Corp. -- -- 36,400 1,242,150 36,400 1,242,150
White Mountain Insurance Group Inc. -- 15,600 2,199,600 15,600 2,199,600
------------ ------------ ------------
74,444 7,908,607 7,983,051
------------ ------------ ------------
LEISURE & TOURISM 3.3%
a Park Place Entertainment Corp. 1,600 15,500 301,000 2,915,938 302,600 2,931,438
Pathe SA -- -- 28,500 3,421,058 28,500 3,421,058
a Promus Hotel Corp. 3,740 115,940 171,200 5,307,200 174,940 5,423,140
Starwood Hotels & Resorts
Worldwide Inc. 1,375 42,023 157,000 4,798,313 158,375 4,840,336
------------ ------------ ------------
173,463 16,442,509 16,615,972
------------ ------------ ------------
MACHINERY & ENGINEERING 1.2%
Case Corp. -- -- 8,200 394,625 8,200 394,625
Invensys PLC 17,760 84,122 1,206,152 5,713,071 1,223,912 5,797,193
------------ ------------ ------------
84,122 6,107,696 6,191,818
------------ ------------ ------------
MERCHANDISING 3.9%
a Barney's Inc. -- -- 45,635 410,715 45,635 410,715
a Barney's Inc., wts. -- -- 11,018 26,994 11,018 26,994
a Federated Department Stores Inc. 954 50,502 88,700 4,695,556 89,654 4,746,058
JC Penney Co. Inc. 858 41,667 100,900 4,899,956 101,758 4,941,623
a Payless Shoesource Inc. 680 36,380 51,100 2,733,850 51,780 2,770,230
Rite Aid Corp. 1,876 46,197 170,600 4,201,025 172,476 4,247,222
a Toys R Us Inc. 1,880 38,892 122,070 2,525,323 123,950 2,564,215
------------ ------------ ------------
213,638 19,493,419 19,707,057
------------ ------------ ------------
METALS & MINING .4%
Allegheny Teledyne Inc. -- -- 95,680 2,164,760 95,680 2,164,760
------------ ------------ ------------
MULTI-INDUSTRY 8.3%
a Alleghany Corp. 319 59,015 15,558 2,878,230 15,877 2,937,245
a Berkshire Hathaway Inc. -- -- 22 49,280 22 49,280
a Berkshire-Hathaway Inc., A -- -- 57 3,927,300 57 3,927,300
Compagnie Financiere Richemont AG,
Br., A 22 42,313 2,390 4,596,745 2,412 4,639,058
Compagnie Generale D'Industrie et
de Participation 990 47,881 57,210 2,766,989 58,200 2,814,870
Corporacion Financiera Alba SA 240 38,857 19,000 3,076,209 19,240 3,115,066
Investor AB, A 1,100 12,097 658,360 7,240,256 659,460 7,252,353
Investor AB, B 2,580 28,829 652,800 7,294,284 655,380 7,323,113
Kansas City Southern Industries Inc. -- -- 38,900 2,482,306 38,900 2,482,306
Kinnevik AB, B -- -- 10,200 191,955 10,200 191,955
Lagardere SCA -- -- 95,862 3,568,751 95,862 3,568,751
Ogden Corp. 1,300 35,019 88,500 2,383,969 89,800 2,418,988
Power Corp. of Canada -- -- 29,400 566,505 29,400 566,505
------------ ------------ ------------
264,011 41,022,779 41,286,790
------------ ------------ ------------
REAL ESTATE .4%
a Alexander's Inc. -- -- 8,000 591,000 8,000 591,000
a Cadillac Fairview Corp. -- -- 62,000 1,175,606 62,000 1,175,606
Real Estate (cont.)
acSecurity Capital European Realty -- $-- 23,055 $ 399,479 23,055 $ 399,479
------------ ------------ ------------
-- -- 2,166,085 2,166,085
------------ ------------ ------------
TELECOMMUNICATIONS 4.5%
BCE Inc. -- -- 45,750 2,242,954 45,750 2,242,954
General Motors Corp., H -- -- 25,500 1,434,375 25,500 1,434,375
a Telecom Italia SpA, di Risp -- -- 486,200 2,644,844 486,200 2,644,844
Telephone & Data Systems Inc. 675 49,317 142,900 10,440,631 143,575 10,489,948
a United States Cellular Corp. -- -- 85,100 4,552,850 85,100 4,552,850
Vodafone Airtouch PLC, ADR -- -- (30,950) 994,850 (30,950) 994,850
------------ ------------ ------------
49,317 22,310,504 22,359,821
------------ ------------ ------------
TEXTILES & APPAREL .6%
Liz Claiborne Inc. 1,400 51,100 77,300 2,821,450 78,700 2,872,550
------------ ------------ ------------
TRANSPORTATION 2.3%
Burlington Northern Santa Fe Corp. -- -- 53,200 1,649,200 53,200 1,649,200
Florida East Coast Industries Inc. 500 22,125 114,500 5,066,625 115,000 5,088,750
ac Golden Ocean Group Ltd., wts. -- -- 1,120 -- 1,120 --
Railtrack Group PLC -- -- 239,552 4,897,370 239,552 4,897,370
------------ ------------ ------------
22,125 11,613,195 11,635,320
------------ ------------ ------------
UTILITIES ELECTRICAL & GAS 1.1%
a Citizens Utilities Co., B 6,443 71,678 -- -- 6,443 71,678
a MidAmerican Energy Holding Co. 800 47,190 91,700 3,175,113 92,500 3,222,303
Veba AG -- -- 38,100 2,247,417 38,100 2,247,417
------------ ------------ ------------
118,868 5,422,530 5,541,398
------------ ------------ ------------
TOTAL COMMON STOCKS
(COST $338,565,570) 3,132,005 388,768,240 391,900,245
------------ ------------ ------------
PREFERRED STOCKS .6%
Embratel Participacoes SA, ADR, pfd. -- -- 36,350 504,345 36,350 504,345
Tele Centro Sul Participacoes SA,
ADR, pfd. 261 14,486 17,570 975,135 17,831 989,621
Tele Norte Leste Participacoes SA,
ADR, pfd. 865 16,057 81,650 1,515,628 82,515 1,531,685
------------ ------------ ------------
TOTAL PREFERRED STOCKS
(COST $2,634,618) 30,543 2,995,108 3,025,651
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* AMOUNT* AMOUNT*
----------- ----------- -----------
BONDS 2.7%
<S> <C> <C> <C> <C> <C> <C>
Abraxas Petroleum Corp.,
11.50%, 11/01/04 $-- -- $ 415,000 261,450 $ 415,000 261,450
Aiken Cnty S C Indl. Rev. Ref. Belott,
6.00%, 12/01/11 -- -- 45,000 27,450 45,000 27,450
Consorcio G Grupo Dina SA de CV, cvt.,
8.00%, 8/08/04 -- -- 4,250,000 2,125,000 4,250,000 2,125,000
Eurotunnel Finance Ltd., Equity
Note, 12/31/03 -- -- 481,406 371,818 481,406 371,818
Eurotunnel PLC:
12/31/12, Tier 1 -- -- 406,877 GBP 525,896 406,877 GBP 525,896
12/31/18, Tier 2 -- -- 1,051,800 GBP 1,226,840 1,051,800 GBP 1,226,840
12/31/25, Tier 3 -- -- 281,758 GBP 288,677 281,758 GBP 288,677
12/31/50, Resettable Advance R5 -- -- 408,583 GBP 273,711 408,583 GBP 273,711
4/30/40, ptc loan note -- -- 220,000 GBP 149,113 220,000 GBP 149,113
Stabilization Advance S8 Tier 1 -- -- 70,043 GBP 26,497 70,043 GBP 26,497
Stabilization Advance S8 Tier 2 -- -- 54,215 GBP 17,091 54,215 GBP 17,091
Eurotunnel SA:
5.28%, 7/07/02, Tier 1 -- -- 46,223 EUR 38,610 46,223 EUR 38,610
5.28%, 7/07/02, Tier 2 -- -- 133,474 EUR 101,857 133,474 EUR 101,857
5.28%, 7/07/02, Tier 3 -- -- 166,595 EUR 109,952 166,595 EUR 109,952
12/31/12, Tier 1 (Libor) -- -- 155,834 EUR 130,170 155,834 EUR 130,170
12/31/18, Tier 2 (Libor) -- -- 471,681 EUR 357,519 471,681 EUR 357,519
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Eurotunnel SA: (cont.)
12/31/25, Tier 3 (Libor) $-- $-- $ 367,578 EUR $ 242,601 $ 367,578 EUR $ 242,601
12/31/50, Resettable Advance R4 -- -- 392,330 EUR 167,904 392,330 EUR 167,904
Eurotunnel Stabilization Facility
Stabilization Advance Tier 1 -- -- 24,850 EUR 6,150 24,850 EUR 6,150
Stabilization Advance Tier 1 -- -- 11,279 EUR 2,792 11,279 EUR 2,792
Stabilization Advance Tier 2 -- -- 29,666 EUR 6,119 29,666 EUR 6,119
Golden Books Publishing,
7.65%, 9/15/02 -- -- 190,000 75,050 190,000 75,050
Hechinger Co., 6.95%, 10/15/03 -- -- 1,702,000 178,710 1,702,000 178,710
HIH Capital Ltd., cvt., 7.50%, 9/25/06 -- -- 1,235,000 845,975 1,235,000 845,975
Hvide Marine Inc., 8.375%, 2/15/08 -- -- 170,000 82,450 170,000 82,450
Kelley Oil & Gas Corp.
144A, 14.00%, 4/15/03 -- -- 190,000 195,700 190,000 195,700
10.375%, 10/15/06 -- -- 95,000 54,625 95,000 54,625
Series D, 10.375%, 10/15/06 -- -- 120,000 69,000 120,000 69,000
MFN Financial Corp.;
Series A, 10.00%, 4/23/01 -- -- 158,828 150,092 158,828 150,092
Series B, 10.00%, 4/23/01 -- -- 278,828 263,492 278,828 263,492
Port Seattle Wash. Rev. Ref-Beloit Proj.,
6.00%, 12/01/17 -- -- 20,000 12,200 20,000 12,200
aRoil Limited, 12.779%, 12/05/02 -- -- 2,328,000 814,800 2,328,000 814,800
Security Capital US Realty, cvt., 144A,
2.00%, 5/22/03 -- -- 2,208,000 1,698,780 2,208,000 1,698,780
Southwest Royalties Inc., B,
10.50%, 10/15/04 -- -- 1,475,000 715,375 1,475,000 715,375
Specialty Foods Corp.:
11.00%, 8/15/09 -- -- 111,297 11 111,297 11
13.25%, 8/15/09 -- -- 1,180,000 920,400 1,180,000 920,400
TFM SA de CV:
10.25%, 6/15/07 -- -- 250,000 221,875 250,000 221,875
0/11.75%, 6/15/09 -- -- 885,000 535,425 885,000 535,425
-------- ------------ --------------
TOTAL BONDS (COST $118,784,832) -- 13,291,177 13,291,177
-------- ------------ --------------
BONDS & NOTES IN REORGANIZATION 2.9%
aAltos Hornos de Mexico SA:
5.50%, 12/15/01 -- -- 20,000 8,000 20,000 8,000
Series A, 11.375%, 4/30/02 -- -- 95,000 42,750 95,000 42,750
Series B, 11.875%, 4/15/04 -- -- 60,000 27,000 60,000 27,000
aAPS Inc., bank claim -- -- 242,324 104,199 242,324 104,199
aBrunos Inc., Bank Claim:
Revolver Commitment -- -- 201,200 115,690 201,200 115,690
Tranche A -- -- 360,300 194,562 360,300 194,562
Tranche B -- -- 292,000 157,680 292,000 157,680
aCrown Leasing, Bank Claim -- -- 87,565,976 JPY 114,847 87,565,976 JPY 114,847
aDecision One, Bank Claim:
Revolver Commitment -- -- 266,219 116,471 266,219 116,471
Tranche A -- -- 477,294 208,816 477,294 208,816
Tranche B -- -- 139,690 61,114 139,690 61,114
aDictaphone Corporation, Bank Claim
Revolver Commitment -- -- 305,800 266,046 305,800 266,046
Tranche C Term Loan -- -- 116,000 102,080 116,000 102,080
aDow Corning Corp.:
Bank Debt #1 -- -- 100,000 128,250 100,000 128,250
9.375%, 2/20/99 -- -- 550,000 705,375 550,000 705,375
acGolden Ocean Group Ltd.,
10.00%, 8/31/01 -- -- 1,050,000 115,500 1,050,000 115,500
Harnischfeger Industries Inc.
8.90%, 3/01/22 -- -- 290,000 176,900 290,000 176,900
8.70%, 6/15/22 -- -- 145,000 88,450 145,000 88,450
6.875%, 2/15/27 -- -- 353,000 215,330 353,000 215,330
aIntegrated Health Services Inc., Tranche B,
Term Loan -- -- 239,392 221,438 239,392 221,438
aKoninklijke Nederlandse Vliegtuigenfabriek
Fokker, Trade Claim $-- $-- $ 550,118 EUR $ 453,846 $ 550,118 EUR $ 453,846
aLoewen Group Inc.:
Bank Claim, Revolver Commitment -- -- 129,798 81,124 129,798 81,124
144A, 6.70%, 10/01/99 -- -- 355,000 214,775 355,000 214,775
Series 3, 7.50%, 4/15/01 -- -- 90,000 56,700 90,000 56,700
Series 7, 7.75%, 10/15/01 -- -- 170,000 107,100 170,000 107,100
Series 5, 6.10%, 10/02/02 -- -- 250,000 CAD 103,348 250,000 CAD 103,348
Series 4, 8.25%, 4/15/03 -- -- 190,000 118,750 190,000 118,750
Series 6, 7.20%, 6/01/03 -- -- 1,550,000 992,000 1,550,000 992,000
Series 2, 8.25%, 10/15/03 -- -- 555,000 346,875 555,000 346,875
Series 7, 7.60%, 6/01/08 -- -- 1,235,000 784,225 1,235,000 784,225
aNippon Credit Bank Ltd., Bank Claim -- -- 44,574,201 JPY 58,842 44,574,201 JPY 58,842
aNippon Total Finance, Bank Claim -- -- 45,189,925 JPY 22,209 45,189,925 JPY 22,209
aPaging Network Inc., Revolver
Commitment, A -- -- 1,650,000 1,485,000 1,650,000 1,485,000
aPeregrine Investments Holdings Ltd., zero
cpn., 2/28/99 -- -- 5,000,000 JPY 4,596 5,000,000 JPY 4,596
aPhilip Services Corp.
Bank Claim, Canadian Operating -- -- 448,166 CAD 131,678 448,166 CAD 131,678
Bank Claim, Canadian Operating, fgn. -- -- 9,144 3,932 9,144 3,932
Tranche 1 -- -- 319,116 137,220 319,116 137,220
Tranche 2 -- -- 296,498 127,494 296,498 127,494
Tranche 3 -- -- 148,249 63,747 148,249 63,747
aPIV Investment Finance (Cayman)
Ltd., 12/01/00 -- -- 12,060,000 3,316,500 12,060,000 3,316,500
aPratama Datakom Asia BV
Reg S, 12.75%, 7/15/05 -- -- 140,000 32,900 140,000 32,900
144A, 12.75%, 7/15/05 -- -- 665,000 156,275 665,000 156,275
aRitvik Holdings, Bank Claim:
Term Loan B -- -- 55,000 46,750 55,000 46,750
Term Loan C -- -- 137,000 116,450 137,000 116,450
aTribasa Toll Road Trust I,
10.50%, 12/01/11 -- -- 165,589 86,106 165,589 86,106
aVencor Operating Inc., 9.875%, 5/01/05 -- -- 1,635,000 498,675 1,635,000 498,675
aVencor Inc., Bank Claim:
Commitment Revolver -- -- 78,150 66,428 78,150 66,428
Term Loan A -- -- 432,469 356,787 432,469 356,787
Term Loan B -- -- 57,755 48,658 57,755 48,658
aVentas Inc., Bank Claim:
Commitment Revolver, Tranche B -- -- 194,782 181,147 194,782 181,147
Tranche A -- -- 79,500 73,935 79,500 73,935
Tranche C -- -- 75,300 70,782 75,300 70,782
Tranche D -- -- 26,626 21,833 26,626 21,833
aUnited Companies Financial
Corp, revolver -- -- 1,883,700 1,054,872 1,883,700 1,054,872
-------- ------------ -----------
TOTAL BONDS & NOTES IN REORGANIZATION
(COST $12,780,047) -- 14,592,057 14,592,057
-------- ------------ -----------
SHORT TERM INVESTMENTS 11.2%
Fannie Mae, 4.69% to 5.140% with
maturities to 12/08/99 -- -- 22,578,000 12,133,547 22,578,000 12,133,547
Federal Home Loan Bank, 4.72% to 5.10%
with maturities to 11/05/99 -- -- 7,000,000 6,887,678 7,000,000 6,887,678
Federal Home Loan Mortgage Corp., 4.67%
to 5.10% with maturities to 3/08/00 -- -- 37,550,000 37,110,346 37,550,000 37,110,346
-------- ------------ -----------
TOTAL SHORT TERM INVESTMENTS
(COST $56,121,702) -- 56,131,571 56,131,571
-------- ------------ -----------
TOTAL INVESTMENTS
(COST $426,310,610) 95.6% 3,162,548 475,778,153 478,940,701
NET EQUITY IN FORWARD CONTRACTS .6% -- 3,203,691 3,203,691
SECURITIES SOLD SHORT (.6%) -- (3,295,800) (3,295,800)
OTHER ASSETS, LESS LIABILITIES 4.4% 504,512 21,643,295 22,147,807
----------- ------------ ------------
TOTAL NET ASSETS 100.0% $3,667,060 $497,329,339 $500,996,399
----------- ------------ ------------
VIP MUTUAL SHARES SECURITIES FUND
TVP MUTUAL SHARES INVESTMENTS FUND VIP MUTUAL SHARES SECURITIES FUND PRO FORMA COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
j Securities Sold Short
ISSUER COUNTRY COUNTRY
-------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allied Signal Inc. -- -- United States 3,100 $195,300 United States 3,100 $ 195,300
BP Amoco PLC, ADR -- -- United Kingdom 4,200 455,700 United States 4,200 455,700
a DST Systems Inc. -- -- United States 6,300 396,112 United States 6,300 396,112
Intel Corp. -- -- United States 3,400 202,300 United States 3,400 202,300
Nortel Networks Corp. -- -- Canada 18,300 1,575,538 Canada 18,300 1,575,538
Unum Corp. -- -- United States 8,600 470,850 United States 8,600 470,850
---- ------------ ------------
Total Securities Sold Short
(Proceeds $3,132,279) -- $3,295,800 $3,295,800
---- ------------ ------------
CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED VALUE AT UNREALIZED
SECURITY COUNTRY SHARES 06/30/1999 GAIN/LOSS COUNTRY SHARES 06/30/1999 GAIN/LOSS
- -----------------------------------------------------------------------------------------------------------------------------------
BP Amoco PLC, cfd. 10.3574 -- -- United Kingdom 13,600 $ 234,952 $ (21,921) United Kingdom 13,600 $234,952 $(21,921)
BP Amoco PLC, cfd. 10.9450 -- -- United Kingdom 5,500 98,657 (3,771) United Kingdom 5,500 98,657 (3,771)
BP Amoco PLC, cfd. 11.2992 -- -- United Kingdom 10,200 182,964 (1,299) United Kingdom 10,200 182,964 (1,299)
Vodafone Group PLC, cfd. 11.2893-- -- United Kingdom 30,000 590,145 (56,305) United Kingdom 30,000 590,145 (56,305)
Vodafone Group PLC, cfd 12.272 -- -- United Kingdom 20,000 393,430 (6,557) United Kingdom 20,000 393,430 (6,557)
---------------------------- ---------------------
TOTAL CONTRACT FOR DIFFERENCES -- -- $1,500,148 $ (89,853) $1,500,148 $(89,853)
============================ =====================
CURRENCY ABBREVIATIONS:
CAD - Canadian Dollar
EUR - European Unit
GBP - British Pound
JPY - Japanese Yen
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
cRestricted security.
See accompanying notes to pro forma combined financial statements.
TEMPLETON VARIABLE PRODUCTS SERIES FUND - MUTUAL SHARES INVESTMENTS FUND
("TVP MUTUAL SHARES INVESTMENTS FUND")
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST- MUTUAL SHARES SECURITIES FUND
("VIP MUTUAL SHARES SECURITIES FUND")
FINANCIAL STATEMENTS
</TABLE>
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
VIP
MUTUAL SHARES
TVP MUTUAL VIP MUTUAL SECURITIES FUND
SHARES INVESTMENTS SHARES SECURITIES PRO FORMA
FUND FUND COMBINED
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost $2,776,100 $423,534,510 $ 426,310,610
-------------------------------------------------------
Value 3,162,548 475,778,153 478,940,701
Cash 581,040 12,358,049 12,939,089
Receivables:
Investment securities sold 56,875 6,285,733 6,342,608
Capital shares sold 2,037 56,716 58,753
Dividends and interest 4,525 1,156,679 1,161,204
From affiliates 15,840 -- 15,840
Unrealized gain (loss) on forward exchange contracts -- 3,417,587 3,417,587
Deposits with brokers for securities sold short 7,772,566 7,772,566
Other assets -- -- --
-------------------------------------------------------
Total assets 3,822,865 506,825,483 510,648,348
-------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 137,417 5,274,802 5,412,219
Capital shares redeemed -- 270,516 270,516
Affiliates 433 299,331 299,764
Custodian fees -- 5,231 5,231
Postage and mailing -- (4,419) (4,419)
Securities sold short, at value (proceeds $3,132,279) 3,295,800 3,295,800
Due To broker, variation margin 77,867 77,867
Funds advanced by custodian -- -- --
Accrued expenses 17,955 -- 17,955
Unrealized loss on forward exchange contracts 213,896 213,896
Other liabilities -- 63,120 63,120
-------------------------------------------------------
Total liabilities 155,805 9,496,144 9,651,949
-------------------------------------------------------
Net assets, at value $3,667,060 $497,329,339 $500,996,399
-------------------------------------------------------
Class 1:
Net assets, at value $2,456,111 $496,887,152 $499,343,263
-------------------------------------------------------
Shares outstanding** 220,178 36,256,033 36,435,311
-------------------------------------------------------
Net asset value and offering price per share $11.16 $13.70 $13.70
-------------------------------------------------------
Class 2:
Net assets, at value $1,210,949 $ 442,187 $ 1,653,136
-------------------------------------------------------
Shares outstanding** 108,637 32,326 120,846
-------------------------------------------------------
Net asset value and offering price per share $11.15 $13.68 $13.68
-------------------------------------------------------
**See note 2 in the accompanying notes to pro forma combined financial statements.
See accompanying notes to pro forma combined financial statements.
</TABLE>
TVP MUTUAL SHARES INVESTMENTS FUND
VIP MUTUAL SHARES SECURITIES FUND
FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FTVIPT MUTUAL
SHARES
TVP MUTUAL VIP MUTUAL SECURITIES FUND
ARES INVESTMENTS SHARES SECURITIES PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:+
Dividends $ 17,296 $ 3,173,746 $ -- $ 3,191,042
Interest 283 2,795,696 -- 2,795,979
-------------------------------------------------------------------------
Total investment income 17,579 5,969,442 -- 5,987,021
-------------------------------------------------------------------------
Expenses:
Management fees 7,319 1,430,056 -- 1,437,375
Administrative fees 1,181 336,639 466a 338,286
Distribution fees - Class 2 890 296 (51)b 1,135
Custodian fees 100 16,100 -- 16,200
Reports to shareholders 10,100 28,800 -- 38,900
Professional fees 11,422 18,500 -- 29,922
Trustees' fees and expenses -- 1,900 -- 1,900
Other -- 29,294 -- 29,294
-------------------------------------------------------------------------
Total expenses 31,012 1,861,585 415 1,893,012
Expenses waived/paid by affiliate (17,938) -- 17,938c --
-------------------------------------------------------------------------
Net expenses 13,074 1,861,585 18,353 1,893,012
-------------------------------------------------------------------------
Net investment income 4,505 4,107,857 18,353 4,094,009
-------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 36,585 20,421,696 -- 20,458,281
Foreign currency transactions (3,290) 1,923,527 -- 1,920,237
-------------------------------------------------------------------------
Net realized gain 33,295 22,345,223 -- 22,378,518
Net unrealized appreciation on:
Investments 339,010 35,521,440 -- 35,860,450
Translation of assets and liabilities
denominated in foreign currencies 3,439 3,031,844 -- 3,035,283
-------------------------------------------------------------------------
Net unrealized gain 342,449 38,553,284 -- 38,895,733
-------------------------------------------------------------------------
Net realized and unrealized gain 375,744 60,898,507 -- 61,274,251
-------------------------------------------------------------------------
Net increase in net assets resulting from operations $380,249 $65,006,364 $18,353 $65,368,260
-------------------------------------------------------------------------
</TABLE>
aPro Forma adjustment for difference in Administrative fee schedule.
bPro Forma adjustment for difference in 12B-1 agreement. The 12B-1 fee rate
reflected in the Pro Forma Combined is 0.25% of the average net assets.
cPro Forma adjustment to remove TVP Mutual Shares expense limitation
+Net of foreign taxes of $157,586 and $896,270 for VIP Mutual Shares Securities
Fund and TVP Mutual Shares Investments Fund, respectively
See accompanying notes to pro forma combined financial statements.
VIP - TEMPLETON MUTUAL SHARES FUND
TVP - TEMPLETON MUTUAL SHARES FUND
Notes to Pro forma combining Statements (unaudited)
1. BASIS OF COMBINATION
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the Templeton Variable Products
Series Fund - Templeton Mutual Shares Fund("TVP-Templeton Mutual Shares"), the
Franklin Templeton Variable Insurance Products Trust - Templeton Templeton
Mutual Shares Fund ("VIP - Templeton Mutual Shares Fund") will acquire all the
net assets of the TVP - Templeton Mutual Shares Class 1 and 2 in exchange for
the Classes 1 and 2 shares, respectively, shares of VIP - Templeton Mutual
Shares Fund. The merger will be accounted for by the method of accounting for
tax free business combinations of investment companies. The pro forma combined
Statement of Assets and Liabilities reflects the financial position of TVP -
Templeton Mutual Shares June 30, 1999 as though the merger occurred as of that
date. The pro forma combined Statement of Operations reflects the results of
operations of the TVP - Templeton Mutual Shares and VIP - Templeton Mutual
Shares for the period January 1, 1999 to June 30, 1999 as though the merger
occurred on January 1, 1999. The pro forma financial statements do not reflect
the expenses of either fund in carrying out its obligations under the Agreement
and Plan of Reorganization or any adjustment with respect to additional
distributions that may be made prior to reorganization. The pro forma financial
statements are presented for the information of the reader, and should be read
in conjunction with the historical financial statements of the funds.
2. CAPITAL SHARES:
The number of Class 1 and 2 shares issued was calculated by dividing the Class 1
and 2 net assets of the TVP - Templeton Mutual Shares at June 30, 1999 by the
Class 1 and 2 net asset value per share of the VIP - Templeton Mutual Shares,
respectively at June 30, 1999.
