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FRANKLIN(R)TEMPLETON(R)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN RISING DIVIDENDS SECURITIES FUND
IMPORTANT INFORMATION FOR CONTRACT HOLDERS AND POLICYHOLDERS
These materials are for a special shareholders' meeting scheduled for
________, 1999 at [10:00 a.m.] Pacific time. They discuss the proposals to
be voted on at the meeting, and contain a proxy statement and voting
instruction card. A voting instruction card is, in essence, a ballot. When
you complete your voting instruction card, it tells your insurance company
how to vote its proxy on important issues relating to the portion of your
account that is allocated to the Franklin Rising Dividends Securities Fund, a
series of Franklin Templeton Variable Insurance Products Trust. If you
complete and sign the voting instruction card, the shares will be voted
exactly as you instruct. If you simply sign and return the voting
instruction card, the shares will be voted in accordance with the Board of
Trustees' recommendations. If you do not return a voting instruction card at
all, the shares will be voted in the same proportion as shares for which
instructions have been received from other variable annuity contract holders
and variable life insurance policyholders.
WE URGE YOU TO SPEND A FEW MINUTES REVIEWING THE PROPOSALS IN THE PROXY
STATEMENT. THEN, FILL OUT THE VOTING INSTRUCTION CARD AND RETURN IT TO US SO
THAT WE KNOW HOW YOU WOULD LIKE TO VOTE.
WE WELCOME YOUR COMMENTS. IF YOU HAVE ANY QUESTIONS, CALL FUND INFORMATION
AT 1-800/DIAL BEN(R) (1-800/342-5236).
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A LETTER FROM THE CHAIRMAN
Dear Fellow Shareholders:
I am writing to request that you consider four matters relating to your
investment in Franklin Rising Dividends Securities Fund (the "Fund"), a
series of Franklin Templeton Variable Insurance Products Trust (the
"Trust"). The Board of Trustees asks that you cast your vote in favor of:
1. Modifying the Fund's current criteria for the selection of
portfolio companies related to debt as part of the issuer's capital
structure;
2. Amending certain of the Fund's fundamental investment restrictions;
3. Eliminating certain of the Fund's fundamental investment
restrictions; and
4. Granting proxyholders the authority to vote upon any other business
that may properly come before the meeting or any adjournments
thereof.
We have proposed a modification to the Fund's current criteria for the
selection of portfolio companies related to debt as part of the issuer's
capital structure. If approved, the change would expand the universe of high
quality companies that meet the rising dividends criteria. We have also
proposed amending or eliminating certain fundamental investment restrictions.
We believe that the recommended changes will provide additional investment
opportunities to the Fund, as further described in the attached Proxy
Statement. We urge you to approve these proposals which are designed to
benefit all shareholders by providing the Fund with greater flexibility in
pursuing its investment goal.
The Proxy Statement includes a question-and-answer format designed to provide
you with a simpler and more concise explanation of certain issues. Although
much of the information in the Proxy Statement is technical and required by
the various regulations that govern the Trust, we hope that this format will
be helpful to you.
Your vote is important to the Trust. On behalf of the Board of Trustees,
thank you in advance for considering these issues and for promptly returning
your voting instruction card.
Sincerely,
Charles B. Johnson
CHAIRMAN OF THE BOARD
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FRANKLIN(R)TEMPLETON(R)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON __________, 1999
A Special Shareholders' Meeting ("Meeting") of Franklin Rising
Dividends Securities Fund (the "Fund"), a series of Franklin Templeton
Variable Insurance Products Trust (the "Trust"), will be held at the Trust's
office at 777 Mariners Island Boulevard, San Mateo, California 94404, at
[10:00 a.m.] Pacific time, on , 1999.
During the Meeting, shareholders of the Fund will vote on the following
Proposals and Sub-Proposals:
1. To modify the Fund's current criteria for the selection of
portfolio companies related to debt as part of the issuer's
capital structure, which is fundamental.
