As filed with the Securities and Exchange Commission on May 17, 1999
File Nos.
33-23493
811-5583
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 29 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 30 (X)
FRANKLIN VALUEMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (650) 312-2000
DEBORAH R. GATZEK, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[x] on August 1, 1999 pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Shares of Beneficial Interest:
Franklin Aggressive Growth Securities Fund - Class 1
Franklin Aggressive Growth Securities Fund - Class 2
PROSPECTUS
FRANKLIN AGGRESSIVE GROWTH SECURITIES FUND
FRANKLIN VALUEMARK FUNDS
CLASS 1
INVESTMENT STRATEGY GROWTH
AUGUST 1, 1999
[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.
Contents
THE FUND
[Begin callout]
Information about the fund you should know before investing
[End callout]
[insert page #] Goal and Strategies
[insert page #] Main Risks
[insert page #] Performance
[insert page #] Management
[insert page #] Distribution and Taxes
FUND ACCOUNT INFORMATION
[Begin callout]
Information about fund account transactions and services
[End callout]
[insert page #] Buying Shares
[insert page #] Selling Shares
[insert page #] Exchanging Shares
[insert page #] Fund Account Policies
[insert page #] Questions
FOR MORE INFORMATION
[Begin callout]
Where to learn more about each fund
[End callout]
BACK COVER
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
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
demonstrating accelerating growth, increasing profitability, or above-average
growth or growth potential as compared with the overall economy. 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 the common stocks of growth companies.
[End callout]
The fund invests in small, medium, and large capitalization companies with
strong growth potential across a wide range of sectors, including, for
example, technology, health care and biotechnology, communications, media and
entertainment, and consumer products and services.
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined long-term growth strategy. As a "bottom-up" investor
focusing primarily on individual securities, the manager focuses on sectors
that have exceptional growth potential and fast growing, innovative companies
within these sectors. 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 sound financial records, strength and
quality of management, and strategic positioning in its industry. The manager
believes such factors point to steady growth over time potential.
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 shorter
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.
[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]
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 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.
COMPUTER TECHNOLOGY AND MEDICAL TECHNOLOGY COMPANIES The fund expects to
invest a portion of its assets in securities of companies involved in or
related to computer technologies and medical technologies. The computer
technology and medical technology sectors have historically been volatile due
to the rapid pace of product change and development, and the stock prices of
companies operating within these sectors are often subject to abrupt or
erratic movements.
HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal or state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies held by the fund 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, the risk of a reform of the health care
system through legislation.
TELECOMMUNICATIONS, MEDIA, AND BROADCASTING COMPANIES The activities of
telecommunications, media, and broadcasting companies operate under
international , federal, and state regulations. These companies may be
adversely affected by changes in government regulations. In addition, these
sectors have been undergoing deregulation to enable increased competition,
which may affect the companies in these sectors that the fund holds.
CONSUMER PRODUCTS, SERVICES, AND ENTERTAINMENT COMPANIES These companies
have historically been sensitive to the economy in general, through changes
in consumer spending patterns. These companies may be adversely affected by
changes in consumer opinion or demand for a given product or service.
PORTFOLIO TURNOVER The manager's aggressive growth strategy may cause the
fund's portfolio turnover rate to be higher than that of other funds. High
turnover generally increases the fund's transaction costs.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made
bycompanies about their Year 2000 readiness. The manager, of course, cannot
audit each company and its major suppliers to verify their Year 2000 readiness
If a company an issuer in which the fund is invested is adversely affected by
Year 2000 problems, it is likely that the price of its securities also will
be adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page [#] for more information.
More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).
[Begin callout]
Mutual 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. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $211 billion in assets.
The team responsible for the fund's management is:
Management Team
MICHAEL MCCARTHY Mr. McCarthy has been a manager of
VICE PRESIDENT, ADVISERS the fund since its inception in
1999 and has been with the
Franklin Templeton Group since
1992.
J. P. SCANDALIOS Mr. Scandalios has been a manager
SENIOR SECURITIES ANALYST, ADVISERS of the fund since its inception in
1999. Before joining the Franklin
Templeton Group In 1996, he was
with Chase Manhattan Bank.
CONRAD HERRMANN, CFA Mr. Herrmann has been a manager of
SENIOR VICE PRESIDENT, ADVISERS the fund since its inception in
1999 and has been with the
Franklin Templeton Group since
1989.
The fund pays the manager a fee for managing its assets, and making its
investment decisions. The fee is equal to an annual rate of [to be supplied
by later 485(b) amendment].
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund will declare as dividends
substantially all of its net investment income. The fund typically pays
dividends from net investment income and net capital gains, if any, following
the close of the calendar year. Dividends or distributions by the fund will
reduce the per share net asset value (NAV) by the per share amount paid.
Dividends paid by the fund will be automatically reinvested in additional
shares of the fund or, if requested, paid in cash to the insurance company
shareholder.
TAX CONSIDERATIONS The tax consequences for contract owners will depend on
the provisions of the variable annuity or variable life insurance contract
through which they are invested in the fund. For more information, please
consult the accompanying contract prospectus.
FUND ACCOUNT INFORMATION
[Insert graphic of paper with lines and someone writing] BUYING SHARES
Shares of the 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 fund's 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 the fund and are subject to any limits or
conditions in the contract. Requests to buy shares are processed at the NAV
next calculated after we receive the request in proper form. The fund does
not issue share certificates.
[Insert graphic of certificate] SELLING SHARES
Each insurance company shareholder sells shares of the 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] EXCHANGING SHARES
Contract owners may exchange shares of any one class or fund for shares of
other classes or funds of the trust 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 fund calculates its NAV per share each business
day at the close of trading on the New York Stock Exchange (normally 1:00
p.m. Pacific time). Each class' NAV is calculated by dividing its net assets
by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value
Requests to buy and sell shares are processed on any day the fund is open for
business at the NAV next calculated after we receive the request in proper
form.
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 fund is not designed for market timers, large or frequent
transfers. The fund may restrict or refuse purchases or exchanges by market
timers. You will be considered a market timer if you have (i) requested an
exchange out of the fund within two weeks of an earlier exchange request, or
(ii) exchanged shares out of the fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the fund's net assets, or (iv) otherwise seem to follow a timing pattern.
Accounts under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares.
o At any time, the fund may establish or change investment minimums.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.
o 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 The 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 the prospectus offering class 2 shares.
[Insert graphic of question mark] QUESTIONS
More detailed information about the fund's account policies can be found in
the fund's Statement of Additional Information (SAI). If you have any
questions about the fund, you can write to us at 777 Mariners Island Blvd.,
P.O. Box 7777, San Mateo, CA 94403-7777. You can also call us at
1-800/342-3863 or the Valuemark Service Center at 1-800/624-0197. For your
protection and to help ensure we provide you with quality service, all calls
may be monitored or recorded.
FOR MORE INFORMATION
The fund is only available as an investment option 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.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the SAI, contact your investment representative or call us
at the number below.
Franklin(R)Templeton(R)
1-800/342-3863
You can also obtain information about the fund 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, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-5583
PROSPECTUS
FRANKLIN AGGRESSIVE GROWTH SECURITIES FUND
FRANKLIN VALUEMARK FUNDS
CLASS 2
INVESTMENT STRATEGY GROWTH
AUGUST 1, 1999
[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.
Contents
THE FUND
[Begin callout]
Information about the fund you should know before investing
[End callout]
[insert page #] Goal and Strategies
[insert page #] Main Risks
[insert page #] Performance
[insert page #] Management
[insert page #] Distribution and Taxes
FUND ACCOUNT INFORMATION
[Begin callout]
Information about fund account transactions and services
[End callout]
[insert page #] Buying Shares
[insert page #] Selling Shares
[insert page #] Exchanging Shares
[insert page #] Fund Account Policies
[insert page #] Questions
FOR MORE INFORMATION
[Begin callout]
Where to learn more about each fund
[End callout]
BACK COVER
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
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
demonstrating accelerating growth, increasing profitability, or above-average
growth or growth potential as compared with the overall economy. 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 the common stocks of growth companies.
[End callout]
The fund invests in small, medium, and large capitalization companies with
strong growth potential across a wide range of sectors, including, for
example, technology, health care and biotechnology, communications, media and
entertainment, and consumer products and services.
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined long-term growth strategy. As a "bottom-up" investor
focusing primarily on individual securities, the manager focuses on sectors
that have exceptional growth potential and fast growing, innovative companies
within these sectors. 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 sound financial records, strength and
quality of management, and strategic positioning in its industry. The manager
believes such factors point to steady growth over time potential.
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 shorter
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.
[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]
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 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.
COMPUTER TECHNOLOGY AND MEDICAL TECHNOLOGY COMPANIES The fund expects to
invest a portion of its assets in securities of companies involved in or
related to computer technologies and medical technologies. The computer
technology and medical technology sectors have historically been volatile due
to the rapid pace of product change and development, and the stock prices of
companies operating within these sectors are often subject to abrupt or
erratic movements.
HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal or state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies held by the fund 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, the risk of a reform of the health care
system through legislation.
TELECOMMUNICATIONS, MEDIA, AND BROADCASTING COMPANIES The activities of
telecommunications, media, and broadcasting companies operate under
international , federal, and state regulations. These companies may be
adversely affected by changes in government regulations. In addition, these
sectors have been undergoing deregulation to enable increased competition,
which may affect the companies in these sectors that the fund holds.
CONSUMER PRODUCTS, SERVICES, AND ENTERTAINMENT COMPANIES These companies
have historically been sensitive to the economy in general, through changes
in consumer spending patterns. These companies may be adversely affected by
changes in consumer opinion or demand for a given product or service.
PORTFOLIO TURNOVER The manager's aggressive growth strategy may cause the
fund's portfolio turnover rate to be higher than that of other funds. High
turnover generally increases the fund's transaction costs.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made
bycompanies about their Year 2000 readiness. The manager, of course, cannot
audit each company and its major suppliers to verify their Year 2000 readiness
If a company an issuer in which the fund is invested is adversely affected by
Year 2000 problems, it is likely that the price of its securities also will
be adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page [#] for more information.
More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).
[Begin callout]
Mutual 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. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $211 billion in assets.
The team responsible for the fund's management is:
Management Team
MICHAEL MCCARTHY Mr. McCarthy has been a manager of
VICE PRESIDENT, ADVISERS the fund since its inception in
1999 and has been with the
Franklin Templeton Group since
1992.
J. P. SCANDALIOS Mr. Scandalios has been a manager
SENIOR SECURITIES ANALYST, ADVISERS of the fund since its inception in
1999. Before joining the Franklin
Templeton Group In 1996, he was
with Chase Manhattan Bank.
CONRAD HERRMANN, CFA Mr. Herrmann has been a manager of
SENIOR VICE PRESIDENT, ADVISERS the fund since its inception in
1999 and has been with the
Franklin Templeton Group since
1989.
The fund pays the manager a fee for managing its assets, and making its
investment decisions. The fee is equal to an annual rate of [to be supplied
by later 485(b) amendment].
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund will declare as dividends
substantially all of its net investment income. The fund typically pays
dividends from net investment income and net capital gains, if any, following
the close of the calendar year. Dividends or distributions by the fund will
reduce the per share net asset value (NAV) by the per share amount paid.
Dividends paid by the fund will be automatically reinvested in additional
shares of the fund or, if requested, paid in cash to the insurance company
shareholder.
TAX CONSIDERATIONS The tax consequences for contract owners will depend on
the provisions of the variable annuity or variable life insurance contract
through which they are invested in the fund. For more information, please
consult the accompanying contract prospectus.