<TABLE>
<CAPTION>
TVP Templeton Bond Fund
VIP Templeton Global Income Securities Fund
Pro forma combined Statement of Investments, June 30, 1999 (unaudited)
VIP TEMPLETON GLOBAL INCOME
VIP TEMPLETON GLOBAL INCOME SECURITIES FUND
TVP TEMPLETON BOND FUND SECURITIES FUND PRO FORMA COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* VALUE AMOUNT* VALUE AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Securities 98.8%
Argentina 1.5%
<S> <C> <C> <C> <C> <C> <C>
Republic of Argentina, 10.95%,
11/01/99 $ 350,000 $ 353,500 $ 1,645,000 $ 1,661,450 $ 1,995,000 $ 2,014,950
------------ ------------ --------------
Australia 5.2%
Australian Government, 10.00%,
10/15/07 1,463,000 AUD 1,201,184 7,220,000 AUD 5,927,922 8,683,000 AUD 7,129,106
------------ ------------ -------------
Belgium 5.1%
Kingdom of Belgium, 6.25%, 3/28/07 838,376 EUR 958,984 5,291,039 EUR 6,052,203 6,129,415 EUR 7,011,187
------------ ------------ ------------
Brazil .9%
Republic of Brazil, FRN, 5.938%,
4/15/09 170,000 117,300 1,510,000 1,041,900 1,680,000 1,159,200
------------ ------------ ------------
Bulgaria 1.8%
Republic of Bulgaria, Series A, FRN,
5.875%, 7/28/24 605,000 413,669 2,970,000 2,030,738 3,575,000 2,444,407
------------ ------------ ------------
Canada 1.5%
Government of Canada, 7.00%, 12/01/06 475,000 CAD 353,970 2,345,000 CAD 1,747,494 2,820,000 CAD 2,101,464
------------ ------------ ------------
Denmark 2.1%
Kingdom of Denmark, 7.00%, 11/15/07 3,001,000 DKK 481,257 14,838,000 DKK 2,379,506 17,839,000 DKK 2,860,763
------------ ------------ ------------
Ecuador 1.4%
Republic of Ecuador, FRN, 6.00%,
2/28/25 670,000 313,647 3,500,000 1,638,455 4,170,000 1,952,102
------------ ------------ ------------
Germany 12.8%
Federal Republic of Germany, 5.25%,
2/21/01 - - 9,129,117 EUR 9,723,728 9,129,117 EUR 9,723,728
Hypothekenbank In Essen AG,
Series 502, 5.25%, 1/22/08 935,664 995,970 5,279,089 EUR 5,619,341 6,214,753 EUR 6,615,311
Treuhandanstalt, 7.50%, 9/09/04 1,022,584 EUR 1,221,364 1,022,584 EUR 1,221,364
------------ ------------ ------------
2,217,334 15,343,069 17,560,40
------------ ------------ ------------
India
Essar Steel Ltd., Reg S, FRN, 7.635%,
7/20/99 50,000 33,750 -- 50,000 33,750
------------ ------------ ------------
Italy 6.1%
Buoni Poliennali del Tesoro, 10.50%,
7/15/00 612,000 EUR 677,953 2,272,406 EUR 2,517,293 2,884,406 EUR 3,195,246
Government of Italy, 7.75%, 11/01/06 877,975 EUR 1,086,763 3,305,318 EUR 4,091,341 4,183,293 EUR 5,178,104
------------ ------------ ------------
1,764,716 6,608,634 8,373,350
------------ ------------ ------------
Mexico 7.9%
United Mexican States:
9.75%, 4/06/05 650,000 660,563 6,000,000 6,097,500 6,650,000 6,758,063
9.875%, 1/15/07 1,700,000 1,721,250 1,700,000 1,721,250
11.375%, 9/15/16 175,000 188,213 175,000 188,213
6.25%, 12/31/19 800,000 593,000 800,000 593,000
11.50%, 5/15/26 250,000 279,375 1,230,000 1,374,525 1,480,000 1,653,900
------------ ------------ ------------
1,721,151 9,193,275 10,914,426
------------ ------------ ------------
New Zealand 2.4%
Government of New Zealand, 7.00%,
7/15/09 990,000 NZD 543,312 5,050,000 NZD 2,771,439 6,040,000 NZD 3,314,751
------------ ------------ ------------
Norway .4%
Statkraft SF, 7.50%, 11/10/99 511,292 EUR 535,177 -- 511,292 EUR 535,177
------------ ------------ ------------
Panama .1%
Republic of Panama, 8.875%, 9/30/27 170,000 141,100 -- 170,000 141,100
------------ ------------ ------------
Peru .7%
Republic of Peru, FRN, 4.50%, 3/07/17 235,000 144,967 1,300,000 801,944 1,535,000 946,911
------------ ------------ ------------
Sweden 3.1%
Kingdom of Sweden, 6.00%, 2/09/05 5,800,000 SEK 725,750 28,700,000 SEK 3,591,213 34,500,000 SEK 4,316,963
------------ ------------ ------------
Turkey .5%
Republic of Turkey, 12.375%, 6/15/09 $ 100,000 $ 99,250 $ 535,000 $ 530,988 $ 635,000 $ 630,238
------------ ------------ ------------
United Kingdom 10.2%
United Kingdom:
6.50%, 12/07/03 820,000 GBP 1,375,628 5,400,000 GBP 9,059,015 6,220,000 GBP 10,434,643
7.50%, 12/07/06 500,000 GBP 888,607 1,500,000 GBP 2,665,821 2,000,000 GBP 3,554,428
------------ ------------ ------------
2,264,235 11,724,836 13,989,071
------------ ------------ ------------
United States 33.9%
Fannie Mae, 6.875%, 6/07/02 475,000 GBP 768,191 475,000 GBP 768,191
U.S. Treasury Notes:
4.50%, 1/31/01 2,100,000 2,069,157 11,000,000 10,838,443 13,100,000 12,907,600
7.25%, 8/15/04 1,072,000 1,139,000 5,519,000 5,863,938 6,591,000 7,002,938
6.125%, 11/15/27 412,000 408,266 412,000 408,266
5.25%, 11/15/28 4,395,000 3,890,950 24,500,000 21,690,167 28,895,000 25,581,117
------------ ------------ ------------
8,275,564 38,392,548 46,668,112
------------ ------------ ------------
Venezuela 1.2%
Republic of Venezuela, 144A, 9.125%,
6/18/07 300,000 228,000 1,940,000 1,474,400 2,240,000 1,702,400
------------ ------------ ------------
Total Long Term Securities
(Cost $144,447,861) 22,887,817 112,912,014 135,799,831
------------ ------------ ------------
Short Term Investments
(Cost $509,000) .4%
Chase Securities Inc., 5.00%, 6/30/99,
Time Deposit 509,000 -- 509,000
------------ ------------ ------------
Total Investments
(Cost $144,956,861) 99.1% 23,396,817 112,912,014 136,308,831
Net Equity In Forward Contracts 15,853 31,411 47,264
Other Assets, Less Liabilities .8% 400,446 747,904 1,148,350
------------ ------------ -------------
Total Net Assets 100.0% $23,813,116 $113,691,329 $137,504,445
------------ ------------ -------------
Currency Abbreviations:
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - European Unit
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krone
*Securities traded in U.S. dollars unless otherwise indicated.
See accompanying notes to pro forma combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
Templeton Variable Products Series Fund - Templeton Bond Fund ("TVP Templeton Bond Fund")
Franklin Templeton Variable Insurance Products Trust - Templeton Global Income Securities Fund
("VIP Templeton Global Income Securities Fund")
Financial Statements
Pro Forma Combined Statements of Assets and Liabilities (unaudited)
June 30, 1999
VIP Templeton
Global Income
TVP Templeton VIP Templeton Securities Fund
Bond Global Income Pro Forma
Fund Securities Fund Combined
------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost $24,840,681 $120,116,180 $144,956,861
------------------------------------------------------
Value 23,396,817 112,912,014 136,308,831
Cash 602 -- 602
Receivables:
Capital shares sold 430 113 543
Dividends and interest 439,143 1,882,841 2,321,984
Unrealized gain on forward exchange contracts 15,853 31,411 47,264
Other assets -- -- --
------------------------------------------------------
Total assets 23,852,845 114,826,379 138,679,224
------------------------------------------------------
Liabilities:
Payables:
Capital shares redeemed 11 171,188 171,199
Affiliates 11,601 54,811 64,412
Custodian fees -- 25,009 25,009
Postage and mailing -- 12,541 12,541
Funds advanced by custodian -- 853,913 853,913
Accrued expenses 28,117 -- 28,117
Other liabilities -- 17,588 17,588
------------------------------------------------------
Total liabilities 39,729 1,135,050 1,174,779
------------------------------------------------------
Net assets, at value $23,813,116 $113,691,329 $137,504,445
======================================================
Class 1:
Net assets, at value $23,523,321 $113,608,897 $137,132,218
======================================================
Shares outstanding ** 2,343,325 9,311,962 11,240,103
======================================================
Net asset value and offering price per share $10.04 $12.20 $12.20
======================================================
Class 2:
Net assets, at value $ 289,795 $ 82,432 $ 372,227
======================================================
Shares outstanding ** 28,891 6,766 30,559
======================================================
Net asset value and offering price per share $10.03 $12.18 $12.18
======================================================
**See note 2 in the accompanying notes to pro forma combined financial statements.
eExpense adjustment for differences in administrative fees and 12B1 fees.
See accompanying notes to pro forma combined financial statements.>>
</TABLE>
<TABLE>
<CAPTION>
TVP Templeton Bond Fund
VIP Templeton Global Income Securities Fund
Financial Statements (continued)
Pro forma combined Statements of Operations
for the six months ended June 30, 1999 (unaudited)
VIP Templeton
GLOBAL INCOME
TVP TEMPLETON VIP TEMPLETON SECURITIES FUND
BOND GLOBAL INCOME PRO FORMA PRO FORMA
FUND SECURITIES FUND ADJUSTMENTS COMBINED
- -------------------------------------------------------------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C>
Interest $ 877,644 $ 4,131,998 $-- $ 5,009,642
- -------------------------------------------------------------------------------------------------------------------------------
Total investment income 877,644 4,131,998 -- 5,009,642
Expenses:
Management fees 66,912 393,647 -- 460,559
Administrative fees 12,962 -- (12,962)a --
Distribution fees-Class 2 103 32 63b 198
Custodian fees 3,600 26,200 -- 29,800
Reports to shareholders 4,900 12,800 -- 17,700
Registration and filing fees 700 -- -- 700
Professional fees 7,000 3,400 -- 10,400
Trustees' fees and expenses 400 -- 400
Other 194 556 -- 750
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 96,371 437,035 (12,899) 520,507
Net investment income 781,273 3,694,963 (12,899) 4,489,135
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (278,372) (921,611) -- (1,199,983)
Foreign currency transactions 25,160 147,984 -- 173,144
- -------------------------------------------------------------------------------------------------------------------------------
Net realized loss (253,212) (773,627) -- (1,026,839)
Net unrealized depreciation on:
Investments (1,979,559) (10,006,919) -- (11,986,478)
Translation of assets and liabilities denominated
in foreign currencies (18,666) (46,104) -- (64,770)
- -------------------------------------------------------------------------------------------------------------------------------
Net unrealized loss (1,998,225) (10,053,023) -- (12,051,248)
Net realized and unrealized loss (2,251,437) (10,826,650) -- (13,078,087)
Net decrease in net assets resulting from operations $(1,470,164) $ (7,131,687) $(12,899) $ (8,588,952)
aPro Forma adjustment for difference in Administrative fee schedule.
bPro Forma adjustment for difference in 12B-1 agreement. The 12B-1 fee rate reflected in the Pro Forma Combined is 0.25% of the
average net assets.
See accompanying notes to pro forma combined financial statements.>>
</TABLE>
VIP - Templeton Global Income Fund
TVP - Templeton Bond Fund
Notes to Pro forma combined Statements (unaudited)
1. Basis of Combination
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the Templeton Variable Products
Series Fund - Templeton Bond Fund ("TVP Bond Fund"), the Franklin Templeton
Variable Insurance Products Trust - Templeton Global Income Fund ("VIP -
Templeton Global Income Fund") will acquire all the net assets of the TVP -
Templeton Bond Class 1 and 2 in exchange for the Classes 1 and 2 shares,
respectively, shares of VIP - Templeton Global Income Fund. The merger will be
accounted for by the method of accounting for tax free business combinations of
investment companies. The pro forma combined Statement of Assets and Liabilities
reflects the financial position of TVP - Templeton Bond Fund June 30, 1999 as
though the merger occurred as of that date. The pro forma combined Statement of
Operations reflects the results of operations of the TVP - Templeton Bond and
VIP - Templeton Global Income for the period January 1, 1999 to June 30, 1999 as
though the merger occurred on January 1, 1999. The pro forma financial
statements do not reflect the expenses of either fund in carrying out its
obligations under the Agreement and Plan of Reorganization or any adjustment
with respect to additional distributions that may be made prior to
reorganization. The pro forma financial statements are presented for the
information of the reader, and should be read in conjunction with the historical
financial statements of the funds.
2. Capital Shares:
The number of Class 1 and 2 shares issued was calculated by dividing the Class 1
and 2 net assets of the TVP - Templeton Bond at June 30, 1999 by the Class 1 and
2 net asset value per share of the VIP - Templeton Global Income, respectively
at June 30, 1999.
<TABLE>
<CAPTION>
TVP Developing Markets Fund
VIP Templeton Developing Markets Equity Fund
Pro forma combined Statement of Investments, June 30, 1999 (unaudited)
VIP TEMPLETON DEVELOPING
VIP TEMPLETON DEVELOPING MARKETS EQUITY FUND
TVP DEVELOPING MARKETS FUND MARKETS EQUITY FUND PRO FORMA COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Securities 97.9%
Argentina 4.3%
<S> <C> <C> <C> <C> <C> <C>
a Atanor Cia Nacional Para la
Industria Quimica SA, D 82,061 $ 40,214 152,050 $ 74,512 234,111 $ 114,726
Banco de Galicia y Buenos Aires
SA de CV, B 76,205 390,971 59,765 306,625 135,970 697,596
a Banco Frances SA 36,000 234,032 -- -- 36,000 234,032
a Buenos Aires Embotelladora SA, B, ADR 29,000 1,827 56,200 3,541 85,200 5,368
a Capex SA, A 25,000 145,765 48,735 284,153 73,735 429,918
Central Costanera SA, B 35,860 103,287 -- -- 35,860 103,287
a Molinos Rio de la Plata SA, B 60,018 100,840 923,413 1,551,489 983,431 1,652,329
Nobleza Piccardo Sdad Industrial
Comercial y Financial 52,451 173,106 -- -- 52,451 173,106
Perez Companc SA, B 509,070 2,927,445 295,695 1,700,416 804,765 4,627,861
Quilmes Industrial SA, ADR 123,000 1,522,125 144,600 1,789,427 267,600 3,311,552
a Sociedad Comercial del Plata
Cadelplata Come 345,950 132,858 1,140,960 438,172 1,486,910 571,030
Telecom Argentina Stet-France
SA, ADR 118,200 3,161,850 34,200 914,850 152,400 4,076,700
Telefonica De Argentina SA, ADR 110,730 3,474,154 34,610 1,085,889 145,340 4,560,043
Transportadora de Gas del Sur SA, ADR 51,600 483,750 -- -- 51,600 483,750
Transportadora de Gas del Sur SA, B 110,115 207,037 -- -- 110,115 207,037
------------ ------------ ------------
13,099,261 8,149,074 21,248,335
------------ ------------ ------------
Austria 1.2%
Austria Tabak AG 23,700 1,380,891 7,000 407,858 30,700 1,788,749
Bank Austria AG 20,800 1,093,947 19,810 1,041,879 40,610 2,135,826
OMV AG 17,200 1,534,112 5,300 472,720 22,500 2,006,832
------------ ------------ ------------
4,008,950 1,922,457 5,931,407
------------ ------------ ------------
Botswana .0%
Sechaba Brewery Holding Ltd. 159,200 183,886 -- -- 159,200 183,886
------------ ------------ ------------
Brazil 12.3%
Aracruz Celulose SA, ADR 267,200 5,878,400 119,000 2,618,000 386,200 8,496,400
Banco Bradesco SA 132,856,544 530,668 59,329,083 236,978 192,185,627 767,646
Banco Bradesco SA, pfd. 65,233,889 335,010 40,276,150 206,839 105,510,039 541,849
Banco do Brasil SA 37,626,000 150,289 75,902,976 303,178 113,528,976 453,467
Brasmotor SA, pfd. 1,306,000 104,256 3,246,000 259,124 4,552,000 363,380
Centrais Eletricas Brasileiras
SA (Electrobras) 14,941,000 284,753 45,251,000 862,416 60,192,000 1,147,169
Centrais Eletricas Brasileiras
SA (Electrobras), B, pfd. 170,946,000 3,482,324 183,925,000 3,746,718 354,871,000 7,229,042
Centrais Geradoras Do Sul Do Brasil
SA, B, pfd. 161,900,000 131,183 209,667,000 169,887 371,567,000 301,070
Cia Cervejaria Brahma, pfd. 495,000 282,171 473,000 269,630 968,000 551,801
Cia Energetica de Minas Gerais
Cemig, Br., pfd. 113,752,000 2,402,261 40,185,000 848,643 153,937,000 3,250,904
a Cia Mesbla SA, pfd. 7,400,000 31,838 7,400,000 31,838
Cia Vale do Rio Doce, A, pfd. 156,750 3,112,639 50,900 1,010,739 207,650 4,123,378
Copene-Petroquimica do Nordeste
SA, A, pfd. 1,097,000 172,140 2,864,700 449,525 3,961,700 621,665
Duratex SA, pfd. 12,525,000 335,906 52,566,800 1,409,780 65,091,800 1,745,686
Embratel Participacoes SA, pfd. 62,558,000 878,132 15,877,000 222,867 78,435,000 1,100,999
Investimentos Itau SA 212,359 113,561 89,527 47,876 301,886 161,437
a Investimentos Itau SA, pfd. 5,218,000 2,798,813 2,200,200 1,180,136 7,418,200 3,978,949
a Mannesmann SA 2,692,000 199,231 2,048,500 151,607 4,740,500 350,838
a Mannesmann SA, pfd. 307,200 23,226 307,200 23,226
Petroleo Brasileiro SA, pfd. 1,523,000 238,987 -- -- 1,523,000 238,987
Tele Celular Sul Participacoes SA,
pfd. 62,558,000 133,862 15,877,000 33,974 78,435,000 167,836
Tele Centro Oeste Celular
Participacoes SA, pfd. 23,658,000 30,104 2,629,000 3,345 26,287,000 33,449
Tele Centro Sul Participacoes
SA, pfd. 397,594,000 4,421,746 71,999,000 800,720 469,593,000 5,222,466
Brazil (cont.)
Tele Leste Celular Participacoes
SA, pfd. 62,558,000 $ 37,481 15,877,000 $ 9,513 78,435,000 $ 46,994
Tele Nordeste Celular
Participacoes SA, pfd. 62,558,000 86,385 15,877,000 21,924 78,435,000 108,309
Tele Norte Celular Participacoes
SA, pfd. 62,558,000 35,696 15,877,000 9,060 78,435,000 44,756
Tele Norte Leste Participacoes
SA, pfd. 243,998,000 4,483,158 55,911,000 1,027,295 299,909,000 5,510,453
Tele Sudeste Celular
Participacoes SA, pfd. 499,230,000 2,862,914 109,402,000 627,383 608,632,000 3,490,297
Telemig Celular Participacoes
SA, pfd. 62,558,000 79,603 15,877,000 20,203 78,435,000 99,806
Telesp Celular Participacoes
SA, pfd. 62,558,000 663,954 15,877,000 168,509 78,435,000 832,463
Telesp Participacoes SA, ADR 248,400 5,682,150 47,500 1,086,563 295,900 6,768,713
Telesp Participacoes SA, pfd. 62,558,000 1,481,402 15,877,000 375,975 78,435,000 1,857,377
Unibanco Uniao de Bancos
Brasileiros SA 7,111,000 324,611 15,439,000 704,776 22,550,000 1,029,387
------------ ------------ ------------
41,753,790 18,938,247 60,692,037
------------ ------------ ------------
Chile 2.4%
Cia Cervecerias Unidas SA, ADR 7,500 214,687 15,000 429,375 22,500 644,062
Cia de Telecomunicaciones de Chile
SA, ADR 161,414 3,994,997 105,300 2,606,175 266,714 6,601,172
Empresa Nacional de Electricidad
SA, ADR 99,615 1,207,832 103,142 1,250,597 202,757 2,458,429
Enersis SA, ADR 38,753 886,475 26,642 609,436 65,395 1,495,911
Madeco Manufacturera de Cobre
SA, ADR 5,600 56,700 -- -- 5,600 56,700
Quinenco SA, ADR 30,900 289,687 47,900 449,063 78,800 738,750
------------ ------------ ------------
6,650,378 5,344,646 11,995,024
------------ ------------ ------------
China .8%
Beijing Datang Power Generation Co.
Ltd., H 5,000 1,611 -- -- 5,000 1,611
China Resources Enterprises Ltd. 116,000 204,824 -- -- 116,000 204,824
a China Telecommunications Ltd. 58,000 161,093 -- -- 58,000 161,093
China Vanke Co. Ltd., B 2,857,867 1,919,033 2,857,867 1,919,033
Guangshen Railway Co. Ltd., H 768,000 117,791 -- -- 768,000 117,791
Guangshen Railway Co. Ltd., H, ADR 20,400 155,550 -- -- 20,400 155,550
a Shanghai Dazhong Taxi Shareholding
Co. Ltd., B -- -- 455,300 309,604 455,300 309,604
Shandong Huaneng Power Development
Co. Ltd., ADR 22,500 116,719 96,500 500,594 119,000 617,313
a Shanghai New Asia Group Co. Ltd., B 34,502 9,316 -- -- 34,502 9,316
Shanghai Petrochemical Co. Ltd., H 1,812,900 427,590 1,060,500 250,129 2,873,400 677,719
Yanzhou Coal Mining Company Ltd., H 100,000 35,766 100,000 35,766
------------ ------------ ------------
1,230,260 2,979,360 4,209,620
------------ ------------ ------------
Colombia .3%
Barvaria SA -- -- 202,807 753,258 202,807 753,258
Cementos Agros SA -- -- 255,000 662,105 255,000 662,105
------------ ------------ ------------
457,807 1,415,363 457,807 1,415,363
------------ ------------ ------------
Czech Republic 1.6%
a CEZ AS 1,079,250 2,221,246 1,408,880 2,899,671 2,488,130 5,120,917
a SPT Telecom AS 113,540 1,843,341 66,310 1,076,554 179,850 2,919,895
Tabak AS 260 61,926 -- -- 260 61,926
------------ ------------ ------------
4,126,513 3,976,225 8,102,738
------------ ------------ ------------
Egypt .1%
Commercial International Bank Ltd. 38,700 347,550 -- -- 38,700 347,550
Eastern Tobacco Co. 1,100 26,793 -- -- 1,100 26,793
------------ ------------ ------------
374,343 -- 374,343
------------ ------------ ------------
Ghana .1%
Ashanti Goldfields Co. Ltd., GDR 25,159 174,541 21,164 146,825 46,323 321,366
------------ ------------ ------------
Hong Kong 5.3%
CDL Hotel International Ltd. 61,250 $ 25,656 -- -- 61,250 $ 25,656
Cheung Kong Holdings Ltd. 145,000 1,289,495 276,000 $ 2,454,487 421,000 3,743,982
China Overseas Land & Investment Ltd. 487,000 69,044 -- -- 487,000 69,044
Citic Pacific Ltd. 407,000 1,298,292 458,000 1,460,977 865,000 2,759,269
Cross Harbour Tunnel Co. Ltd. 44,000 33,175 -- -- 44,000 33,175
Dairy Farm International Holdings
Ltd. 1,334,370 1,601,244 237,772 285,326 1,572,142 1,886,570
Hang Lung Development Co. Ltd. 972,000 1,202,652 980,000 1,212,551 1,952,000 2,415,203
Hong Kong & Shanghai Hotels Ltd. 966,000 821,720 568,000 483,164 1,534,000 1,304,884
Hong Kong Electric Holdings Ltd. 206,594 665,672 168,682 543,515 375,276 1,209,187
Hong Kong Land Holdings Ltd. 19,000 30,780 5,000 8,100 24,000 38,880
HSBC Holdings PLC 46,902 1,710,726 41,078 1,498,299 87,980 3,209,025
Jardine Matheson Holdings Ltd. 376,055 1,880,275 240,815 1,204,075 616,870 3,084,350
Jardine Strategic Holdings Ltd. 35,000 91,000 -- -- 35,000 91,000
a Lai Sun Development Co. Ltd. 48,000 4,207 -- -- 48,000 4,207
a Lai Sun Garment International Ltd. 612,000 44,960 -- -- 612,000 44,960
New World Development Co. Ltd. 786,322 2,356,275 827,632 2,480,064 1,613,954 4,836,339
Shangri La Asia Ltd. 2,000 2,475 -- -- 2,000 2,475
Sun Hung Kai Properties Ltd. 47,617 434,201 54,739 499,144 102,356 933,345
Wheelock and Company Ltd. 196,890 270,256 -- -- 196,890 270,256
------------ ------------ ------------
13,832,105 12,129,702 25,961,807
------------ ------------ ------------
Hungary 1.5%
Borsodchem RT 45,569 1,111,531 29,330 711,600 74,899 1,823,131
Borsodchem RT, GDR, Reg S 6,900 169,567 -- -- 6,900 169,567
Egis RT 6,720 160,860 -- -- 6,720 160,860
a Fotex First Hungarian American Photo
Service Co. 45,385 17,262 -- -- 45,385 17,262
Gedeon Richter Ltd. 23,110 1,005,593 10,180 442,966 33,290 1,448,559
Matav RT 41,500 224,417 13,800 74,625 55,300 299,042
Mol Magyar Olay-Es Gazipari RT 62,070 1,496,065 21,800 525,442 83,870 2,021,507
Pannonplast Plastic Industries PLC 842 16,326 -- -- 842 16,326
Tiszai Vegyi Kombinat RT 74,562 779,899 44,001 460,239 118,563 1,240,138
Zwack Unicum Ltd. 100 2,295 -- -- 100 2,295
------------ ------------ ------------
4,983,815 2,214,872 7,198,687
------------ ------------ ------------
India .7%
Bajaj Auto Ltd. 650 8,110 25 312 675 8,422
a Bank of Baroda 100 151 100 151 -- --
Bharat Petroleum Corp. Ltd. 12,900 78,243 -- -- 12,900 78,243
a Hindalco Industries Inc. 19,742 286,151 -- -- 19,742 286,151
Hindustan Petroleum Corporation Ltd 64,338 368,716 35,600 204,021 99,938 572,737
Indian Aluminium Co Ltd 29,000 40,964 45,000 63,565 74,000 104,529
Indian Petrochemicals Corp. Ltd. 100 237 100 237
Larsen and Toubro Ltd. 91,671 605,696 120,924 798,978 212,595 1,404,674
Mahanagar Telephone Nigam Ltd. 96,800 415,228 96,800 415,228
*National Aluminum Co Ltd., 14.50%,
3/08/05 1,529,000 INR 37,249 3,085,500 INR 75,167 4,614,500 INR 112,416
Reliance Industries Ltd. 8,515 34,699 87,500 356,568 96,015 391,267
Tata Iron & Steel Co. Ltd. -- -- 100 323 100 323
------------ ------------ ------------
1,875,056 1,499,322 5,227,465 3,374,378
------------ ------------ ------------
Indonesia 5.5%
a Asia Pulp & Paper Co. Ltd., ADR 92,800 893,200 82,900 797,913 175,700 1,691,113
a Asia Pulp & Paper Co. Ltd., ADR, wts. 20,540 53,917 18,340 48,143 38,880 102,060
a PT Barito Pacific Timber TBK 1,774,000 193,246 -- -- 1,774,000 193,246
PT Gudang Garamm 320,000 869,136 226,000 613,827 546,000 1,482,963
a PT Indah Kiat Pulp & Paper Corp. 3,750,750 1,743,268 3,938,000 1,830,298 7,688,750 3,573,566
a PT Indocement Tunggal PrakarSA 1,746,000 893,922 1,408,500 721,127 3,154,500 1,615,049
a PT Indofoods Sukses Makmurr 1,054,685 1,439,948 594,020 811,008 1,648,705 2,250,956
PT Indosat 232,000 444,793 197,000 377,691 429,000 822,484
a PT Semen Cibinong 35,534,500 4,903,090 -- -- 35,534,500 4,903,090
PT Semen Gresik (Persero) 316,501 689,545 338,617 737,728 655,118 1,427,273
Indonesia (cont.)
a PT Sinar Mas Agro Resources &
Technology Corp. 482,800 $ 431,259 -- $-- 482,800 $ 431,259
PT Tambang TimaH 1,289,500 1,123,747 1,002,000 873,203 2,291,500 1,996,950
PT Telekomunikasi Indonesia
(Persero), B 5,611,140 3,259,922 3,348,260 1,945,249 8,959,400 5,205,171
PT Tempo Scan Pacific 487,000 203,359 -- -- 487,000 203,359
a PT Tjiwi Kimia 909,454 350,044 1,520,926 585,396 2,430,380 935,440
------------ ------------ ------------
17,492,396 12,674,563 9,341,583 66,296,233 26,833,979
------------ ------------ ------------
Israel .3%
a Formula Systems Ltd. 18,380 557,917 9,780 296,868 28,160 854,785
Koor Industries Ltd. 2,590 298,623 2,686 309,692 5,276 608,315
------------ ------------ ------------
856,540 606,560 1,463,100
------------ ------------ ------------
Jordan .1%
a Zara Investment Holdings Company Ltd. 345,450 752,561 -- 345,450 752,561
------------ ------------ ------------
Malaysia 3.8%
Boustead Holdings Bhd. 403,000 366,942 384,000 349,642 787,000 716,584
Federal Flour Mills Bhd. 33,000 31,263 99,000 93,789 132,000 125,052
Genting Bhd. 306,600 1,169,921 326,400 1,245,474 633,000 2,415,395
Golden Hope Plantations Bhd. 122,000 104,663 37,000 31,742 159,000 136,405
Hong Leong Industries Bhd. 206,800 243,806 336,200 396,362 543,000 640,168
Island & Peninsula Bhd. 443,000 433,674 454,000 444,442 897,000 878,116
Kian Joo Can Factory Bhd. 59,000 107,132 59,000 107,132 118,000 214,264
a Leader Universal Holdings Bhd. 1,452,000 607,547 982,000 410,889 2,434,000 1,018,436
Malayawata Steel Bhd. 563,000 225,200 -- -- 563,000 225,200
Malaysian Airlines System Bhd. 246,000 336,632 197,000 269,579 443,000 606,211
Malaysian International Shipping
Corp., fgn. 76,000 139,000 207,666 379,810 283,666 518,810
Oriental Holdings Bhd. 61,000 166,947 45,000 123,158 106,000 290,105
Perlis Plantations Bhd. 175,000 204,474 374,500 437,574 549,500 642,048
Perusahaan Otomobil Nasional Bhd. 141,000 326,526 214,000 495,579 355,000 822,105
Public Bank Bhd. 1,740,400 1,323,620 149,000 113,318 1,889,400 1,436,938
Public Bank Bhd., fgn. 2,219,000 2,324,110 20,000 20,947 2,239,000 2,345,057
Resorts World Bhd. 679,000 1,599,224 789,000 1,858,303 1,468,000 3,457,527
Shangri La Hotels (Malaysia) Bhd. 31,000 11,339 886,000 324,089 917,000 335,428
Tanjong PLC 312,000 775,895 214,000 532,184 526,000 1,308,079
Technology Resources Industries Bhd. 437,000 356,500 104,000 84,842 541,000 441,342
YTL Corp. Bhd. 176,000 370,526 -- -- 176,000 370,526
------------ ------------ ------------
11,224,941 7,718,855 18,943,796
------------ ------------ ------------
Mexico 10.7%
Cemex SA 616,990 3,060,244 54,810 271,855 671,800 3,332,099
Cemex SA, B 1,322,500 6,594,848 1,454,500 7,253,086 2,777,000 13,847,934
a Cifra SA de CV, V 710,833 1,426,979 209,000 419,562 919,833 1,846,541
a Coca Cola Femsa SA de CV, L, ADR 52,300 1,013,312 45,000 871,875 97,300 1,885,187
DESC SA de CV DESC, B 1,250,000 1,374,800 460,170 506,113 1,710,170 1,880,91
Fomento Economico Mexicano SA
de CV FemSA 31,000 1,236,125 5,000 199,375 36,000 1,435,500
a Grupo Financiero Banamex Accival SA
de CV 1,895,068 4,856,554 1,250,885 3,205,685 3,145,953 8,062,239
Grupo Industrial Maseca SA de CV, B 19,000 11,361 -- -- 19,000 11,361
Panamerican Beverages Inc., A 59,800 1,423,988 2,900 69,056 62,700 1,493,044
Telefonos de Mexico SA (Telmex), ADR 66,500 5,374,031 144,800 11,701,650 211,300 17,075,681
Vitro SA De CV, A 353,500 609,990 718,349 1,239,564 1,071,849 1,849,554
------------ ------------ ------------
26,982,232 25,737,821 52,720,053
------------ ------------ ------------
New Zealand
Brierley Investments Ltd. 713,000 200,244 -- 713,000 200,244
------------ ------------ ------------
Pakistan .3%
a Bank of Punjab 35,204 9,040 -- 35,204 9,040
a DG Khan Cement Co. 1,034,288 83,184 -- 1,034,288 83,184
Pakistan (cont.)