2. To approve amendments to certain of the Fund's fundamental
investment restrictions (includes seven (7) Sub-Proposals).
(a)To amend the Fund's fundamental investment restriction
regarding borrowing;
(b)To amend the Fund's fundamental investment restriction
regarding underwriting;
(c)To amend the Fund's fundamental investment restriction
regarding lending;
(d)To amend the Fund's fundamental investment restrictions
regarding investments in real estate and commodities;
(e)To amend the Fund's fundamental investment restriction
regarding issuing senior securities;
(f)To amend the Fund's fundamental investment restriction
regarding industry concentration; and
(g)To amend the Fund's fundamental investment restriction
regarding diversification of investments.
3. To approve the elimination of certain of the Fund's
fundamental investment restrictions.
4. To grant the proxyholders authority to vote upon any other
business that may properly come before the Meeting or any
adjournments thereof.
The Board of Trustees has fixed _______, 1999 as the record date for
determination of shareholders entitled to vote at the Meeting.
Please note that a separate vote is required for each Proposal or
Sub-Proposal.
By Order of the Board of Trustees,
Deborah R. Gatzek,
Secretary
San Mateo, California
___________, 1999
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PLEASE MARK, SIGN, DATE AND RETURN YOUR VOTING INSTRUCTION CARD IN
THE SELF-ADDRESSED ENVELOPE SO YOU WILL BE REPRESENTED AT THE
MEETING.
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TABLE OF CONTENTS
PAGE
PROXY STATEMENT
Questions and Answers............................................
Proposal 1:To Modify the Fund's Current Criteria for the Selection of
Portfolio Companies Related to Debt as Part of the Issuer's
Capital Structure, which is Fundamental...............
Proposal 2:To Approve Amendments to Certain of the Fund's Fundamental
Investment Restrictions
(Includes Seven (7)Sub-Proposals).....................
2a: Borrowing.............................................
2b: Underwriting..........................................
2c: Lending...............................................
2d: Real Estate and Commodities...........................
2e: Issuing Senior Securities.............................
2f: Industry Concentration................................
2g: Diversification of Investments........................
Proposal 3:To Approve the Elimination of Certain of the Fund's
Fundamental Investment Restrictions
Proposal 4:........................................Other Business
Information about the Trust and the Fund.........................
Additional Information About Voting and the Meeting..............
EXHIBITS
Exhibit A: Fundamental Investment Restrictions Proposed
to be Amended or Eliminated...........................
Exhibit B: Current Fundamental Investment Restrictions
Proposed to be Eliminated.............................
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN RISING DIVIDENDS SECURITIES FUND
PROXY STATEMENT
QUESTIONS AND ANSWERS
INFORMATION ABOUT VOTING
WHO IS ASKING FOR MY VOTE?
The Trustees of Franklin Templeton Variable Insurance Products Trust (the
"Trust"), in connection with the Special Shareholders' Meeting of Franklin
Rising Dividends Securities Fund (the "Fund"), a series of the Trust, to be
held _______, 1999 (the "Meeting"), have requested your vote on several
matters.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on ________, 1999 are
entitled to vote at the Meeting or any adjourned meeting. Separate
accounts of certain insurance companies ("Insurance Companies") are the
only shareholders of the Fund. Each Insurance Company will vote its shares
of the Fund based on voting instructions received from variable annuity
contract and variable life insurance policy owners (collectively, the
"Contract Owners"). This Proxy Statement will be used by the Insurance
Companies in obtaining voting instructions from Contract Owners. The
Notice of Meeting, the proxy (or voting instruction card), and the Proxy
Statement are expected to be mailed to shareholders of record and Contract
Owners on or about _______, 1999.
SHAREHOLDERS. Each share is entitled to one vote and each fractional share
shall be entitled to a fractional vote. Shares represented by duly
executed proxies will be voted in accordance with the Insurance Company
shareholders' instructions. If the proxy is signed by the Insurance
Company shareholder, but no express voting instructions are given for a
proposal, the proxy will be voted in accordance with the recommendations of
the Board of Trustees ("Board" or "Trustees") of the Trust.