FUND ACCOUNT INFORMATION
[Insert graphic of paper with lines and someone writing] BUYING SHARES
Shares of the 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 fund's 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 the fund and are subject to any limits or
conditions in the contract. Requests to buy shares are processed at the NAV
next calculated after we receive the request in proper form. The fund does
not issue share certificates.
[Insert graphic of certificate] SELLING SHARES
Each insurance company shareholder sells shares of the 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] EXCHANGING SHARES
Contract owners may exchange shares of any one class or fund for shares of
other classes or funds of the trust 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 fund calculates its NAV per share each business
day at the close of trading on the New York Stock Exchange (normally 1:00
p.m. Pacific time). Each class' NAV is calculated by dividing its net assets
by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value
Requests to buy and sell shares are processed on any day the fund is open for
business at the NAV next calculated after we receive the request in proper
form.
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 fund is not designed for market timers, large or frequent
transfers. The fund may restrict or refuse purchases or exchanges by market
timers. You will be considered a market timer if you have (i) requested an
exchange out of the fund within two weeks of an earlier exchange request, or
(ii) exchanged shares out of the fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the fund's net assets, or (iv) otherwise seem to follow a timing pattern.
Accounts under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares.
o At any time, the fund may establish or change investment minimums.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice to insurance company shareholders.
o 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 The 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 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.
[Insert graphic of question mark] QUESTIONS
More detailed information about the fund's account policies can be found in
the fund's Statement of Additional Information (SAI). If you have any
questions about the fund, you can write to us at 777 Mariners Island Blvd.,
P.O. Box 7777, San Mateo, CA 94403-7777. You can also call us at
1-800/342-3863 or the Valuemark Service Center at 1-800/624-0197. For your
protection and to help ensure we provide you with quality service, all calls
may be monitored or recorded.
FOR MORE INFORMATION
The fund is only available as an investment option 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.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the SAI, contact your investment representative or call us
at the number below.
Franklin(R)Templeton(R)
1-800/342-3863
You can also obtain information about the fund 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, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-5583
FRANKLIN AGGRESSIVE GROWTH SECURITIES FUND
FRANKLIN(R) VALUEMARK(R) FUNDS
CLASS 1 AND CLASS 2
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
777 MARINERS ISLAND BLVD. P.O. BOX 7777 SAN MATEO, CA 94403-7777
1-800/342-3863
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund
prospectus. The fund prospectus, dated August 1, 1999, which we may
amend from time to time, contains the basic information you should know before
investing in the fund. You should read this SAI together with the fund's
prospectus.
For a free copy of a current prospectus call 1-800/342-3863.
CONTENTS PAGE
Goals and Strategies of the Aggressive Growth Fund
Risks of the Aggressive Growth Fund
Investment Restrictions
Officers and Trustees
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Pricing Shares
The Underwriter
Performance
Financial Statements
Miscellaneous Information
Description of Bond Ratings
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
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o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
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o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
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o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
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GOALS AND STRATEGIES OF THE AGGRESSIVE GROWTH FUND
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is capital appreciation. This goal is
fundamental, which means that it may not be changed without shareholder
approval.
Under normal market conditions, the fund will invest primarily in equity
securities of companies demonstrating accelerating growth, increasing
profitability, or above-average growth or growth potential compared with the
overall economy.
The following gives more detailed information about the fund's investment
policies and the types of securities that it may buy. Please read this
information together with the section "Principal Investments" in the
prospectus.
MORE INFORMATION ABOUT THE KINDS OF SECURITIES THE FUND BUYS
EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner
of an equity security may participate in a company's success through the
receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners may also participate in a company's
success or lack of success through increases or decreases in the value of the
company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well. Equity securities may also include warrants or rights. Warrants or
rights give the holder the right to purchase a common stock at a given time
for a specified price.
CONVERTIBLE SECURITIES Although the fund may invest in convertible
securities without limit, it currently intends to limit these investments to
no more than 5% of its net assets.
A convertible security is generally a preferred stock or debt security that
pays dividends or interest and may be converted into common stock. A
convertible security may also be subject to redemption by the issuer but only
after a specified date and under circumstances established at the time the
security is issued. Convertible securities provide a fixed-income stream and
the opportunity, through their conversion feature, to participate in the
capital appreciation resulting from a market price advance in the convertible
security's underlying common stock. The fund intends to invest in liquid
convertible securities, but there can be no assurance that they will always
be able to do so.
As with a straight fixed-income security, a convertible security tends to
increase in market value when interest rates decline and decrease in value
when interest rates rise. Like a common stock, the value of a convertible
security also tends to increase as the market value of the underlying stock
rises, and it tends to decrease as the market value of the underlying stock
declines. Because both interest rate and market movements can influence its
value, a convertible security is not as sensitive to interest rates as a
similar fixed-income security, nor is it as sensitive to changes in share
price as its underlying stock.
A convertible security is usually issued either by an operating company or by
an investment bank. When issued by an operating company, a convertible
security tends to be senior to common stock, but subordinate to other types
of fixed-income securities issued by that company. When a convertible
security issued by an operating company is "converted," the operating company
often issues new stock to the holder of the convertible security but, if the
parity price of the convertible security is less than the call price, the
operating company may pay out cash instead of common stock. The parity price
is the price at which the common stock underlying the convertible security
may be obtained; the call price is the price of the bond, including any
premium related to the conversion feature. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank. The issuer of a convertible
security may be important in determining the security's true value. This is
because the holder of a convertible security will have recourse only to the
issuer.
While the fund uses the same criteria to rate convertible debt securities
that it uses to rate more conventional debt securities, a convertible
preferred stock is treated like a preferred stock for the fund's financial
reporting, credit rating, and investment limitation purposes. A preferred
stock is subordinated to all debt obligations in the event of insolvency, and
an issuer's failure to make a dividend payment is generally not an event of
default entitling the preferred shareholder to take action. A preferred stock
generally has no maturity date, so that its market value is dependent on the
issuer's business prospects for an indefinite period of time. In addition,
distributions from preferred stock are dividends, rather than interest
payments, and are usually treated that way for corporate tax purposes.
FOREIGN SECURITIES AND DEPOSITARY RECEIPTS Although the fund may invest in
foreign securities, it intend to limit such investments to 10% of its total
assets.
The fund may buy foreign securities traded in the U.S. or directly in foreign
markets. The fund may buy 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 (a) of a
foreign issuer deposited in a U.S. bank or trust company (American Depositary
Receipts, "ADRs"); or (b) of a foreign or U.S. issuer deposited in a foreign
bank or trust company (Global Depositary Receipts, "GDRs" or European
Depositary Receipts, "EDRs").
REPURCHASE AGREEMENTS The fund will generally have a portion of its assets
in cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase agreements
with certain banks and broker dealers. Repurchase agreements are contracts
under which the buyer of a security simultaneously commits to resell the
security to the seller at an agreed upon price and date. Under a repurchase
agreement, a fund agrees to buy a U.S. Government security from one of these
issuers and then to sell the security back to the issuer after a short period
of time (generally, less than seven days) at a higher price. The bank or
broker dealer must transfer to the fund's custodian securities with an
initial value of 102% of the dollar amount invested by the fund in each
repurchase agreement. The manager will monitor the value of such securities
daily to determine that the value equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the seller, including possible delays or restrictions upon the fund's
ability to dispose of the underlying securities. The fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the fund's Board, i.e., banks or broker-dealers which have been
determined by Advisers to present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may
lend its portfolio securities to qualified securities dealers or other
institutional investors. Such loans may not exceed 30% of the value of the
fund's total assets, measured at the time of the most recent loan. For each
loan, the borrower must maintain with the fund's custodian collateral
(consisting of any combination of cash, U.S. Government securities, or
irrevocable letters of credit) with a value at least equal to 100% of the
current market value of the loaned securities. The fund retains all or a
portion of the interest received on investment of the cash collateral or
receives a fee from the borrower. The fund may terminate the loans at any
time and obtain the return of the securities loaned within five business
days. The fund will continue to receive any interest or dividends paid on the
loaned securities and will continue to have voting rights with respect to the
securities. However, as with other extensions of credit, there are risks of
delay in recovery or even loss of rights in collateral should the borrower
fail.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES A stock option is a contract that
provides the holder the right to buy or sell shares of the stock at a fixed
price, within a specified period of time. An option on a stock index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the options' exercise price. A futures contract is an obligation to
buy or sell a specified security or currency at a set price on a specified
future date. A stock index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of
the index at the beginning and end of the contract period. Options, futures,
and options on futures are considered "derivative securities."
The fund may buy and sell options on securities and securities indices. The
fund may only buy options if the premiums it paid for such options total 5%
or less of its net assets. The fund may also buy and sell securities index
futures and options on securities index futures.
The fund may buy and sell futures contracts for securities. The fund may
invest in futures contracts only to hedge against changes in the value of its
securities or those it intends to buy. The fund will not buy futures if the
amounts paid for it open contracts, including required initial deposits,
would exceed 5% of its net assets.
OPTIONS. The fund may buy or write (sell) put and call options on securities
listed on a national securities exchange and in the over-the-counter ("OTC")
market. All options written by the fund will be covered. The fund may also
buy or write put and call options on securities indices and stock indices.
Options written by the fund will be for portfolio hedging purposes only.
A call option written by the fund is covered if the fund (a) owns the
underlying security that is subject to the call or (b) has an absolute and
immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian bank) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the fund
holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the
fund in cash and high grade debt securities in a segregated account with its
custodian bank.
A put option written by the fund is "covered" if the fund maintains cash or
high grade debt securities with a value equal to the exercise price in a
segregated account with its custodian bank. A put is also covered if the fund
a put on the same security and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
The premium paid by the buyer of an option will reflect, among other things,
the relationship of the exercise price to the market price and volatility of
the underlying security, the remaining term of the option, supply and demand,
and interest rates.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since with regard to certain options the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount may, in the case of a covered call
option, be offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer
experiences a profit or loss from the sale of the underlying security. If a
put option is exercised, the writer must fulfill the obligation to buy the
underlying security at the exercise price, which will usually exceed the then
current market value of the underlying security.
If the writer of an option wants to terminate its obligation, the writer may
effect a "closing purchase transaction," by buying an option of the same
series as the option previously written. The effect of the purchase is that
the clearing corporation will cancel the writer's position. A writer,
however, may not effect a closing purchase transaction after being notified
of the exercise of an option. Likewise, the holder of an option may liquidate
its position by effecting a "closing sale transaction," by selling an option
of the same series as the option previously purchased. There is no guarantee
that either a closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option allows a
fund to write another call option on the underlying security with either a
different exercise price, expiration date or both. In the case of a written
put option, a closing transaction allows a fund to write another covered put
option. Effecting a closing transaction also allows the cash or proceeds from
the sale of any securities subject to the option to be used for other fund
investments. If a fund wants to sell a particular security from its portfolio
on which it has written a call option, it will effect a closing transaction
prior to or at the same time as the sale of the security.
A fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to buy the option. Likewise, a fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to buy the option. Increases in the market price of a call option will
generally reflect increases in the market price of the underlying security.
As a result, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the fund.
The writing of covered put options involves certain risks. For example, if
the market price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and the fund's gain will
be limited to the premium received. If the market price of the underlying
security declines or otherwise is below the exercise price, a fund may elect
to close the position or take delivery of the security at the exercise price.
The fund's return will be the premium received from the put options minus the
amount by which the market price of the security is below the exercise price.
A fund may buy call options on securities it intends to buy in order to limit
the risk of a substantial increase in the market price of the security. The
fund may also buy call options on securities held in its portfolio and on
which it has written call options. A call option gives the option holder the
right to buy the underlying securities from the option writer at a stated
exercise price. Prior to its expiration, a call option may be sold in a
closing sale transaction. Profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the call option
plus the related transaction costs.