Engro Chemical Pakistan Ltd. 138,534 $ 194,646 -- $-- 138,534 $ 194,646
Pakistan Telecommunications Corp., A 906,000 348,529 2,222,000 854,781 3,128,000 1,203,310
------------ ------------ ------------
635,399 854,781 1,490,180
------------ ------------ ------------
Peru .8%
Telefonica Del Peru SA, ADR 154,200 2,332,275 109,500 1,656,188 263,700 3,988,463
------------ ------------ ------------
Philippines 2.9%
a A Soriano Corp. 6,301,500 182,172 -- -- 6,301,500 182,172
Ayala Corp. 441,840 145,151 -- -- 441,840 145,151
a Belle Corp. 39,075,000 4,159,100 -- -- 39,075,000 4,159,100
a Filinvest Development Corp. 2,639,000 242,746 -- -- 2,639,000 242,746
a Keppel Philippine Holdings Inc., B 8,776,186 174,140 -- -- 8,776,186 174,140
Petron Corp. 1,144,000 121,766 3,695,000 393,292 4,839,000 515,058
a Philex Mining Corp., B 6,059,500 60,515 6,059,500 60,515
Philippine Commercial International
Bank Inc. 185,060 1,264,536 -- -- 185,060 1,264,536
Philippine Long Distance Telephone
Co., ADR 45,800 1,379,725 71,700 2,159,963 117,500 3,539,688
a Philippine National Bank 701,931 1,900,102 -- -- 701,931 1,900,102
RFM Corp. 1,587,636 202,366 -- -- 1,587,636 202,366
San Miguel Corp., B 703,200 1,533,919 132,700 289,464 835,900 1,823,383
a Southeast Asia Cement Holdings Inc. 16,230,683 234,609 1,772,577 25,622 18,003,260 260,231
------------ ------------ ------------
11,600,847 2,868,341 14,469,188
------------ ------------ ------------
Poland .8%
Bank Slaski SA W KatowicacH 19,900 973,824 700 34,255 20,600 1,008,079
Elektrim SA 84,700 1,198,127 -- -- 84,700 1,198,127
a Impexmetal SA 93,892 430,752 -- -- 93,892 430,752
a Prokom Software SA. 491 16,331 -- -- 491 16,331
a Rolimpex SA 22,617 34,299 -- -- 22,617 34,299
Telekomunikacja Polska SA 40,416 283,278 40,416 283,278
Warta SA 14,709 288,669 28,395 557,261 43,104 845,930
Wielkopolski Bank Kredytowy SA 12,100 70,932 12,100 70,932
----------- ------------ ------------
3,012,934 874,794 3,887,728
----------- ------------ ------------
Russia 1.1%
a Aeroflot-Russia International
Airlines 1,684,800 225,763 1,684,800 225,763
GAZ Auto Works 1,270 44,755 1,310 46,164 2,580 90,919
Irkutskenergo 680,800 69,305 439,500 44,741 1,120,300 114,046
Irkutskenergo, ADR 7,000 35,630 7,000 35,630 14,000 71,260
a Krasnoyarsk Aluminum Plant 5,748 35,375 5,748 35,375
Lukoil Holdings, ADR 19,320 765,072 3,360 133,056 22,680 898,128
Mosenergo 5,937,200 265,987 2,052,000 91,930 7,989,200 357,917
Mosenergo, ADR 38,930 175,185 3,000 13,500 41,930 188,685
a Norilsk Nickel 41,700 136,776 -- -- 41,700 136,776
a Novorosissk Sea Shipping 28,000 4,715 -- -- 28,000 4,715
a Novorosissk Sea Shipping., pfd. 224,000 13,418 -- -- 224,000 13,418
a Red October 3,000 20,700 -- -- 3,000 20,700
a Rostelecom 553,000 873,740 2,000 3,160 555,000 876,900
a Rostelecom, ADR 33,300 326,756 11,900 116,769 45,200 443,525
a Rostelecom, pfd. 257,300 132,509 -- -- 257,300 132,509
a Saint Petersburg City Telephone
Network, A, pfd. 53,000 7,420 -- -- 53,000 7,420
a Tsum Trade House 317,500 64,833 -- -- 317,500 64,833
Unified Energy Systems 3,400,000 297,500 610,600 53,428 4,010,600 350,928
Unified Energy Systems, ADR 11,000 97,075 12,000 105,900 23,000 202,975
Unified Energy Systems, pfd. 200,000 8,160 -- -- 200,000 8,160
a Vimpel Communications, ADR 45,400 1,052,712 10,950 253,903 56,350 1,306,615
------------ ------------ ------------
4,653,386 898,181 5,551,567
Singapore 8.5%
Acer Computer International Ltd. 195,000 $ 232,050 -- $-- 195,000 $ 232,050
Acma Ltd. 193,000 194,984 -- -- 193,000 194,984
City Developments Ltd. 277,000 1,773,451 367,500 2,352,863 644,500 4,126,314
Cycle & Carriage Ltd. 177,000 1,018,855 45,000 259,031 222,000 1,277,886
Delgro Corp. 39,500 95,125 -- -- 39,500 95,125
Development Bank of Singapore
Ltd., fgn. 5,000 61,087 -- -- 5,000 61,087
First Capital Corp. Ltd. 408,000 635,066 262,000 407,812 670,000 1,042,878
Fraser and Neave Ltd. 466,000 2,066,549 445,000 1,973,421 911,000 4,039,970
Hai Sun Hup Group Ltd. 714,000 423,577 1,315,000 780,117 2,029,000 1,203,694
Hong Leong Finance Ltd., fgn. 172,000 394,009 -- -- 172,000 394,009
Inchcape Motors Ltd. 143,000 230,144 163,000 262,332 306,000 492,476
Isetan (Singapore) Ltd. 18,000 30,132 -- -- 18,000 30,132
Jurong Shipyard Ltd. 194,000 951,483 224,000 1,098,620 418,000 2,050,103
Keppel Corp., Ltd. 969,000 3,301,145 725,000 2,469,897 1,694,000 5,771,042
MCL Land Ltd. 605,000 764,023 -- -- 605,000 764,023
Metro Holdings Ltd. 39,000 61,392 -- -- 39,000 61,392
Natsteel Ltd. 1,323,000 2,315,736 1,008,000 1,764,370 2,331,000 4,080,106
a Neptune Orient Lines Ltd. 300,000 366,520 -- -- 300,000 366,520
a Osprey Maritime Ltd. 267,000 183,489 -- -- 267,000 183,489
Overseas Chinese Banking Corp.
Ltd., fgn. 229,000 1,910,015 198,000 1,651,454 427,000 3,561,469
Overseas Union Enterprise Ltd. 106,400 337,480 173,400 549,991 279,800 887,471
Sembcorp Industries Ltd. 1,416,925 2,247,106 1,119,769 1,775,845 2,536,694 4,022,951
Singapore Petroleum Company, fgn. 110,000 90,455 -- -- 110,000 90,455
United Industrial Corporation Ltd. 1,691,000 1,142,232 1,371,000 926,079 3,062,000 2,068,311
United Overseas Bank Ltd., fgn. 391,000 2,732,981 284,000 1,985,081 675,000 4,718,062
United Overseas Land Ltd. 109,000 122,925 -- -- 109,000 122,925
WBL Corp. Ltd. 87,000 119,577 -- -- 87,000 119,577
------------ ------------ ------------
23,801,588 18,256,913 42,058,501
------------ ------------ ------------
Slovak Republic .2%
Nafta Gbely AS 6,695 88,399 4,800 63,378 11,495 151,777
a Slovnaft AS 11,000 145,241 28,010 369,836 39,010 515,077
a Vychodoslovenske Zeleziarne AS 22,857 93,661 8,400 34,421 31,257 128,082
------------ ----------- ------------
327,301 467,635 794,936
------------ ----------- ------------
South Africa 10.1%
AECI Ltd. 63,600 142,282 63,600 142,282
Anglo American PLC 100,878 4,714,160 68,395 3,196,187 169,273 7,910,347
Barlow Ltd. 228,500 1,317,723 205,300 1,183,932 433,800 2,501,655
CG Smith Ltd. 513,000 1,474,944 618,600 1,778,558 1,131,600 3,253,502
De Beers/Centenary Linked Units 118,100 2,829,938 66,740 1,599,238 184,840 4,429,176
a Del Monte Royal Foods Ltd. 1,411,300 877,020 -- -- 1,411,300 877,020
Dunlop Africa Ltd. 191,200 99,806 -- -- 191,200 99,806
Edgars Consolidated Stores Ltd. 16,563 128,727 -- -- 16,563 128,727
Firstrand Ltd. 710,000 811,832 79,000 90,331 789,000 902,163
Iscor Ltd. 2,859,390 895,558 3,395,912 1,063,597 6,255,302 1,959,155
Kersaf Investments Ltd. 391,367 1,751,083 2,000 8,949 393,367 1,760,032
a Liberty International PLC 79,444 525,938 27,075 179,241 106,519 705,179
Liberty Life Association of
Africa Ltd. 198,392 2,541,338 62,070 795,097 260,462 3,336,435
Palabora Mining Co. Ltd. 29,500 210,208 114,000 812,329 143,500 1,022,537
Rembrandt Group Ltd. 185,100 1,542,883 156,170 1,301,740 341,270 2,844,623
Sappi Ltd. 401,073 2,937,679 311,651 2,282,703 712,724 5,220,382
Sasol Ltd. 372,000 2,653,840 378,900 2,703,065 750,900 5,356,905
South African Breweries PLC 397,580 3,452,348 251,244 2,181,653 648,824 5,634,001
Tongaat-Hulett Group Ltd. 132,952 812,980 96,043 587,288 228,995 1,400,268
------------ ----------- ------------
29,720,287 19,763,908 49,484,195
------------ ----------- ------------
South Korea 8.7%
Asia Cement Manufacturing Co. Ltd. 61,820 1,522,134 -- -- 61,820 1,522,134
a Cho Hung Bank Co. Ltd. 34,188 191,689 -- -- 34,188 191,689
a Cho Hung Bank Co. Ltd., GDR, Reg S 20,868 116,965 -- -- 20,868 116,965
a Daegu Bank Co. Ltd. 143,655 640,397 -- -- 143,655 640,397
South Korea (cont.)
a Daewoo Electronics Co. 62,560 $ 308,071 -- $-- 62,560 $ 308,071
Dongkuk Steel Mill Co. Ltd. 14,592 85,724 -- -- 14,592 85,724
Hana Bank 585,442 8,598,284 27,132 398,483 612,574 8,996,767
Hana Bank, GDR, Reg S 98,502 1,418,429 94,732 1,364,141 193,234 2,782,570
a Hotel Shilla Co. 109,330 1,218,451 -- -- 109,330 1,218,451
Korea Electric Power Corp. 200,970 8,351,324 83,100 3,453,227 284,070 11,804,551
a Kyongnam Bank 520,745 1,979,506 -- -- 520,745 1,979,506
LG Electronics Inc. 71,376 1,973,246 13,900 384,276 85,276 2,357,522
Pohang Iron & Steel Co. Ltd., ADR 15,500 521,188 15,500 521,188
Saehan Precision Co. Ltd. 58,905 1,201,000 -- -- 58,905 1,201,000
Samsung Display Devices Ltd. 22,337 1,215,750 27,586 1,501,441 49,923 2,717,191
Samsung Electronics Co. Ltd. 28,595 3,137,421 19,481 2,137,440 48,076 5,274,861
a Samsung Heavy Industries Co. Ltd. 191,755 1,043,677 190,082 1,034,572 381,837 2,078,249
Shin Poong Paper Manufacturing
Co Ltd. 5,361 53,263 -- -- 5,361 53,263
Shin Young Wocoal Inc. 1,288 75,667 -- -- 1,288 75,667
SK Corp. 1,410 40,564 1,410 40,564
Ssangyong Oil Refining Co. Ltd. 3,570 92,527 -- -- 3,570 92,527
Tong Yang Merchant Bank 55,502 343,802 118 731 55,620 344,533
------------ ----------- ------------
33,567,327 10,836,063 44,403,390
------------ ----------- ------------
Thailand 8.0%
Advanced Info Service Public Co.
Ltd., fgn. 72,900 988,475 100,300 1,360,000 173,200 2,348,475
American Standard Sanitaryware Publi
Co. Ltd., fgn. -- -- 30,800 154,522 30,800 154,522
Ayudhya Insurance Public Co.
Ltd., fgn. 3,800 12,263 3,800 12,263
a Bangkok Bank Public Co. Ltd. 1,249,687 2,728,130 922,400 2,013,646 2,172,087 4,741,776
a Bangkok Bank Public Co. Ltd., fgn. 123,000 460,312 23,000 86,075 146,000 546,387
a Bangkok Insurance Public Co. Ltd. 25,600 96,499 -- -- 25,600 96,499
BEC World Public Co Ltd., fgn. 23,000 143,458 -- -- 23,000 143,458
a Charoen Pokphand Feedmill Public
Co. Ltd., fgn. 547,800 891,336 511,500 832,271 1,059,300 1,723,607
a Hana Microelectronics Co. Ltd., fgn. 86,200 259,477 160,400 482,831 246,600 742,308
Hua Thai Manufacturing Public Co.
Ltd., fgn. -- -- 8,000 11,260 8,000 11,260
Industrial Finance Corp. of
Thailand, fgn. 1,041,500 663,736 1,078,700 687,443 2,120,200 1,351,179
Italian-Thai Development Public Co.
Ltd., fgn. 66,900 161,467 -- -- 66,900 161,467
a Jasmine International Public Co.
Ltd., fgn. 678,000 473,451 -- -- 678,000 473,451
a Land and House Public Co. Ltd. 484,978 677,325 -- -- 484,978 677,325
a Land and House Public Co. Ltd., fgn. 206,278 374,797 5,800 10,538 212,078 385,335
Saha Pathanapibul Public Co.
Ltd., fgn. 430,500 642,102 -- -- 430,500 642,102
a Saha Union Public Co. Ltd. 259,306 114,270 -- -- 259,306 114,270
Saha Union Public Co. Ltd., fgn. 277,994 124,391 -- -- 277,994 124,391
a Serm Suk Public Co. Ltd. 31,100 144,220 -- -- 31,100 144,220
Serm Suk Public Co. Ltd., fgn. 4,900 25,912 -- -- 4,900 25,912
a Shin Corporations Public Company
Ltd., fgn. 13,200 61,570 -- -- 13,200 61,570
a Siam Cement Public Co. Ltd. 22,750 426,929 68,100 1,277,972 90,850 1,704,901
Siam Cement Public Co. Ltd., fgn. 84,950 2,580,176 -- -- 84,950 2,580,176
a Siam Commercial Bank, fgn. 361,901 500,527 -- -- 361,901 500,527
a Siam Commercial Bank, 144A, 5.25%,
cvt. pfd., fgn. 547,000 778,780 40,000 56,949 587,000 835,729
Siam Makro Public Company Ltd., fgn. 307,900 586,158 376,000 715,802 683,900 1,301,960
a Telecomasia Corp. Public Co.
Ltd., fgn. 219,000 221,227 54,000 54,549 273,000 275,776
a Thai Airways International Public Co.
Ltd., fgn. 414,000 812,843 408,700 802,437 822,700 1,615,280
a Thai Farmers Bank Public Co. Ltd. 1,319,008 2,646,958 1,984,200 3,981,852 3,303,208 6,628,810
a Thai Farmers Bank Public Co.
Ltd., fgn. 775,025 2,396,009 569,800 1,761,551 1,344,825 4,157,560
a Thai Petrochemical Industry Public Co.
Ltd., fgn. 795,120 517,502 -- -- 795,120 517,502
</TABLE>
<TABLE>
<CAPTION>
VIP TEMPLETON DEVELOPING
VIP TEMPLETON DEVELOPING MARKETS EQUITY FUND
TVP DEVELOPING MARKETS FUND MARKETS EQUITY FUND PRO FORMA COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Securities (cont.)
Thailand (cont.)
aThai Telephone & Telecommunication
<S> <C> <C> <C> <C> <C>
Public Co. Ltd.,fgn. 866,500 $ 328,976 -- $-- 866,500 $ 328,976
Thai Wacoal Public Co. Ltd., fgn. 30,100 61,220 -- -- 30,100 61,220
aTipco Asphalt Public Co. Ltd., fgn. 81,400 112,580 -- -- 81,400 112,580
aTotal Access Communication Public
Co. Ltd. 607,200 1,943,040 419,800 1,343,360 1,027,000 3,286,400
aUnited Communications Industries, fgn. 284,500 323,269 471,700 535,979 756,200 859,248
------------ ------------ -------------
23,279,385 16,169,037 39,448,422
------------ ------------ -------------
Turkey 2.4%
Akbank 138,078,552 2,028,547 332,362,112 4,882,815 470,440,664 6,911,362
Akcansa Cimento Sanayi Ve Ticaret AS 38,200,000 389,223 -- -- 38,200,000 389,223
Anadolu Anonim Turk Sigorta Sirketi, Br. 28,898,000 126,680 28,898,000 126,680
aArcelik AS, Br. 11,012,000 391,404 14,110,456 501,533 25,122,456 892,937
aErciyas Biracilik 11,706,000 269,059 8,638,000 198,542 20,344,000 467,601
aEregli Demir ve Celik Fabrikalari AS 18,168,000 253,996 57,961,000 810,317 76,129,000 1,064,313
Haci Omer Sabanci Holding AS,
ADR, 144A 23,500 128,075 150,100 818,045 173,600 946,120
Hurriyet Gazete 23,577,900 167,608 -- -- 23,577,900 167,608
Koc Holding AS 5,147,000 323,197 -- -- 5,147,000 323,197
aTofas Turk Otomobil Fabrikasi AS 6,225,500 24,709 17,732,561 70,380 23,958,061 95,089
aTofas Turk Otomobil Fabrikasi AS, new 9,337,875 37,062 -- -- 9,337,875 37,062
aTofas Turk Otomobil Fabrikasi AS, rts. 12,450,500 34,518 14,186,035 39,329 26,636,535 73,847
aTurkiye Garanti Bankasi AS 26,780,454 199,892 40,231,380 300,291 67,011,834 500,183
Turkiye Is Bankasi AS, C 1,763,200 31,335 -- -- 1,763,200 31,335
------------ ------------ -------------
4,278,625 7,747,932 12,026,557
------------ ------------ -------------
Venezuela 3.3%
Compania Anonima Nacional Telefonos
de Venezuela, ADR 150,900 4,112,025 54,700 1,490,575 205,600 5,602,600
Electricidad De Caracas Saica Saca, ADR 198,071 3,876,544 95,528 1,869,626 293,599 5,746,170
Mavesa SA, ADR 95,700 311,025 306,300 995,475 402,000 1,306,500
------------ ------------ -------------
8,299,594 4,355,676 16,361,625
------------ ------------ -------------
Total Long Term Securities
(Cost $443,606,387) 295,310,760 186,870,361 482,181,121
------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* AMOUNT* AMOUNT*
----------- ----------- -----------
Short Term Investments 1.1%
U.S. Treasury Bills, 4.59% to 4.81%
<S> <C> <C> <C> <C> <C> <C>
with maturities to 12/02/99 $4,845,000 4,772,948 $729,000 717,422 $5,574,000 5,490,370
------------ ------------ -------------
Total Investments
(Cost $449,087,809) 99.0% 300,083,708 187,587,783 487,671,491
Other Assets, less Liabilities 1.0% 3,024,212 1,802,110 4,826,322
------------ ------------ -------------
Total Net Assets 100.0% $303,107,920 $189,389,893 $492,497,813
------------ ------------ -------------
</TABLE>
*Securities denominated in U.S. dollars.
aNon-income producing.
See accompanying notes to pro forma combined financial statements.
Templeton Variable Products Series Fund - Templeton Developing Markets Fund
("TVP Developing Markets Fund")
Franklin Templeton Variable Insurance Products Trust - Templeton Developing
Markets Equity Fund
("VIP Templeton Developing Markets Equity Fund")
Financial Statements
Pro forma combined Statements of Assets and Liabilities (unaudited)
June 30, 1999
<TABLE>
<CAPTION>
VIP Templeton
Developing
Markets
TVP VIP Equity Fund
Developing Developing Pro Forma
Markets Fund Markets Fund Combined
- --------------------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost $ 272,632,324 $ 176,455,485 $ 449,087,809
-------------------------------------------------
Value 300,083,708 187,587,783 487,671,491
Cash 1,707,046 336,898 2,043,944
Receivables:
Investment securities sold 5,056,763 2,824,516 7,881,279
Capital shares sold 215,579 583 216,162
Dividends and interest 942,653 840,659 1,783,312
-------------------------------------------------
Total assets 308,005,749 191,590,439 499,596,188
-------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 4,026,453 1,386,072 5,412,525
Capital shares redeemed -- 185,016 185,016
Affiliates 333,099 191,123 524,222
Custodian fees -- 56,601 56,601
Postage and mailing -- 12,341 12,341
Shareholders -- -- --
Equity in foreign currencies -- -- --
Deffered tax liability (Note 1j) 420,541 341,01 761,553
Distributions to shareholders -- -- --
Funds advanced by custodian -- -- --
Accrued expenses 117,736 -- 117,736
Other liabilities -- 28,381 28,381
-------------------------------------------------
Total liabilities 4,897,829 2,200,546 7,098,375
-------------------------------------------------
Net assets, at value $ 303,107,920 $ 189,389,893 $ 492,497,813
=================================================
Class 1:
Net assets, at value $ 268,035,925 $ 188,802,531 $ 456,838,456
=================================================
Shares outstanding** 37,062,731 20,102,042 48,646,869
=================================================
Net asset value and offering price per share $7.23 $9.39 $9.39
=================================================
Class 2:
Net assets, at value $ 35,071,995 $ 587,362 $ 35,659,357
=================================================
Shares outstanding** 4,862,951 62,613 3,801,632
=================================================
Net asset value and offering price per share $7.21 $9.38 $9.38
=================================================
</TABLE>
**See note 2 in the accompanying notes to pro forma combined financial
statements.
eExpense adjustment for differrences in administrative fees and 12B1 fees.
See accompanying notes to pro forma combined financial statements.
TVP Developing Markets Fund
VIP Templeton Developing Markets Equity Fund
Financial Statements (continued)
Pro forma combined Statements of Operations
for the six months ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
VIP Templeton
Developing
TVP VIP Markets
Templeton Templeton Equity Fund
Developing Developing Proforma Pro Forma
Markets Fund Markets Fund Adjustments Combined
- ------------------------------------------------------------------------------------------------------
Investment income:+
<S> <C> <C> <C>
Dividends $ 3,124,301 $ 2,475,116 $ 5,599,417
Interest 143,566 6,057 149,623
---------------------------------------------------------------
Total investment income 3,267,867 2,481,173 -- 5,749,040
---------------------------------------------------------------
Expenses:
Management fees 1,460,484 1,041,397 2,501,881
Administrative fees 113,170 -- $171,910a 285,080
Distribution fees - Class 2 29,391 39 (6) 29,424
Custodian fees 138,500 105,800 244,300
Reports to shareholders 9,000 8,000 17,000
Professional fees 12,400 11,500 23,900
Trustees' fees and expenses 600 600
Other 1,202 69 1,271
---------------------------------------------------------------
Total expenses 1,764,147 1,167,405 171,904 3,103,456
---------------------------------------------------------------
Net expenses 1,764,147 1,167,405 171,904 3,103,456
---------------------------------------------------------------
Net investment income (loss) 1,503,720 1,313,768 171,904 2,645,584
---------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (28,889,873) (26,187,877) (55,077,750)
Foreign currency transactions (112,458) (45,691) (158,149)
---------------------------------------------------------------
Net realized gain (loss) (29,002,331) (26,233,568) -- (55,235,899)
Net unrealized appreciation (depreciation) --
on: Investments 116,493,272 76,644,013 193,137,285
Deferred taxes (Note X) (420,541) 341,012 (79,529)
---------------------------------------------------------------
Net unrealized gain 116,072,731 76,985,025 193,057,756
---------------------------------------------------------------
Net realized and unrealized gain 87,070,400 50,751,457 -- 137,821,857
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 88,574,120 $ 52,065,225 $ 171,904 $ 140,467,441
===============================================================
</TABLE>
aPro Forma adjustment for difference in Administrative fee schedule. The
combined entity will adopt an administrative fee based on the fund's average net
assets as follows:
First $ 200,000,000 0.150%
Next $ 500,000,000 0.135%
Next $ 500,000,000 0.100%
Over $1,200,000,000 0.075%
bPro Forma adjustment for difference in 12B-1 agreement. The 12B-1 fee rate
reflected in the Pro Forma Combined is 0.25% of the average net assets.
+Net of foreign taxes of $393,488 and $319,010 for TVP Templeton Developing
Markets Fund and VIP Templeton Developing Markets Equity Fund, respectively.
See accompanying notes to pro forma combined financial statements.
VIP - Templeton Developing Markets Fund
TVP - Templeton Developing Markets Fund
Notes to Pro forma combined Statements (unaudited)
1. Basis of Combination
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the Templeton Variable Products
Series Fund - Templeton Developing Markets Fund ("TVP-Templeton Developing
Markets Fund"), the Franklin Templeton Variable Insurance Products Trust -
Templeton Developing Markets Fund ("VIP - Templeton Developing Markets") will
acquire all the net assets of the TVP - Templeton Developing Markets Class 1 and
2 in exchange for the Classes 1 and 2 shares, respectively, shares of VIP -
Templeton Developing Markets. The merger will be accounted for by the method of
accounting for tax free business combinations of investment companies and TVP -
Templeton Developing Markets Fund will be the accounting survivor. The pro forma
combined Statement of Assets and Liabilities reflects the financial position of
TVP - Templeton Developing Markets June 30, 1999 as though the merger occurred
as of that date. The pro forma combined Statement of Operations reflects the
results of operations of the TVP - Templeton Developing Markets and VIP -
Templeton Developing Markets for the period January 1, 1999 to June 30, 1999 as
though the merger occurred on January 1, 1999. The pro forma financial
statements do not reflect the expenses of either fund in carrying out its
obligations under the Agreement and Plan of Reorganization or any adjustment
with respect to additional distributions that may be made prior to
reorganization. The pro forma financial statements are presented for the
information of the reader, and should be read in conjunction with the historical
financial statements of the funds.
2. Capital Shares:
The number of Class 1 and 2 shares issued was calculated by dividing the Class 1
and 2 net assets of the TVP - Templeton Developing Markets at June 30, 1999 by
the Class 1 and 2 net asset value per share of the VIP - Templeton Developing
Markets, respectively at June 30, 1999.
<PAGE>
TVP TEMPLETON INTERNATIONAL FUND
VIP TEMPLETON INTERNATIONAL EQUITY FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TVP TEMPLETON VIP TEMPLETON VIP TEMPLETON INTERNATIONAL EQUITY
INTERNATIONAL FUND INTERNATIONAL EQUITY FUND PRO FORMA COMBINED
- ----------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 92.5%
AEROSPACE & MILITARY TECHNOLOGY .2%
<S> <C> <C> <C> <C> <C> <C>
Hong Kong Aircraft Engineering Co. Ltd. 1,160,200 $ 2,242,987 513,400 $ 992,544 1,673,600 $ 3,235,531
------------ ------------ -------------
Appliances & Household Durables 2.7%
Electrolux AB, B -- -- 1,160,000 24,286,050 1,160,000 24,286,050
Fisher & Paykel Ltd. -- -- 1,321,125 4,200,382 1,321,125 4,200,382
Sony Corp. 215,200 23,201,917 215,200 23,201,917
------------ ------------ -------------
23,201,917 28,486,432 51,688,349
------------ ------------ -------------
AUTOMOBILES 3.8%
Autoliv Inc., SDR 358,450 10,919,613 317,000 9,656,904 675,450 20,576,517
Fiat SpA 2,552,500 8,112,617 3,391,410 10,778,927 5,943,910 18,891,544
Volkswagen AG 156,000 10,065,917 -- -- 156,000 10,065,917
Volvo AB, B 672,100 19,486,315 91,500 2,652,876 763,600 22,139,191
------------ ------------ -------------
48,584,462 23,088,707 71,673,169
------------ ------------ -------------
BANKING 9.7%
Australia & New Zealand Banking
Group Ltd. 1,745,350 12,833,660 -- -- 1,745,350 12,833,660
Banco Popular Espanol SA 64,000 4,603,486 62,400 4,488,398 126,400 9,091,884
aBangkok Bank Public Co. Ltd., fgn. 2,763,800 10,343,170 -- -- 2,763,800 10,343,170
Bank Austria AG, 144A 230,146 12,104,203 -- -- 230,146 12,104,203
BPI Socieda de Gestora de Participacoes
Socias SA -- -- 321,978 6,756,989 321,978 6,756,989
Credit Commercial de France CCF -- -- 128,800 13,920,017 128,800 13,920,017
Credicorp Ltd. 292,160 3,213,760 -- -- 292,160 3,213,760
Foreningssparbanken AB, A 228,000 3,218,066 244,500 3,450,953 472,500 6,669,019
Kookmin Bank -- -- 96,678 1,962,793 96,678 1,962,793
HSBC Holdings PLC, ADR 30,100 10,978,818 30,100 10,978,818
Merita AS 3,400,000 19,319,377 1,254,500 7,128,282 4,654,500 26,447,659
National Bank of Canada 440,000 5,802,528 447,000 5,894,841 887,000 11,697,369
National Westminster Bank PLC 574,342 12,167,265 641,668 13,593,547 1,216,010 25,760,812
Svenska Handelsbanken, A -- -- 466,200 5,593,084 466,200 5,593,084
Unibanco Uniao de Bancos Brasileiros SA, GDR -- -- 548,700 13,203,094 548,700 13,203,094
Unibanco Uniao de Bancos Brasileiros SA, unit -- -- 28,412,000 1,296,981 28,412,000 1,296,981
Unidanmark AS, A 150,000 10,011,123 -- -- 150,000 10,011,123
Union Bank of Norway 199,000 3,715,846 199,000 3,715,846
------------ ------------ -------------
104,595,456 81,004,825 185,600,281
------------ ------------ -------------
BROADCASTING & PUBLISHING 1.0%
Cordiant Communications Group PLC -- -- 3,561,500 9,852,200 3,561,500 9,852,200
NV Holdingsmig de Telegraaf -- -- 504,000 9,927,194 504,000 9,927,194
------------ ------------ -------------
-- 19,779,394 19,779,394
------------ ------------ -------------
BUILDING MATERIALS & COMPONENTS 2.4%
Anglian Group PLC -- -- 2,028,800 10,473,062 2,028,800 10,473,062
Caradon PLC 3,265,240 7,694,483 -- -- 3,265,240 7,694,483
Cie de Saint Gobain -- -- 13,292 2,117,783 13,292 2,117,783
Hepworth PLC -- -- 1,330,100 4,130,224 1,330,100 4,130,224
Pioneer International Ltd. -- -- 7,462,117 19,015,853 7,462,117 19,015,853
Unione Cementi Marchino Emiliane
(Unicem), di Risp -- -- 468,000 2,195,937 468,000 2,195,937
------------ ------------ -------------
7,694,483 37,932,859 45,627,342
------------ ------------ -------------
BUSINESS & PUBLIC SERVICES .5%
Esselte AB, B -- -- 158,500 1,640,555 158,500 1,640,555
Lex Service PLC -- -- 902,000 8,296,034 902,000 8,296,034
------------ ------------ -------------
-- 9,936,589 9,936,589
------------ ------------ -------------
CHEMICALS 2.6%
Akzo Nobel NV 352,800 14,844,014 129,200 5,436,073 482,000 20,280,087
BASF AG 273,530 12,016,477 273,530 12,016,477
DSM NV, Br. 19,000 2,037,744 19,000 2,037,744
CHEMICALS (CONT.)