CONTRACT OWNERS. If a Contract Owner returns a properly executed voting
instruction card with express voting instructions, the relevant Insurance
Company will vote those shares in accordance with the Contract Owner's
instructions. If a Contract Owner does not return the voting instruction
card, the relevant Insurance Company will vote the shares of the Fund
attributable to the Contract Owner in the same manner and in the same
proportion as the shares of that Fund for which it has received
instructions. If a Contract Owner returns the voting instruction card
properly executed, but with no express voting instructions indicated on the
card, the relevant Insurance Company will vote the shares in accordance
with the Trustees' recommendations.
ON WHAT ISSUES AM I BEING ASKED TO VOTE?
You are being asked to vote on the following proposals:
1. To modify the Fund's criteria for the selection of portfolio companies
related to debt as part of the issuer's capital structure;
2. To amend certain of the Fund's fundamental investment restrictions;
3. To eliminate certain of the Fund's fundamental investment restrictions;
and
4. To grant proxyholders authority to vote upon any other business that may
properly come before the Meeting or any adjournments thereof.
WHAT VOTE IS REQUIRED?
Provided that a quorum is present, approval of Proposals 1, 2 and 3, which
would modify the Fund's current criteria for the selection of portfolio
companies related to debt as part of the issuer's capital structure, and
amend or eliminate the Fund's fundamental investment restrictions, require
the affirmative vote of the lesser of: (i) more than 50% of the
outstanding voting securities of the Trust; or (ii) 67% or more of the
voting securities of the Trust present at the Meeting, if the holders of
more than 50% of the outstanding voting securities are present or
represented by proxy.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees unanimously recommend that you vote:
1. FOR modification of the Fund's current criteria for the selection of
portfolio companies related to debt as part of the issuer's capital
structure;
2. FOR the amendment of each of the Fund's fundamental investment
restrictions proposed to be amended;
3. FOR the elimination of each of the Fund's fundamental investment
restrictions proposed to be eliminated; and
4. FOR the proxyholders to vote, in their discretion, on any other business
as may properly come before the Meeting or any adjournments thereof.
In addition, to the extent they are authorized to do so, the proxy holders
may vote, in their discretion, on any other business that may properly come
before the Meeting. The Trustees do not intend to bring any other business
before the Meeting, and are not currently aware of any other business to be
presented.
CAN I REVOKE MY VOTING INSTRUCTION?
Contract Owners may revoke their voting instruction at any time before the
proxy is voted by: (1) forwarding a written revocation to the Secretary of
the Trust, (2) forwarding to the Trust a later-dated proxy that is received
by the Trust at or prior to the Meeting, or (3) attending the Meeting and
instructing the Insurance Company in person.
THE PROPOSALS
PROPOSAL 1: TO MODIFY THE FUND'S CURRENT CRITERIA FOR THE SELECTION OF
PORTFOLIO COMPANIES RELATED TO DEBT AS PART OF THE ISSUER'S
CAPITAL STRUCTURE, WHICH IS FUNDAMENTAL
WHAT IS THE FUND'S CURRENT CRITERIA FOR THE SELECTION OF PORTFOLIO
COMPANIES RELATED TO DEBT AS PART OF THE ISSUER'S CAPITAL STRUCTURE, AND
WHAT IS THE PROPOSED MODIFICATION?
The Fund invests primarily in equity securities of financially sound
companies that have paid consistently rising dividends. At least 65% of
the Fund's assets are invested in securities of companies that have:
i.consistently increased dividends, in at least eight out of
the last ten years, and have not decreased dividends in
that time;
ii.substantially increased dividends (at least 100%) over
the past ten years;
iii.reinvested earnings, and paid out less than 65% of the
current earnings in dividends;
iv.strong balance sheets, with long-term debt representing
no more than 30% of total capitalization; and
v.attractive prices (i.e. prices in the lower half of the
stock's price/earnings ratio range for the last ten years,
or less than the current market price/earnings ratio of the
stocks in the Standard & Poor's 500 Stock Index).