A fund may buy put options on securities to protect against a decline in the
market value of the underlying security below the exercise price less the
premium paid for the option. The ability to buy put options will allow the
fund to protect the unrealized gain in an appreciated security in its
portfolio without actually selling the security. In addition, the fund
continues to receive interest or dividend income on the security. A fund may
sell a put option it has previously purchased before the sale of the
securities underlying the option. The sale of the option will result in a net
gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid for the put option
that is sold. Any gain or loss may be wholly or partially offset by a change
in the value of the underlying security which the fund owns or has the right
to acquire.
A fund may write covered put and call options and buy put and call options
that trade in the OTC market to the same extent that it may engage in
exchange traded options. Like exchange traded options, OTC options give the
option holder the right to buy, in the case of OTC call options, or sell, in
the case of OTC put options, an underlying security from or to the writer at
a stated exercise price. OTC options, however, differ from exchange traded
options in certain material respects.
OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, with a clearing corporation. Thus, there is a risk
of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. OTC options
are available for a greater variety of securities, and in a wider range of
expiration dates and exercise prices, however, than exchange traded options,
and the writer of an OTC option is paid the premium in advance by the dealer.
Call and put options on stock indices are similar to options on securities
except, rather than the right to buy or sell stock at a specified price,
options on a stock index give the holder the right to receive, upon exercise
of the option, an amount of cash if the closing level of the underlying stock
index is greater than (or less than, in the case of a put) the exercise price
of the option, expressed in dollars multiplied by a specified number. Thus,
unlike stock options, all settlements are in cash, and gain or loss depends
on price movements in the stock market generally (or in a particular industry
or segment of the market) rather than price movements in individual stocks.
When a fund writes an option on a stock index, the fund will establish a
segregated account with its custodian bank containing cash or high-quality
fixed-income securities in an amount at least equal to the market value of
the underlying stock index. The fund will maintain the account while the
option is open or will otherwise cover the transaction.
FINANCIAL FUTURES. The fund may enter into contracts for the purchase or sale
of futures contracts based upon financial instruments ("financial futures").
Financial futures contracts are commodity contracts that obligate the long or
short holder to take or make delivery of the cash value of a securities index
during a specified future period at a specified price. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price on a specified
date. A "purchase" of a futures contract means the acquisition of a
contractual obligation to acquire the securities called for by the contract
at a specified price on a specified date. Futures contracts have been
designed by exchanges that have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market.
The fund will not engage in transactions in futures contracts or related
options for speculation, but only as a hedge against changes resulting from
market conditions in the values of its securities or securities that it
intends to buy and, to the extent consistent therewith, to accommodate cash
flows. A fund will not enter into any stock index or financial futures
contract or related option if, immediately thereafter, more than one-third of
its total assets would be represented by futures contracts or related
options. In addition, a fund may not buy or sell futures contracts or buy or
sell related options if, immediately thereafter, the sum of the amount of
initial deposits on its existing financial futures and premiums paid on
options on financial futures contracts would exceed 5% of its total assets
(taken at current value). To the extent a fund enters into a futures contract
or related call option, it will maintain with its custodian bank, to the
extent required by the rules of the SEC, assets in a segregated account to
cover its obligations with respect to such contract which will consist of
cash, cash equivalents or high quality debt securities from its portfolio in
an amount equal to the market value of such futures contract or related
option.
STOCK INDEX FUTURES. The fund may buy and sell stock index futures contracts.
A stock index futures contract obligates the seller to deliver (and the buyer
to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
The fund may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset a possible decrease in market value of
its equity securities. When the fund is not fully invested in stocks and
anticipates a significant market advance, it may buy stock index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of common stocks that it intends to buy.
OPTIONS ON STOCK INDEX FUTURES. The fund may buy and sell call and put
options on stock index futures to hedge against risks of marketside price
movements. The need to hedge against these risks will depend on the extent of
diversification of the fund's common stock portfolio and the sensitivity of
these investments to factors influencing the stock market as a whole.
Call and put options on stock index futures are similar to options on
securities except that, rather than the right to buy or sell stock at a
specified price, options on a stock index futures contract give the holder
the right to receive cash. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day before the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
FUTURES CONTRACTS FOR SECURITIES. The fund may buy and sell futures
contracts for securities and currencies. The fund may also enter into closing
purchase and sale transactions with respect to these futures contracts. The
fund will engage in futures transactions only for bona fide hedging or other
appropriate risk management purposes. All futures contracts entered into by
the fund are traded on U.S. exchanges or boards of trade licensed and
regulated by the CFTC or on foreign exchanges.
When securities prices are falling, the fund may offset a decline in the
value of its current portfolio securities through the sale of futures
contracts. When prices are rising, the fund can attempt to secure better
prices than might be available when it intends to buy securities through the
purchase of futures contracts. Similarly, the fund can sell futures contracts
on a specified currency to protect against a decline in the value of that
currency and its portfolio securities denominated in that currency. The fund
can buy futures contracts on a foreign currency to fix the price in U.S.
dollars of a security denominated in that currency that the fund has
purchased or expects to buy.
Positions taken in the futures markets are not normally held to maturity, but
are liquidated through offsetting transactions that may result in a profit or
a loss. While the fund's futures contracts on securities and currencies will
usually be liquidated in this manner, the fund may instead make or take
delivery of the underlying securities or currencies whenever it appears
economically advantageous for it to do so. A clearing corporation associated
with the exchange on which futures on securities or currencies are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
To the extent the fund enters into a futures contract, it will maintain with
its custodian bank, to the extent required by the rules of the SEC, assets in
a segregated account to cover its obligations with respect to the contract.
These assets will consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the difference between
the fluctuating market value of the futures contract and the aggregate value
of the initial and variation margin payments made by the fund with respect to
these futures contracts.
FUTURES CONTACTS - GENERAL. Although futures contracts by their terms call
for the actual delivery or acquisition of securities, or the cash value of
the index, in most cases the contractual obligation is fulfilled before the
date of the contract without having to make or take delivery of the
securities or cash. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. This transaction, which is effected through a member of an exchange,
cancels the obligation to make or take delivery of the securities or cash.
Since all transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the contracts
are traded, the fund will incur brokerage fees when it buys or sells futures
contracts.
FUTURE DEVELOPMENTS The fund may take advantage of opportunities in the area
of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by
the fund or which are not currently available but which may be developed, to
the extent these opportunities are both consistent with the fund's investment
objective and legally permissible for the fund.
ILLIQUID SECURITIES The fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the fund has valued them. The
Board has authorized the fund to invest in restricted securities (which might
otherwise be considered illiquid) where the investment is consistent with the
fund's investment objective and has authorized the securities to be
considered liquid (and thus not subject to the foregoing 10% limitation), to
the extent Advisers determines on a daily basis that there is a liquid
institutional or other market for the securities - for example, restricted
securities that may be freely transferred among qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended,
and for which a liquid institutional market has developed. The Board will
review any determination by Advisers to treat a restricted security as a
liquid security on an ongoing basis, including Advisers' assessment of
current trading activity and the availability of reliable price information.
In determining whether a restricted security is properly considered a liquid
security, Advisers and the Board will take into account the following
factors: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to buy or sell the security and the number of other
potential buyers; (iii) dealer undertakings to make a market in the security;
and (iv) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). To the extent the fund invests in
restricted securities that are deemed liquid, the general level of
illiquidity in the fund may be increased if qualified institutional buyers
are no longer interested in buying these securities or the market for these
securities contracts.
TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the
fund may invest up to 100% of its assets in short-term debt instruments. The
fund may also invest its cash, including cash resulting from purchases and
sales of fund shares, temporarily in short-term debt instruments. Short-term
debt instruments include high-grade commercial paper, repurchase agreements,
and other money market equivalents.
RISKS OF THE AGGRESSIVE GROWTH FUND
FOREIGN SECURITIES RISK Investors should consider carefully the substantial
risks involved in foreign securities, which are in addition to the usual
risks associated with investing in U.S. issuers. These risks can be
significantly greater for investments in emerging or developing markets.
There is generally less government supervision and regulation of securities
exchanges, brokers, dealers and listed companies than in the U.S. The
settlement practices of some of the countries in which the fund invests may
be cumbersome and result in delays that may affect portfolio liquidity. The
fund may have greater difficulty voting proxies, exercising shareholder
rights, pursuing legal remedies and obtaining judgments with respect to
foreign investments in foreign courts than with respect to domestic issuers
in U.S. courts. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy with respect to growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position.
Securities that are acquired by the fund outside the U.S. and that are
publicly traded in the U.S. or on a foreign securities exchange or in a
foreign securities market are not considered by the fund to be illiquid
assets so long as the fund acquires and holds the securities with the
intention of reselling the securities in the foreign trading market, the fund
reasonably believes it can readily dispose of the securities for cash in the
U.S. or foreign market, and current market quotations are readily available.
Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries.
Investments in foreign securities where delivery takes place outside the U.S.
will be made in compliance with any applicable U.S. and foreign currency
restrictions and tax laws (including laws imposing withholding taxes on any
dividend or interest income) and laws limiting the amount and types of
foreign investments. Changes in governmental administrations or economic or
monetary policies, in the U.S. or abroad, or changes in circumstances in
dealings between nations or currency convertibility or exchange rates could
result in investment losses for the fund. Investments in foreign securities
may also subject the fund to losses due to nationalization, expropriation,
holding and transferring assets through foreign subcustodians, depositories
and broker-dealers, or differing accounting practices and treatment.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements
may not be comparable to those applicable to U.S. companies. The fund,
therefore, may encounter difficulty in obtaining market quotations for
purposes of valuing its portfolio and calculating its Net Asset Value.
Moreover, investors should recognize that foreign securities are often traded
with less frequency and volume and, therefore, may have greater price
volatility than is the case with many U.S. securities. Notwithstanding the
fact that the fund generally intends to acquire the securities of foreign
issuers where there are public trading markets, investments by the fund in
the securities of foreign issuers may tend to increase the risks with respect
to the liquidity of the fund's portfolio and the fund's ability to meet a
large number of shareholder redemption requests should there be economic or
political turmoil in a country in which the fund has a substantial portion of
its assets invested or should relations between the U.S. and foreign
countries deteriorate markedly. Furthermore, the reporting and disclosure
requirements applicable to foreign issuers may differ from those applicable
to domestic issuers, and there may be difficulties in obtaining or enforcing
judgments against foreign issuers.
The fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. Some countries in which the fund may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded. Certain of
these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the fund's portfolio
securities are denominated may have a detrimental impact on the fund.
Advisers endeavors to avoid unfavorable consequences and to take advantage of
favorable developments in particular nations where from time to time the
fund's investments are placed. The exercise of this policy may include
decisions to buy securities with substantial risk characteristics and other
decisions such as changing the emphasis on investments from one nation to
another and from one type of security to another. No assurance can be given
that profits, if any, will exceed losses.
Some of the countries in which the fund may invest are considered developing
or emerging markets. Investments in these markets are subject to all of the
risks of foreign investing generally, and have additional and heightened
risks due to a lack of legal, business and social frameworks to support
securities markets.
Emerging markets involve additional significant risks, including political
and social uncertainty (for example, regional conflicts and risk of war),
currency exchange rate volatility, pervasiveness of corruption and crime,
delays in settling portfolio transactions and risk of loss arising out of the
system of share registration and custody. All of these factors make
developing market equity securities' prices generally more volatile than
securities issued in developed markets.