Imperial Chemical Industries PLC -- $ -- 857,000 $ 8,523,801 857,000 $ 8,523,801
Kemira OY 1,088,632 6,578,719 1,088,632 6,578,719
------------ ------------ -------------
33,439,210 15,997,618 49,436,828
------------ ------------ -------------
CONSTRUCTION & HOUSING .9%
Fairview Holdings PLC -- -- 623,475 1,321,796 623,475 1,321,796
Fletcher Challenge Building Ltd. -- -- 4,627,000 6,742,575 4,627,000 6,742,575
Sirti SpA -- -- 1,833,800 8,850,350 1,833,800 8,850,350
------------ ------------ -------------
6,578,719 16,914,721 16,914,721
------------ ------------ -------------
DATA PROCESSING & REPRODUCTION .6%
aNewbridge Networks Corp. 418,260 12,024,975 -- 418,260 12,024,975
------------ ------------ -------------
ELECTRICAL & ELECTRONICS 4.5%
aABB Ltd. 64,840 6,110,292 -- -- 64,840 6,110,292
Alcatel SA 134,405 18,919,545 -- -- 134,405 18,919,545
General Electric Co. PLC 1,920,000 19,520,192 1,920,000 19,520,192
Koninklijke Philips Electronics NV 210,312 20,744,914 201,762 19,901,596 412,074 40,646,510
aMeto AG 158,500 784,857 158,500 784,857
------------ ------------ -------------
45,774,751 40,206,645 85,981,396
------------ ------------ -------------
ENERGY SOURCES 4.6%
Perez Companc SA, B 1,975,000 11,357,386 -- -- 1,975,000 11,357,386
Repsol SA 807,000 16,477,880 -- -- 807,000 16,477,880
Shell Transport & Trading Co. PLC 1,913,742 14,336,022 -- -- 1,913,742 14,336,022
Societe Elf Aquitaine SA, Br. 106,150 15,577,132 148,024 21,721,992 254,174 37,299,124
aTotal Fina SA, B 62,039 8,003,588 62,039 8,003,588
------------ ------------ -------------
57,748,420 29,725,580 87,474,000
------------ ------------ -------------
FINANCIAL SERVICES 3.8%
AXA SA 130,000 15,859,544 -- 130,000 15,859,544
ING Groep NV 214,846 11,631,860 288,685 15,629,537 503,531 27,261,397
Lend Lease Corp. Ltd. 1,040,000 14,279,005 -- -- 1,040,000 14,279,005
Nomura Securities Co. Ltd. 1,210,000 14,165,317 -- -- 1,210,000 14,165,317
------------ ------------ -------------
55,935,726 15,629,537 71,565,263
------------ ------------ -------------
FOOD & HOUSEHOLD PRODUCTS 2.0%
Illovo Sugar Ltd. 3,005,800 3,312,382 -- -- 3,005,800 3,312,382
McBride PLC 1,000,000 1,749,630 1,000,000 1,749,630
Northern Foods PLC 2,868,307 5,900,099 -- -- 2,868,307 5,900,099
Panamerican Beverages Inc., A 290,000 6,905,625 -- -- 290,000 6,905,625
Tate & Lyle PLC 1,763,000 11,053,139 1,540,500 9,658,174 3,303,500 20,711,313
------------ ------------ -------------
27,171,245 11,407,804 38,579,049
------------ ------------ -------------
FOREST PRODUCTS & PAPER 3.0%
Carter Holt Harvey Ltd. -- -- 3,243,400 3,884,208 3,243,400 3,884,208
Cartiere Burgo SpA -- -- 696,200 4,472,136 696,200 4,472,136
Fletcher Challenge Ltd. Forestry Division -- -- 6,020,000 3,381,395 6,020,000 3,381,395
Kimberly Clark de Mexico SA de CV, A -- -- 1,115,000 4,619,541 1,115,000 4,619,541
Mayr-Melnhof Karton AG -- -- 39,400 1,787,769 39,400
1,787,769
aPT Indah Kiat Pulp & Paper Corp. TBK -- -- 9,724,297 4,519,644 9,724,297 4,519,644
aPT Indah Kiat Pulp & Paper Corp. TBK,
wts., 4/13/01 -- -- 782,553 340,982 782,553 340,982
aPT Indah Kiat Pulp & Paper Corp. TBK,
wts., 7/11/02 -- -- 818,888 249,770 818,888 249,770
Stora Enso OYJ, R 400,000 4,289,987 1,167,304 12,631,377 1,567,304 16,921,364
Stora Enso OYJ, R, fgn. 435,426 4,711,737 186,900 2,004,496 622,326 6,716,233
Unipapel SA, Br. -- -- 104,400 1,185,360 104,400 1,185,360
UPM-Kymmene Corp. 351,000 10,062,700 -- -- 351,000 10,062,700
------------ ------------ -------------
19,064,424 39,076,678 58,141,102
------------ ------------ -------------
HEALTH & PERSONAL CARE 2.7%
Internatio-Muller NV -- $ -- 240,308 $ 5,290,890 240,308 $ 5,290,890
Medeva PLC 3,190,000 5,229,343 3,190,000 5,229,343
Nycomed Amersham PLC 1,575,700 11,208,536 1,575,700 11,208,536
Rhone-Poulenc SA, A 279,800 12,785,334 -- -- 279,800 12,785,334
Teva Pharmaceutical Industries Ltd.,
ADR 335,200 16,424,800 -- -- 335,200 16,424,800
------------ ------------ -------------
34,439,477 16,499,426 50,938,903
------------ ------------ -------------
INDUSTRIAL COMPONENTS .7%
Granges AB -- -- 191,000 3,235,004 191,000 3,235,004
Madeco Manufacturera de Cobre SA, ADR 190,000 1,923,750 -- -- 190,000 1,923,750
Meggitt PLC -- -- 1,487,610 4,584,152 1,487,610 4,584,152
Yamato Kogyo Co. Ltd. 446,000 3,246,249 -- -- 446,000 3,246,249
------------ ------------ -------------
5,169,999 7,819,156 12,989,155
------------ ------------ -------------
INSURANCE 6.1%
Ace Ltd. 320,545 9,055,396 682,500 19,280,625 1,003,045 28,336,021
AXA China Region Ltd. 11,930,000 9,533,114 11,930,000 9,533,114
Baloise-Holding -- -- 7,380 6,019,452 7,380 6,019,452
Muenchener Rueckversicherungs-
Gesellschaft 27,260 5,136,024 33,000 6,217,490 60,260 11,353,514
aMuenchener Rueckversicherungs-
Gesellschaft, 144A 27,260 5,088,232 33,000 6,159,637 60,260 11,247,869
Partnerre Ltd. 269,000 10,053,875 -- -- 269,000 10,053,875
Scor SA 250,000 12,400,743 -- -- 250,000 12,400,743
XL Capital Ltd., A 170,450 9,630,425 -- -- 170,450 9,630,425
Zurich Allied AG 32,300 18,366,911 -- -- 32,300 18,366,911
------------ ------------ -------------
79,264,720 37,677,204 116,941,924
------------ ------------ -------------
LEISURE & TOURISM .7%
Kuoni Reisen Holding AG, B -- -- 3,570 13,766,982 3,570 13,766,982
------------ ------------ -------------
MACHINERY & ENGINEERING 2.1%
Bucher Holding AG, Br. -- -- 12,800 10,662,550 12,800 10,662,550
IHC Caland NV -- -- 375,000 14,695,267 375,000 14,695,267
Invensys PLC 1,318,675 6,246,049 1,820,854 8,624,675 3,139,529 14,870,724
------------ ------------ -------------
6,246,049 33,982,492 40,228,541
------------ ------------ -------------
MERCHANDISING 3.3%
David Jones Ltd. 2,225,500 2,180,130 2,463,527 2,413,304 4,689,027 4,593,434
Hudsons Bay Co. 357,000 4,024,940 357,000 4,024,940
Marks & Spencer PLC 2,243,000 12,939,977 -- -- 2,243,000 12,939,977
Safeway PLC 3,247,408 12,988,711 1,695,778 6,782,631 4,943,186 19,771,342
Somerfield PLC 1,552,716 7,281,186 1,552,716 7,281,186
Storehouse 3,498,781 7,527,877 3,314,000 7,130,308 6,812,781 14,658,185
------------ ------------ -------------
35,636,695 27,632,369 63,269,064
------------ ------------ -------------
METALS & MINING 5.2%
Angang New Steel Company Ltd., H, 144A 22,414,000 3,351,043 -- -- 22,414,000 3,351,043
Anglo American Platinum Corp. Ltd. 349,009 8,143,254 417,465 9,740,504 766,474 17,883,758
Boehler Uddeholm AG 31,505 1,559,168 33,000 1,633,155 64,505 3,192,323
Boehler Uddeholm AG, 144A 33,800 1,672,746 27,055 1,338,939 60,855 3,011,685
British Steel PLC 4,090,000 10,588,924 4,033,200 10,441,870 8,123,200 21,030,794
Chongqing Iron & Steel Ltd., H 25,564,000 2,471,114 -- -- 25,564,000 2,471,114
Companhia Siderurgica Nacional CSN,
ADR -- -- 276,365 7,254,581 276,365 7,254,581
Grupo Mexico SA de CV, B -- -- 1,983,600 8,493,578 1,983,600 8,493,578
Ispat International NV, A 227,600 2,517,825 -- -- 227,600 2,517,825
Pechiney SA, A 136,212 5,854,714 -- -- 136,212 5,854,714
METALS & MINING (CONT.)
Pohang Iron & Steel Co. Ltd. 85,000 $ 10,597,000 10,450 $ 1,302,808 95,450 $ 11,899,808
WMC Ltd. 2,870,000 12,328,766 -- -- 2,870,000 12,328,766
------------ ------------ -------------
59,084,554 40,205,435 99,289,989
------------ ------------ -------------
MISC MATERIALS & COMMODITIES .4%
Korea Chemical Co. Ltd. -- 57,900 5,202,246 57,900 5,202,246
Unitor ASA -- 295,000 2,548,111 295,000 2,548,111
------------ ------------ -------------
-- 7,750,357 7,750,357
------------ ------------ -------------
MULTI-INDUSTRY 3.9%
Alfa SA de CV, A 2,110,000 8,820,769 -- -- 2,110,000 8,820,769
Broken Hill Proprietary Co. Ltd. 1,210,543 14,022,043 -- -- 1,210,543 14,022,043
Cheung Kong Holdings Ltd. 850,000 7,559,110 188,600 1,677,233 1,038,600 9,236,343
Elementis PLC 2,052,331 3,412,896 3,336,000 5,547,555 5,388,331 8,960,451
Jardine Strategic Holdings Ltd. 2,574,940 6,694,844 2,574,940 6,694,844
Next PLC 1,255,500 15,257,881 -- -- 1,255,500 15,257,881
Saab AB, B 726,900 5,642,837 -- -- 726,900 5,642,837
Swire Pacific Ltd., B 7,937,100 5,933,248 7,937,100 5,933,248
------------ ------------ -------------
54,715,536 19,852,880 74,568,416
------------ ------------ -------------
REAL ESTATE .3%
Hang Lung Development Co. Ltd. -- -- 779,000 963,854 779,000 963,854
New Asia Realty and Trust Co. Ltd., A 2,670,000 4,060,653 -- -- 2,670,000 4,060,653
------------ ------------ -------------
4,060,653 963,854 5,024,507
------------ ------------ -------------
RECREATION & OTHER CONSUMER GOODS 1.6%
Nintendo Co. Ltd. 143,500 19,976,661 143,500 19,976,661
Swatch Group AG, Br. -- -- 15,400 10,361,765 15,400 10,361,765
Yue Yuen Industrial (Holdings) Ltd. -- -- 394,800 910,821 394,800 910,821
------------ ------------ -------------
19,976,661 11,272,586 31,249,247
------------ ------------ -------------
TELECOMMUNICATIONS 11.3%
aCable & Wireless Optus Ltd., 144A 3,417,600 7,781,668 3,417,600 7,781,668
Cia de Telecomunicaciones de Chile SA,
ADR 431,500 10,679,625 -- -- 431,500 10,679,625
Hong Kong Telecommunications Ltd. 5,427,349 14,095,012 7,908,279 20,538,072 13,335,628 34,633,084
Koninklijke KPN NV 263,235 12,351,441 263,235 12,351,441
aKorea Telecom Corp., ADR 104,200 4,168,000 308,300 12,332,000 412,500 16,500,000
Nippon Telegraph & Telephone Corp. 1,210 14,095,340 1,210 14,095,340
Nokia Corp., A -- -- 178,600 15,655,357 178,600 15,655,357
Smartone Telecommunications
Holdings Ltd. -- -- 1,602,000 5,698,680 1,602,000 5,698,680
aTelecom Italia SpA, di Risp 2,252,750 12,254,570 -- -- 2,252,750 12,254,570
aTelecomunicacoes Brasileiras SA, ADR 156,170 14,084,582 177,300 15,990,244 333,470 30,074,826
Telefonica de Argentina SA, ADR 368,800 11,571,100 -- -- 368,800 11,571,100
Telefonica del Peru SA, ADR 29,000 438,625 251,900 3,809,988 280,900 4,248,613
Telefonica del Peru SA, B 3,000,000 4,506,071 2,445,602 3,673,352 5,445,602 8,179,423
Telefonos de Mexico SA (Telmex), ADR 191,300 15,459,431 191,300 15,459,431
aTelefonica SA 323,100 15,563,577 323,100 15,563,577
------------ ------------ -------------
121,485,465 93,261,270 214,746,735
------------ ------------ -------------
TEXTILES & APPAREL .3%
Yizheng Chemical Fibre Co. Ltd., H -- 19,340,200 5,047,643 19,340,200 5,047,643
------------ ------------ -------------
TRANSPORTATION 2.7%
Air New Zealand Ltd., B -- -- 1,132,000 2,339,401 1,132,000 2,339,401
aHelikopter Services Group ASA -- -- 134,000 995,745 134,000 995,745
Hitachi Zosen Corp. 3,342,000 4,031,163 -- -- 3,342,000 4,031,163
Koninklijke Nedlloyd Groep NV 216,300 5,353,408 -- -- 216,300 5,353,408
Mayne Nickless Ltd., A 3,227,820 11,045,691 2,125,500 7,273,521 5,353,320 18,319,212
Peninsular & Oriental Steam
Navigation Co. 833,414 12,538,912 -- -- 833,414 12,538,912
Singapore Airlines Ltd., fgn. 736,500 7,008,106 -- -- 736,500 7,008,106
Tranz Rail Holdings Ltd., ADR -- -- 47,765 253,752 47,765 253,752
------------ ------------ -------------
39,977,280 10,862,419 50,839,699
------------ ------------ -------------
UTILITIES ELECTRICAL & GAS 8.9%
BG PLC -- -- 2,566,588 $ 15,666,454 2,566,588 $ 15,666,454
Centrais Eletricas Brasileiras SA
(Electrobras) -- -- 363,450,000 6,926,807 363,450,000 6,926,807
aCentrais Geradoras do Sul do Brasil SA -- -- 363,450,000 290,345 363,450,000 290,345
Centrica PLC -- -- 1,161,000 2,731,302 1,161,000 2,731,302
Compania Sevillana de Electricidad SA 246,970 2,862,682 246,970 2,862,682
Evn AG 48,600 $ 7,106,816 -- -- 48,600 7,106,816
Gener SA, ADR 303,800 5,392,450 -- -- 303,800 5,392,450
Hong Kong Electric Holdings Ltd. 4,062,365 13,089,456 -- -- 4,062,365 13,089,456
Iberdrola SA, Br. 807,900 12,305,541 1,517,800 23,118,393 2,325,700 35,423,934
aKorea Electric Power Corp. 269,000 11,178,315 66,000 2,742,635 335,000 13,920,950
National Grid Group PLC 953,785 6,633,738 -- -- 953,785 6,633,738
National Power PLC 1,972,900 14,328,263 -- -- 1,972,900 14,328,263
Shandong Huaneng Power Development
Co. Ltd., ADR 338,300 1,754,931 338,300 1,754,931
Thames Water Group PLC 747,372 11,862,861 896,939 14,236,903 1,644,311 26,099,764
Transportadora de Gas del Sur SA, B,
Reg S, ADR -- -- 516,300 4,840,310 516,300 4,840,310
Veba AG 221,850 13,086,336 -- -- 221,850 13,086,336
------------ ------------- -------------
94,983,776 75,170,762 170,154,538
------------ ------------ -------------
TOTAL COMMON STOCKS
(Cost $1,447,096,366) 992,518,921 771,944,768 1,764,463,689
------------ ------------ -------------
PREFERRED STOCKS 2.2%
Banco Bradesco SA, pfd. 896,769,450 4,605,378 525,200,000 2,697,175 1,421,969,450 7,302,553
Banco Itau SA, pfd. -- -- 4,209,000 2,185,558 4,209,000 2,185,558
Cia Vale do Rio Doce, A, ADR, pfd. 350,400 6,958,014 350,400 6,958,014
Lojas Americanas SA, pfd. 238,431,408 952,365 238,431,408 952,365
News Corp. Ltd., pfd. -- -- 3,486 26,558 3,486 26,558
Petroleo Brasileiro SA, pfd. -- -- 60,000,000 9,415,121 60,000,000 9,415,121
aTelecomunicacoes Brasileiras SA
(Telebras), ADR, pfd. 156,170 9,761 177,300 11,081 333,470 20,842
aTelecomunicacoes de Minas Gerais Celular
Telemig, pfd. 1,705,000 15,323 -- -- 1,705,000 15,323
Telesp Participacoes SA, pfd. 4,866,533 115,242 -- -- 4,866,533 115,242
Telesp Participacoes SA, ADR, pfd. 334,800 7,658,550 -- -- 334,800 7,658,550
Usinas Siderurgicas de Minas Gerais,
Reg S, ADR, pfd. 320,000 1,088,274 1,851,400 6,296,345 2,171,400 7,384,619
------------ ------------ -------------
TOTAL PREFERRED STOCKS
(Cost $56,534,968) 21,402,907 20,631,838 42,034,745
------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* AMOUNT* AMOUNT*
----------- ----------- -----------
SHORT TERM INVESTMENT COST
($12,794,920) .7%
Federal National Mortgage Association,
<S> <C> <C> <C> <C> <C>
4.90%, 9/08/99 $12,918,000 12,798,160 $-- -- $12,918,000 12,798,160
------------ ------------ -------------
TOTAL INVESTMENTS BEFORE REPURCHASE
Agreement (Cost $1,516,426,254) 1,026,719,988 792,576,606 1,819,296,594
------------ ------------ -------------
REPURCHASE AGREEMENT 3.9%
Paine Webber, 4.80%, 6/30/99
(Maturity Value $43,006,733)
Collaterized by U.S. Treasury Bonds
and Notes $43,001,000 $ 43,001,000 $-- $-- $43,001,000 $ 43,001,000
Morgan Stanley Inc., 4.88%, 7/01/99
(Maturity Value $31,113,217)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 31,109,000 31,109,000 31,109,000 31,109,000
------------ ------------ -------------
TOTAL REPURCHASE AGREEMENT
(Cost $74,110,000) 43,001,000 31,109,000 74,110,000
------------ ------------ -------------
TOTAL INVESTMENTS
(Cost $1,590,536,254) 99.3% 1,069,720,988 823,685,606 1,893,406,594
Other Assets, less Liabilities .7% 7,759,521 5,413,340 13,172,861
------------ ------------ -------------
TOTAL NET ASSETS 100.0% $1,077,480,509 $829,098,946 $1,906,579,455
------------ ------------ -------------
*Securities denominated in U.S. dollars.
aNon-income producing.
</TABLE>
See accompanying notes to pro forma combined financial statements.
TEMPLETON VARIABLE PRODUCTS SERIES FUND - TEMPLETON INTERNATIONAL FUND ("TVP
TEMPLETON INTERNATIONAL FUND")
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - TEMPLETON INTERNATIONAL
EQUITY FUND
("VIP TEMPLETON INTERNATIONAL EQUITY FUND")
FINANCIAL STATEMENTS
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
VIP TEMPLETON
INTERNATIONAL
TVP TEMPLETON VIP TEMPLETON EQUITY FUND
INTERNATIONAL INTERNATIONAL PRO FORMA
FUND EQUITY FUND COMBINED
- -----------------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost $ 876,135,516 $640,290,738 $1,516,426,254
-----------------------------------------------------
Value 1,026,719,988 792,576,606 1,819,296,594
Repurchase Agreements, at value and cost 43,001,000 31,109,000 74,110,000
Cash -- 400,884 400,884
Receivables:
Investment securities sold -- 1,306,512 1,306,512
Capital shares sold 2,683,348 1,974,355 4,657,703
Dividends and interest 6,265,179 3,501,787 9,766,966
-----------------------------------------------------
Total assets 1,078,669,515 830,869,144 1,909,538,659
-----------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 105,369 157,553 262,922
Capital shares redeemed -- 627,401 627,401
Affiliates 698,020 565,730 1,263,750
Custodian fees -- 248,787 248,787
Postage and mailing -- 75,097 75,097
Funds advanced by custodian 34,450 -- 34,450
Accrued expenses 351,167 -- 351,167
Other liabilities -- 95,630 95,630
-----------------------------------------------------
Total liabilities 1,189,006 1,770,198 2,959,204
-----------------------------------------------------
Net assets, at value $1,077,480,509 $829,098,946 $1,906,579,455
=====================================================
Class 1:
Net assets, at value $ 996,310,751 $824,805,932 $1,821,116,683
=====================================================
Shares outstanding** 50,203,995 47,685,867 105,276,084
=====================================================
Net asset value and offering price per share $19.85 $17.30 $17.30
=====================================================
Class 2:
Net assets, at value $ 81,169,758 $ 4,293,014 $ 85,462,772
=====================================================
Shares outstanding** 4,105,074 248,579 $ 4,948,623
=====================================================
Net asset value and offering price per share $19.77 $17.27 $17.27
=====================================================
</TABLE>
**See note 2 in the accompanying notes to pro forma combined financial
statements.
eExpense adjustment for differences in management fees, administrative fees,
and 12B1fees.
See accompanying notes to pro forma combined financial statements.
TVP Templeton International Fund
VIP Templeton International Equity Fund
Financial Statements (continued)
Pro forma combined Statements of Operations
for the six months ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
VIP Templeton
International
TVP Templeton VIP Templeton Equity Fund
International International Pro Forma Pro Forma
Fund Equity Fund Adjustments Combined
- ------------------------------------------------------------------------------------------------------
Investment income:+
<S> <C> <C> <C>
Dividends 17,654,395 14,953,862 32,608,257
Interest 883,934 1,189,313 2,073,247
------------------------------------------------------------
Total investment income 18,538,329 16,143,175 -- 34,681,504
------------------------------------------------------------
Expenses:
Management fees 3,511,590 3,540,668 (845,476)a 6,206,782
Administrative fees 493,227 -- 498,023b 991,250
Distribution fees
Class 2 66,442 1,313 (192) 67,563
Transfer agent fees -- -- --
Custodian fees 177,000 299,100 476,100
Reports to shareholders 121,000 79,300 200,300
Professional fees 14,000 21,400 35,400
Trustees' fees and expenses 4,000 4,000
Other 4,022 5,334 9,356
------------------------------------------------------------
Total expenses 4,387,281 3,951,115 7,990,751
------------------------------------------------------------
Net investment income 14,151,048 12,192,060 (347,645) 26,690,753
------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 60,537,527 90,886,731 151,424,258
Foreign currency transactions (1,229,829) (1,165,446) (2,395,275)
------------------------------------------------------------
Net realized gain 59,307,698 89,721,285 -- 149,028,983
Net unrealized appreciation (depreciation) on:
Investments 30,280,684 (10,209,283) 20,071,401
Net unrealized gain (loss) 30,280,684 (10,209,283) 20,071,401
------------------------------------------------------------
Net realized and unrealized gain (loss) 89,588,382 79,512,002 -- 169,100,384
------------------------------------------------------------
Net increase in net assets resulting
from operations 103,739,430 91,704,062 195,791,137
============================================================
</TABLE>
aPro Forma adjustment for difference in Management fee schedule. The combined
entity will appoint a new advisor, Templeton Global Advisor Limited and will
adopt the following fee structure:
First$ 200,000,000 0.75%
Next$1,100,000,000 0.675%
Over$1,300,000,000 0.600%
bPro Forma adjustment for difference in Administrative fee schedule. The
combined entity will adopt the following management fee structure:
First$ 200,000,000 0.150%
Next$ 500,000,000 0.135%
Next$ 500,000,000 0.100%
Over$1,200,000,000 0.075%
cPro Forma adjustment for difference in 12B-1 agreement. The 12B-1 fee rate
reflected in the Pro Forma Combined is 0.25% of the average net assets.
+Net of foreign taxes of $1,789,958 and $1,715,049 for TVP Templeton
International Fund and VIP Templeton International Fund, respectively.
See accompanying notes to pro forma combined financial statements.
VIP - Templeton International Equity Fund
TVP - Templeton International Fund
Notes to Pro forma combined Statements (unaudited)
1. Basis of Combination
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the Templeton Variable Products
Series Fund - Templeton International Fund("TVP-Templeton International Fund"),
the Franklin Templeton Variable Insurance Products Trust - Templeton
International Equity Fund ("VIP - Templeton International Equity Fund") will
acquire all the net assets of the TVP - Templeton International Class 1 and 2 in
exchange for the Classes 1 and 2 shares, respectively, shares of VIP - Templeton
International Equity Fund. The merger will be accounted for by the method of
accounting for tax free business combinations of investment companies and TVP -
Templeton International will be the accounting survivor. The pro forma combined
Statement of Assets and Liabilities reflects the financial position of TVP -
Templeton International June 30, 1999 as though the merger occurred as of that
date. The pro forma combined Statement of Operations reflects the results of
operations of the TVP - Templeton International and VIP - Templeton
International Equity for the period January 1, 1999 to June 30, 1999 as though
the merger occurred on January 1, 1999. The pro forma financial statements do
not reflect the expenses of either fund in carrying out its obligations under
the Agreement and Plan of Reorganization or any adjustment with respect to
additional distributions that may be made prior to reorganization. The pro forma
financial statements are presented for the information of the reader, and should
be read in conjunction with the historical financial statements of the funds.
2. Capital Shares:
The number of Class 1 and 2 shares issued was calculated by dividing the Class 1
and 2 net assets of the TVP - Templeton International at June 30, 1999 by the
Class 1 and 2 net asset value per share of the VIP - Templeton International
Equity, respectively at June 30, 1999.