The above criteria comprise a "fundamental" policy of the Fund which means
that they cannot be changed without shareholder approval.
The proposed modification relates to the fourth criteria listed above.
This criteria selection will be referred to in this Proposal 1 as the
Fund's "Debt Test." The Fund's investment adviser, Franklin Advisory
Services, LLC ("Advisory") has recommended modifying this Debt Test to
require that rising dividends companies either have: (1) long-term debt
that is no more than 50% of total capitalization; or (2) senior debt that
has been rated investment grade by at least one of the major bond rating
agencies.
WHY IS THE BOARD RECOMMENDING THIS MODIFICATION TO THE DEBT TEST?
By modifying the current Debt Test to require either that long-term debt
not exceed 50% of total capitalization, or that senior debt obtain an
investment grade rating, the Board, based on Advisory's recommendation,
believes that additional investment opportunities will be available to the
Fund through a greater range of high quality companies that meet this
proposed rising dividends criteria.
In recommending to the Board the change to the Debt Test, Advisory
explained that it has identified many attractive rising dividends companies
that have debt in excess of the current 30% limitation. Despite their
possibly higher levels of debt, many of these companies also have the
qualitative characteristics that the rising dividends criteria was designed
to identify. As market interest rates have fallen over the past decade,
the cost of servicing debt has declined. This means that companies can
service a higher level of debt with the same cash flow than they could
historically, when the interest rates were higher. In fact, Advisory has
found that companies that meet the Fund's other rising dividends criteria
have increasingly taken advantage of lower rates by using more long-term
debt in their capital structure. Therefore, many of the companies with the
qualitative characteristics that the Fund's five criteria were originally
designed to target carry a higher level of debt than they may have in the
past. Modifying the Debt Test would allow the Fund to invest in such
companies.
As an alternative to an analysis of the percentage of debt on the issuer's
balance sheet, Advisory has proposed an alternative prong to the Debt Test,
over and above a straight percentage analysis, which considers the rating
of the issuer's senior debt. Under this alternative test, an issuer would
qualify under the new Debt Test if its senior debt has been rated
investment grade by at least one of the major bond rating agencies.
Historically, the Fund did not consider whether a company's debt was
investment grade, but looked only to the total percentage of debt.
Typically, a wide range of factors is considered in the determination of a
company's debt rating. If the Fund modifies its Debt Test to include a
ratings-based test as an alternative criteria, it would be able to take
advantage of a greater pool of companies eligible to meet the full range of
rising dividends criteria. Advisory believes that, generally, those
companies that meet the full range of rising dividends criteria are likely
to have debt rated investment grade, if they have long-term debt
outstanding.
As modified, the Fund's Debt Test would include either one of those tests
described above. Under the first prong of the modified Debt Test, the Fund
would be permitted to invest in companies where debt is not rated
investment grade as long as the debt does not exceed 50% of total
capitalization. Under the second prong, the Fund may invest in companies
whose senior debt is rated investment grade, even if such debt exceeds 50%
of total capitalization.
WHAT ARE THE RISKS OF SUCH A MODIFICATION TO THE DEBT TEST?
The proposed modifications are not expected to change the day to day
management of the Fund as it pursues its investment goal. Based on
Advisory's recommendation, the Board does not anticipate that the increase
from 30% to 50% in long-term debt exposure will present any significant
degree of increased risk. In addition, none of the other four rising
dividends criteria will be changed, which should further limit the degree
of additional risk to which the Fund will be exposed. However, since the
proposed modification will permit the Fund to invest in companies with a
higher percentage of long-term debt, the Fund theoretically could be
exposed to a slightly higher risk that such companies may not be able to
meet their individual goals, and may default on their debt. If companies
in which the Fund invests default, the value of the Fund's portfolio may
decline.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 1
INTRODUCTION TO PROPOSALS 2 AND 3.