RISKS OF OPTIONS, FUTURES AND OPTIONS ON FUTURES The fund's options and
futures investments involve certain risks. These risks include, among others,
the risks that the effectiveness of an options and futures strategy depends
on the degree to which price movements in the underlying index or securities
correlate with price movements in the relevant portion of the fund's
portfolio. The fund bears the risk that the prices of its portfolio
securities will not move in the same amount as the option or future it has
purchased, or that there may be a negative correlation that would result in a
loss on both the securities and the option or future.
Successful use by the fund of options on securities, stock indexes, stock
index futures, financial futures and related options will be subject to
Advisers' ability to predict correctly movements in the direction of the
securities markets generally or of a particular segment. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
Adverse market movements could cause the fund to lose up to its full
investment in a call option contract and/or to experience substantial losses
on an investment in a futures contract. There is also the risk of loss by the
fund of margin deposits in the event of bankruptcy of a broker with whom the
fund has an open position in a futures contract or option.
Positions in options, futures and related options on futures may be closed
out only on an exchange which provides a secondary market. There can be no
assurance that a liquid secondary market will exist for any particular option
or futures contract at any specific time. Thus, it may not be possible to
close an option or futures position. The inability to close options or
futures positions could also have an adverse impact on the fund's ability to
effectively hedge its securities. The fund will enter into an option or
futures position only if there appears to be a liquid secondary market for
these options or futures.
There can be no assurance that a continuous liquid secondary market will
exist for any particular OTC option at any specific time. Consequently, the
fund may be able to realize the value of an OTC option it has purchased only
by exercising it or entering into a closing sale transaction with the dealer
that issued it. Similarly, when the fund writes an OTC option, it generally
can close out that option before its expiration only by entering into a
closing purchase transaction with the dealer to which the fund originally
wrote it. If a covered call option writer cannot effect a closing
transaction, it cannot sell the underlying security until the option expires
or the option is exercised. Therefore, a covered call option writer of an OTC
option may not be able to sell an underlying security even though it might
otherwise be advantageous to do so. Likewise, a secured put writer of an OTC
option may be unable to sell the securities pledged to secure the put for
other investment purposes while it is obligated as a put writer. Similarly, a
buyer of a put or call option might also find it difficult to terminate its
position on a timely basis in the absence of a secondary market.
The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures contract.
Trading limits are also imposed on the maximum number of contracts that any
person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. The fund does not believe that these
trading and positions limits will have an adverse impact on the fund's
strategies for hedging its securities.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by Advisers
may still not result in a successful transaction.
Futures contracts entail other risks as well. Although the fund believes that
the use of these contracts will be beneficial, if Advisers' investment
judgment about the general direction of interest rates is incorrect, the
fund's overall performance would be poorer than if it had not entered into
any futures contract. For example, if the fund has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of bonds held in its portfolio and interest rates decrease instead, the
fund will lose part or all of the benefit of the increased value of its bonds
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in these situations, if the fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily
variation margin requirements. These sales may be, but will not necessarily
be, at increased prices which reflect the rising market. The fund may have to
sell securities at a time when it may be disadvantageous to do so.
The fund's investment in options and futures contracts may be limited by the
requirements of the Code for qualification as a regulated investment company
and are subject to special tax rules that may affect the amount, timing and
character of distributions to you. These securities also require the
application of complex and special tax rules and elections. See "Additional
Information on Distributions and Taxes" in this SAI for more information.
DERIVATIVE SECURITIES RISK Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments
or indices; in contrast to common stock, for example, whose value is
dependent upon the operations of the issuer. Option transactions, foreign
currency exchange transactions and futures contracts are considered
derivative investments. To the extent the fund enters into these
transactions, their success will depend upon Advisers' ability to predict
pertinent market movements.
INVESTMENT RESTRICTIONS
The Aggressive Growth Fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
1. Borrow money, except that the fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act, or
any exemptions therefrom which may be granted by the U.S. Securities and
Exchange Commission, or for temporary or emergency purposes and then in an
amount not exceeding 33%and 1/3 of the value of the fund's total assets
(including the amount borrowed).
2. Act as an underwriter except to the extent the fund may be deemed to be
an underwriter when disposing of securities it owns or when selling its own
shares.
3. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance with
its investment objectives and policies, and (c) to the extent the entry into
a repurchase agreement is deemed to be a loan. The fund may also make loans
to affiliated investment companies to the extent permitted by the 1940 Act or
any exemptions therefrom which may be granted by the U.S. Securities and
Exchange Commission.
4. Purchase or sell real estate and commodities, except that the fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies,
and other indices or any other financial instruments, and may purchase and
sell options on such futures contracts.
5. Issue securities senior to the fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the fund from (a) making any permitted borrowings, loans, mortgages
or pledges, (b) entering into options, futures contracts, forward contracts
or repurchase transactions, or (c) making short sales of securities to the
extent permitted by the 1940 Act and any rule or order thereunder, or SEC
staff interpretations thereof.
6. Concentrate (invest more than 25% of its total assets) in securities of
issuers in a particular industry (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities or
securities of other investment companies).
7. Buy the securities of any one issuer (other than the U.S. Government or
any of its agencies or instrumentalities) if immediately after such
investment (a) more than 5% of the value of the fund's total assets would be
invested in such issuer or (b) more than 10% of the outstanding voting
securities of such issuer would be owned by the fund, except that up to 25%
of the value of such fund's total assets may be invested without regard to
such 5% limitations.
If a bankruptcy or other extraordinary event occurs concerning a particular
security owned by the fund, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. In this case, the
fund intends to dispose of the investment as soon as practicable while
maximizing the return to shareholders.
If a percentage restriction is met at the time of investment, a later
increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities or the amount of assets will not be
considered a violation of any of the foregoing restrictions.
OFFICERS AND TRUSTEES
The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of each
fund's investment activities. The board, in turn, elects the officers of the
trust who are responsible for administering the trust's day-to-day
operations. The board also monitors each fund to ensure no material conflicts
exist among share classes, among different insurance companies or between
owners of variable annuity and variable life insurance contracts. While none
is expected, the board will act appropriately to resolve any material
conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (78)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies
in the Franklin Templeton Group of Funds; and FORMERLY, President, Chief
Executive Officer and Chairman of the Board, General Host Corporation
(nursery and craft centers).
Edward J. Bonach (45)
Allianz Life Insurance Company
1750 Hennepin Avenue, Minneapolis, MN 55403-2195
TRUSTEE
Senior Vice President and Chief Financial Officer, Allianz Life Insurance
Company of North America; President and Chief Executive Officer, Canadian
American Financial Corporation; and Director, Preferred Life Insurance
Company of New York and Life USA Holding, Inc.
Robert F. Carlson (71)
2120 Lambeth Way, Carmichael, CA 95608
TRUSTEE
Member and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may
be, of nine of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, member and Chairman of the Board, Sutter Community
Hospitals, member, Corporate Board, Blue Shield of California, and Chief
Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee,
as the case may be, of 50 of the investment companies in the Franklin
Templeton Group of Funds.
*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Investment Advisory Services, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and Franklin Templeton
Services, Inc.; officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 49 of the
investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (42)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
PRESIDENT AND TRUSTEE
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment
Counsel, Inc.; Vice President, Franklin Advisers, Inc.; officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 33 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President,
Franklin Advisory Services, LLC; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 52 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (70)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); director or trustee, as the case may be,
of 27 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Director, Fischer Imaging Corporation (medical imaging
systems), Digital Transmission Systems, Inc. (wireless communications) and
Director, Quarterdeck Corporation (software firm); and General Partner,
Peregrine Associates, which was the General Partner of Peregrine Ventures
(venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 48 of the investment companies in
the Franklin Templeton Group of Funds; and formerly, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 52 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC,
Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and
Director, Templeton Investment Counsel, Inc.; Executive Vice President and
Chief Financial Officer, Franklin Advisers, Inc.; Chief Financial Officer,
Franklin Advisory Services, LLC and Franklin Investment Advisory Services,
Inc.; President and Director, Franklin Templeton Services, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 52 of
the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (50)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC. and Franklin Mutual Advisers,LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 53 of the investment
companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (60)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (61)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The trust pays noninterested board members $675 per month plus $550 per
meeting attended. Board members who serve on the audit committee of the trust
and other funds in the Franklin Templeton Group of Funds receive a flat fee
of $2,000 per committee meeting attended, a portion of which is allocated to
the trust. Members of a committee are not compensated for any committee
meeting held on the day of a board meeting. Noninterested board members may
also serve as directors or trustees of other funds in the Franklin Templeton
Group of Funds and may receive fees from these funds for their services. The
fees payable to noninterested board members by the trust are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table provides the total fees paid to noninterested
board members by the trust and by the Franklin Templeton Group of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
TOTAL FEES THE FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM THE GROUP OF ON WHICH
- -------------------------------------------------------------------------------
NAME TRUST1 ($) FUNDS2 ($) EACH SERVES3
Frank H. Abbott 9,573 159,051 27
Harris Ashton 10,004 361,157 48
Robert F. Carlson 11,142 78,052 9
S. Joseph Fortunato 9,551 367,835 50
Frank W.T. LaHaye 10,123 163,753 27
Gordon Macklin 10,004 361,157 48
1. For the fiscal year ended December 31, 1998. During the period from
January 1, 1998 through May 31, 1998, fees at the rate of $550 per month and
$182 per board meeting attended were in effect.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 54 registered investment companies, with
approximately 163 U.S. based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or board members who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
MANAGERS AND SERVICES PROVIDED Franklin Advisers, Inc. is the manager of the
fund, The manager is a wholly owned of Franklin Resources, Inc. (Resources),
a publicly owned company engaged in the financial services industry through
its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the
principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages. Of course, any transactions for the
accounts of the manager and other access persons will be made in compliance
with the fund's code of ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group
who are access persons may engage in personal securities transactions subject
to the following general restrictions and procedures: (i) the trade must
receive advance clearance from a compliance officer and must be completed by
the close of the business day following the day clearance is granted; (ii)
copies of all brokerage confirmations and statements must be sent to a
compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) above, file
annual reports of their securities holdings each January and inform the
compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they
are recommending a security in which they have an ownership interest for
purchase or sale by a fund or other client.
MANAGEMENT FEES The fund pays the manager a fee equal to [] rate of:
[to be supplied by later 485(b) amendment]
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) provides certain administrative services and facilities for each
fund. FT Services has direct agreements with the fund.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The Aggressive Growth Fund pays FT Services a monthly fee
equal to an annual rate of:
[to be supplied in a later 485(b) amendment]
DEFENSIVE DISTRIBUTION PLAN The fund's management agreement includes a
distribution or "rule 12b-1" plan (the "defensive plan"). No payments are to
be made by the fund, however, as a result of the defensive plan. The fund
does not make any payments other than those required under its management
agreement, the class 2 "rule 12b-1" plan (see "Distribution and service
(12b-1) fees" under the section "Underwriter") or as incurred in the ordinary
course of business. To the extent payments are still deemed indirectly to be
for the financing of any activity primarily intended to result in the sale of
shares within the context of rule 12b-1 under the Investment Company Act of
1940, as amended, then such payments shall be deemed to have been made
pursuant to the defensive plan. In connection with their approval of the
applicable management agreement, the board, including a majority of the
non-interested trustees, determined that, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the implementation of the defensive plan will
benefit the fund and the Contract Owners whose purchase payments have
indirectly been invested in the fund.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo,
CA 94403-7777.
CUSTODIANS Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the funds' securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco CA
94105, is the trust's independent auditor. The auditor gives an opinion on
the financial statements included in the trust's Annual Report to
Shareholders and reviews the trust's registration statement filed with the
U.S. Securities and Exchange Commission (SEC).