<PAGE>
TVP Templeton Stock Fund
VIP Templeton Global Growth Fund
Pro forma combined Statement of Investments, June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
TVP TEMPLETON VIP TEMPLETON VIP TEMPLETON GLOBAL GROWTH FUND
STOCK FUND GLOBAL GROWTH FUND PRO FORMA COMBINED
- -----------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
Common Stocks 92.1%
Aerospace & Military Technology 2.6%
<S> <C> <C> <C> <C> <C> <C>
Boeing Co. 182,500$ 8,064,219 210,769$ 9,313,355 393,269$ 17,377,574
a Fairchild Corp., A 204,957 2,613,202 204,957 2,613,202
Raytheon Co., A 230 15,841 222,644 15,334,606 222,874 15,350,447
------------ ------------- ---------------
8,080,060 27,261,163 35,341,223
----------- ------------ --------------
Appliances & Household Durables 1.5%
Guangdong Kelon Electrical
Holdings. Ltd., H 1,123,000 1,309,878 1,123,000 1,309,878
Laox Co. Ltd. 725,000 6,289,243 725,000 6,289,243
Sony Corp. 124,100 13,379,916 124,100 13,379,916
------------ ------------ ----------------
14,689,794 6,289,243 20,979,037
------------ ------------ ----------------
Automobiles 4.2%
Autoliv Inc., SDR 246,100 7,497,048 246,100 7,497,048
Delphi Automotive Systems Corp. 41,935 778,418 41,935 778,418
Fiat Spa 1,307,680 4,156,203 1,919,720 6,101,451 3,227,400 10,257,654
Ford Motor Co. 117,000 6,603,188 90,000 5,079,375 207,000 11,682,563
General Motors Corp. 60,000 3,960,000 60,000 3,960,000
Volkswagen AG 102,400 6,607,371 63,000 4,065,082 165,400 10,672,453
Volvo AB, B 269,200 7,804,964 171,900 4,983,927 441,100 12,788,891
------------ ------------ ----------------
25,171,726 32,465,301 57,637,027
------------ ------------ ----------------
Banking 4.1%
Australia & New Zealand
Banking Group Ltd. 542,900 3,991,975 542,900 3,991,975
a Banca Nazionale 1,781,960 5,619,505 1,781,960 5,619,505
Del Lavoro Spa
Banque Nationale 62,054 5,170,633 62,054 5,170,633
de Paris
Deutsche Bank AG, Br. 100,700 6,137,331 100,700 6,137,331
HSBC Holdings PLC 153,404 5,595,331 223,724 8,160,216 377,128 13,755,547
Kookmin Bank, 293,927 5,981,414 293,927 5,981,414
GDR, 144A
Merita AS 320,600 1,821,704 320,600 1,821,704
Shinhan Bank Co. Ltd. 169,682 1,905,711 169,682 1,905,711
a Thai Farmers Bank 1,492,300 4,613,483 1,492,300 4,613,483
Public Co. Ltd., fgn.
Unibanco Uniao de Bancos
Brasileiros SA, GDR 149,000 3,585,313 149,000 3,585,313
Unidanmark AS, A 69,100 4,611,791 69,100 4,611,791
------------ ----------- ---------------
35,740,049 21,454,358 57,194,407
------------ ------------ ----------------
Broadcasting & Publishing
News Corp. Ltd., ADR 112,400 3,969,125 112,400 3,969,125
Television 1,023,000 4,799,319 1,023,000 4,799,319
Broadcasts Ltd. ------------ ------------ ----------------
8,768,444 -- 8,768,444
------------ ------------ ----------------
Building Materials & Components 1.5%
Caradon PLC 2,752,600 6,486,455 2,752,600 6,486,455
Nichiha Corp. 193,500 2,047,864 193,500 2,047,864
Okumura Corp. 2,093,000 7,781,312 2,093,000 7,781,312
aSiam City Cement Public 1,057,641 4,359,632 1,057,641 4,359,632
Co. Ltd., fgn. ------------ ------------ ----------------
-- 20,675,263 20,675,263
------------ ------------ ----------------
Business & Public Services 1.4%
aComplete Business Solutions Inc. 23,600 423,325 23,600 423,325
a Humana Inc. 250,000 3,234,375 250,000 3,234,375
Kurita Water 387,000 6,938,120 387,000 6,938,120
Industries Ltd.
Lex Service PLC 221,020 2,032,804 221,020 2,032,804
Waste Management 135,917 7,305,539 135,917 7,305,539
Inc. ------------ ------------ ----------------
16,276,463 3,657,700 19,934,163
------------ ------------ ----------------
Chemicals 1.2%
Akzo Nobel NV 195,200 8,213,014 195,200 8,213,014
BASF AG 70,900 3,114,716 70,900 3,114,716
Kemira OY 847,900 5,123,950 847,900 5,123,950
------------ ------------ ----------------
8,213,014 8,238,666 16,451,680
------------ ------------ ----------------
Data Processing & Reproduction 1.6%
a 3Com Corp. 215,800 $5,759,163 220,600$5,887,263 436,400 $11,646,426
a Newbridge 274,200 7,883,250 74,000 2,127,500 348,200 10,010,750
Networks Corp. ------------ ------------ ----------------
13,642,413 8,014,763 21,657,176
------------ ------------ ----------------
Electrical & Electronics 6.7%
a ABB Ltd. 79,406 7,425,049 55,976 5,234,150 135,382 12,659,199
Alcatel SA 78,835 11,097,223 -- -- 78,835 11,097,223
a Antec Corp. 345,500 11,077,594 345,500 11,077,594
Catic Shenzhen Holdings Ltd., H 9,945,000 1,358,668 9,945,000 1,358,668
Dongfang Electrical Machinery
Co. Ltd., H -- -- 5,506,000 702,545 5,506,000 702,545
General Electric Co.PLC -- -- 1,160,300 11,796,499 1,160,300 11,796,499
Hitachi Ltd. -- -- 603,500 5,659,059 603,500 5,659,059
Koninklijke 121,532 11,987,765 -- -- 121,532 11,987,765
Electronics NV
Motorola Inc. 175,800 16,657,050 100,000 9,475,000 275,800 26,132,050
------------ ------------ ----------------
58,244,681 34,225,921 92,470,602
------------ ------------ ----------------
Electronic Components & Instruments 1.4%
BICC PLC -- -- 1,397,152 1,993,037 1,397,152 1,993,037
aNanjing Panda -- -- 17,794,000 1,720,036 17,794,000 1,720,036
Electronics Co. Ltd., H
Hewlett 85,000 8,542,500 -- -- 85,000 8,542,500
- -Packard Co.
Intel Corp. 121,400 7,223,300 -- -- 121,400 7,223,300
------------ ------------ ----------------
15,765,800 3,713,073 19,478,873
------------ ------------ ----------------
Energy Sources 4.1%
MOL Magyar Olay-Es Gazipari RT,
GDS 144A -- -- 256,358 6,139,774 256,358 6,139,774
Norsk Hydro ASA 185,300 6,990,676 117,000 4,413,973 302,300 11,404,649
Perez Companc 415,400 2,388,789 -- -- 415,400 2,388,789
SA, B
a Ranger Oil -- -- 273,050 1,333,999 273,050 1,333,999
Ltd.
aRenaissance -- -- 254,800 3,447,243 254,800 3,447,243
Energy Ltd.
Shell Transport -- -- 608,900 4,561,327 608,900 4,561,327
& Trading Co. PLC
Societe Elf 61,320 8,998,490 67,072 9,842,576 128,392 18,841,066
Aquitaine SA, Br.
a Total 67,497 8,707,719 -- -- 67,497 8,707,719
Fina SA, B ------------ ------------ ----------------
27,085,674 29,738,892 56,824,566
------------ ------------ ----------------
Financial Services 5.1%
AXA SA 57,091 6,964,902 92,702 11,309,319 149,793 18,274,221
Fannie Mae 144,200 9,859,675 -- -- 144,200 9,859,675
ICICI Ltd., -- -- 396,700 4,086,010 396,700 4,086,010
GDR, 144A
ING Groep NV 157,637 8,534,539 105,188 5,694,926 262,825 14,229,465
Lend Lease 485,500 6,665,824 -- -- 485,500 6,665,824
Corp. Ltd.
Morgan Stanley, Dean Witter & Co. 103,100 10,567,750 103,100 10,567,750
Nomura 623,000 7,293,382 -- -- 623,000 7,293,382
Securities Co. Ltd. ------------ ------------ ----------------
39,318,322 31,658,005 70,976,327
------------ ------------ ----------------
Food & Household Products 2.1%
Archer-Daniels 434,170 6,702,499 625,065 9,649,441 1,059,235 16,351,940
Midland Co.
IBP Inc. -- -- 272,543 6,472,896 272,543 6,472,896
Northern Foods PLC -- -- 2,208,797 4,543,489 2,208,797 4,543,489
Showa Sangyo Co. -- -- 958,000 1,994,514 958,000 1,994,514
------------ ------------ ----------------
6,702,499 22,660,340 29,362,839
------------ ------------ ----------------
Forest Products & Paper 2.7%
aAsia 29,000 279,125 -- -- 29,000 279,125
Pulp & Paper Co. Ltd., ADR
Assidoman AB -- -- 249,730 3,759,756 249,730 3,759,756
Carter Holt1,155,252 1,383,499 940,712 1,126,571 2,095,964 2,510,070
Harvey Ltd.
Georgia 214,800 10,176,150 68,000 3,221,500 282,800 13,397,650
Pacific Corp.
Georgia Pacific -- -- 34,000 858,500 34,000 858,500
Timber Group
Metsa Serla OY, B -- -- 270,000 2,294,318 270,000 2,294,318
Stora 427,800 4,588,141 559,700 6,002,764 987,500 10,590,905
Enso OYJ, R
Stora Enso 313,540 3,392,811 -- -- 313,540 3,392,811
OYJ, R, fgn. ------------ ------------ ----------------
19,819,726 17,263,409 37,083,135
------------ ------------ ----------------
Health & Personal Care 3.7%
Astrazeneca 152,291 $5,928,996 -- $-- 152,291$ 5,928,99
PLC
Medeva PLC2,761,300 4,526,579 1,614,200 2,646,146 4,375,500 7,172,725
Novartis AG 2,236 3,264,968 -- -- 2,236 3,264,968
Nycomed 791,920 5,633,219 -- -- 791,920 5,633,219
Amersham PLC
Pharmacia &
Upjohn Inc. 218,900 12,436,256 218,900 12,436,256
Rhone- 170,002 7,768,164 -- -- 170,002 7,768,164
Poulenc SA, A
a Skyepharma PLC
5,109,873 3,986,928 -- -- 5,109,873 3,986,928
Teva Pharmaceutical Industries
Ltd., ADR
107,400 5,262,600 107,400 5,262,600
------------ ------------ ----------------
36,371,454 15,082,402 51,453,856
------------ ------------ ----------------
Industrial Components 1.2%
Goodyear Tire & Rubber Co.
99,000 5,822,438 -- -- 99,000 5,822,438
Granges AB379,525 6,428,088 -- -- 379,525 6,428,088
Yamato Kogyo Co. Ltd.
539,000 3,923,158 -- -- 539,000 3,923,158
------------ ------------ ----------------
16,173,684 -- 16,173,684
------------ ------------ ----------------
Insurance 6.2%
Ace Ltd. 176,500 4,986,125 121,500 3,432,375 298,000 8,418,500
AXA China Region Ltd.
3,440,000 2,748,861 3,440,000 2,748,861
HIH Insurance Ltd.
2,303,465 2,851,125 2,244,429 2,778,053 4,547,894 5,629,178
Muenchener Rueckversicherungs- Gesellschaft
13,445 2,533,156 -- -- 13,445 2,533,156
aMuenchener Rueckversicherungs-Gesellschaft, 144A
13,445 2,509,585 -- -- 13,445 2,509,585
aMuenchener Rueckversicherungs- Gesellschaft, wts.
419 13,395 -- -- 419 13,395
Partnerre Ltd.
144,400 5,396,950 127,900 4,780,263 272,300 10,177,213
ReliastarFinancial
Corp 204,700 8,955,625 48,000 2,100,000 252,700 11,055,625
Torchmark
Corp. 113,400 3,869,775 240,000 8,190,000 353,400 12,059,775
XL Capital Ltd., A
92,100 5,203,650 -- -- 92,100 5,203,650
UNUM
Corp. 81,100 4,440,225 81,100 4,440,225
Zurich Allied AG
17,000 9,666,795 19,500 11,088,383 6,500 20,755,178
------------ ------------ ----------------
48,735,042 36,809,299 85,544,341
------------ ------------ ----------------
Leisure & Tourism .3%
Kuoni Reisen Holding
AG, B 1,065 4,106,957 -- -- 1,065 4,106,957
------------ -------------- ----------------
Machinery & Engineering 3.9%
First Tractor Company Ltd., H
-- -- 6,860,000 2,033,549 6,860,000 2,033,549
Invensys PLC
1,621,958 7,682,582 2,244,442 10,631,046 3,866,400 18,313,628
KCI Konecranes International PLC
-- -- 211,700 7,272,071 211,700 7,272,071
Laird Group PLC
-- -- 1,783,700 7,422,477 1,783,700 7,422,477
Makita Corp.
-- -- 653,000 7,385,633 653,000 7,385,633
New Holland NV
259,400 4,442,225 -- -- 259,400 4,442,225
VA Technologie AG, Br.
-- -- 25,900 2,346,411 25,900 2,346,411
Valmet OY -- -- 392,800 4,455,811 392,800 4,455,811
------------ ------------ ----------------
12,124,807 41,546,998 53,671,805
------------ ------------ ----------------
Merchandising 3.8%
Coles Myer Ltd.
-- -- 1,070,971 6,231,027 1,070,971 6,231,027
Home Depot Inc.
102,800 6,624,175 -- -- 102,800 6,624,175
Hudson's Bay Co.
-- -- 67,100 756,508 67,100 756,508
Marks & Spencer PLC
1,067,200 6,156,729 1,516,900 8,751,070 2,584,100 14,907,799
Matsuzakaya Co. Ltd.
-- -- 51,000 219,101 51,000 219,101
Safeway PLC
1,305,220 5,220,510 1,738,498 6,953,499 3,043,718 12,174,009
Sears Roebuck & Co.
-- -- 155,900 6,947,294 155,900 6,947,294
Storehouse
2,067,800 4,449,020 -- -- 2,067,800 4,449,020
------------ ------------ ----------------
22,450,434 29,858,499 52,308,933
------------ ------------ ----------------
Metals & Mining 4.9%
Anglo American Platinum Corp. Ltd.
-- -- 377,265 8,802,537 377,265 8,802,537
Boehler-Uddeholm AG
-- -- 93,200 4,612,424 93,200 4,612,424
Companhia Siderurgica Nacional Sid Nacional CSN
-- --129,100,000 3,407,061 129,100,000 3,407,061
Metals & Mining (cont.)
Iluka Resources Ltd.
-- $-- 704,562 $1,523,100 704,562 $ 1,523,100
Industrias Penoles SA
-- -- 1,104,000 3,218,281 1,104,000 3,218,281
Iscor Ltd.-- -- 9,558,700 2,993,776 9,558,700 2,993,776
Ispat International NV, A, Reg D
228,000 2,522,250 -- -- 228,000 2,522,250
Outokumpu OY, A
-- -- 342,200 3,846,530 342,200 3,846,530
Pechiney SA, A
-- -- 84,279 3,622,511 84,279 3,622,511
Pechiney SA, ADR
-- -- 112,708 2,409,134 112,708 2,409,134
Pohang Iron & Steel Co. Ltd.
-- -- 100,000 12,467,059 100,000 12,467,059
WMC Ltd.
2,183,784 9,380,963 2,150,656 9,238,653 4,334,440 18,619,616
------------ ------------ ----------------
11,903,213 56,141,066 68,044,279
------------ ------------ ----------------
Multi-Industry 5.0%
Alfa SA de CV, A
1,743,100 7,286,958 1,743,100 7,286,958
Beijing Datang Power Generation
Co. Ltd., H
-- -- 6,860,000 2,210,379 6,860,000 2,210,379
Broken Hill Proprietary Co. Ltd.
-- -- 867,854 10,052,585 867,854 10,052,585
Cheung Kong Holdings Ltd.
815,000 7,247,852 1,180,000 10,493,823 1,995,000 17,741,675
DESC SA de CV DESC, B
4,018,300 4,419,486 -- -- 4,018,300 4,419,486
DESC SA de CV DESC, C
800 897 -- -- 800 897
Hutchison Whampoa Ltd.
802,100 7,262,355 642,600 5,818,214 1,444,700 13,080,569
La Cemento Nacional SA, GDR, 144A
-- -- 3,600 259,200 3,600 259,200
La Cemento Nacional SA, GDR, Reg S
-- -- 400 28,800 400 28,800
Pacific Dunlop Ltd.
-- -- 2,149,000 3,100,887 2,149,000 3,100,887
Saab AB, B
-- -- 296,997 2,305,552 296,997 2,305,552
Saha Union Public Co. Ltd., fgn.
-- -- 574,400 257,020 574,400 257,020
Swire Pacific Ltd., A
-- -- 1,421,800 7,036,754 1,421,800 7,036,754
Swire Pacific Ltd., B
-- -- 1,304,000 974,784 1,304,000 974,784
------------ ------------ ----------------
26,217,548 42,537,998 68,755,546
------------ ------------ ----------------
Real Estate 1.9%
China Resources Beijing Land Ltd.
-- -- 4,652,000 1,067,241 4,652,000 1,067,241
General Growth Properties
-- -- 164,500 5,839,750 164,500 5,839,750
Hang Lung Development Co. Ltd.
-- -- 3,624,000 4,483,963 3,624,000 4,483,963
Highwoods Properties Inc.
-- -- 164,900 4,524,444 164,900 4,524,444
Inversiones y Representacion SA
-- -- 1,156,326 3,561,840 1,156,326 3,561,840
Inversiones y Representacion SA, GDR
-- -- 2,374 73,283 2,374 73,283
National Health Investors Inc.
187,700 4,281,906 123,400 2,815,063 311,100 7,096,969
------------ ------------ ----------------
22,365,584 26,647,490
------------ ------------ ----------------
Recreation & Other Consumer Goods .1%
aFila Holding SpA, ADR
60,600 715,838 60,600 715,838 60,600 1,431,676
------------ ------------ ----------------
Telecommunications 8.3%
AT&T Corp.
-- -- 90,450 5,048,241 90,450 5,048,241
Cia de Telecomunicaciones de
Chile SA, ADR
117,300 2,903,175 -- -- 117,300 2,903,175
Embratel Participacoes SA
-- -- 27,300,000 205,626 27,300,000 205,626
aGeneral Motors Corp., H
-- -- 66,000 3,712,500 66,000 3,712,500
Hong Kong Telecommunications Ltd.
2,504,000 6,502,974 2,905,746 7,546,322 5,409,746 14,049,296
aKorea Telecom Corp., ADR
88,900 3,556,000 -- -- 88,900 3,556,000
aMastec Inc.
340,323 9,614,125 -- -- 340,323 9,614,125
Nippon Telegraph & Telephone Corp.
675 7,863,103 -- -- 675 7,863,103
Nortel Networks Corp.
120,460 10,457,434 138,000 11,980,125 258,460 22,437,559
Telecom Argentina Stet-France SA, ADR
-- -- 100,000 2,675,000 100,000 2,675,000
aTelecom Italia SpA
763,200 7,913,763 -- -- 763,200 7,913,763
Telecomunicacoes Brasileiras SA, ADR
41,800 3,769,838 -- -- 41,800 3,769,838
Telefonica De Argentina SA, ADR
-- -- 217,000 6,808,375 217,000 6,808,375
aTelefonica SA
142,300 6,854,525 -- -- 142,300 6,854,525
Telefonos de Mexico SA (Telmex), ADR
117,500 9,495,469 92,900 7,507,481 210,400 17,002,950
Telesp Participacoes SA
-- --44,600,000 579,991 44,600,000 579,991
------------ ------------ ----------------
68,930,406 46,063,661 114,994,067
------------ ------------ ----------------
Textiles & Apparel .5%
Courtaulds Textiles PLC
-- $-- 734,300 $1,909,768 734,300 $1,909,768
aFruit of the Loom Inc., A
-- -- 136,500 1,330,875 136,500 1,330,875
Yizheng Chemical Fibre Co. Ltd., H
-- --13,356,000 3,485,813 13,356,000 3,485,813
------------ ------------ ----------------
-- 6,726,456 6,726,456
------------ ------------ ----------------
Transportation 4.1%
Air New Zealand Ltd., B
700,100 1,446,833 700,100 1,446,833
British Airways PLC
928,000 6,414,174 1,205,032 8,328,970 2,133,032 14,743,144
Canadian National Railway Co.
113,800 7,690,345 113,800 7,690,345
Firstgroup PLC
592,500 3,236,046 592,500 3,236,046
Koninklijke Frans Maas Groep NV
-- -- 160,970 4,813,994 160,970 4,813,994
Koninklijke Nedlloyd Groep NV
-- -- 260,670 6,451,562 260,670 6,451,562
Mayne Nickless Ltd., A
1,388,800 4,752,513 -- -- 1,388,800 4,752,513
Peninsular & Oriental Steam
Navigation Co.
294,200 4,426,309 -- -- 294,200 4,426,309
Singapore Airlines Ltd., fgn.
-- -- 944,600 8,988,264 944,600 8,988,264
------------ ------------ ----------------
27,966,220 28,582,790 56,549,010
------------ ------------ ----------------
Utilities Electrical & Gas 7.3%
Bses Ltd., GDR, 144A
-- -- 202,200 2,027,055 202,200 2,027,055
Centrais Eletricas Brasileiras SA
(Eletrobras), ADR
514,400 4,901,843 -- -- 514,400 4,901,843
Electrabel SA
-- -- 23,500 7,585,336 23,500 7,585,336
Entergy Corp.
-- -- 283,900 8,871,875 283,900 8,871,875
Evn AG
58,920 8,615,918 35,400 5,176,570 94,320 13,792,488
Hong Kong Electric Holdings Ltd.
-- -- 2,944,000 9,485,942 2,944,000 9,485,942
Iberdrola SA, Br.
486,500 7,410,132 744,700 11,342,909 1,231,200 18,753,041
Korea Electric Power Corp.
-- -- 186,600 7,754,177 186,600 7,754,177
National Grid Group PLC
-- -- 1,075,100 7,477,505 1,075,100 7,477,505
National Power PLC
-- -- 747,800 5,430,927 747,800 5,430,927
Transportadora de Gas del Sur
SA, ADR
-- -- 386,900 3,627,188 386,900 3,627,188
Veba AG
129,600 7,644,756 67,000 3,952,150 196,600 11,596,906
------------ ----------- ---------------
28,572,649 72,731,634 101,304,283
------------ ------------ ----------------
Total Common Stocks
(Cost $1,012,794,748)
606,068,823 666,478,322 1,272,547,145
------------ ------------ ----------------
Preferred Stocks 2.8%
Banco Bradesco SA, pfd.
-- -- 451,500,022 2,318,688 451,500,022 2,318,688
Banco Itau SA, pfd.
6,309,400 3,276,208 6,309,400 3,276,208
Centrais Eletricas Brasileiras SA
(Electrobras), ADR, pfd.
-- -- 176,400 1,796,713 176,400 1,796,713
Centrais Geradoras Do Sul Do Brasil SA,
ADR, pfd.
-- -- 17,640 71,466 17,640 71,466
Coteminas Cia Tecidos Norte
de Minas, pfd.
-- -- 1,952,000 164,848 1,952,000 164,848
Embotelladora Andina SA, B, ADR, pfd.
302,900 4,619,225 302,900 4,619,225
Embratel Participacoes SA, ADR, pfd.
-- -- 98,400 1,365,300 98,400 1,365,300
aEmpresa Nacional de Comercio Redito
Participacoes, pfd.
-- -- 1,952,000 1,682 1,952,000 1,682
News Corp. Ltd., ADR, pfd.
117,000 3,692,812 117,000 3,692,812
News Corp. Ltd., pfd.
265,309 2,021,251 903,781 6,885,438 1,169,090 8,906,689
Tele Celular Sul Participacoes SA,
ADR, pfd.
-- -- 9,840 213,405 9,840 213,405
Tele Centro Oeste Celular Participacoes SA,
ADR, pfd.
-- -- 32,799 129,146 32,799 129,146
Tele Centro Sul Participacoes SA,
ADR, pfd.
-- -- 19,680 1,092,240 19,680 1,092,240
Tele Leste Celular Participacoes SA,
ADR, pfd.
-- -- 1,968 58,548 1,968 58,548
Tele Nordeste Celular Participacoes SA,
ADR, pfd.
-- -- 4,920 132,840 4,920 132,840
Tele Norte Celular Participacoes SA,
ADR, pfd.
-- -- 1,968 53,259 1,968 53,259
Tele Norte Leste Participacoes SA,
ADR, pfd.
-- $-- 98,400 $1,826,550 98,400 $1,826,550
Tele Sudeste Celular Participacoes SA,
ADR, pfd.
-- -- 19,680 570,720 19,680 570,720
aTelecomunicacoes Brasileiras SA
(Telebras), ADR, pfd.
41,800 2,613 98,400 6,150 140,200 8,763
Telemig Celular Participacoes SA,
ADR, pfd.
4,920 121,155 4,920 121,155
Telesp Celular Participacoes SA,
ADR, pfd. 39,360 1,052,880 39,360 1,052,880
Telesp Participacoes SA, ADR, pfd.
205,300 4,696,237 98,400 2,250,900 303,700 6,947,137
------------ ------------ ----------------
Total Preferred Stocks
(Cost $36,995,705)
18,308,346 20,111,928 38,420,274
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* AMOUNT* AMOUNT*
----------- ----------- -----------
Bonds 1.2%
Alfa SA de CV:
<S> <C> <C> <C> <C> <C> <C> <C>
cvt., 8.00%, 9/15/00 -- -- $ 1,650,000 1,683,000 1,650,000 1,683,000
cvt., 144A, 8.00%, 9/15/00 -- -- 2,710,000 2,764,200 2,710,000 2,764,200
AXA SA, cvt., 144A, 2.50%, 1/01/14
3,445,200EUR 3,574,026 3,445,200EUR 3,574,026
Government of Italy, cvt., 5.00%,
6/28/01 -- -- 4,950,000 8,167,500 4,950,000 8,167,500
RGC Ltd, zero coupon, 12/31/00 -- -- 1,074,643AUD 284,523 1,074,643AUD 284,523
------------ ------------ -----------
Total Bonds (Cost $16,745,694) -- 3,574,026 12,899,223 16,473,249
------------ ---------- ----------------
Short Term Investments .4%
Federal National Mortgage Association,
4.71%, 7/13/99 3,585,000 3,579,253 3,585,000 3,579,253
U.S. Treasury Bill, 4.41%, 8/26/99
-- -- 1,407,000 1,397,716 1,407,000 1,397,716
------------ ------------ ---------------
Total Short Term Investments
(Cost $4,976,079) 3,579,253 1,397,716 4,976,969
------------ ------------ ----------------
Total before Repurchase Agreement
(Cost $1,071,512,226) 631,530,448 700,887,189 1,332,417,637
------------ ------------ ----------------
Repurchase Agreements 3.7%
Barclays Bank PLC, 4.75%, 7/01/99
(Maturity Value $21,330,814)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 21,328,000 21,328,000 21,328,000 21,328,000
Deutsche Bank,AG, 4.75%, 7/01/99
(Maturity Value $20,002,639)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 20,000,000 20,000,000 20,000,000 20,000,000
Paine Webber Group Inc., 4.80%, 6/30/99
(Maturity Value $10,029,337)
Collateralized by U.S. Treasury Notes
and Bonds 10,028,000 10,028,000 -- -- 10,028,000 10,028,000
------------ ------------ ----------------
Total Repurchase Agreements
(Cost $51,356,000) 10,028,000 41,328,000 51,356,000
------------ ------------ ---------------
Total Investments
(Cost $1,122,868,226) 100.1% 640,842,610 742,215,189 1,383,057,799
Other Assets, less Liabilities (.1%)
7,020,893 (8,570,369) (1,549,476)
------------ ------------ ----------------
Total Net Assets 100.0% $647,863,503 $733,644,820 $1,381,508,323
------------ ------------ ---------------
</TABLE>
Currency Abbreviations:
AUD - Australian Dollar
EUR -European Unit*Securities traded in U.S. dollars unless otherwise indicated.
See accompanying notes to pro forma combined financial statements.
Templeton Variable Products Series Fund - Templeton Stock Fund ("TVP Templeton
Stock Fund") Franklin Templeton Variable Insurance Products Trust - Templeton
Global Growth Fund ("VIP Templeton Global Growth Fund") Financial Statements
Pro forma combined Statements of Assets and Liabilities (unaudited)
June 30, 1999.
<TABLE>
<CAPTION>
VIP Templeton
VIP Templeton Global
TVP Templeton Fund Growth
Stock Global Growth Pro Forma
Fund Fund Combined
- --------------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C>
Cost $470,524,685 $600,987,541 $1,071,512,226
- --------------------------------------------------------------------------------------------
Value 630,814,610 700,887,189 1,331,701,799
Repurchase Agreements, at value and cost 10,028,000 41,328,000 51,356,000
Cash 1,491,932 1,959,957 3,451,889
Receivables:
Investment securities sold 120,620 230,944 351,564
Capital shares sold 3,225,239 749,832 3,975,071
Dividends and interest 2,928,716 3,759,218 6,687,934
- --------------------------------------------------------------------------------------------
Total assets 648,609,117 748,915,140 1,397,524,257
Liabilities:
Payables:
Investment securities purchased -- 14,267,674 14,267,674
Capital shares redeemed -- 408,130 408,130
Affiliates 423,469 498,068 921,537
Custodian fees -- 54,160 54,160
Postage and mailing -- 1,062 1,062
Deffered tax liability (Note 1j) 61,431 -- 61,431
Accrued expenses 260,714 -- 260,714
Other liabilities -- 41,226 41,226
- --------------------------------------------------------------------------------------------
Total liabilities 745,614 15,270,320 16,015,394
Net assets, at value $647,863,503 $733,644,820 $28,916,394
Class 1:
Net assets, at value $620,428,154 $732,163,775
- --------------------------------------------------------------------------------------------
Shares outstanding** 29,158,278 44,256,213 81,766,984
Net asset value and offering price per share $21.28 $16.54 $16.54
Class 2:
Net assets, at value $ 27,435,349 $ 1,481,045 $1,332,591,929
- --------------------------------------------------------------------------------------------
Shares outstanding** 1,293,337 89,660 1,750,395
Net asset value and offering price per share $21.21 $16.52 $16.52
</TABLE>
**See note 2 in the accompanying notes to pro forma combined financial
statements.