WHY IS THE FUND AMENDING OR ELIMINATING CERTAIN OF ITS FUNDAMENTAL INVESTMENT
RESTRICTIONS IN FAVOR OF A STANDARDIZED LIST OF INVESTMENT RESTRICTIONS?
The Fund is subject to certain investment restrictions which govern the
Fund's investment activities. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), certain investment restrictions are required to be
"fundamental," which means that they can only be changed by a shareholder
vote. An investment company may designate additional restrictions that are
fundamental, and it may also adopt "non-fundamental" restrictions, which may
be changed by the Trustees without shareholder approval.
After the Trust was formed in 1988, certain legal and regulatory requirements
applicable to mutual funds changed. For example, certain restrictions
imposed by state laws and regulations were preempted by the National
Securities Markets Improvement Act of 1996 ("NSMIA") and therefore are no
longer applicable to mutual funds. As a result of NSMIA, the Fund currently
is subject to fundamental investment restrictions that are either more
restrictive than required under current law, or which are no longer required
at all. Accordingly, the Trustees recommend that the Fund's shareholders
approve the amendment or elimination of certain of the Fund's current
fundamental investment restrictions. This will result in the Fund having a
list of fundamental investment restrictions that are standardized with those
of the other funds in the Franklin Templeton Group of Funds. The proposed
standardized restrictions satisfy current federal regulatory requirements and
are written to provide flexibility to respond to future legal, regulatory,
market or technical changes.
By both standardizing and reducing the total number of investment
restrictions that can be changed only by a shareholder vote, the Trustees
believe that the Fund will be able to minimize the costs and delays
associated with holding future shareholder meetings to revise fundamental
policies that become outdated or inappropriate. The Trustees also believe
that the investment adviser's ability to manage the Fund's assets in a
changing investment environment will be enhanced, and that investment
management opportunities will be increased by these changes.
The proposed standardized changes will not affect the Fund's investment
goal. Although the proposed changes in fundamental investment restrictions
will provide the Fund greater flexibility to respond to future investment
opportunities, the Trustees do not anticipate that the changes, individually
or in the aggregate, will result in a material change in the level of
investment risk associated with investment in the Fund. The Trustees do not
anticipate that the proposed changes will materially affect the manner in
which the Fund is managed.
The Fund's existing investment restrictions, together with the recommended
changes to these restrictions, are detailed in Exhibit A, which is entitled
"Fundamental Investment Restrictions Proposed to be Amended or Eliminated."
Shareholders are requested to vote on each Sub-Proposal in Proposal 2
separately.
PROPOSAL 2: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS (THIS PROPOSAL INVOLVES SEPARATE VOTES
ON SUB-PROPOSALS 2A - 2G)
SUB-PROPOSAL 2A:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING BORROWING.
The 1940 Act requires investment companies to impose certain limitations on
their borrowing activities. The limitations on borrowing are generally
designed to protect shareholders and their investments by restricting a
fund's ability to subject its assets to the claims of creditors who might have
a claim to the fund's assets that would take precedence over the claims of
shareholders. A fund's borrowing restriction must be fundamental.
Under the 1940 Act, a fund may borrow from banks up to one-third of its total
assets (including the amount borrowed). In addition, a fund may borrow up to
5% of its total assets for temporary purposes from any person. Funds
typically borrow money to meet redemptions in order to avoid forced,
unplanned sales of portfolio securities. This technique allows a fund
greater flexibility to buy and sell portfolio securities for investment or
tax considerations, rather than for cash flow considerations.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT BORROWING RESTRICTION HAVE ON
THE FUND?