RESEARCH SERVICES The manager may receive services from various affiliates.
The services may include information, analytical reports, computer screening
studies, statistical data, and factual resumes pertaining to securities
eligible for purchase by the funds. Such supplemental research, when
utilized, is subject to analysis by the managers before being incorporated
into the investment advisory process.
PORTFOLIO TRANSACTIONS
The manager select brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services they receive. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which they exercise investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out their
investment advisory responsibilities. These services may not always directly
benefit the funds. They must, however, be of value to the managers in
carrying out its overall responsibilities to its clients.
To the extent a fund invests in bonds or participates in other principal
transactions at net prices, the fund incurs little or no brokerage costs. The
fund deals directly with the selling or buying principal or market maker
without incurring charges for the services of a broker on its behalf, unless
it is determined that a better price or execution may be obtained by using
the services of a broker.
Purchases of portfolio securities from underwriters will include a commission
or concession paid by the issuer to the underwriter, and purchases from
dealers will include a spread between the bid and ask prices. The funds seek
to obtain prompt execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for research and
statistical information, as well as for special services provided by the
dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services allows the manager to supplement its
own research and analysis activities and to receive the views and information
of individuals and research staffs of other securities firms. As long as it
is lawful and appropriate to do so, the manager and its affiliates may use
this research and data in their investment advisory capacities with other
clients. If the fund's officers are satisfied that the best execution is
obtained, the sale of fund shares, as well as shares of other funds in the
Franklin Templeton Group of Funds, also may be considered a factor in the
selection of broker-dealers to execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
fund, any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of a fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the fund.
Because the fund may, from time to time, invest in broker-dealers, it is
possible that a fund will own more than 5% of the voting securities of one or
more broker-dealers through whom such fund places portfolio brokerage
transactions. In such circumstances, the broker-dealer would be considered an
affiliated person of the fund. To the extent that the fund places brokerage
transactions through such a broker-dealer at a time when the broker-dealer is
considered to be an affiliate of the fund, the fund will be required to
adhere to certain rules relating to the payment of commissions to an
affiliated broker-dealer. These rules require the fund to adhere to
procedures adopted by the board relating to ensuring that the commissions
paid to such broker-dealers do not exceed what would otherwise be the usual
and customary broker's commissions for similar transactions.
DISTRIBUTIONS AND TAXES
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by a
fund. Similarly, foreign exchange losses realized by a fund on the sale of
debt securities are generally treated as ordinary losses by a fund. These
gains when distributed will be treated as ordinary dividends, and any losses
will reduce a fund's ordinary income otherwise available for distribution.
This treatment could increase or reduce a fund's ordinary income
distributions, and may cause some or all of a fund's previously distributed
income to be classified as a return of capital.
A fund may be subject to foreign withholding taxes on income from certain of
its foreign securities.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund intends to
elect to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code. As regulated investment companies, the fund
generally will pay no federal income tax on the income and gains they
distribute. To ensure that individuals holding the Contracts whose assets are
invested in the fund will not be subject to federal income tax on
distributions made by the fund prior to receipt of payments under the
Contracts, each fund intends to comply with the additional requirements of
Section 817(h) of the Internal Revenue Code relating to diversification of
its assets. The board reserves the right not to maintain the qualification of
the fund as a regulated investment company if it determines such course of
action to be beneficial to shareholders. In such case, the fund will be
subject to federal, and possibly state, corporate taxes on its taxable income
and gains.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires a fund to make certain minimum distributions
by December 31 of each year. Federal excise taxes will not apply to the fund
in a given calendar year, however, if all of its shareholders at all times
during the calendar year are segregated asset accounts of life insurance
companies where the shares are held in connection with variable products.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by a fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to a fund and/or defer a fund's ability to recognize losses, and, in
limited cases, subject the fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the
amount, timing or character of the income distributed by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
The fund is a diversified series of Franklin Valuemark Funds (the Trust), an
open-end management investment company, commonly called a mutual fund. The
Trust was organized as a Massachusetts business trust on April 26, 1988 and
is registered with the SEC.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations. The
Agreement and Declaration of Trust, however, contains an express disclaimer
of shareholder liability for acts or obligations of the trust. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of each series' (fund's) assets for any shareholder held
personally liable for obligations of that fund or the trust. The Declaration
of Trust provides that the trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of a fund or
the trust and shall satisfy any judgment thereon. All such rights are limited
to the assets of the fund. The Declaration of Trust further provides that the
trust may maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the trust, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the fund as an
investment company, as distinguished from an operating company, would not
likely give rise to liabilities in excess of the fund's total assets. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to the unlikely circumstance in which both inadequate
insurance exists and the fund itself is unable to meet its obligations.
The trust currently offers two classes of shares for each of twenty six
series, class 1 and class 2. All shares purchased before the initial offering
of class 2 shares on December 28, 1998 are considered class 1 shares. After
that date, all shares are designated either class 1 or class 2. Additional
classes of shares may be offered in the future. The full title of each class is:
Franklin Aggressive Growth Securities Fund - Class 1
Franklin Aggressive Growth Securities Fund - Class 2
Shares of each class represent proportionate interests in the fund's assets.
On matters that affect the fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law. Shares of each class of a series
have the same voting and other rights and preferences as the other classes
and series of the trust for matters that affect the trust as a whole.
Additional series may be offered in the future.
The trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The trust does not intend to hold annual shareholder meetings. The trust or a
series of the trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the board to consider
the removal of a board member if requested in writing by shareholders holding
at least 10% of the outstanding shares. In certain circumstances, we are
required to help shareholders communicate with other shareholders about the
removal of a board member. A special meeting may also be called by the board
in its discretion. For information regarding voting privileges of Contract
Owners, see the insurance company separate account SAI.
As of May 1, 1999, Board members and officers, as a group, owned less than
1%, of record or beneficially, of the outstanding shares of trust.
PRICING SHARES
When they buy and sell shares, the trust's insurance company shareholders pay
and receive the net asset value (NAV) per share.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding. Each fund follows the procedures described below.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices.] The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
The fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the fund holds is its last sale price on the relevant exchange before
the fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the fund values options within
the range of the current closing bid and ask prices if the fund believes the
valuation fairly reflects the contract's market value
The fund determines the value of a foreign security as of the close of
trading on the foreign exchange on which the security is traded or as of the
close of trading on the NYSE, if that is earlier. The value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the foreign security is
valued within the range of the most recent quoted bid and ask prices.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, the fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
DISTRIBUTORS acts as the principal underwriter in the continuous public
offering of the trust's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, except to
the extent these expenses are borne by the Insurance Companies. These
expenses include advertising expenses and the costs of printing sales
material and prospectuses used to offer shares to the public. The trust pays
the expenses of preparing and printing amendments to its registration
statements and prospectuses (other than those necessitated by the activities
of Distributors) and of sending prospectuses to existing shareholders.
Distributors may be entitled to receive payment under the class 2 rule 12b-1
plans, as discussed below. Except as noted below, Distributors receives no
other compensation from the trust for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The fund's class 2 has a separate
distribution or "rule 12b-1" plan. Under each fund's plan, the fund may pay
up to a maximum of 0.35% per year of the average daily net assets
attributable to its class 2 shares. The board, however, has set the current
rate at [0.25%] per year. These fees may be used to compensate Distributors,
the Insurance Companies 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.
The plan has been approved in accordance with the provisions of rule 12b-1.
The plan is renewable annually by a vote of the board, including a majority
vote of the board members who are not interested persons of the trust and who
have no direct or indirect financial interest in the operation of the plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such board members be done by the
non-interested members of the board. The class 2 plan and any related
agreement may be terminated at any time, without penalty, by vote of a
majority of the non-interested board members on not more than 60 days'
written notice, by Distributors on not more than 60 days' written notice, by
any act that constitutes an assignment of a management agreement with a
manager, or by vote of a majority of the outstanding shares of the class.
Distributors, the Insurance Companies or others may also terminate their
respective distribution or service agreement at any time upon written notice.
The class 2 plan and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without approval
by a majority of the outstanding shares of the fund's class, and all material
amendments to the plans or any related agreements shall be approved by a vote
of the non-interested members of the board, cast in person at a meeting
called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the board at least quarterly
on the amounts and purpose of any payment made under the plans and any
related agreements, as well as to furnish the board with such other
information as may reasonably be requested in order to enable the board to
make an informed determination of whether the plans should be continued.
PERFORMANCE
Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and current yield quotations used by a fund are
based on the standardized methods of computing performance mandated by the
SEC. If a rule 12b-1 plan is adopted, performance figures reflect fees from
the date of the plan's implementation. An explanation of these and other
methods used by the fund to compute or express performance follows.
Because the trust only offers its shares to Insurance Company separate
accounts (Insurance Companies) for use in variable annuity and variable life
insurance contracts, to the extent required by SEC rules, the advertised
performance of the funds will be displayed no more prominently than
standardized performance of the applicable insurance company separate
accounts/contracts. For information about how an Insurance Company may
advertise such performance, please consult the contract prospectus which
accompanies the trust prospectus.
Regardless of the method used, past performance does not guarantee future
results, and is an indication of the return to shareholders only for the
limited historical period used.
AVERAGE ANNUAL TOTAL RETURN is determined by finding the average annual rates
of return over the periods indicated below that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable fund charges and fees. It does NOT, however, include any fees or
sales charges imposed by the variable insurance contract for which the fund
is an investment option. If they had been included, performance would be
lower. The following SEC formula will be used to calculate the figures:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, the calculation for
cumulative total return assumes income dividends and capital gain
distributions are reinvested at net asset value. It does NOT include any fees
or sales charges imposed by the variable insurance contract for which the
fund is an investment option. Cumulative total return, however, is based on
the actual return for a specified period rather than on the average return
over the periods indicated in the annual report.
From time to time, the current yields of the fund may be published in
advertisements and communications to Contract Owners. The current yield for
each fund will be calculated by dividing the annualization of the income
earned by the fund during a recent 30-day period by the net asset value per
share at the end of such period. In addition, aggregate, cumulative and
average total return information for each fund over different periods of time
may also be advertised. Except as stated above, the fund will use the same
methods for calculating its performance.
A distribution rate for the fund may also be published in communications
preceded or accompanied by a copy of the trust's current prospectus. The
fund's current distribution rate will be calculated by dividing the
annualization of the total distributions made by the fund during the most
recent preceding fiscal quarter by the net asset value per share at the end
of such period. The current distribution rate may differ from current yield
because the distribution rate will be for a different period of time and may
contain items of capital gain and other items of income, while current yield
reflects only earned income. Uniformly computed yield and total return
figures for each fund will also be published along with publication of its
distribution rate.
Hypothetical performance information may also be prepared for sales
literature or advertisements. See the appropriate insurance company separate
account prospectus and SAI.
VOLATILITY Occasionally statistics may be used to show the fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o CONSUMER PRICE INDEX - (or Cost of Living Index), published by the Bureau
of Labor Statistics - a statistical measure of change, over time, in the
price of goods and services in major expenditures groups.