See accompanying notes to pro forma combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
TVP Templeton Stock Fund
VIP Templeton Global Growth Fund
Pro forma combined Statement of Investments, June 30, 1999 (unaudited)
VIP TEMPLETON GLOBAL
GROWTH FUND
TVP TEMPLETON STOCK FUND VIP TEMPLETON GLOBAL GROWTH FUND PRO FORMA COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks 92.1%
Aerospace & Military Technology 2.6%
Boeing Co. 182,500 $ 8,064,219 210,769 $ 9,313,355 393,269 $ 17,377,574
a Fairchild Corp., A 204,957 2,613,202 204,957 2,613,202
Raytheon Co., A 230 15,841 222,644 15,334,606 222,874 15,350,447
------------ ------------ ----------------
8,080,060 27,261,163 35,341,223
------------ ------------ ----------------
Appliances & Household Durables 1.5%
Guangdong Kelon Electrical
Holdings. Ltd., H 1,123,000 1,309,878 1,123,000 1,309,878
Laox Co. Ltd. 725,000 6,289,243 725,000 6,289,243
Sony Corp. 124,100 13,379,916 124,100 13,379,916
------------ ------------ ----------------
14,689,794 6,289,243 20,979,037
------------ ------------ ----------------
Automobiles 4.2%
Autoliv Inc., SDR 246,100 7,497,048 246,100 7,497,048
Delphi Automotive Systems Corp. 41,935 778,418 41,935 778,418
Fiat SpA 1,307,680 4,156,203 1,919,720 6,101,451 3,227,400 10,257,654
Ford Motor Co. 117,000 6,603,188 90,000 5,079,375 207,000 11,682,563
General Motors Corp. 60,000 3,960,000 60,000 3,960,000
Volkswagen AG 102,400 6,607,371 63,000 4,065,082 165,400 10,672,453
Volvo AB, B 269,200 7,804,964 171,900 4,983,927 441,100 12,788,891
------------ ------------ ----------------
25,171,726 32,465,301 57,637,027
------------ ------------ ----------------
Banking 4.1%
Australia & New Zealand Banking
Group Ltd. 542,900 3,991,975 542,900 3,991,975
a Banca Nazionale Del Lavoro SpA 1,781,960 5,619,505 1,781,960 5,619,505
Banque Nationale de Paris 62,054 5,170,633 62,054 5,170,633
Deutsche Bank AG, Br. 100,700 6,137,331 100,700 6,137,331
HSBC Holdings PLC 153,404 5,595,331 223,724 8,160,216 377,128 13,755,547
Kookmin Bank, GDR, 144A 293,927 5,981,414 293,927 5,981,414
Merita AS 320,600 1,821,704 320,600 1,821,704
Shinhan Bank Co. Ltd. 169,682 1,905,711 169,682 1,905,711
a Thai Farmers Bank Public Co. Ltd., fgn. 1,492,300 4,613,483 1,492,300 4,613,483
Unibanco Uniao de Bancos
Brasileiros SA, GDR 149,000 3,585,313 149,000 3,585,313
Unidanmark AS, A 69,100 4,611,791 69,100 4,611,791
------------ ------------ ----------------
35,740,049 21,454,358 57,194,407
------------ ------------ ----------------
Broadcasting & Publishing
News Corp. Ltd., ADR 112,400 3,969,125 112,400 3,969,125
Television Broadcasts Ltd. 1,023,000 4,799,319 1,023,000 4,799,319
------------ ------------ ----------------
8,768,444 -- 8,768,444
------------ ------------ ----------------
Building Materials & Components 1.5%
Caradon PLC 2,752,600 6,486,455 2,752,600 6,486,455
Nichiha Corp. 193,500 2,047,864 193,500 2,047,864
Okumura Corp. 2,093,000 7,781,312 2,093,000 7,781,312
a Siam City Cement Public Co. Ltd., fgn. 1,057,641 4,359,632 1,057,641 4,359,632
------------ ------------ ----------------
-- 20,675,263 20,675,263
------------ ------------ ----------------
Business & Public Services 1.4%
a Complete Business Solutions Inc. 23,600 423,325 23,600 423,325
a Humana Inc. 250,000 3,234,375 250,000 3,234,375
Kurita Water Industries Ltd. 387,000 6,938,120 387,000 6,938,120
Lex Service PLC 221,020 2,032,804 221,020 2,032,804
Waste Management Inc. 135,917 7,305,539 135,917 7,305,539
------------ ------------ ----------------
16,276,463 3,657,700 19,934,163
------------ ------------ ----------------
Chemicals 1.2%
Akzo Nobel NV 195,200 8,213,014 195,200 8,213,014
BASF AG 70,900 3,114,716 70,900 3,114,716
Kemira OY 847,900 5,123,950 847,900 5,123,950
------------ ------------ ----------------
8,213,014 8,238,666 16,451,680
------------ ------------ ----------------
Data Processing & Reproduction 1.6%
a 3Com Corp. 215,800 $ 5,759,163 220,600 $ 5,887,263 436,400 $ 11,646,426
a Newbridge Networks Corp. 274,200 7,883,250 74,000 2,127,500 348,200 10,010,750
------------ ------------ ----------------
13,642,413 8,014,763 21,657,176
------------ ------------ ----------------
Electrical & Electronics 6.7%
a ABB Ltd. 79,406 7,425,049 55,976 5,234,150 135,382 12,659,199
Alcatel SA 78,835 11,097,223 -- -- 78,835 11,097,223
a Antec Corp. 345,500 11,077,594 345,500 11,077,594
Catic Shenzhen Holdings Ltd., H 9,945,000 1,358,668 9,945,000 1,358,668
Dongfang Electrical Machinery
Co. Ltd., H -- -- 5,506,000 702,545 5,506,000 702,545
General Electric Co. PLC -- -- 1,160,300 11,796,499 1,160,300 11,796,499
Hitachi Ltd. -- -- 603,500 5,659,059 603,500 5,659,059
Koninklijke Philips Electronics NV 121,532 11,987,765 -- -- 121,532 11,987,765
Motorola Inc. 175,800 16,657,050 100,000 9,475,000 275,800 26,132,050
------------ ------------ ----------------
58,244,681 34,225,921 92,470,602
------------ ------------ ----------------
Electronic Components & Instruments 1.4%
BICC PLC -- -- 1,397,152 1,993,037 1,397,152 1,993,037
a Nanjing Panda Electronics Co. Ltd., H -- -- 17,794,000 1,720,036 17,794,000 1,720,036
Hewlett-Packard Co. 85,000 8,542,500 -- -- 85,000 8,542,500
Intel Corp. 121,400 7,223,300 -- -- 121,400 7,223,300
------------ ------------ ----------------
15,765,800 3,713,073 19,478,873
------------ ------------ ----------------
Energy Sources 4.1%
MOL Magyar Olay-Es Gazipari RT,
GDS 144A -- -- 256,358 6,139,774 256,358 6,139,774
Norsk Hydro ASA 185,300 6,990,676 117,000 4,413,973 302,300 11,404,649
Perez Companc SA, B 415,400 2,388,789 -- -- 415,400 2,388,789
a Ranger Oil Ltd. -- -- 273,050 1,333,999 273,050 1,333,999
a Renaissance Energy Ltd. -- -- 254,800 3,447,243 254,800 3,447,243
Shell Transport & Trading Co. PLC -- -- 608,900 4,561,327 608,900 4,561,327
Societe Elf Aquitaine SA, Br. 61,320 8,998,490 67,072 9,842,576 128,392 18,841,066
a Total Fina SA, B 67,497 8,707,719 -- -- 67,497 8,707,719
------------ ------------ ----------------
27,085,674 29,738,892 56,824,566
------------ ------------ ----------------
Financial Services 5.1%
AXA SA 57,091 6,964,902 92,702 11,309,319 149,793 18,274,221
Fannie Mae 144,200 9,859,675 -- -- 144,200 9,859,675
ICICI Ltd., GDR, 144A -- -- 396,700 4,086,010 396,700 4,086,010
ING Groep NV 157,637 8,534,539 105,188 5,694,926 262,825 14,229,465
Lend Lease Corp. Ltd. 485,500 6,665,824 -- -- 485,500 6,665,824
Morgan Stanley, Dean Witter & Co. 103,100 10,567,750 103,100 10,567,750
Nomura Securities Co. Ltd. 623,000 7,293,382 -- -- 623,000 7,293,382
------------ ------------ ----------------
39,318,322 31,658,005 70,976,327
------------ ------------ ----------------
Food & Household Products 2.1%
Archer-Daniels Midland Co. 434,170 6,702,499 625,065 9,649,441 1,059,235 16,351,940
IBP Inc. -- -- 272,543 6,472,896 272,543 6,472,896
Northern Foods PLC -- -- 2,208,797 4,543,489 2,208,797 4,543,489
Showa Sangyo Co. -- -- 958,000 1,994,514 958,000 1,994,514
------------ ------------ ----------------
6,702,499 22,660,340 29,362,839
------------ ------------ ----------------
Forest Products & Paper 2.7%
a Asia Pulp & Paper Co. Ltd., ADR 29,000 279,125 -- -- 29,000 279,125
Assidoman AB -- -- 249,730 3,759,756 249,730 3,759,756
Carter Holt Harvey Ltd. 1,155,252 1,383,499 940,712 1,126,571 2,095,964 2,510,070
Georgia Pacific Corp. 214,800 10,176,150 68,000 3,221,500 282,800 13,397,650
Georgia Pacific Timber Group -- -- 34,000 858,500 34,000 858,500
Metsa Serla OY, B -- -- 270,000 2,294,318 270,000 2,294,318
Stora Enso OYJ, R 427,800 4,588,141 559,700 6,002,764 987,500 10,590,905
Stora Enso OYJ, R, fgn. 313,540 3,392,811 -- -- 313,540 3,392,811
------------ ------------ ----------------
19,819,726 17,263,409 37,083,135
------------ ------------ ----------------
Health & Personal Care 3.7%
Astrazeneca PLC 152,291 $ 5,928,996 -- $-- 152,291 $ 5,928,996
Medeva PLC 2,761,300 4,526,579 1,614,200 2,646,146 4,375,500 7,172,725
Novartis AG 2,236 3,264,968 -- -- 2,236 3,264,968
Nycomed Amersham PLC 791,920 5,633,219 -- -- 791,920 5,633,219
Pharmacia & Upjohn Inc. 218,900 12,436,256 218,900 12,436,256
Rhone-Poulenc SA, A 170,002 7,768,164 -- -- 170,002 7,768,164
a Skyepharma PLC 5,109,873 3,986,928 -- -- 5,109,873 3,986,928
Teva Pharmaceutical Industries
Ltd., ADR 107,400 5,262,600 107,400 5,262,600
------------ ------------ ----------------
36,371,454 15,082,402 51,453,856
------------ ------------ ----------------
Industrial Components 1.2%
Goodyear Tire & Rubber Co. 99,000 5,822,438 -- -- 99,000 5,822,438
Granges AB 379,525 6,428,088 -- -- 379,525 6,428,088
Yamato Kogyo Co. Ltd. 539,000 3,923,158 -- -- 539,000 3,923,158
------------ ------------ ----------------
16,173,684 -- 16,173,684
------------ ------------ ----------------
Insurance 6.2%
Ace Ltd. 176,500 4,986,125 121,500 3,432,375 298,000 8,418,500
AXA China Region Ltd. 3,440,000 2,748,861 3,440,000 2,748,861
HIH Insurance Ltd. 2,303,465 2,851,125 2,244,429 2,778,053 4,547,894 5,629,178
Muenchener Rueckversicherungs-
Gesellschaft 13,445 2,533,156 -- -- 13,445 2,533,156
a Muenchener Rueckversicherungs-
Gesellschaft, 144A 13,445 2,509,585 -- -- 13,445 2,509,585
a Muenchener Rueckversicherungs-
Gesellschaft, wts. 419 13,395 -- -- 419 13,395
Partnerre Ltd. 144,400 5,396,950 127,900 4,780,263 272,300 10,177,213
Reliastar Financial Corp. 204,700 8,955,625 48,000 2,100,000 252,700 11,055,625
Torchmark Corp. 113,400 3,869,775 240,000 8,190,000 353,400 12,059,775
XL Capital Ltd., A 92,100 5,203,650 -- -- 92,100 5,203,650
UNUM Corp. 81,100 4,440,225 81,100 4,440,225
Zurich Allied AG 17,000 9,666,795 19,500 11,088,383 36,500 20,755,178
------------ ------------ ----------------
48,735,042 36,809,299 85,544,341
------------ ------------ ----------------
Leisure & Tourism .3%
Kuoni Reisen Holding AG, B 1,065 4,106,957 -- 1,065 4,106,957
------------ -- ------------ ---------------
Machinery & Engineering 3.9%
First Tractor Company Ltd., H -- -- 6,860,000 2,033,549 6,860,000 2,033,549
Invensys PLC 1,621,958 7,682,582 2,244,442 10,631,046 3,866,400 18,313,628
KCI Konecranes International PLC -- -- 211,700 7,272,071 211,700 7,272,071
Laird Group PLC -- -- 1,783,700 7,422,477 1,783,700 7,422,477
Makita Corp. -- -- 653,000 7,385,633 653,000 7,385,633
New Holland NV 259,400 4,442,225 -- -- 259,400 4,442,225
VA Technologie AG, Br. -- -- 25,900 2,346,411 25,900 2,346,411
Valmet OY -- -- 392,800 4,455,811 392,800 4,455,811
------------ ------------ ----------------
12,124,807 41,546,998 53,671,805
------------ ------------ ----------------
Merchandising 3.8%
Coles Myer Ltd. -- -- 1,070,971 6,231,027 1,070,971 6,231,027
Home Depot Inc. 102,800 6,624,175 -- -- 102,800 6,624,175
Hudson's Bay Co. -- -- 67,100 756,508 67,100 756,508
Marks & Spencer PLC 1,067,200 6,156,729 1,516,900 8,751,070 2,584,100 14,907,799
Matsuzakaya Co. Ltd. -- -- 51,000 219,101 51,000 219,101
Safeway PLC 1,305,220 5,220,510 1,738,498 6,953,499 3,043,718 12,174,009
Sears Roebuck & Co. -- -- 155,900 6,947,294 155,900 6,947,294
Storehouse 2,067,800 4,449,020 -- -- 2,067,800 4,449,020
------------ ------------ ----------------
22,450,434 29,858,499 52,308,933
------------ ------------ ----------------
Metals & Mining 4.9%
Anglo American Platinum Corp. Ltd. -- -- 377,265 8,802,537 377,265 8,802,537
Boehler-Uddeholm AG -- -- 93,200 4,612,424 93,200 4,612,424
Companhia Siderurgica Nacional Sid
Nacional CSN -- -- 129,100,000 3,407,061 129,100,000 3,407,061
Metals & Mining (cont.)
Iluka Resources Ltd. -- $-- 704,562 $ 1,523,100 704,562 $ 1,523,100
Industrias Penoles SA -- -- 1,104,000 3,218,281 1,104,000 3,218,281
Iscor Ltd. -- -- 9,558,700 2,993,776 9,558,700 2,993,776
Ispat International NV, A, Reg D 228,000 2,522,250 -- -- 228,000 2,522,250
Outokumpu OY, A -- -- 342,200 3,846,530 342,200 3,846,530
Pechiney SA, A -- -- 84,279 3,622,511 84,279 3,622,511
Pechiney SA, ADR -- -- 112,708 2,409,134 112,708 2,409,134
Pohang Iron & Steel Co. Ltd. -- -- 100,000 12,467,059 100,000 12,467,059
WMC Ltd. 2,183,784 9,380,963 2,150,656 9,238,653 4,334,440 18,619,616
------------ ------------ ----------------
11,903,213 56,141,066 68,044,279
------------ ------------ ----------------
Multi-Industry 5.0%
Alfa SA de CV, A 1,743,100 7,286,958 1,743,100 7,286,958
Beijing Datang Power Generation
Co. Ltd., H -- -- 6,860,000 2,210,379 6,860,000 2,210,379
Broken Hill Proprietary Co. Ltd. -- -- 867,854 10,052,585 867,854 10,052,585
Cheung Kong Holdings Ltd. 815,000 7,247,852 1,180,000 10,493,823 1,995,000 17,741,675
DESC SA de CV DESC, B 4,018,300 4,419,486 -- -- 4,018,300 4,419,486
DESC SA de CV DESC, C 800 897 -- -- 800 897
Hutchison Whampoa Ltd. 802,100 7,262,355 642,600 5,818,214 1,444,700 13,080,569
La Cemento Nacional SA, GDR, 144A -- -- 3,600 259,200 3,600 259,200
La Cemento Nacional SA, GDR, Reg S -- -- 400 28,800 400 28,800
Pacific Dunlop Ltd. -- -- 2,149,000 3,100,887 2,149,000 3,100,887
Saab AB, B -- -- 296,997 2,305,552 296,997 2,305,552
Saha Union Public Co. Ltd., fgn. -- -- 574,400 257,020 574,400 257,020
Swire Pacific Ltd., A -- -- 1,421,800 7,036,754 1,421,800 7,036,754
Swire Pacific Ltd., B -- -- 1,304,000 974,784 1,304,000 974,784
------------ ------------ ----------------
26,217,548 42,537,998 68,755,546
------------ ------------ ----------------
Real Estate 1.9%
China Resources Beijing Land Ltd. -- -- 4,652,000 1,067,241 4,652,000 1,067,241
General Growth Properties -- -- 164,500 5,839,750 164,500 5,839,750
Hang Lung Development Co. Ltd. -- -- 3,624,000 4,483,963 3,624,000 4,483,963
Highwoods Properties Inc. -- -- 164,900 4,524,444 164,900 4,524,444
Inversiones y Representacion SA -- -- 1,156,326 3,561,840 1,156,326 3,561,840
Inversiones y Representacion SA, GDR -- -- 2,374 73,283 2,374 73,283
National Health Investors Inc. 187,700 4,281,906 123,400 2,815,063 311,100 7,096,969
------------ ------------ ----------------
22,365,584 26,647,490
------------ ----------------
Recreation & Other Consumer Goods .1%
a Fila Holding SpA, ADR 60,600 715,838 60,600 715,838 60,600 1,431,676
------------ ------------ ----------------
Telecommunications 8.3%
AT&T Corp. -- -- 90,450 5,048,241 90,450 5,048,241
Cia de Telecomunicaciones de
Chile SA, ADR 117,300 2,903,175 -- -- 117,300 2,903,175
Embratel Participacoes SA -- -- 27,300,000 205,626 27,300,000 205,626
a General Motors Corp., H -- -- 66,000 3,712,500 66,000 3,712,500
Hong Kong Telecommunications Ltd. 2,504,000 6,502,974 2,905,746 7,546,322 5,409,746 14,049,296
a Korea Telecom Corp., ADR 88,900 3,556,000 -- -- 88,900 3,556,000
a Mastec Inc. 340,323 9,614,125 -- -- 340,323 9,614,125
Nippon Telegraph & Telephone Corp. 675 7,863,103 -- -- 675 7,863,103
Nortel Networks Corp. 120,460 10,457,434 138,000 11,980,125 258,460 22,437,559
Telecom Argentina Stet-France SA, ADR -- -- 100,000 2,675,000 100,000 2,675,000
a Telecom Italia SpA 763,200 7,913,763 -- -- 763,200 7,913,763
Telecomunicacoes Brasileiras SA, ADR 41,800 3,769,838 -- -- 41,800 3,769,838
Telefonica De Argentina SA, ADR -- -- 217,000 6,808,375 217,000 6,808,375
a Telefonica SA 142,300 6,854,525 -- -- 142,300 6,854,525
Telefonos de Mexico SA (Telmex), ADR 117,500 9,495,469 92,900 7,507,481 210,400 17,002,950
Telesp Participacoes SA -- -- 44,600,000 579,991 44,600,000 579,991
------------ ------------ ----------------
68,930,406 46,063,661 114,994,067
------------ ------------ ----------------
Textiles & Apparel .5%
Courtaulds Textiles PLC -- $-- 734,300 $ 1,909,768 734,300 $ 1,909,768
a Fruit of the Loom Inc., A -- -- 136,500 1,330,875 136,500 1,330,875
Yizheng Chemical Fibre Co. Ltd., H -- -- 13,356,000 3,485,813 13,356,000 3,485,813
------------ ------------ ----------------
-- 6,726,456 6,726,456
------------ ------------ ----------------
Transportation 4.1%
Air New Zealand Ltd., B 700,100 1,446,833 700,100 1,446,833
British Airways PLC 928,000 6,414,174 1,205,032 8,328,970 2,133,032 14,743,144
Canadian National Railway Co. 113,800 7,690,345 113,800 7,690,345
Firstgroup PLC 592,500 3,236,046 592,500 3,236,046
Koninklijke Frans Maas Groep NV -- -- 160,970 4,813,994 160,970 4,813,994
Koninklijke Nedlloyd Groep NV -- -- 260,670 6,451,562 260,670 6,451,562
Mayne Nickless Ltd., A 1,388,800 4,752,513 -- -- 1,388,800 4,752,513
Peninsular & Oriental Steam
Navigation Co. 294,200 4,426,309 -- -- 294,200 4,426,309
Singapore Airlines Ltd., fgn. -- -- 944,600 8,988,264 944,600 8,988,264
------------ ------------ ----------------
27,966,220 28,582,790 56,549,010
------------ ------------ ----------------
Utilities Electrical & Gas 7.3%
Bses Ltd., GDR, 144A -- -- 202,200 2,027,055 202,200 2,027,055
Centrais Eletricas Brasileiras SA
(Eletrobras), ADR 514,400 4,901,843 -- -- 514,400 4,901,843
Electrabel SA -- -- 23,500 7,585,336 23,500 7,585,336
Entergy Corp. -- -- 283,900 8,871,875 283,900 8,871,875
Evn AG 58,920 8,615,918 35,400 5,176,570 94,320 13,792,488
Hong Kong Electric Holdings Ltd. -- -- 2,944,000 9,485,942 2,944,000 9,485,942
Iberdrola SA, Br. 486,500 7,410,132 744,700 11,342,909 1,231,200 18,753,041
Korea Electric Power Corp. -- -- 186,600 7,754,177 186,600 7,754,177
National Grid Group PLC -- -- 1,075,100 7,477,505 1,075,100 7,477,505
National Power PLC -- -- 747,800 5,430,927 747,800 5,430,927
Transportadora de Gas del Sur
SA, ADR -- -- 386,900 3,627,188 386,900 3,627,188
Veba AG 129,600 7,644,756 67,000 3,952,150 196,600 11,596,906
------------ ------------ ----------------
28,572,649 72,731,634 101,304,283
------------ ------------ ----------------
Total Common Stocks
(Cost $1,012,794,748) 606,068,823 666,478,322 1,272,547,145
------------ ------------ ----------------
Preferred Stocks 2.8%
Banco Bradesco SA, pfd. -- -- 451,500,022 2,318,688 451,500,022 2,318,688
Banco Itau SA, pfd. 6,309,400 3,276,208 6,309,400 3,276,208
Centrais Eletricas Brasileiras SA
(Electrobras), ADR, pfd. -- -- 176,400 1,796,713 176,400 1,796,713
Centrais Geradoras Do Sul Do Brasil SA,
ADR, pfd. -- -- 17,640 71,466 17,640 71,466
Coteminas Cia Tecidos Norte
de Minas, pfd. -- -- 1,952,000 164,848 1,952,000 164,848
Embotelladora Andina SA, B, ADR, pfd. 302,900 4,619,225 302,900 4,619,225
Embratel Participacoes SA, ADR, pfd. -- -- 98,400 1,365,300 98,400 1,365,300
a Empresa Nacional de Comercio Redito
Participacoes, pfd. -- -- 1,952,000 1,682 1,952,000 1,682
News Corp. Ltd., ADR, pfd. 117,000 3,692,812 117,000 3,692,812
News Corp. Ltd., pfd. 265,309 2,021,251 903,781 6,885,438 1,169,090 8,906,689
Tele Celular Sul Participacoes SA,
ADR, pfd. -- -- 9,840 213,405 9,840 213,405
Tele Centro Oeste Celular Participacoes SA,
ADR, pfd. -- -- 32,799 129,146 32,799 129,146
Tele Centro Sul Participacoes SA,
ADR, pfd. -- -- 19,680 1,092,240 19,680 1,092,240
Tele Leste Celular Participacoes SA,
ADR, pfd. -- -- 1,968 58,548 1,968 58,548
Tele Nordeste Celular Participacoes SA,
ADR, pfd. -- -- 4,920 132,840 4,920 132,840
Tele Norte Celular Participacoes SA,
ADR, pfd. -- -- 1,968 53,259 1,968 53,259
Tele Norte Leste Participacoes SA,
ADR, pfd. -- $-- 98,400 $ 1,826,550 98,400 $ 1,826,550
Tele Sudeste Celular Participacoes SA,
ADR, pfd. -- -- 19,680 570,720 19,680 570,720
a Telecomunicacoes Brasileiras SA
(Telebras), ADR, pfd. 41,800 2,613 98,400 6,150 140,200 8,763
Telemig Celular Participacoes SA,
ADR, pfd. 4,920 121,155 4,920 121,155
Telesp Celular Participacoes SA,
ADR, pfd. 39,360 1,052,880 39,360 1,052,880
Telesp Participacoes SA, ADR, pfd. 205,300 4,696,237 98,400 2,250,900 303,700 6,947,137
------------ ------------ ----------------
Total Preferred Stocks
(Cost $36,995,705) 18,308,346 20,111,928 38,420,274
------------ ------------ ----------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* AMOUNT* AMOUNT*
----------- ----------- -----------
Bonds 1.2%
Alfa SA de CV:
cvt., 8.00%, 9/15/00 -- -- $ 1,650,000 1,683,000 1,650,000 1,683,000
cvt., 144A, 8.00%, 9/15/00 -- -- 2,710,000 2,764,200 2,710,000 2,764,200
AXA SA, cvt., 144A, 2.50%, 1/01/14 3,445,200 EUR 3,574,026 3,445,200EUR 3,574,026
Government of Italy, cvt., 5.00%,
6/28/01 -- -- 4,950,000 8,167,500 4,950,000 8,167,500
RGC Ltd, zero coupon, 12/31/00 -- 1,074,643 AUD 284,523 1,074,643AUD 284,523
-- ------------ ------------ ---------------
Total Bonds (Cost $16,745,694) -- 3,574,026 12,899,223 16,473,249
------------ ------------ ----------------
Short Term Investments .4%
Federal National Mortgage Association,
4.71%, 7/13/99 3,585,000 3,579,253 3,585,000 3,579,253
U.S. Treasury Bill, 4.41%, 8/26/99 -- -- 1,407,000 1,397,716 1,407,000 1,397,716
------------ ------------ ----------------
Total Short Term Investments
(Cost $4,976,079) 3,579,253 1,397,716 4,976,969
------------ ------------ ----------------
Total before Repurchase Agreement
(Cost $1,071,512,226) 631,530,448 700,887,189 1,332,417,637
------------ ------------ ----------------
Repurchase Agreements 3.7%
Barclays Bank PLC, 4.75%, 7/01/99
(Maturity Value $21,330,814)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 21,328,000 21,328,000 21,328,000 21,328,000
Deutsche Bank,AG, 4.75%, 7/01/99
(Maturity Value $20,002,639)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 20,000,000 20,000,000 20,000,000 20,000,000
Paine Webber Group Inc., 4.80%, 6/30/99
(Maturity Value $10,029,337)
Collateralized by U.S. Treasury Notes
and Bonds 10,028,000 10,028,000 -- -- 10,028,000 10,028,000
------------ ------------ ----------------
Total Repurchase Agreements
(Cost $51,356,000) 10,028,000 41,328,000 51,356,000
------------ ------------ ----------------
Total Investments
(Cost $1,122,868,226) 100.1% 640,842,610 742,215,189 1,383,057,799
Other Assets, less Liabilities (.1%) 7,020,893 (8,570,369) (1,549,476)
------------ ------------ ----------------
Total Net Assets 100.0% $647,863,503 $733,644,820 $1,381,508,323
------------ ------------ ----------------
Currency Abbreviations:
AUD - Australian Dollar
EUR -European Unit*Securities traded in U.S. dollars unless otherwise indicated.
See accompanying notes to pro forma combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
Templeton Variable Products Series Fund - Templeton Stock Fund ("TVP Templeton Stock Fund")
Franklin Templeton Variable Insurance Products Trust - Templeton Global Growth Fund
("VIP Templeton Global Growth Fund")
Financial Statements
Pro forma combined Statements of Assets and Liabilities (unaudited)
June 30, 1999
VIP Templeton
Global Growth
TVP Templeton VIP Templeton Fund
Stock Global Growth Pro Forma
Fund Fund Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost $470,524,685 $600,987,541 $1,071,512,226
- ---------------------------------------------------------------------------------------------------------------
Value 630,814,610 700,887,189 1,331,701,799
Repurchase Agreements, at value and cost 10,028,000 41,328,000 51,356,000
Cash 1,491,932 1,959,957 3,451,889
Receivables:
Investment securities sold 120,620 230,944 351,564
Capital shares sold 3,225,239 749,832 3,975,071
Dividends and interest 2,928,716 3,759,218 6,687,934
- ---------------------------------------------------------------------------------------------------------------
Total assets 648,609,117 748,915,140 1,397,524,257
Liabilities:
Payables:
Investment securities purchased -- 14,267,674 14,267,674
Capital shares redeemed -- 408,130 408,130
Affiliates 423,469 498,068 921,537
Custodian fees -- 54,160 54,160
Postage and mailing -- 1,062 1,062
Deffered tax liability (Note 1j) 61,431 -- 61,431
Accrued expenses 260,714 -- 260,714
Other liabilities -- 41,226 41,226
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 745,614 15,270,320 16,015,394
Net assets, at value $647,863,503 $733,644,820 $28,916,394
Class 1:
Net assets, at value $620,428,154 $732,163,775
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding** 29,158,278 44,256,213 81,766,984
Net asset value and offering price per share $21.28 $16.54 $16.54
Class 2:
Net assets, at value $ 27,435,349 $ 1,481,045 $1,332,591,929
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding** 1,293,337 89,660 1,750,395
Net asset value and offering price per share $21.21 $16.52 $16.52
**See note 2 in the accompanying notes to pro forma combined financial statements.
See accompanying notes to pro forma combined financial statements.