As described in the Fund's current investment restriction 2, the Fund is
presently limited to borrowing up to 5% of total assets for any reason,
rather than for temporary purposes only. In addition, the current
restriction does not specifically limit the Fund's overall ability to borrow
up to the 33 1/3% allowed under current law. The proposed restriction would
clarify that the Fund may borrow: (1) from banks to the extent permitted by
the 1940 Act or any exemptions therefrom, and (2) from any person for
temporary purposes; but (3) in any event all borrowings must not exceed 33
1/3% of total assets. The Fund's current restriction also states that the
Fund may not borrow in excess of 5% "for direct investment in securities."
The 1940 Act limits on borrowing historically were interpreted to prohibit
mutual funds from making additional investments in securities while
borrowings exceeded 5% of total assets. However, such a 5% limit is not
required under the 1940 Act and originated from informal regulatory
positions. Accordingly, under the proposed restriction, the Fund would be
permitted to make additional investments, even if borrowings exceed 5% of
total assets.
The proposed restriction also permits the Fund to borrow cash from affiliated
investment companies. The Fund, together with other funds in the Franklin
Templeton Group of Funds, has requested an exemptive order from the SEC that
would permit the Fund to borrow money from affiliated Franklin and Templeton
funds (the "Interfund Borrowing and Lending Order.") As discussed in
Sub-Proposal 2c, the Interfund Borrowing and Lending Order also would permit
the Fund to lend money to other Franklin and Templeton funds. If the
Interfund Borrowing and Lending Order is approved, the proposed restriction
would permit the Fund, under certain circumstances, to borrow money from
other Franklin and Templeton funds at rates which are more favorable than
those which the Fund would receive if it borrowed from banks or other lenders.
Finally, the proposed restriction also would help the Fund achieve the goal
of standardizing the language of the investment restrictions among the
Franklin Templeton Group of Funds. Standardization is expected to enable all
Franklin and Templeton funds to operate more efficiently and to more easily
monitor compliance with investment restrictions.
Since the proposed borrowing restriction would provide the Fund with greater
borrowing flexibility, the Fund may be subject to additional costs, as well
as the risks inherent to borrowing, such as reduced total return.
SUB-PROPOSAL 2B:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING UNDERWRITING.
Under the 1940 Act, the Fund's policy concerning underwriting is required to
be fundamental. Under the federal securities laws, a person or company
generally is considered an underwriter if it participates in the public
distribution of securities of OTHER ISSUERS, usually by purchasing the
securities from the issuer with the intention of re-selling the securities to
the public. From time to time, a mutual fund may purchase a security for
investment purposes which it later sells or redistributes to institutional
investors or others under circumstances where the Fund could possibly be
considered to be an underwriter under the technical definition of underwriter
contained in the securities laws. For example, funds often purchase
securities in private securities transactions where a resale could raise a
question relating to whether or not the fund is technically acting as an
underwriter. However, recent SEC interpretations clarify that re-sales of
privately placed securities by institutional investors do not make the
institutional investor an underwriter in these circumstances. The proposed
restriction encompasses these SEC positions.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT UNDERWRITING RESTRICTION HAVE
ON THE FUND?
The proposed restriction is substantially similar to the Fund's current
restriction 4. As with current restriction 4, the proposed restriction
specifically permits the Fund to resell restricted securities in those
instances where there may be a question as to whether the Fund is technically
acting as an underwriter. The proposed underwriting restriction also
clarifies that the Fund may sell its own shares without being deemed an
underwriter. Under the 1940 Act, a mutual fund will not be considered an
underwriter if it sells its own shares pursuant to a written distribution
plan that complies with Rule 12b-1 of the 1940 Act.
Furthermore, the new restriction would help the Fund achieve the goal of
standardizing the language of the investment restrictions among the Franklin
Templeton Group of Funds. It is not anticipated that adoption of the
proposed restriction would involve any additional risk as the proposed
restriction would not affect the way the Fund is currently managed.
SUB-PROPOSAL 2C:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING LENDING.
Under the 1940 Act, a fund's policy regarding lending must be fundamental.