O CREDIT SUISSE FIRST BOSTON HIGH YIELD (CSFB HY) INDEX - The index is an
unmanaged, trader-priced portfolio constructed to mirror the high yield debt
market. The index has several modules representing different sectors of the
high yield market including a cash paying module, a zerofix module, a
pay-in-kind module, and a defaulted module. The modular nature of the index
allows customization of data to meet client needs. The index is divided into
other categories including industry, rating, seniority, liquidity, market
value, security price range, yield range and other sector divisions. The CSFB
HY Index follows a total of 250 sectors. CS First Boston has maintained the
index since January 1986. While the index is priced and run weekly, monthly
returns are typically used for performance attribution.
o FINANCIAL TIMES/ S&P ACTUARIES WORLD (ENERGY 50%/BASIC INDUSTRIES 50%)
COMPOSITE INDEX - Franklin Templeton customizes this index using 50% of the
Financial Times/S&P Actuaries World Energy Index and 50% of the Financial
Times/S&P Actuaries World Basic Industries Index. Both indices are compiled
by the Financial Times, Goldman Sachs & Co. and Wood Mackenzie & Co., Ltd. in
conjunction with the Institute of Actuaries and the Faculty of Actuaries. The
index includes electric utilities, waterworks supply and telephone utilities.
The indices are weighted arithmetic averages of the market prices of the
elements that make them up. They also adjust for the intervening price
changes of these elements.
o FINANCIAL TIMES/ S&P ACTUARIES WORLD UTILITIES INDEX - This index is
compiled by the Financial Times, Goldman Sachs & Co. and Wood Mackenzie &
Co., Ltd. in conjunction with the Institute of Actuaries and the Faculty of
Actuaries. The utilities sector includes electric utilities, waterworks
supply, natural gas utilities and telephone companies. The indices are
weighted arithmetic averages of the market prices of the elements that make
them up. They also adjust for the intervening price changes of these
elements. This is a total return index in $U.S.
o INTERNATIONAL FINANCE CORPORATION'S (IFC) INVESTABLE COMPOSITE INDEX - The
index tracks the emerging stock markets of three world regions based on
market capitalization weighting. Those regions are Latin America, Asia and
Europe/Mideast/Africa. As of the end of 12/31/98, the regional weights of the
IFC Composite Index were distributed accordingly: Asia, 28%; Latin America,
34%; and Europe/Mideast/Africa, 38%.
o JP MORGAN GLOBAL GOVERNMENT BOND INDEX (UNHEDGED) - The index comprises 13
markets, including Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden, the U.K. and the U.S. Each
country's weight is determined by the total market capitalization in $U.S. of
all the bonds in that country's traded index. The J.P. Morgan Global
Government Bond Total Return Index includes only actively traded, fixed-rate
bonds with a remaining maturity of one year or longer. The index is unhedged
and expressed in terms of $U.S.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX - The index includes
securities in the Lehman Brothers Government and Corporate indices. These
securities must have at least $100 million par amount outstanding and must be
rated investment grade (Baa3 or better) by Moody's Investors Service. If a
Moody's rating is not available, the Standard & Poor's or Fitch rating is
used. These must be fixed-rate securities, although they can carry a coupon
that steps up or changes according to a predetermined schedule, and they must
be dollar-denominated and non-convertible.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX - This index includes
securities issued by the
U.S. government or its agencies with maturities from one up to, but not
including, 10 years. These securities must have at least $100 million par
amount outstanding and must be rated investment grade (Baa3 or better) by
Moody's Investors Service. If a Moody's rating is not available, the Standard
& Poor's or Fitch rating is used. These must be fixed-rate securities,
although they can carry a coupon that steps up or changes according to a
predetermined schedule, and they must be dollar-denominated and
non-convertible.
O LIPPER GROWTH & INCOME FUNDS OBJECTIVE AVERAGE - This is an equally
weighted average calculation of performance figures for all funds within the
Lipper Growth and Income Funds Objective Category, which is defined as all
mutual funds that combine a growth of earnings orientation and an income
requirement for level and/or rising dividends. As of 9/23/98, there were 30
funds in this category.
o LIPPER INCOME FUNDS OBJECTIVE AVERAGE - This is an equally weighted average
calculation of performance figures for all funds within the Lipper Income
Funds Objective Category, which is defined as all mutual funds that normally
seek a high level of current income through investing in income-producing
stocks, bonds and money market instruments. As of 12/31/98, there were 99
funds in this category.
o MERRILL LYNCH TREASURY ZERO COUPON 1-, 5-, 10-, 20-YEAR BOND TOTAL RETURN
INDICES - The indices include zero coupon bonds that pay no interest and are
issued at a discount from redemption price.
o MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY WORLD FREE INDEX -
The index represents both developed and emerging markets around the world.
"Free" in the title reflects the actual buying opportunities for global
investors by taking into account local market restrictions on share ownership
by foreigners. The MSCI indices define the local market for each country by
constructing a matrix of all listed securities, sorting the matrix by
industry, and seeking to capture 60% of the market capitalization for each
group by selecting the most investable stocks in each industry. The index
applies full market capitalization weights to each included stock.
O MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY - WORLD EX-U.S.
FREE INDEX - The index comprises 48 countries around the world, both
developed and emerging markets, except the U.S. "Free" in the title reflects
the actual buying opportunities for global investors by taking into account
local market restrictions on share ownership by foreigners. The MSCI indices
define the local market for each country by constructing a matrix of all
listed securities, sorting the matrix by industry, and seeking to capture 60%
of the market capitalization for each group by selecting the most investable
stocks in each industry. The index applies full market capitalization weights
to each included stock.
O MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE INDEX -
This is a market capitalization-weighted equity index comprising 26 of the 48
countries in the MSCI universe. "Free" denotes investment opportunities in
the developing world available to foreign investors. EMF performance data is
calculated in $US and local currency. The MSCI indices define the local
market for each country by constructing a matrix of all listed securities,
sorting the matrix by industry, and seeking to capture 60% of the market cap
for each group by selecting the most investable stocks in each industry. The
index applies full market cap weights to each included stock.
o MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) PACIFIC INDEX - The index
comprises five developed market countries or regions in the Pacific:
Australia, Hong Kong, Japan, New Zealand and Singapore. The MSCI indices
define the local market for each country by constructing a matrix of all
listed securities, sorting the matrix by industry, and seeking to capture 60%
of the market capitalization for each group by selecting the most investable
stocks in each industry. The index applies full market capitalization weights
to each included stock.
O MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX - The index
comprises the developed markets of 23 countries around the world. The MSCI
indices define the local market for each country by constructing a matrix of
all listed securities, sorting the matrix by industry, and seeking to capture
60% of the market cap for each group by selecting the most investable stocks
in each industry. The index applies full market cap weights to each included
stock.
o RUSSELL 1000 INDEX - Published by Frank Russell Company, the index measures
the performance of the 1,000 largest companies in the Russell 3000 Index,
representing 89% of the market capitalization of the Russell 3000. The
Russell 3000 contains the 3,000 largest companies incorporated in the U.S.
and its territories. As of the latest reconstitution, the average market
capitalization of the companies in the Russell 1000 was approximately $9.9
billion; the median market capitalization was approximately $3.7 billion. The
smallest company in the index had an approximate market capitalization of
$1,404.7 million.
o RUSSELL 2500 INDEX - Published by Frank Russell Company, the index measures
the performance of the 2,500 smallest companies in the Russell 3000 Index,
representing approximately 22% of the total market capitalization of the
companies in the Russell 3000. The Russell 3000 contains the 3,000 largest
companies incorporated in the U.S. and its territories. As of the latest
reconstitution, the average market capitalization of the Russell 2500 was
approximately $931 million; the median market capitalization was
approximately $630 million. The largest company in the index had an
approximate market capitalization of $3.7 billion.
o SALOMON GLOBAL EX-U.S. LESS THAN $1 BILLION INDEX - This is a
total-capitalization weighted index that includes all developed and emerging
countries, except the U.S., and includes companies with a total market
capitalization below U.S. $1 billion.
o SALOMON WORLD EX-U.S. EXTENDED MARKET INDEX (EMI) - This is a comprehensive
float-weighted equity index consisting of every company with an investable
market capitalization of over $100 million in 22 countries, except the U.S.
The broad market index (BMI) is segregated into the primary market index
(PMI) and extended market index (EMI), consisting of large and small
capitalization issues, respectively.
o STANDARD & POOR'S 500 (S&P 500) - The S&P 500 consists of 500 widely held
domestic common stocks, consisting of four broad sectors: industrials,
utilities, financials and transportation. It is a market value-weighted
index, where the stock price is multiplied by the number of shares
outstanding, with each stock affecting the index in proportion to its market
value. This index, calculated by Standard & Poor's, is a total return index
with dividends reinvested.
o STANDARD & POOR'S HEALTH CARE COMPOSITE INDEX - This is a
capitalization-weighted index of all of the stocks in the Standard & Poor's
500 that are involved in the business of health care related products or
services. The index was developed with a base level of 100 as of January 14,
1987.
o WILSHIRE MID CAP COMPANY GROWTH INDEX - This index overlaps the top 750 and
the next 1,750 of Wilshire Asset Management's Wilshire 2500 universe (the top
2,500 companies and 99% of the market capitalization of the Wilshire 5000).
Wilshire includes companies that have market capitalizations ranging from
$300 million to $1.3 billion. The portfolio contains from 125-500 securities.
O WILSHIRE REAL ESTATE SECURITIES INDEX - This is a market
capitalization-weighted index of publicly traded real estate securities, such
as real estate investment trusts (REITs), Real Estate Operating Companies
(REOCs) and partnerships. The index is composed of companies whose charter is
the equity ownership and operation of commercial real estate. The index
rebalances monthly and returns are calculated on a buy-and-hold basis.
o WILSHIRE SMALL COMPANY VALUE INDEX - The index is created by screening the
bottom 1,750 large companies of Wilshire Asset Management's Wilshire 2500
universe (the top companies and 99% of the market capitalization of the
Wilshire 5000). These companies have market capitalizations of at least $70
million. Wilshire excludes companies with high price/earnings ratios, low
yields, or high price/book ratios. The portfolio contains from 125-500
securities.
o DOW JONES(R) COMPOSITE AVERAGE AND ITS COMPONENT AVERAGes - This is a
price-weighted average of 65 stocks that trade on the New York Stock
Exchange. The average is a combination of the Dow Jones Industrial Average
(30 blue-chip stocks that are generally leaders in their industry), the Dow
Jones Transportation Average (20 transportation stocks), and the Dow Jones
Utilities Average (15 utility stocks involved in the production of electrical
energy).
O THE NEW YORK STOCK EXCHANGE COMPOSITE OR COMPONENT INDICES - This is an
unmanaged index of all industrial, utilities, transportation, and finance
stocks listed on the NYSE.
o WILSHIRE 5000 EQUITY INDEX - This represents the return on the market value
of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
o LIPPER - MUTUAL FUND PERFORMANCE ANALYSIS - This measures total return and
average current yield for the mutual fund industry and rank individual mutual
fund performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
o CDA MUTUAL FUND REPORT, published by CDA Investment Technologies, Inc. -
This analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
o MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc. - This analyzes
price, yield, risk, and total return for mutual funds.
o Financial publications: THE WALL STREET JOURNAL, AND BUSINESS WEEK,
FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY magazines - provide performance
statistics over specified time periods.
o STOCKS, BONDS, BILLS, AND INFLATION, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
O SAVINGS AND LOAN HISTORICAL INTEREST RATES - as published in the U.S.