TVP Templeton Stock Fund
VIP Templeton Global Growth Fund
Financial Statements (continued)
Pro forma combined Statements of Operations
for the six months ended June 30, 1999 (unaudited)
VIP Templeton
Global Growth
TVP Templeton VIP Templeton Fund
Stock Global Growth Proforma Pro Forma
Fund Fund Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:+
Dividends $ 7,766,878 $11,344,030 $-- $ 19,110,908
Interest 193,686 1,288,395 -- 1,482,081
- ---------------------------------------------------------------------------------------------------------------
Total investment income 7,960,564 12,632,425 -- 20,592,989
Expenses:
Management fees 2,219,871 2,983,965 164,004a 5,367,840
Administrative fees 307,861 -- (307,861)b --
Distribution fees - Class 2 30,831 442 (75)c 31,198
Custodian fees 47,000 111,000 -- 158,000
Reports to shareholders 56,000 33,100 -- 89,100
Professional fees 13,400 15,600 -- 29,000
Trustees' fees and expenses -- 2,800 -- 2,800
Other 551 6,134 -- 6,685
- ---------------------------------------------------------------------------------------------------------------
Total expenses 2,675,514 3,153,041 (143,932) 5,684,623
Net investment loss 5,285,050 9,479,384 (143,932) 14,908,366
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 17,509,630 17,344,632 -- 34,854,262
Foreign currency transactions (447,977) (506,819) -- (954,796)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain 17,061,653 16,837,813 -- 33,899,466
Net unrealized appreciation (depreciation) on:
Investments 53,008,541 54,339,968 -- 107,348,509
Deferred taxes (61,431) -- -- (61,431)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized gain 52,947,110 54,339,968 107,287,078
Net realized and unrealized gain 70,008,763 71,177,781 -- 141,186,544
Net increase in net assets resulting from operations $75,293,813 $80,657,165 $(143,932)
$156,094,910
aPro Forma adjustment for difference in Management fee schedule.
bPro Forma adjustment for difference in Administrative fee schedule.
cPro Forma adjustment for difference in 12B-1 agreement. The 12B-1 fee rate reflected in the Pro Forma
Combined is 0.25% of the average net assets.
+Net of foreign taxes of $752,149 and $1,090,514 for TVP Templeton Stock Fund and VIP Templeton Global Growth
Fund, respectively.
</TABLE>
See accompanying notes to pro forma combined financial statements.
VIP - Templeton Global Growth Fund
TVP - Templeton Stock Fund
Notes to Pro forma combined Statements (unaudited)
1. Basis of Combination
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of the Templeton Variable Products
Series Fund - Templeton Stock Fund ("TVP-Templeton Stock Fund"), the Franklin
Templeton Variable Insurance Products Trust - Templeton Global Growth Fund ("VIP
- - Templeton Global Growth Fund") will acquire all the net assets of the TVP -
Templeton Stock Class 1 and 2 in exchange for the Classes 1 and 2 shares,
respectively, shares of VIP - Templeton Global Growth Fund. The merger will be
accounted for by the method of accounting for tax free business combinations of
investment companies. The pro forma combined Statement of Assets and Liabilities
reflects the financial position of TVP - Templeton Stock Fund June 30, 1999 as
though the merger occurred as of that date. The pro forma combined Statement of
Operations reflects the results of operations of the TVP - Templeton Stock and
VIP - Templeton Global Growth for the period January 1, 1999 to June 30, 1999 as
though the merger occurred on January 1, 1999. The pro forma financial
statements do not reflect the expenses of either fund in carrying out its
obligations under the Agreement and Plan of Reorganization or any adjustment
with respect to additional distributions that may be made prior to
reorganization. The pro forma financial statements are presented for the
information of the reader, and should be read in conjunction with the historical
financial statements of the funds.
2. Capital Shares:
The number of Class 1 and 2 shares issued was calculated by dividing the Class 1
and 2 net assets of the TVP - Templeton Stock at June 30, 1999 by the Class 1
and 2 net asset value per share of the VIP - Templeton Global Growth ,
respectively at June 30, 1999.
<<
TVP Templeton Asset Allocation Fund
VIP Templeton Global Asset Allocation Fund
Pro forma combined Statement of Investments, June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
VIP Templeton
TVP Templeton VIP Templeton Global Asset Allocation Fund
Asset Allocation Fund Global Asset Allocation Fund Pro Forma Combined
- ---------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks 74.5%>>
<<
Aerospace & Military Technology 1.0%
Alvis Plc. -- $-- 140,990 $ 382,243 140,990 $ 382,243
Boeing Co. -- -- 21,217 937,526 21,217 937,526
Hong Kong Aircraft Engineering
Co. Ltd. -- -- 363,200 702,166 363,200 702,166
Kaman Corp., A -- -- 40,300 632,206 40,300 632,206
Raytheon Co., A -- -- 17,615 1,213,233 17,615 1,213,233
Rolls-Royce PLC 770,000 3,261,838 121,085 512,935 891,085 3,774,773
------------ ------------ ----------------
3,261,838 4,380,309 7,642,147
------------ ------------ ----------------
Appliances & Household Durables 1.4%
Laox Co. Ltd. -- -- 70,000 607,237 70,000 607,237
Sony Corp. 92,400 9,962,161 -- -- 92,400 9,962,161
------------ ------------ ----------------
9,962,161 607,237 10,569,398
------------ ------------ ----------------
Automobiles 4.6%
Autoliv Inc. 246,900 7,468,725 -- -- 246,900 7,468,725
Autoliv Inc., SDR 129,000 3,929,781 -- -- 129,000 3,929,781
Delphi Automotive Systems Corp. 1,887 35,030 1,887
35,030
Fiat SpA 2,361,700 7,506,197 -- -- 2,361,700 7,506,197
Ford Motor Co. 84,000 4,740,750 -- -- 84,000 4,740,750
General Motors Corp. 40,000 2,640,000 2,700 178,200 42,700 2,818,200
Volvo AB, B 260,000 7,538,226 -- -- 260,000 7,538,226
------------ ------------ ----------------
33,823,679 213,230 34,036,909
------------ ------------ ----------------
Banking 4.8%
*Banca Nazionale Del Lavoro SpA 225,160 710,054 225,160 710,054
*Bangkok Bank Public Co. Ltd., fgn. 193,400 723,775 193,400
723,775
Canadian Imperial Bank of Commerce 140,000 3,357,704 -- -- 140,000
3,357,704
Den Norske Bank 2,178,900 7,196,113 -- -- 2,178,900 7,196,113
Deutsche Bank AG, Br. 121,400 7,398,928 -- -- 121,400 7,398,928
Foreningssparbanken AB, A 170,700 2,409,315 -- -- 170,700 2,409,315
Merita AS 2,453,000 13,938,362 -- -- 2,453,000 13,938,362
------------ ------------ ----------------
34,300,422 1,433,829 35,734,251
------------ ------------ ----------------
Broadcasting & Publishing .2%
South China Morning Post Ltd. 2,821,000 1,581,594 -- -- 2,821,000
1,581,594
------------ ------------ ----------------
Building Materials & Components .5%
Caradon PLC -- -- 295,300 695,869 295,300 695,869
Gujarat Ambuja Cements Ltd. -- -- 200 1,476 200 1,476
Gujarat Ambuja Cements Ltd.,
GDR, 144A -- -- 14,600 119,720 14,600 119,720
Pioneer International Ltd. 969,005 2,469,334 969,005 2,469,334
Plettac AG -- -- 5,192 263,428 5,192 263,428
------------ ------------ ----------------
2,469,334 1,080,493 3,549,827
------------ ------------ ----------------
Business & Public Services 1.6%
Columbia HCA Healthcare Corp. -- -- 13,600 310,250 13,600
310,250
a Humana Inc. -- -- 18,200 235,463 18,200 235,463
Kurita Water Industries Ltd. 432,000 7,744,878 -- -- 432,000 7,744,878
Laidlaw Inc. 549,130 4,049,834 -- -- 549,130 4,049,834
a Lifepoint Hospitals Inc. -- -- 716 9,618 716 9,618
a Triad Hospitals Inc. -- -- 715 9,653 715 9,653
------------ ------------ ----------------
11,794,712 564,984 12,359,696
------------ ------------ ----------------
Chemicals 1.7%
Akzo Nobel NV 98,800 4,156,997 12,105 509,316 110,905 4,666,313
DSM NV, Br. 25,000 2,681,242 -- -- 25,000 2,681,242
Hoechst AG 118,200 5,326,740 -- -- 118,200 5,326,740
Shanghai Petrochemical Co. Ltd., H 834,000 196,707 834,000 196,707
------------ ------------ ----------------
12,164,979 706,023 12,871,002
------------ ------------ ----------------
Data Processing & Reproduction .9%
a 3Com Corp. 240,800 6,426,350 25,400 677,863 266,200 7,104,213
------------ ------------ ----------------
Electrical & Electronics 4.7%
Alcatel SA 92,119 $ 12,967,148 92,119 $ 12,967,148
Alcatel SA, ADR 185,738 5,270,316 185,738 5,270,316
General Electric Co. PLC 101,500 $ 1,031,927 101,500 1,031,927
Koninklijke Philips Electronics NV 56,856 5,608,205 10,396 1,025,448 67,252 6,633,653
Motorola Inc. 94,000 8,906,500 4,310 408,373 98,310 9,314,873
------------ ------------ ----------------
32,752,169 2,465,748 35,217,917
------------ ------------ ----------------
Electronic Components & Instruments 2.6%
Hewlett-Packard Co. 106,000 10,653,000 -- -- 106,000 10,653,000
Intel Corp. 144,000 8,568,000 -- -- 144,000 8,568,000
------------ ------------ ----------------
19,221,000 -- 19,221,000
------------ ----------------
Energy Equipment & Services .1%
Sunoco Inc. -- -- 17,500 528,281 17,500 528,281
------------ ------------ ----------------
Energy Sources 4.3%
a Consol Energy 584,000 7,008,000 -- -- 584,000 7,008,000
a Ranger Oil Ltd. 1,153,490 5,695,357 -- -- 1,153,490 5,695,357
a Rao Gazprom, Reg S, ADR -- -- 14,201 160,116 14,201 160,116
a Renaissance Energy Ltd. 549,350 7,432,272 -- -- 549,350 7,432,272
MOL Magyar Olay-Es Gazipari RT,
GDS 144A -- -- 12,107 289,963 12,107 289,963
Shell Transport & Trading Co. PLC 1,525,600 11,428,413 1,525,600 11,428,413
Societe Elf Aquitaine SA, Br. -- -- 1,805 264,877 1,805 264,877
------------ ------------ ----------------
31,564,042 714,956 32,278,998
------------ ------------ ----------------
Financial Services 5.1%
AXA SA 97,600 11,906,858 11,271 1,375,022 108,871 13,281,880
ING Groep NV 222,100 12,024,595 13,432 727,215 235,532 12,751,810
Nomura Securities Co. Ltd. 1,000,600 11,713,898 -- -- 1,000,600 11,713,898
------------ ------------ ----------------
35,645,351 2,102,237 37,747,588
------------ ------------ ----------------
Food & Household Products .1%
Archer-Daniels Midland Co. -- -- 29,547 456,132 29,547 456,132
------------ ------------ ----------------
Forest Products & Paper 1.5%
Assidoman AB 90,000 1,761,468 90,000 1,761,468
Cartiere Burgo SpA -- -- 34,500 221,615 34,500 221,615
Georgia Pacific Corp. -- -- 5,000 236,875 5,000 236,875
International Paper Co. 50,000 2,525,000 -- -- 50,000 2,525,000
Mo Och Domsjoe AB, B -- -- 9,575 222,989 9,575 222,989
Stora Enso OYJ, R 225,000 2,413,117 -- -- 225,000 2,413,117
Stora Enso OYJ, R, fgn. 326,569 3,533,798 -- -- 326,569 3,533,798
------------ ------------ ----------------
10,233,383 681,479 10,914,862
------------ ------------ ----------------
Health & Personal Care 4.7%
Medeva PLC 4,572,675 7,495,952 -- -- 4,572,675 7,495,952
Ono Pharmaceutical Co Ltd. 247,000 8,427,875 -- -- 247,000 8,427,875
Rhone-Poulenc SA, A 201,800 9,221,159 9,870 451,005 211,670 9,672,164
Teva Pharmaceutical Industries
Ltd., ADR 197,200 9,662,800 -- -- 197,200 9,662,800
------------ ------------ ----------------
34,807,786 451,005 35,258,791
------------ ------------ ----------------
Industrial Components .3%
Goodyear Tire & Rubber Co. -- -- 3,600 211,725 3,600 211,725
Madeco Manufacturera de Cobre
SA, ADR 162,500 1,645,313 18,685 189,186 181,185 1,834,499
Weir Group PLC -- -- 123,370 517,266 123,370 517,266
------------ ------------ ----------------
1,645,313 918,177 2,563,490
------------ ------------ ----------------
Insurance 5.0%
Ace Ltd. -- -- 25,200 711,900 25,200 711,900
Aetna Inc. 16,700 1,493,606 7,190 643,056 23,890 2,136,662
Allstate Corp. 80,000 2,870,000 -- -- 80,000 2,870,000
AXA China Region Ltd. -- -- 489,000 390,754 489,000 390,754
Partnerre Ltd. -- -- 17,500 654,063 17,500 654,063
Reinsurance Australia Corp. Ltd. 829,055 691,428 375,684 313,319 1,204,739 1,004,747
Insurance (cont.)
Reliastar Financial Corp. -- $-- 18,310 $ 801,063 18,310 $ 801,063
SCOR SA -- -- 18,000 892,853 18,000 892,853
Torchmark Corp. 90,000 3,071,250 22,400 764,400 112,400 3,835,650
UNUM Corp. 18,530 1,014,518 18,530 1,014,518
Waddell & Reed Financial Inc., B 5,485 148,095 5,485
148,095
XL Capital Ltd., A 179,400 10,136,100 -- -- 179,400 10,136,100
Zurich Allied AG 20,400 11,600,154 1,390 790,403 21,790 12,390,557
------------ ------------ ----------------
29,862,538 7,124,424 36,986,962
------------ ------------ ----------------
Leisure & Tourism .1%
Mandarin Oriental International Ltd. -- -- 524,000 461,120 524,000
461,120
------------ ------------ ----------------
Machinery & Engineering .3%
Invensys PLC -- -- 186,454 883,160 186,454 883,160
Makita Corp. -- -- 59,000 667,308 59,000 667,308
Mckechnie Group PLC -- -- 101,800 779,041 101,800 779,041
------------ ------------ ----------------
-- 2,329,509 2,329,509
------------ ------------ ----------------
Merchandising 2.4%
Best Denki Co. Ltd. 24,000 190,549 24,000 190,549
Dairy Farm International Holdings Ltd. 1,000,000 1,200,000 1,000,000
1,200,000
David Jones Ltd. 345,909 338,857 345,909 338,857
Marks & Spencer PLC 1,232,600 7,110,930 1,232,600 7,110,930
Matsuzakaya Co. Ltd. 115,000 494,052 115,000 494,052
Sears Roebuck & Co. 42,000 1,871,625 -- -- 42,000 1,871,625
Storehouse 3,079,116 6,624,938 -- -- 3,079,116 6,624,938
------------ ------------ ----------------
16,807,493 1,023,458 17,830,951
------------ ------------ ----------------
Metals & Mining 1.8%
Anglo American Platinum Corp. Ltd. -- 402 9,380 402 9,380
British Steel PLC, ADR 394,300 10,276,444 394,300 10,276,444
Companhia Siderurgica Nacional Sid
Nacional CSN -- -- 16,300,000 430,171 16,300,000 430,171
Companhia Siderurgica Nacional Sid
Nacional CSN, ADR -- -- 7,700 202,125 7,700 202,125
Elkem ASA, A -- -- 49,700 883,836 49,700 883,836
Industrias Penoles SA -- -- 168,200 490,321 168,200 490,321
Pohang Iron & Steel Co. Ltd. -- -- 6,690 834,046 6,690 834,046
------------ ------------ ----------------
10,276,444 2,849,879 13,126,323
------------ ------------ ----------------
Misc Materials & Commodities .6%
Agrium Inc. 517,000 4,556,063 -- -- 517,000 4,556,063
------------ ------------ ----------------
Multi-Industry 3.5%
Alfa SA de CV, A 1,150,000 4,807,528 127,251 531,968 1,277,251 5,339,496
Broken Hill Proprietary Co. Ltd. -- -- 75,894 879,100 75,894 879,100
Cheung Kong Holdings Ltd. 600,000 5,335,842 89,500 795,930 689,500 6,131,772
Elementis PLC -- -- 82,194 136,683 82,194 136,683
Hunting PLC -- -- 261,410 607,767 261,410 607,767
Hutchison Whampoa Ltd. -- -- 79,000 715,280 79,000 715,280
Pilkington PLC -- -- 454,300 643,977 454,300 643,977
Saab AB, B -- -- 54,400 422,301 54,400 422,301
Swire Pacific Ltd., A 2,200,000 10,888,212 -- -- 2,200,000 10,888,212
Swire Pacific Ltd., B -- 945,000 706,419 945,000 706,419
------------ ------------ ----------------
21,031,582 5,439,425 26,471,007
------------ ------------ ----------------
Real Estate .3%
Highwoods Properties Inc. -- -- 16,600 455,463 16,600 455,463
Hon Kwok Land Investment Co. Ltd. -- -- 1,226,456 126,458 1,226,456 126,458
New World Development Co. Ltd. 303,543 909,590 -- -- 303,543 909,590
Rouse Co. -- -- 13,500 342,563 13,500 342,563
Summit Properties Inc. -- -- 15,000 296,250 15,000 296,250
Union du Credit Bail Immobilier Unibail -- -- 2,500 319,944 2,500 319,944
------------ ------------ ----------------
909,590 1,540,678 2,450,268
------------ ------------ ----------------
Recreation & Other Consumer Goods .1%
Yue Yuen Industrial (Holdings) Ltd. -- -- 190,140 438,661 190,140 438,661
------------ ------------ ----------------
Telecommunications 9.7%
AT&T Corp. 181,500 $ 10,129,969 -- $-- 181,500 $ 10,129,969
a Cable & Wireless Optus Ltd., 144A 2,768,640 6,304,025 -- -- 2,768,640 6,304,025
Hong Kong Telecommunications Ltd. 2,588,400 6,722,164 291,700 757,555 2,880,100 7,479,719
a Korea Telecom Corp., ADR 97,400 3,896,000 -- -- 97,400 3,896,000
Nippon Telegraph & Telephone Corp. 860 10,018,176 -- -- 860 10,018,176
PT Indosat, ADR 159,400 3,108,300 -- -- 159,400 3,108,300
a Rostelecom, ADR -- -- 25,300 248,256 25,300 248,256
Telecom Argentina Stet-France SA, ADR -- -- 4,000 107,000 4,000 107,000
a Telecom Italia SpA, di Risp 1,200,000 6,527,792 -- -- 1,200,000 6,527,792
Telefonica de Argentina SA, ADR 315,000 9,883,125 -- -- 315,000 9,883,125
Telefonica de Argentina SA, B, ADR 13,120 411,640 13,120 411,640
Telefonica del Peru SA, ADR 131,800 1,993,475 -- -- 131,800 1,993,475
Telefonos de Mexico SA (Telmex), ADR 142,800 11,540,025 -- -- 142,800 11,540,025
Telefonos de Mexico SA (Telmex), L, ADR -- -- 6,709 542,171 6,709 542,171
Telesp Celular Participacoes SA 22,228,000 120,494 22,228,000 120,494
Telesp Participacoes SA 22,228,000 289,059 22,228,000 289,059
------------ ------------ ----------------
70,532,604 2,066,622 72,599,226
------------ ------------ ----------------
Textiles & Apparel .3%
a Fruit of the Loom Inc., A 160,000 1,560,000 12,450 121,388 172,450 1,681,388
Yizheng Chemical Fibre Co. Ltd., H -- -- 1,332,000 347,642 1,332,000347,642
------------ ------------ ----------------
1,560,000 469,030 2,029,030
------------ ------------ ----------------
Transportation 4.4%
Air New Zealand Ltd., B 274,000 566,251 274,000 566,251
British Airways PLC 1,808,900 12,502,800 71,020 490,878 1,879,920 12,993,678
a Fritz Cos. Inc. 350,000 3,762,500 -- -- 350,000 3,762,500
Mayne Nickless Ltd., A 1,730,400 5,921,477 -- -- 1,730,400 5,921,477
Peninsular & Oriental Steam
Navigation Co. 580,000 8,726,238 -- -- 580,000 8,726,238
Singapore Airlines Ltd., fgn. 102,000 970,573 102,000 970,57
------------ ------------ ----------------
31,479,266 1,461,451 32,940,717
------------ ------------ ----------------
Utilities Electrical & Gas 5.9%
Centrica PLC 2,880,000 6,775,322 -- -- 2,880,000 6,775,322
Endesa SA 122,000 2,601,794 -- -- 122,000 2,601,794
Endesa SA, ADR 88,000 1,870,000 -- -- 88,000 1,870,000
Gener SA, ADR 287,050 5,095,138 -- -- 287,050 5,095,138
Hong Kong Electric Holdings Ltd. 2,001,500 6,449,087 130,000 418,877 2,131,500 6,867,964
Iberdrola SA, Br. 85,000 1,294,679 85,000 1,294,679
Korea Electric Power Corp. 196,000 8,144,795 19,280 801,182 215,280 8,945,977
National Grid Group PLC 79,730 554,536 79,730 554,536
Veba AG 173,800 10,251,995 -- -- 173,800 10,251,995
------------ ------------ ----------------
42,482,810 1,774,595 44,257,405
------------ ------------ ----------------
Total Common Stocks
(Cost $465,856,909) 511,152,503 44,960,835 556,113,338
------------ ------------ ----------------
Preferred Stocks 4.3%
Banco Bradesco SA, pfd. 767,000,000 3,938,944 121,758,350 625,293 888,758,350 4,564,237
Cia Energetica de Minas Gerais Cemig,
ADR, pfd. -- -- 9,178 193,825 9,178 193,825
Cia Vale do Rio Doce, A, pfd. -- -- 13,400 266,088 13,400 266,088
Cia Vale do Rio Doce, A, ADR, pfd. 371,400 7,375,019 15,100 299,846 386,500 7,674,865
Coteminas Cia Tecidos Norte
de Minas, pfd. -- -- 599,000 50,586 599,000 50,586
Embratel Participacoes SA, ADR, pfd. 121,000 1,678,875 121,000 1,678,875
a Empresa Nacional de Comercio Redito
Participacoes, pfd. -- -- 275,000 237 275,000 237
Moebel Walther AG, pfd. 119,092 1,848,339 -- -- 119,092 1,848,339
News Corp. Ltd., pfd. 850,000 6,475,708 -- -- 850,000 6,475,708
Petroleo Brasileiro SA, pfd. 36,000,000 5,649,073 -- -- 36,000,000 5,649,073
Telesp Celular Participacoes SA, pfd. 40,981,336 434,952 -- -- 40,981,336 434,952
Telesp Participacoes SA, ADR, pfd. 110,000 $ 2,516,250 110,000 2,516,250
Telesp Participacoes SA, pfd. 40,981,336 970,457 40,981,336 970,457
------------ ------------ ----------------
Total Preferred Stocks
(Cost $37,947,109) 30,887,617 $ 1,435,875 32,323,492
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT* AMOUNT* AMOUNT*
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bonds 12.8%
Australian Government, 10.00%,
10/15/07 4,184,000 AUD 3,435,239 4,184,000AUD 3,435,239
Buoni Poliennali del Tesoro, 10.50%,
7/15/00 -- -- 581,013EUR 643,626 581,013EUR 643,626
Essar Steel Ltd., Reg S, FRN, 7.635%,
7/20/99 445,000 300,375 445,000 300,375
Fannie Mae, 5.25%, 1/15/09 -- -- 495,000 452,862 495,000 452,862
Federal Republic of Germany,
Series 118, 5.25%, 2/21/01 710,696EUR 756,986 613,550EUR 653,513 1,324,246EUR 1,410,499
Government of Australia, 10.00%,
10/15/07 -- -- 988,000AUD 811,189 988,000AUD 811,189
Government of Canada:
7.00%, 12/01/06 1,140,000CAD 849,528 470,000CAD 350,244 1,610,000CAD 1,199,772
6.00%, 6/01/08 2,812,000CAD 1,990,881 -- -- 2,812,000CAD 1,990,881
Government of France, 6.50%,
10/25/06 6,309,000EUR 7,410,489 -- -- 6,309,000EUR 7,410,489
Government of Italy:
cvt., 5.00%, 6/28/01 640,000 1,056,000 640,000 1,056,000
7.75%, 11/01/06 5,685,153EUR 7,037,113 723,038EUR 894,981 6,408,191EUR 7,932,094
Government of Netherlands, 5.75%,
2/15/07 3,484,000EUR 3,895,383 -- -- 3,484,000EUR 3,895,383
Government of New Zealand, 7.00%,
7/15/09 3,614,000NZD 1,983,362 540,000NZD 296,352 4,154,000NZD 2,279,714
Government of Spain, 7.35%, 3/31/07 3,201,000EUR 3,891,078 -- -- 3,201,000EUR 3,891,078
Hypothekenbank In Essen AG, Seriese
5.25%, 1/22/08 4,834,265EUR 5,145,847 1,242,439EUR 1,322,518 6,076,704EUR 6,468,365
Kingdom of Belgium, 6.25%, 3/28/07 3,968,208EUR 4,539,070 677,989EUR 775,524 4,646,197EUR 5,314,594
Kingdom of Denmark, 7.00%, 11/15/07 17,701,000DKK 2,838,633 2,867,000DKK 459,768 20,568,000DKK3,298,401
Kingdom of Sweden, 6.00%, 2/09/05 22,400,000SEK 2,802,898 5,500,000 SEK 688,212 27,900,000SEK 3,491,110
Protexa Construcciones SA de CV,
144A, 12.125%, 7/24/02 -- -- 100,000 80,500 100,000 80,500
PT Indah Kiat Finance Mauritius Ltd.,
10.00%, 7/01/07 -- -- 300,000 204,000 300,000 204,000
Republic of Argentina:
10.95%, 11/01/99 1,025,000 1,035,250 1,025,000 1,035,250
Reg S, 11.75%, 2/12/07 -- -- 100,000 ARS 80,383
100,000 ARS 80,383
Republic of Ecuador:
Reg S, 11.25%, 4/25/02 -- -- 450,000 280,125 450,000 280,125
144A, 11.25%, 4/25/02 -- -- 275,000 171,188 275,000 171,188
Republic of Panama, 8.875%, 9/30/27 960,000 796,800 -- -- 960,000
796,800
Republic of Peru, FRN, 4.50%, 3/07/17 1,560,000 962,333 -- -- 1,560,000
962,333
Republic of Turkey, 12.375%, 6/15/09 1,130,000 1,121,525 35,000 34,738 1,165,000
1,156,263
Republic of Venezuela:
144A, 9.125%, 6/18/07 1,540,000 1,170,400 100,000 76,000 1,640,000 1,246,400
Reg S, 9.125%, 6/18/07 -- -- 600,000 456,000 600,000 456,000
SEI Holdings IX Inc., 144A, 11.00%,
11/30/00 -- -- 170,000 176,800 170,000 176,800
Treuhandanstalt, 7.50%, 9/09/04 511,292 EUR 610,682
511,292 610,682
U.S. Treasury Notes:
8.50%, 2/15/00 -- -- 880,000 898,150 880,000 898,150
6.25%, 8/31/00 -- -- 1,010,000 1,019,469 1,010,000 1,019,469
4.50%, 1/31/01 5,890,000 5,803,494 2,000,000 1,970,626 7,890,000 7,774,120
7.25%, 8/15/04 576,000 612,000 576,000 612,000
5.25%, 11/15/28 5,000,000 4,426,565 2,000,000 1,770,626 7,000,000 6,197,191
United Kingdom:
6.50%, 12/07/03 -- $-- 880,000 GBP $ 1,476,284
880,000 GBP $ 1,476,284
7.50%, 12/07/06 3,685,000 GBP 6,549,033 280,000 GBP 497,620
3,965,000 GBP 7,046,653
United Mexican States:
9.75%, 2/06/01 2,895,000 3,017,314 620,000 646,195 3,515,000 3,663,509
11.375%, 9/15/16 -- -- 430,000 462,465 430,000 462,465
6.25%, 12/31/19 5,050,000 3,743,313 5,050,000 3,743,313
11.50%, 5/15/26 -- -- 220,000 245,843 220,000 245,843
------------ ------------ ----------------
Total Bonds (Cost $118,784,832) 76,113,591 19,563,801
95,677,392
------------ ------------ ----------------
Short Term Investments 6.6%
Chase Securities Inc., 5.00%, 6/30/99,
Time Deposit 19,226,000 19,226,000 19,226,000 19,226,000
Fannie Mae, 4.85%, 7/19/99 10,000,000 9,975,950 10,000,000 9,975,950
Sallie Mae, 4.85%, 7/19/99 10,000,000 10,000,000 10,000,000 10,000,000
U.S. Treasury Bills, 4.48% to 4.72% with
maturities to 10/21/99 10,195,000 10,114,323 10,195,000 10,114,323
------------ ------------ ----------------
Total Short Term Investments
(Cost $30,085,569) 49,316,273 -- 49,316,273
------------ ------------ ----------------
Total Investments before Repurchase
Agreements (Cost $652,674,419) 667,469,984 65,960,511 733,430,495
------------ ------------ ----------------
gRepurchase Agreements .6%
CIBC Oppenheimer Corp., 4.80%, 7/01/99
(Maturity Value $2,100,280)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 2,100,000 2,100,000 2,100,000 2,100,000
Deutsche Bank AG, 4.75%, 7/01/99
(Maturity Value $2,120,280)
Collateralized by U.S. Treasury Notes
and Bonds -- -- 2,120,000 2,120,000 2,120,000 2,120,000
------------ ------------ ----------------
Total Repurchase Agreements
(Cost $4,220,000) -- 4,220,000 4,220,000
------------ ------------ ----------------
Total Investments
(Cost $656,894,419) 98.8% 667,469,984 70,180,511 737,650,495
Net Equity in Forward Contracts 21,151 5,130
26,281
Other Assets, Less Liabilities 1.2% 8,890,544 410,604
9,301,148
------------ ------------ ----------------
Total Net Assets 100.0% $676,381,679 $70,596,245 $746,977,924
------ ------
- --------
Currency Abbreviations:
ARS - Argentine Peso
AUD - Australian Dollar
AD - Canadian Dollar
DKK - Danish Krone
EUR - European Unit
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krone
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.>>
</TABLE>
PART C
ITEM 15. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to Trustees, officers and
controlling persons of the Fund, pursuant to the foregoing provisions, or
otherwise, the Fund has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, 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 a Trustee, officer or
controlling person of the Fund in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or controlling person in
connection with securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court or appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
1. ARTICLES OF INCORPORATION.
(i) Agreement and Declaration of Trust, dated April 20, 1988,
incorporated by reference to Post-Effective Amendment No. 16 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Certificate of Amendment of Agreement and Declaration of Trust,
dated October 21, 1988, incorporated by reference to
Post-Effective Amendment No. 16 to Registration Statement on
Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iii) Certificate of Amendment of Agreement and Declaration of Trust,
dated October 16, 1998, incorporated by reference to
Post-Effective Amendment No. 26 to Registration Statement on
Form N-1A
File No. 33-23493
Filing Date: November 30, 1998
2. BYLAWS.
(i) Bylaws of Registrant, dated April 20, 1988, incorporated by
reference to Post-Effective No. 16 to Registration Statement on
Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Certificate of Amendment to Bylaws, dated May 16, 1995,
incorporated by reference to Post-Effective No. 16 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
3. VOTING TRUST AGREEMENTS.
Not Applicable
4. AGREEMENT OF ACQUISITION OR REORGANIZATION.
(i) Form of Agreement and Plan of Reorganization by and between the
Templeton Variable Products Series Fund and the Registrant, filed
herewith as Exhibit 1 to the Combined Proxy Statement/Prospectus
included as Part A of this Registration Statement.