Certain investment techniques could, under certain circumstances, be
considered to be loans. For example, if the Fund invests in debt securities,
such investments might be considered to be loans from the Fund to the issuer
of the debt securities. In order to ensure that the Fund may invest in
certain debt securities or repurchase agreements, which could technically be
characterized as the making of loans, the Fund's current fundamental
restriction 3 specifically carves out such policies from its prohibitions.
In addition, the Fund's fundamental policy explicitly permits the Fund to
lend its portfolio securities. Securities lending is a practice that has
become common in the mutual fund industry and involves the temporary loan of
portfolio securities to parties who use the securities for the settlement of
securities transactions. The collateral delivered to the Fund in connection
with such a transaction is then invested to provide the Fund with additional
income it might not otherwise have. Securities lending involves certain
risks if the borrower fails to return the securities.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT LENDING RESTRICTION HAVE ON
THE FUND?
The proposed restriction would provide the Fund with greater lending
flexibility. While the proposed restriction retains the carve-outs in the
existing restriction, it also would permit the Fund to invest in loan
participations and direct corporate loans which recently have become more
common as investments for investment companies. The proposed restriction
also would provide the Fund with additional flexibility to make loans to
affiliated investment companies to the extent permitted by the Interfund
Borrowing and Lending Order. If the Interfund Borrowing and Lending Order is
approved, the proposed restriction would permit the Fund, under certain
conditions, to lend cash to other Franklin or Templeton funds at rates higher
than those which the Fund would receive if the Fund loaned cash to banks
through short term lendings such as repurchase agreements. The Board
anticipates that this additional flexibility to lend cash to affiliated
investment companies would provide additional investment opportunities, and
would enhance the Fund's ability to respond to changes in legal, market,
industry or regulatory conditions.
In addition, the proposed restriction would help the Fund achieve the goal of
standardizing the language of the investment restrictions among the Franklin
Templeton Group of Funds. It is not anticipated that adoption of the
proposed restriction would involve any additional risk as the proposed
restriction would not affect the way the Fund is currently managed.
SUB-PROPOSAL 2D:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
REGARDING INVESTMENTS IN REAL ESTATE AND COMMODITIES.
Under the 1940 Act, a fund's restrictions regarding investments in real
estate and commodities must be fundamental. The Fund presently has two
separate investment restrictions, 10 and 11, which govern the Fund's ability
to invest in real estate and commodities. The proposed standardized
restriction would combine these two restrictions into one, as well as clarify
the types of financial commodities and other instruments in which the Fund
may invest.
WHAT EFFECT WILL STANDARDIZATION OF THE REAL ESTATE AND COMMODITIES
RESTRICTIONS HAVE ON THE FUND?
The proposed restriction would combine the limitations on investing in both
real estate and commodities into one restriction.
REAL ESTATE: The proposed investment restriction is designed to standardize
the language of the real estate restriction among the Franklin Templeton
Group of Funds. The Fund's current restriction states that the Fund may not
invest in real estate, but it specifically excludes "first mortgage loans or
other direct obligations secured by real estate" from the restriction. Since
an investment in first mortgage loans or other obligations secured by real
estate would not be considered a direct investment in real estate, the
proposed restriction would continue to permit such an investment. The
proposed restriction would specifically reference the Fund's ability to
purchase securities of real estate investment trusts ("REITs") to the extent
that an investment in REITs would otherwise meet the Fund's investment
criteria. Investing in REITs has gained in popularity since the early 1990s,
and the number of REITs available for investment also has increased
dramatically.
The Fund will continue to be prohibited from directly purchasing or selling
real estate. It is not anticipated that the proposed restriction would
involve any additional risk to the Fund as the Fund does not currently, and
has not in the past, invested in real estate or REITs. Therefore, the
proposed restriction will not affect the way the Fund is currently managed.
COMMODITIES: The proposed investment restriction is designed to standardize
the language of the commodities restriction among the Franklin Templeton
Group of Funds. Generally, commodities are considered to be physical
commodities such as wheat, cotton, rice and corn. However, futures contracts,
including financial futures contracts such as those related to currencies,
stock indices or interest rates, are also considered to be commodities.