Savings & Loan League Fact Book.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
O MORNINGSTAR - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its category.
o SALOMON BROTHERS BROAD BOND INDEX OR ITS COMPONENT INDICES - This measures
yield, price and total return for Treasury, agency, corporate and mortgage
bonds.
o LEHMAN BROTHERS AGGREGATE BOND INDEX OR ITS COMPONENT INDICES - This
measures yield, price and total return for Treasury, agency, corporate,
mortgage and Yankee bonds.
o SALOMON BROTHERS COMPOSITE HIGH YIELD INDEX OR ITS COMPONENT INDICES - This
measures yield, price and total return for the Long-Term High-Yield Index,
Intermediate-Term High-Yield Index, and Long-Term Utility High-Yield Index.
o The manager's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a
similar statistical organization.
o The gross national product and populations, including age characteristics,
literacy rates, foreign investment improvements due to a liberalization of
securities laws and a reduction of foreign exchange controls, and improving
communication technology, of various countries as published by various
statistical organizations.
o Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
o Allegorical stories illustrating the importance of persistent long-term
investing.
o A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued or
"bargain" securities and its diversification by industry, nation and type of
stocks or other securities.
o Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
o Quotations from the Templeton organization's founder, Sir John Templeton,*
advocating the virtues of diversification and long-term investing.
*Sir John Templeton sold the Templeton organization to Franklin Resources,
Inc. in October 1992 and resigned from the board on April 16, 1995. He is no
longer involved with the investment management process.
From time to time, advertisements or information for a fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information may also compare a fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. For example, as the general level of interest rates
rise, the value of the fund's fixed-income investments, if any, as well as
the value of its shares that are based upon the value of such portfolio
investments, can be expected to decrease. Conversely, when interest rates
decrease, the value of the fund's shares can be expected to increase. CDs are
frequently insured by an agency of the U.S. government. An investment in the
fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has
already begun making necessary software changes to help the computer systems
that service the fund and its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources continues
to seek reasonable assurances from all major hardware, software or
data-services suppliers that they will be Year 2000 compliant on a timely
basis. Resources is also beginning to develop a contingency plan, including
identification of those mission critical systems for which it is practical to
develop a contingency plan. However, in an operation as complex and
geographically distributed as Resources' business, the alternatives to use of
normal systems, especially mission critical systems, or supplies of
electricity or long distance voice and data lines are limited.
DESCRIPTION OF BOND RATINGS
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (S&P)
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FRANKLIN VALUEMARK FUNDS
File Nos. 33-23493 & 811-5583
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference.
(a) ARTICLES OF INCORPORATION.
(i) Agreement and Declaration of Trust dated April 20, 1988
Filing: 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
Filing: 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
Filing: Post-Effective Amendment No.26
File No. 33-23493
Filing Date: November 30, 1998
(b) BY-LAWS.
(i) By-Laws
Filing: 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 By-Laws dated May 16, 1995
Filing: Post-Effective Amendment No. 16 to
Registration Statement on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Not Applicable
(d) INVESTMENT ADVISORY CONTRACTS.
(i) Management Agreement between the Fund and Franklin Advisers,
Inc. dated January 24, 1989
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Addendum to Investment Management Agreement dated March 14, 1989
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iii) Management Agreement between the Fund, on Behalf of
International Equity Fund and Pacific Growth Fund, and Franklin
Advisers, Inc. dated January 22, 1992
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iv) Subadvisory Agreement between Franklin Advisers, Inc. and
Templeton Investment Counsel, Inc. dated January 1, 1993
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(v) Management Agreement between the Fund on Behalf of Franklin
Rising Dividends Fund, and Franklin Advisory Services, Inc.
dated July 1, 1996
Filing: Post-Effective Amendment No. 20 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 30, 1996
(vi) Investment Management Agreement between the Fund, on behalf of
the Templeton Global Global Growth, and Templeton, Galbraith &
Hansberger Ltd. dated March 15, 1994
Filing: Post-Effective Amendment No. 16 to
Registration Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(vii) Subadvisory Agreement between Franklin Advisers, Inc. and
Templeton Investment Counsel, on behalf of Global Income Fund
dated August 1, 1994
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(viii) Investment Management Agreement between the Fund, on behalf of
Templeton Global Asset Allocation Fund, and Templeton
Galbraith & Hansberger, Ltd. dated April 19, 1995
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ix) Subadvisory Agreement between Templeton Galbraith & Hansberger,
Ltd. and Templeton Investment Counsel, Inc., on behalf of
Templeton Global Asset Allocation Fund dated April 19, 1995
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(x) Fund Administration Agreement between the Fund on behalf of
Templeton Global Asset Allocation Fund, and Franklin Templeton
Services, Inc. dated October 1, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1997
(xi) Management Agreement between the Fund, on Behalf of Small Cap
Fund dated October 11, 1995
Filing: Post-Effective Amendment No. 20 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 30, 1996
(xii) Investment Management Agreement between the Fund, on behalf of
Templeton Developing Markets Equity Fund, dated October 1, 1995
Filing: Post-Effective Amendment No. 17 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: October 27, 1995
(xiii) Fund Administration Agreement between the Fund, on behalf of
International Smaller Companies Fund, and Franklin Templeton
Services, Inc., dated October 1, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1997
(xiv) Investment Management Agreement between the Fund, on behalf of
International Companies Fund and Templeton Investment Counsel,
Inc. dated January 18, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 14, 1996
(xv) Management Agreement between the Fund, on behalf of Capital
Growth Fund and Franklin Advisers, Inc. dated January 18, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 14, 1996
(xvi) Amendment to Management Agreement between the Fund and Franklin
Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 20 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 30, 1996
(xvii) Management Agreement between the Fund, on Behalf of Mutual
Discovery Securities Fund and Mutual Shares Securities Fund,
and Franklin Mutual Advisers, Inc. dated October 18, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1997
(xviii) Fund Administration Agreement between the Fund, on behalf of
Mutual Discovery Securities Fund and Mutual Shares Securities
Fund, and Franklin Templeton Services, Inc., dated October 18,
1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1997
(xix) Management Agreement between the Fund, on behalf of Global
Health Care Securities Fund dated December 9, 1997
Filing: Post-Effective Amendment No. 23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1998
(xx) Management Agreement between the Fund, on behalf of Value
Securities Fund dated December 9, 1997
Filing: Post-Effective Amendment No. 23 to Registration
Statement of Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1998
(xxi) Fund Administration Agreement between the Fund, on behalf of
Value Securities Fund Dated December 9, 1997
Filing: Post-Effective Amendment No. 23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1998
(xxii) Fund Administration Agreement between the Fund, on behalf of
Global Health Care Securities Fund dated December 9, 1997
Filing: Post-Effective Amendment No. 23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 28, 1998
(xxiii) Amendment to Investment Management Agreement between the Fund,
on behalf of Templeton Developing Markets Equity Fund, and
Templeton Asset Management Ltd. dated October 1, 1995
Filing: Post-Effective Amendment No.23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 12, 1998
(xxiv) Addendum to Investment Management Agreement between the Fund, on
behalf of Templeton Developing Markets Equity Fund, and
Templeton Asset Management Ltd. dated December 9, 1997
Filing: Post-Effective Amendment No.24 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 30, 1998
(xxv) Management Agreement between the Fund, on behalf of Franklin
Aggressive Growth Securities Fund, and Franklin Advisers, Inc.
dated xx[to be supplied in a later 485(b) amendment]
(xxvi) Fund Administration Agreement between the Fund, on behalf of
Value Securities Fund, and Franklin Templeton Services, Inc.
dated xx [to be supplied in a later 485(b) amendment]
(e) UNDERWRITING CONTRACTS.
(i) Distribution Agreement between the Fund and
Franklin/Templeton Distributors, Inc.
Filing: Post Effective Amendment No.26
File No. 33-23493
Filing Date: November 30, 1998
(f) BONUS OR PROFIT SHARING CONTRACTS.
Not Applicable
(g) CUSTODIAN AGREEMENTS.
(i) Foreign Exchange Netting Agreement between Franklin Valuemark
Funds, on behalf of the International Equity Fund, and Morgan
Guaranty Trust Company of New York, dated March 19, 1992
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
Foreign Exchange Netting Agreement between Franklin Valuemark
Funds, on behalf of the Pacific Growth Fund, and Morgan
Guaranty Trust Company of New York, dated March 19, 1992
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Custody Agreement between the Fund, on behalf of the Templeton
Developing Markets Equity Fund and the Templeton Global Growth
Fund, and The Chase Manhattan Bank, N.A. dated March 15, 1994
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(iii) Master Custody Agreement between the Fund and the Bank of New
York, dated February 16, 1996
Filing: Post-Effective Amendment No. 19 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(iv) Terminal Link Agreement between the Fund and Bank of New York
dated February 16, 1996.
Filing: Post-Effective Amendment No. 19 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(v) Amendment to Global Custody Agreement between the Fund and The
Chase Manhattan Bank, N.A. dated April 1, 1996
Filing: Post-Effective Amendment No. 23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 29, 1997
(vi) Amendment to Master Custody Agreement between the Fund and the
Bank of New York, dated April 1, 1996
Filing: Post-Effective Amendment No. 23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 29, 1997
(vii) Letter Agreement between the Fund and the Bank of New York,
dated April 22, 1996
Filing: Post-Effective Amendment No. 19 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(viii) Custody Agreement between the Fund, on behalf of Mutual
Discovery Securities Fund and Mutual Shares Securities Fund,
and the State Street Bank and Trust Company dated November 8,
1996
Filing: Post-Effective Amendment No. 23 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 29, 1997
(h) OTHER MATERIAL CONTRACTS.
Not Applicable
(i) LEGAL OPINION.
(i) Legal Opinion, Securities Act of 1933, dated February 5, 1999
Filing: Post Effective Amendment No. 27 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 25, 1999
(j) OTHER OPINIONS.
Not Applicable
(k) OMITTED FINANCIAL STATEMENTS.
Not Applicable
(l) INITIAL CAPITAL AGREEMENT.
(i) Letter of Understanding dated April 11, 1995
Filing: Post-Effective Amendment No. 16 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: August 19, 1995
(ii) Letter of Understanding dated September 12, 1995
Filing: Post-Effective Amendment No. 17 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: October 27, 1996
(iii) Letter of Understanding dated April 4, 1996
Filing: Post-Effective Amendment No. 19 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 24, 1996
(iv) Letter of Understanding dated October 21, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: October 31, 1996
(v) Letter of Understanding dated April 23, 1998
Filing: Post-Effective Amendment No. 24 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: April 30, 1998
(m) RULE 12B-1 PLAN.
(i) Class 2 Distribution Plan pursuant to Rule 12b-1
Filing: Post Effective Amendment No.26
File No. 33-23493
Filing Date November 30, 1998
(o) RULE 18F-3PLAN.
(i) Multiple Class Plan for all series of the Fund
Filing: Post Effective Amendment No.26
File No. 33-23493
Filing Date November 30, 1998
(p) POWER OF ATTORNEY.
(i) Power of Attorney
Filing: Post Effective Amendment No. 27 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 25, 1999
(ii) Certificate of Secretary
Filing: Post Effective Amendment No. 27 to Registration
Statement of the Fund on Form N-1A
File No. 33-23493
Filing Date: February 25, 1999
(n) EXHIBIT 27 - FINANCIAL DATA SCHEDULES.
not applicable
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None
Item 25. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Fund 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 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 Act and will be governed by the final adjudication
of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
(i) The officers and directors of the Fund's investment advisers also
serve as officers and/or directors or trustees for (1) the corporate parent
of Franklin Advisers, Inc., (" Advisers" ) the investment manager of 17 of
the Fund's series, Franklin Resources, Inc. (" Resources" ), and/or (2) other
investment companies in the Franklin Templeton Group of Funds. For additional
information, please see Part B and Schedules A and D of Form ADV of Advisers
(SEC File 801-26292), incorporated herein by reference, which sets forth the
officers and directors of Advisers and information as to any business,
profession, vocation or employment of a substantial nature engaged in by
those officers and directors during the past two years.