5. INSTRUMENTS DEFINE RIGHTS OF SECURITY HOLDERS
Not Applicable
6. INVESTMENTS ADVISORY CONTRACTS.
(i) Management Agreement, incorporated by reference to
Post-Effective No. 16 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Addendum to Investment Management Agreement, incorporated by
reference to Post-Effective No. 16 to Registration Statement on
Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iii) Management Agreement with respect to Templeton International
Equity Fund, incorporated by reference to Post-Effective No. 16
to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iv) Subadvisory Agreement with respect to Templeton International
Equity Fund, incorporated by reference to Post-Effective No. 16
to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(v) Form of proposed Management Agreement with respect to Templeton
International Equity Fund, filed herewith as Exhibit 5 to the
Combined Proxy Statement/Prospectus included as Part A of this
Registration Statement
(vi) Investment Management Agreement with respect to Templeton Global
Growth Fund, incorporated by reference to Post-Effective No. 16
to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(vii) Subadvisory Agreement with respect to Global Income Securities
Fund, incorporated by reference to Post-Effective No. 16 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(viii) Investment Management Agreement with respect to Templeton Global
Asset Allocation Fund, incorporated by reference to
Post-Effective No. 16 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ix) Subadvisory Agreement with respect to Templeton Global Asset
Allocation Fund, incorporated by reference to Post-Effective
No. 16 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(x) Form of proposed Management Agreement with respect to Templeton
Global Asset Allocation Fund, filed herewith as Exhibit 3 to the
Combined Proxy Statement/Prospectus included as Part A of this
Registration Statement
(xi) Management Agreement with respect to Franklin Small Cap Fund,
incorporated by reference to Post-Effective No. 20 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 30, 1996
(xii) Investment Management Agreement with respect to Templeton
Developing Markets Equity Fund, incorporated by reference to
Post-Effective No. 17 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: October 27, 1995
(xiii) Form of proposed Management Agreement with respect to Templeton
Developing Markets Equity Fund, filed herewith as Exhibit 4 to
the Combined Proxy Statement/Prospectus included as Part A of
this Registration Statement
(xiv) Amendment to Investment Management Agreement with respect to
Templeton Developing Markets Equity Fund, incorporated by
reference to Post-Effective No. 23 to Registration Statement on
Form N-1A
File No. 33-23493
Filing Date: February 12, 1998
(xv) Addendum to Investment Management Agreement with respect to
Templeton Developing Markets Equity Fund, incorporated by
reference to Post-Effective No. 24 to Registration Statement
on Form N-1A
File No. 33-23493
Filing Date: April 30, 1998
(xvi) Management Agreement with respect to Capital Growth Fund,
incorporated by reference to Post-Effective No. 18 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: February 14, 1996
(xvii) Amendment to Management Agreement with respect to Capital Growth
Fund, incorporated by reference to Post-Effective No. 20 to
Registration Statement on Form N-1A
File No. 33-23493,
Filing Date: August 30, 1996
(xviii) Management Agreement with respect to Mutual Shares Securities
Fund, incorporated by reference to Post-Effective No. 22 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: February 28, 1997
(xix) Form of Investment Management Agreement with respect to Franklin
S&P Index Fund, filed herewith.
(xx) Form of Investment Management Agreement with respect to Franklin
Strategic Income Securities Fund, filed herewith.
7. UNDERWRITING CONTRACTS.
(i) Distribution Agreement between the Registrant and
Franklin/Templeton Distributors, Inc., dated September 24, 1998,
incorporated by reference to Post-Effective No. 26 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: November 30, 1998
8. BONUS OR PROFIT SHARING CONTRACTS.
Not Applicable
9. CUSTODIAN AGREEMENTS.
(i) Foreign Exchange Netting Agreement with respect to the
International Equity Fund, incorporated by reference to
Post-Effective No. 16 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Custody Agreement with respect to the Templeton Developing
Markets Equity Fund and the Templeton Global Growth Fund,
incorporated by reference to Post-Effective No. 16 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iii) Master Custody Agreement, incorporated by reference to
Post-Effective No. 19 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(iv) Terminal Link Agreement, incorporated by reference to
Post-Effective No. 19 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(v) Amendment to Global Custody Agreement, incorporated by reference
to Post-Effective No. 23 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: April 29, 1997
(vi) Amendment to Master Custody, incorporated by reference to
Post-Effective No. 23 to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: April 29, 1997
(vii) Letter Agreement, incorporated by reference to Post-Effective
No. 19 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(viii) Custody Agreement with respect to Mutual Shares Securities Fund,
incorporated by reference to Post-Effective No. 23 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: April 29, 1997
10. RULE 12b-1 PLAN.
(i) Class 2 Plan of Distribution pursuant to Rule 12b-1,
incorporated by reference to Post-Effective No. 26 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: November 30, 1998
(ii) Multiple Class Plan pursuant to Rule 18f-3 for all series of the
Registrant, incorporated by reference to Post-Effective No. 26
to Registration Statement on Form N-1A
File No. 33-23493
Filing Date: November 30, 1998
11. LEGAL OPINION.
(i) Legal Opinion, Securities Act of 1933, dated February 5, 1999
Filing: Post-Effective No. 27 to Registration Statement on
Form N-1A
File No. 33-23493
Filing Date: February 25, 1999
12. OPINION REGARDING TAX MATTERS.
(i) Form of Opinion of Jorden Burt Boros Cicchetti Berenson &
Johnson LLP regarding tax matters and consequences.
13. OTHER MATERIAL CONTRACTS.
Not Applicable
14. OTHER OPINIONS.
(i) Consent of Independent Auditors with respect to Registrant.
(ii) Consent of Independent Auditors with respect to Templeton
Variable Products Series Trust.
15. OMITTED FINANCIAL STATEMENTS.
Not Applicable
16. POWER OF ATTORNEY.
(i)
17. OTHER EXHIBITS
(i) Forms of Voting Instruction Cards.
(ii) Forms of Proxy Cards for Participating Insurance Companies
ITEM 17. UNDERTAKINGS
The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145 of the Securities Act of 1933 (the
"1933 Act"), the reoffering prospectus will contain the information called
for by the applicable form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the items of the
applicable form.
The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of San Mateo, and the
State of California, on the 2nd day of November, 1999.
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
By /S/ CHARLES E. JOHNSON*
Charles E. Johnson, Principal Executive
Officer and Trustee
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities on the dates indicated.
CHARLES E. JOHNSON* Principal Executive Officer and Trustee
Charles E. Johnson Dated: November 2, 1999
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: November 2, 1999
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: November 2, 1999
FRANK H. ABBOTT III* Trustee
Frank H. Abbott III Dated: November 2, 1999
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: November 2, 1999
EDWARD J. BONACH Trustee
Edward J. Bonach Dated: November 2, 1999
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: November 2, 1999
ROBERT F. CARLSON* Trustee
Robert F. Carlson Dated: November 2, 1999
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: November 2, 1999
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: November 2, 1999
FRANK W. T. LAHAYE* Trustee
Frank W. T. LaHaye Dated: November 2, 1999
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: November 2, 1999
* By /s/ KAREN L. SKIDMORE, ATTORNEY-IN-FACT
(Pursuant to Power of Attorney attached)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
N-14 REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO DESCRIPTION LOCATION
EX-16.4(i) Form of Agreement and Plan of Reorganization *
EX-16.6(v) Form of proposed Management Agreement with respect to
Templeton International Equity Fund. *
EX-16.6(x) Form of Investment Management Agreement with respect
Templeton Global Asset Allocation Fund *
EX-16.6(xiii)Form of proposed Investment Management Agreement with
respect to Templeton Developing Markets Equity Fund *
EX-16.6(xix) Form of Investment Management Agreement with respect to
Franklin S&P 500 Index Fund Attached
EX-16.6(xx) Form of Investment Management Agreement with respect to
Franklin Strategic Income Securities Fund Attached
EX-16.12(i) Opinion of Jorden Burt Boros Cicchetti Berenson & Johnson LLP
regarding tax matters and consequences. **
EX-16.14 (i) Consent of Independent Auditors with respect to
Registrant Attached
EX-16.14(ii) Consent of Independent Auditors with respect to Templeton
Variable Products Series Trust. Attached
EX-16.17 (i) Forms of Voting Instruction Cards. Attached
EX-16.17(ii) Forms of Proxy Cards for Participating Insurance
Companies Attached
*Included as an exhibit to the Combined Proxy/Prospectus included as Part A
of this Registration Statement
**To be filed by amendment
EXHIBIT 6 (xiv)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
on behalf of
FRANKLIN S&P 500 INDEX FUND
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT made between FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST, 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 XX 2000.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
on behalf of Franklin S&P 500 Index Fund
By: _________________________
FRANKLIN ADVISERS, INC.
By
EXHIBIT 6 (xx)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
on behalf of
FRANKLIN STRATEGIC INCOME SECURITIES FUND
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT made between FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST, a Massachusetts business trust (the "Trust"), on
behalf of FRANKLIN STRATEGIC INCOME SECURITIES 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
following annual rates:
o 0.425% of the value of net assets up to $500 million;
o 0.325% of the value of net assets over $500 million up to and including
$1 billion;
o 0.280% of the value of net assets over $1 billion up to and including
$1.5 billion;
o 0.235% of the value of net assets over $1.5 billion up to and including
$6.5 billion;
o 0.215% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.200% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.190% of the value of net assets over $16.5 billion up to and including
$19 billion;
o 0.180% of the value of net assets over $19 billion up to and including
$21.5 billion; and
o 0.170% of the value of net assets over $21.5 billion.
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 July, 1999.
FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST
on behalf of Franklin Strategic Income Securities Fund
By:
FRANKLIN ADVISERS, INC.
By:
EXHIBIT 14(i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 4, 1999 on the
financial statements of Franklin Valuemark Funds, now Franklin Templeton
Variable Insurance Products Trust. referred to therein, which is incorporated
by reference in the Registration Statement on Form N-14 of Registrant, File
No. 33-23493 being filed with the Securities and Exchange Commission.
MCGLADREY & PULLEN, LLP
San Francisco, California
October 28, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of each of our reports dated January 28, 1999 on
the financial statements of the series of Templeton Variable Products Series
Fund: Franklin Growth Investments Fund, Franklin Small Cap Investments Fund,
Mutual Shares Investments Fund, Templeton Asset Allocation Fund, Templeton
Bond Fund, Templeton Developing Markets Fund, Templeton International Fund
and Templeton Stock Fund. referred to therein, which are incorporated by
reference in the Registration Statement on Form N-14 of Franklin Templeton
Variable Insurance Products Trust, File No. 33-23493 being filed with the
Securities and Exchange Commission.
MCGLADREY & PULLEN, LLP
New York, New York
October 28, 1999
[PRINT NAME OF INSURANCE COMPANY]
VOTING INSTRUCTIONS FORM -- TEMPLETON VARIABLE PRODUCTS SERIES FUND
Special Meeting of Shareholders To Be Held On
February [1], 2000
Indicate your voting instructions below by filling in the appropriate boxes in
this manner [ X ] using blue or black ink or dark pencil.
This voting instruction card, if properly executed, will be voted by your
insurance company in the manner directed by the you. If this voting instruction
card is executed and no direction is made, this voting instruction card will be
voted for all proposals and, in the discretion of the insurance company, upon
such other business as may properly come before the special meeting.
By signing below, I instruct the insurance company to vote the shares of the
Templeton Variable Products Series Fund related to my contract at the meeting of
shareholders to be held at 500 East Broward Boulevard, Fort Lauderdale, Florida
33394-3091, at [time], February [1], 2000 and any adjournment of the meeting as
follows:
PROPOSAL 1. To approve an Agreement and Plan of Reorganization between Templeton
Variable Produts Series Fund ("TVP Trust") and Franklin Templeton
Variable Insurance Products Trust ("VIP Trust"), under which:
o The TVP Trust will transfer all assets and liabilities of the TVP Trust
fund listed below;
o The VIP Trust will issue shares of the VIP Trust fund listed below in
exchange for the assets and liabilities,
o The TVP Trust will distribute shares of the VIP Trust fund to
shareholders of the TVP Trust fund, and
o The trustees will dissolve the TVP Trust, as described more fully in the
combined proxy statement/prospectus.
[NAME OF TVP FUND] TO BE COMBINED WITH [NAME OF VIP FUND]
[FOR THE TVP TEMPLETON BOND FUND, CLASS 2 SHAREHOLDERS ARE ALSO VOTING TO
APPROVE THE CHANGE IN THE RULE 12B-1 FEES FROM .015% TO .025%]
For [ ] Against [ ] Abstain [ ]
OTHER BUSINESS To vote upon any other business which may legally
presented at the meeting or any adjournment thereof.
Grant [ ] Withhold [ ]
THESE VOTING INSTRUCTIONS ARE SOLICITED BY THE ABOVE-REFERENCED INSURANCE
COMPANY IN CONNECTION WITH A SOLICITATION OF PROXIES BY THE TRUSTEES OF
TEMPLETON VARIABLE PRODUCTS SERIES FUND.
Date: __________ Signature: _______________
If a contract is held jointly, each contract owner should sign. If only one
signs, it will be binding. If a contract owner is a business entity, please
indicate the title of the person signing.
<PAGE>
[PRINT NAME OF INSURANCE COMPANY]
VOTING INSTRUCTIONS FORM -- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Special Meeting of Shareholders To Be Held On
February [1], 2000
Indicate your voting instructions below by filling in the appropriate boxes in
this manner [ X ] using blue or black ink or dark pencil.
This voting instruction card, if properly executed, will be voted by your
insurance company in the manner directed by the you. If this voting instruction
card is executed and no direction is made, this voting instruction card will be
voted for all proposals and, in the discretion of the insurance company, upon
such other business as may properly come before the special meeting.
By signing below, I instruct the insurance company to vote the shares of the
Franklin Templeton Variable Insurance Products Trust [TEMPLETON GLOBAL ASSET
ALLOCATION FUND, TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND] related to my contract at the meeting of shareholders
to be held at 777 Mariners Island Boulevard, San Mateo, California 94404, at
[time], February [1], 2000 and any adjournment of the meeting as follows:
PROPOSAL 2. To approve the adoption of new investment advisory agreement for
the [TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON
DEVELOPING MARKETS EQUITY FUND AND TEMPLETON INTERNATIONAL
EQUITY FUND], as described more fully in the combined proxy
statement/prospectus.
For [ ] Against [ ] Abstain [ ]
PROPOSAL 3. To approve changes in the following fundamental investment
restrictions for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND,
TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND], as described more fully in the
combined proxy statement/prospectus.
(a) Modification of fundamental investment restriction regarding
Diversification
For [ ] Against [ ] Abstain [ ]
(b) Modification of fundamental investment restriction regarding Borrowing
For [ ] Against [ ] Abstain [ ]
(c) Modification of fundamental investment restriction regarding Lending
For [ ] Against [ ] Abstain [ ]
(d) Modification of fundamental investment restriction regarding Underwriting
For [ ] Against [ ] Abstain [ ]
<PAGE>
(e) Modification of fundamental investment restriction regarding Concentration
For [ ] Against [ ] Abstain [ ]
(f) Modification of fundamental investment restriction regarding Senior
Securities
For [ ] Against [ ] Abstain [ ]
(g) Modification of fundamental investment restrictions regarding Real Estate
and Commodities, which would combine these two separate fundamental
restrictions
For [ ] Against [ ] Abstain [ ]
PROPOSAL 4. To approve the elimination of certain fundamental investment
restrictions for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND,
TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND], as described more fully in the
combined proxy statement/prospectus.
For [ ] Against [ ] Abstain [ ]
OTHER BUSINESS To vote upon any other business which may legally
presented at the meeting or any adjournment thereof.
Grant [ ] Withhold [ ]
THESE VOTING INSTRUCTIONS ARE SOLICITED BY THE ABOVE-REFERENCED INSURANCE
COMPANY IN CONNECTION WITH A SOLICITATION OF PROXIES BY THE TRUSTEES OF FRANKLIN
TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST.
Date: __________ Signature: _______________
If a contract is held jointly, each contract owner should sign. If only one
signs, it will be binding. If a contract owner is a business entity, please
indicate the title of the person signing.
PROXY CARD (FOR PARTICIPATING INSURANCE COMPANIES)
VOTING INSTRUCTIONS FORM -- TEMPLETON VARIABLE PRODUCTS SERIES FUND
Special Meeting of Shareholders To Be Held On
February [1], 2000
BY SIGNING AND DATING THE LOWER PORTION OF THIS CARD YOU AUTHORIZE THE
PROXIES TO VOTE YOUR SHARES AS MARKED BELOW.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF TEMPLETON VARIABLE INSURANCE
PRODUCTS SERIES FUND. THE UNDERSIGNED APPOINTS , AND , WITH FULL POWER OF
SUBSTITUTION, TO VOTE ALL THE SHARES OF THE TEMPLETON VARIABLE PRODUCTS SERIES
FUND ATTRIBUTABLE TO HIM OR HER AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE
HELD AT 500 EAST BROWARD BOULEVARD, FORT LAUDERDALE, FLORIDA 33394-3091, AT
[TIME], FEBRUARY [1], 2000 AND ANY ADJOURNMENT OF THE MEETING AS FOLLOWS.
PROPOSAL 1. To approve an Agreement and Plan of Reorganization between
Templeton Variable Products Series Fund ("TVP Trust") and Franklin
Templeton Variable Insurance Products Trust ("VIP Trust"), under
which:
o The TVP Trust will transfer all assets and liabilities of the TVP Trust
fund listed below;
o The VIP Trust will issue shares of the VIP Trust fund listed below in
exchange for the assets and liabilities,
o The TVP Trust will distribute shares of the VIP Trust fund to
shareholders of the TVP Trust fund, and
o The trustees will dissolve the TVP Trust,
as described more fully in the combined proxy statement/prospectus.
[NAME OF TVP FUND] TO BE COMBINED WITH [NAME OF VIP FUND]
[FOR THE TVP TEMPLETON BOND FUND, CLASS 2 SHAREHOLDERS ARE ALSO VOTING TO
APPROVE THE CHANGE IN THE RULE 12B-1 FEES FROM .015% TO .025%]
For [ ] Against[ ] Abstain [ ]
OTHER BUSINESS To vote upon any other business which may be legally
presented at the meeting or any adjournment thereof.
Grant [ ] Withhold [ ]
THE TRUSTEES RECOMMEND VOTING "FOR" THE PROPOSAL AND GRANTING AUTHORITY TO
THE PROXY HOLDERS TO VOTE ON OTHER BUSINESS.
SIGN HERE: DATE:
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
<PAGE>
PROXY CARD (FOR PARTICIPATING INSURANCE COMPANIES)
VOTING INSTRUCTIONS FORM -- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
Special Meeting of Shareholders To Be Held On
February [1], 2000
BY SIGNING AND DATING THE LOWER PORTION OF THIS CARD YOU AUTHORIZE THE
PROXIES TO VOTE YOUR SHARES AS MARKED BELOW.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF TEMPLETON VARIABLE
INSURANCE PRODUCTS SERIES FUND. THE UNDERSIGNED APPOINTS
, AND
, WITH FULL POWER OF SUBSTITUTION, TO VOTE ALL THE SHARES OF THE TEMPLETON
VARIABLE PRODUCTS SERIES FUND ATTRIBUTABLE TO HIM OR HER AT THE MEETING OF
SHAREHOLDERS TO BE HELD AT 777 MARINERS ISLAND BOULEVARD, SAN MATEO,
CALIFORNIA 94404, AT [TIME], FEBRUARY 1, 2000 AND ANY ADJOURNMENT OF THE
MEETING AS FOLLOWS:
PROPOSAL 2. To approve the adoption of new investment advisory agreement
for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON
DEVELOPING MARKETS EQUITY FUND AND TEMPLETON INTERNATIONAL EQUITY
FUND], as described more fully in the combined proxy
statement/prospectus.
For [ ] Against[ ] Abstain [ ]
PROPOSAL 3. To approve changes in the following fundamental investment
restrictions for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND,
TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND], as described more fully in the combined
proxy statement/prospectus.
(a) Modification of fundamental investment restriction regarding
Diversification
For [ ] Against[ ] Abstain [ ]
(b) Modification of fundamental investment restriction regarding
Borrowing
For [ ] Against[ ] Abstain [ ]
(c) Modification of fundamental investment restriction regarding
Lending
For [ ] Against[ ] Abstain [ ]
(d) Modification of fundamental investment restriction regarding
Underwriting
For [ ] Against[ ] Abstain [ ]
<PAGE>
(e) Modification of fundamental investment restriction regarding
Concentration
For [ ] Against[ ] Abstain [ ]
(f) Modification of fundamental investment restriction regarding
Senior Securities
For [ ] Against[ ] Abstain [ ]
(g) Modification of fundamental investment restrictions regarding
Real Estate and Commodities, which would combine these two separate
fundamental restrictions
For [ ] Against[ ] Abstain [ ]
PROPOSAL 4. To approve the elimination of certain fundamental investment
restrictions for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND,
TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND], as described more fully in the combined
proxy statement/prospectus.
For [ ] Against[ ] Abstain [ ]
OTHER BUSINESS To vote upon any other business which may be legally
presented at the meeting or any adjournment thereof.
Grant [ ] Withhold [ ]
THE TRUSTEES RECOMMEND VOTING "FOR" THE PROPOSALS AND GRANTING AUTHORITY TO
THE PROXY HOLDERS TO VOTE ON OTHER BUSINESS.
SIGN HERE: DATE:
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
PROXY CARD (FOR PARTICIPATING INSURANCE COMPANIES)
VOTING INSTRUCTIONS FORM -- TEMPLETON VARIABLE PRODUCTS SERIES FUND
Special Meeting of Shareholders To Be Held On
February [1], 2000
BY SIGNING AND DATING THE LOWER PORTION OF THIS CARD YOU AUTHORIZE THE
PROXIES TO VOTE YOUR SHARES AS MARKED BELOW.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF TEMPLETON VARIABLE
INSURANCE PRODUCTS SERIES FUND. THE UNDERSIGNED APPOINTS
, AND
, WITH FULL POWER OF SUBSTITUTION, TO VOTE ALL THE SHARES OF THE TEMPLETON
VARIABLE PRODUCTS SERIES FUND ATTRIBUTABLE TO HIM OR HER AT THE SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD AT 500 EAST BROWARD BOULEVARD, FORT
LAUDERDALE, FLORIDA 33394-3091, AT [TIME], FEBRUARY [1], 2000 AND ANY
ADJOURNMENT OF THE MEETING AS FOLLOWS.
PROPOSAL 1. To approve an Agreement and Plan of Reorganization between
Templeton Variable Products Series Fund ("TVP Trust") and Franklin
Templeton Variable Insurance Products Trust ("VIP Trust"), under
which:
o The TVP Trust will transfer all assets and liabilities of the TVP Trust
fund listed below;
o The VIP Trust will issue shares of the VIP Trust fund listed below in
exchange for the assets and liabilities,
o The TVP Trust will distribute shares of the VIP Trust fund to
shareholders of the TVP Trust fund, and
o The trustees will dissolve the TVP Trust,
as described more fully in the combined proxy statement/prospectus.
[NAME OF TVP FUND] TO BE COMBINED WITH [NAME OF VIP FUND]
[FOR THE TVP TEMPLETON BOND FUND, CLASS 2 SHAREHOLDERS ARE ALSO VOTING TO
APPROVE THE CHANGE IN THE RULE 12B-1 FEES FROM .015% TO .025%]
For [ ] Against[ ] Abstain [ ]
OTHER BUSINESS To vote upon any other business which may be legally
presented at the meeting or any adjournment thereof.
Grant [ ] Withhold [ ]
THE TRUSTEES RECOMMEND VOTING "FOR" THE PROPOSAL AND GRANTING AUTHORITY TO
THE PROXY HOLDERS TO VOTE ON OTHER BUSINESS.
SIGN HERE: DATE:
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
<PAGE>
PROXY CARD (FOR PARTICIPATING INSURANCE COMPANIES)
VOTING INSTRUCTIONS FORM -- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
Special Meeting of Shareholders To Be Held On
February [1], 2000
BY SIGNING AND DATING THE LOWER PORTION OF THIS CARD YOU AUTHORIZE THE
PROXIES TO VOTE YOUR SHARES AS MARKED BELOW.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF TEMPLETON VARIABLE
INSURANCE PRODUCTS SERIES FUND. THE UNDERSIGNED APPOINTS
, AND
, WITH FULL POWER OF SUBSTITUTION, TO VOTE ALL THE SHARES OF THE TEMPLETON
VARIABLE PRODUCTS SERIES FUND ATTRIBUTABLE TO HIM OR HER AT THE MEETING OF
SHAREHOLDERS TO BE HELD AT 777 MARINERS ISLAND BOULEVARD, SAN MATEO,
CALIFORNIA 94404, AT [TIME], FEBRUARY 1, 2000 AND ANY ADJOURNMENT OF THE
MEETING AS FOLLOWS:
PROPOSAL 2. To approve the adoption of new investment advisory agreement
for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON
DEVELOPING MARKETS EQUITY FUND AND TEMPLETON INTERNATIONAL EQUITY
FUND], as described more fully in the combined proxy
statement/prospectus.
For [ ] Against[ ] Abstain [ ]
PROPOSAL 3. To approve changes in the following fundamental investment
restrictions for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND,
TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND], as described more fully in the combined
proxy statement/prospectus.
(a) Modification of fundamental investment restriction regarding
Diversification
For [ ] Against[ ] Abstain [ ]
(b) Modification of fundamental investment restriction regarding
Borrowing
For [ ] Against[ ] Abstain [ ]
(c) Modification of fundamental investment restriction regarding
Lending
For [ ] Against[ ] Abstain [ ]
(d) Modification of fundamental investment restriction regarding
Underwriting
For [ ] Against[ ] Abstain [ ]
<PAGE>
(e) Modification of fundamental investment restriction regarding
Concentration
For [ ] Against[ ] Abstain [ ]
(f) Modification of fundamental investment restriction regarding
Senior Securities
For [ ] Against[ ] Abstain [ ]
(g) Modification of fundamental investment restrictions regarding
Real Estate and Commodities, which would combine these two separate
fundamental restrictions
For [ ] Against[ ] Abstain [ ]
PROPOSAL 4. To approve the elimination of certain fundamental investment
restrictions for the [TEMPLETON GLOBAL ASSET ALLOCATION FUND,
TEMPLETON DEVELOPING MARKETS EQUITY FUND AND TEMPLETON
INTERNATIONAL EQUITY FUND], as described more fully in the combined
proxy statement/prospectus.
For [ ] Against[ ] Abstain [ ]
OTHER BUSINESS To vote upon any other business which may be legally
presented at the meeting or any adjournment thereof.
Grant [ ] Withhold [ ]
THE TRUSTEES RECOMMEND VOTING "FOR" THE PROPOSALS AND GRANTING AUTHORITY TO
THE PROXY HOLDERS TO VOTE ON OTHER BUSINESS.
SIGN HERE: DATE:
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
Statement of Additional Information
Special Meeting
To be held on February 1, 2000
TEMPLETON VARIABLE PRODUCTS SERIES FRANKLIN TEMPLETON VARIABLE
FUND INSURANCE PRODUCTS TRUST
500 East Broward Boulevard, Suite 777 Mariners Island Boulevard
2100 San Mateo, California 94404
Fort Lauderdale, Florida 33394-3091 1-(800) 342-3863
1-(800) 774-5001
This Statement of Additional Information is not a prospectus. A
combined proxy statement/prospectus, dated December 9, 1999, relating to the
above matter may be obtained from the office of Franklin Templeton Variable
Insurance Products Trust, 777 Mariners Island Boulevard, San Mateo,
California 99404, or by calling 1-(800) 342-3863. This Statement of
Additional Information relates to, and should be read in conjunction with the
combined proxy statement/prospectus and is incorporated by reference into
that document (which means that this statement of additional Information is
legally a part of the combined proxy statement/prospectus).
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given in the combined proxy
statement/prospectus.
The date of this statement of additional information is December 9, 1999.