(ii) Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. (" TICI" ), an indirect, wholly owned
subsidiary of Resources, serves as adviser to the International Smaller
Companies Fund and as sub-adviser to certain of the Funds, furnishing to
Advisers and to Templeton Global Advisers Limited in that capacity portfolio
management services and investment research. For additional information
please see Part B and Schedules A and D of Form ADV of TICI (SEC File
801-15125), incorporated herein by reference, which set forth the officers
and directors of TICI and information as to any business, profession,
vocation of employment of a substantial nature engaged in by those officers
and directors during the past two years.
(iii)Templeton Global Advisers Limited, formerly known as Templeton
Galbraith and Hansberger Ltd.
Templeton Global Advisers Limited (" Templeton Nassau" ), an indirect, wholly
owned subsidiary of Resources, serves as investment manager to Templeton
Global Growth Fund and Templeton Global Asset Allocation Fund. For additional
information please see Part B and Schedules A and D of Form ADV of Templeton
Nassau (SEC File 801-42343), incorporated herein by reference, which set
forth the officers and directors of Templeton Nassau and information as to
any business, profession, vocation of employment of a substantial nature
engages in by those officers and directors during the past two years.
(iv) Templeton Asset Management Ltd., formerly known as Templeton
Investment Management (Singapore) Pte Ltd.
Templeton Asset Management (" Templeton Singapore" ), an indirect, wholly
owned subsidiary of Resources, serves as investment manager to Templeton
Developing Markets Equity Fund. For information please see Part B and
Schedules A and D of Form ADV of Templeton Singapore (SEC File 801-46997),
incorporated herein by reference, which set forth the officers and directors
of Templeton Singapore and information as to any business, profession,
vocation of employment of a substantial nature engaged in by those officers
and directors during the past two years.
(v) Franklin Advisory Services, LLC, formerly Franklin Advisory
Services, Inc.
Franklin Advisory Services, LLC (" Franklin New Jersey" ), an indirect,
wholly owned subsidiary of Resources, serves as investment manager to the
Rising Dividends Fund and Value Securities Fund. For information please see
Part B and Schedules A and D of Form ADV of Franklin New Jersey (SEC File
801-51967), incorporated herein by reference, which set forth the officers
and directors of Franklin New Jersey and information as to any business,
profession, vocation of employment of a substantial nature engaged in by
those officers and directors during the past two years.
(vi) Franklin Mutual Advisers, LLC, formerly Franklin Mutual Advisers,
Inc.
Franklin Mutual Advisers, LLC (" Mutual Advisers" ), an indirect, wholly
owned subsidiary of Resources, will serve as investment manager to the Mutual
Discovery Growth Fund and the Mutual Series Securities Fund. For information
please see Part B and Schedules A and D of Form ADV of Mutual Advisers (SEC
File 801-53068), incorporated herein by reference, which set forth the
officers and directors of Mutual Advisers and information as to any business,
profession, vocation of employment of a substantial nature engaged in by
those officers and directors during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
(b) The information required by this Item 27 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
N-1A and schedule A of Form BD filed by Distributors with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889).
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by
Section 31(a) [15 U.S.C. 80a-30(a)] are kept by the Fund or its shareholder
services agent, Franklin Templeton Investors Services, Inc., both of whose
address is 777 Mariners Island Blvd., San Mateo, CA 94404.
ITEM 29. MANAGEMENT SERVICES
Not Applicable
ITEM 30. UNDERTAKINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of San Mateo and the State of California, on the 27th
of May, 1999.
FRANKLIN VALUEMARK FUNDS
(Fund)
By: CHARLES E. JOHNSON*
Charles E. Johnson, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated:
CHARLES E. JOHNSON* Principal Executive Officer
Charles E. Johnson and Trustee
Dated: May 17, 1999
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: May 17, 1999
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: May 17, 1999
FRANK H. ABBOTT III* Trustee
Frank H. Abbott III Dated: May 17, 1999
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: May 17, 1999
EDWARD J. BONACH* Trustee
Edward J. Bonach Dated: May 17, 1999
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: May 17, 1999
ROBERT F. CARLSON* Trustee
Robert F. Carlson Dated: May 17, 1999
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: May 17, 1999
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: May 17, 1999
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: May 17, 1999
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: May 17, 1999
*BY /S/ KAREN L. SKIDMORE, ATTORNEY-IN-FACT
(Pursuant to Power of Attorney previously filed)
FRANKLIN VALUEMARK FUNDS
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO DESCRIPTION LOCATION
EX-99.a(i) Agreement and Declaration of Trust *
EX-99.a(ii) Certificate of Amendment of Agreement and *
Declaration of Trust dated October 21, 1988
EX-99.a(iii) Certificate of Amendment of Agreement *
and Declaration of Trust
EX-99.b(i) By-Laws *
EX-99.b(ii) Certificate of Amendment of By-Laws dated May 16, 1995 *
EX-99.d(i) Management Agreement between Registrant and Franklin *
Advisers, Inc. dated January 24, 1989
EX-99.d(ii) Addendum to Investment Management *
Agreement dated March 14, 1989
EX-99.d(iii) Management Agreement between Registrant, *
on behalf of International Equity and Pacific
Growth Fund, and Franklin Advisers, Inc. dated
January 22, 1992
EX-99.d(iv) Subadvisory Agreement between Franklin *
Advisers, Inc. and Templeton Investment
Counsel, Inc. dated January 1, 1993.
EX-99.d(v) Management Agreement between Registrant on *
behalf of Franklin Rising Dividends Fund, and
Franklin Advisory Services, Inc. dated July 1,
1996
EX-99.d(vi) Investment Management Agreement between *
Registrant, on behalf of the Templeton Global
Growth Fund, and Templeton, Galbraith &
Hansberger Ltd., dated March 15, 1994
EX-99.d(vii) Subadvisory Agreement between Franklin *
Advisers, Inc. and Templeton Investment
Counsel, on behalf of Global Income Fund dated
August 1, 1994
EX-99.d(viii) Investment Management Agreement between *
Registrant, on behalf of Templeton Global
Asset Allocation Fund and Templeton, Galbraith
& Hansberger Ltd. dated April 19, 1995
EX-99.d(ix) Subadvisory Agreement between Templeton, *
Galbraith & Hansberger Ltd and Templeton
Investment Counsel, on behalf of Templeton
Global Asset Allocation Fund dated April 19, 1995
EX-99.d(x) Fund Administration Agreement between *
Registrant, on behalf of Templeton Global
Asset Allocation Fund, and Franklin Templeton
Services, dated October 1, 1996
EX-99.d(xi) Management Agreement between Registrant, on *
behalf of Small Cap Fund, and Franklin
Advisers, Inc., dated October 11, 1995
EX-99.d(xii) Investment Management Agreement between *
Registrant, on behalf of Templeton Developing
Markets Equity Fund, and Templeton, Galbriath
& Hansberger, dated October 1, 1995
EX-99.d(xiii) Fund Administration Agreement between *
Registrant, on behalf of International Smaller
Companies Fund, and Franklin Templeton
Services, Inc., dated October 1, 1996
EX-99.d(xiv) Investment Management Agreement between *
Registrant, on behalf of International Smaller
Companies Fund and Templeton Investment
Counsel, Inc., dated January 18, 1996
EX-99.d(xv) Management Agreement between Registrant, on *
behalf of Capital Growth Fund, and Franklin
Advisers, Inc., dated January 18, 1996
EX-99.d(xvi) Amendment to Management Agreement between *
Registrant and Franklin Advisers, Inc., Dated
August 1, 1995
EX-99.d(xvii) Management Agreement between Registrant, on *
behalf of Mutual Discovery Securities Fund and
Mutual Shares Securities Fund, and Franklin
Mutual Advisers, Inc., dated October 18, 1996
EX-.d(xviii) Fund Administration Agreement between *
Registrant, on behalf of Mutual Discovery
Securities Fund and Mutual Shares Securities
Fund, and Franklin Templeton Services, Inc.,
dated October 18, 1996
EX-99.d(xix) Management Agreement between Registrant, on *
behalf of Global Health Care Securities Fund
dated December 9, 1997
EX-99.d(xx) Management Agreement between Registrant, on *
behalf of Value Securities Fund dated December
9, 1997
EX-99.d(xxi) Fund Administration Agreement between *
Registrant, on behalf of Value Securities Fund
dated December 9, 1997
EX-99.d(xxii) Fund Administration Agreement between *
Registrant, on behalf of Global Health Care
Securities Fund dated December 9, 1997
EX-99.d(xxiii) Amendment to Investment Management Agreement *
between Registrant and Templeton Developing
Markets Equity Fund dated October 1, 1995
EX-99.d(xxiv) Addendum to Management Agreement *
between Registrant, on behalf of Templeton Developing
Markets Equity Fund, and Templeton Asset
Management Ltd. dated December 9, 1997
EX-99.d(xxv) Management Agreement, between Registrant, **
on behalf of Franklin Aggressive Growth Securities Fund,
and Franklin Advisers, Inc.
EX-99(xxvi) Administration Agreement between Registrant **
on behalf of Franklin Aggressive Growth Securities Fund,
and Franklin Advisers, Inc.
EX-99.g(i) Distribution Agreement between Registrant *
and Franklin/Templeton Distributors, Inc.
EX-99.g(i) Foreign Exchange Netting Agreement between *
Franklin Valuemark Funds, on behalf of the
International Equity Fund, and Morgan Guaranty
Trust Company of New York, dated March 19, 1992
EX-99.g(ii) Foreign Exchange Netting Agreement between *
Franklin Valuemark Funds, on behalf of the
Pacific Growth Fund, and Morgan Guaranty Trust
Company of New York, dated March 19, 1992
EX-99.g(iii) Custody Agreement between the Registrant, on *
behalf of the Templeton Developing Markets
Equity Fund and the Templeton Global Growth
Fund, and the Chase Manhattan Bank, N.A. dated
March 15, 1994
EX-99.g(iv) Master Custody Agreement between the *
Registrant and the Bank of New York, dated
February 16, 1996
EX-99.g(v) Terminal Link Agreement between Registrant *
and Bank of New York, dated February 16, 1996
EX-99.g(vi) Amendment to Global Custody Agreement between *
Franklin Valuemark Funds and the Chase
Manhattan Bank, N.A. dated April 1, 1996
EX-99.g(vii) Amendment to Master Custody Agreement *
between Franklin Valuemark Funds and the
Bank of New York, dated April 1, 1996
EX-99.g(viii) Letter Agreement between Franklin Valuemark *
Funds and the Bank of New York, dated April
22, 1996
EX-99.g(ix) Custody Agreement between Registrant, on *
behalf of Mutual Discovery Investments Fund
and Mutual Shares Investments Fund, and the
State Street Bank and Trust Company dated
November 8, 1996
EX-99.g(x) Amendment to Master Custody Agreement *
between Registrant and the Bank of New York
dated as of February 16, 1996
EX-99.i(i) Legal Opinion Securities Act of 1933 *
dated February 5, 1999
EX-99.l(i) Letter of Understanding dated April 11, 1995 *
EX-99.l(ii) Letter of Understanding dated September 12, 1995 *
EX-99.l(iii) Letter of Understanding dated April 4, 1996 *
EX-99.l(iv) Letter of Understanding dated October 21, 1996 *
EX-99.l(v) Letter of Understanding dated April 23, 1998 *
EX-99.m(i) Class 2 Distribution Plan Pursuant to Rule 12b-1 *
EX-99.o(i) Multiple Class Plan for all series of Registrant *
EX-99.p(i) Power of Attorney from Officers and *
Directors of the Registrant
EX-99.97(ii) Certificate of Secretary *
* Incorporated by reference to previous filings
**To be supplied in a later 485(b) amendment