Funds typically invest in such contracts and options on contracts for hedging
or other investment purposes. The proposed restriction clarifies that the
Fund has the flexibility to invest in financial futures contracts and related
options. The proposed restriction would permit investment in financial
futures instruments for either investment or hedging purposes. Although the
Fund has always had the ability to invest in options on securities and
options on futures, it has not done so. The Fund does not intend to begin
investing in financial futures contracts and related options. Therefore, it
is not anticipated that the proposed restriction would involve any additional
risk. Using financial futures instruments can involve substantial risks, and
will be utilized only if the investment manager believes such risks are
advisable.
SUB-PROPOSAL 2E:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING ISSUING SENIOR SECURITIES.
Under the 1940 Act, the Fund must have an investment policy describing its
ability to issue senior securities. A "senior security" is an obligation of
a fund with respect to its earnings or assets that takes precedence over the
claims of the fund's shareholders with respect to the same earnings or
assets. The 1940 Act generally prohibits an open-end fund from issuing
senior securities in order to limit the use of leverage. In general, a fund
uses leverage when it borrows money to enter into securities transactions, or
acquires an asset without being required to make payment until a later time.
SEC staff interpretations allow a fund to engage in a number of types of
transactions which might otherwise be considered to create "senior
securities" or "leverage," so long as the fund meets certain collateral
requirements designed to protect shareholders. For example, some
transactions that may create senior security concerns include short sales,
certain options and futures transactions, reverse repurchase agreements and
securities transactions that obligate the fund to pay money at a future date
(such as when-issued, forward commitment or delayed delivery transactions).
When engaging in such transactions, a fund must mark on its or its custodian
bank's books, or set aside money or securities with its custodian bank to
meet the SEC staff's collateralization requirements. This procedure
effectively eliminates a fund's ability to engage in leverage for these types
of transactions.
A number of the Fund's current fundamental and non-fundamental investment
restrictions relate to senior securities. For example, the Fund's
current investment restriction 9 prohibits the Fund from purchasing
securities on margin and making short sales. Funds were originally
required by the states to have fundamental restrictions regarding these
transactions. These types of transactions also raise senior security
issues under the federal securities laws. In addition, the Fund
presently has a non-fundamental policy under which it may not "pledge,
mortgage or hypothecate its assets as security for loans (except to the
extent of allowable temporary loans)." These types of transactions are
generally considered to raise senior security concerns. Adopting
Sub-Proposal 2e would consolidate into one investment restriction: (1) a
concise statement of the Fund's senior security restriction, as well as
(2) the Fund's current fundamental and non-fundamental restrictions that
address senior security issues. The part of the Fund's current
restriction relating to the purchase of securities on margin is proposed
to be eliminated in Proposal 3. The restriction on short sales, included
in current investment restriction 9, would be carved out of the new
senior securities restriction, as further described below.
WHAT EFFECT WILL STANDARDIZATION OF THE RESTRICTION REGARDING ISSUING SENIOR
SECURITIES HAVE ON THE FUND?
The proposed restriction would permit the Fund to engage in permissible types
of leveraging transactions. The proposed restriction would permit the Fund
to engage in options, futures contracts, forward contracts, repurchase
transactions or reverse repurchase transactions. The proposed restriction
also would permit the Fund to make short sales as permitted under the 1940
Act, and any exemptions available under the 1940 Act. Essentially, the
proposed restriction clarifies the Fund's ability to engage in those
investment transactions (such as repurchase transactions) that, while
appearing to raise senior security concerns, have been interpreted as not
constituting the issuance of senior securities under the federal securities
laws.
Finally, the proposed investment restriction is designed to standardize the
language regarding issuing senior securities among the Franklin Templeton
Group of Funds. The Board does not anticipate that any additional risk to
the Fund will occur if the Fund combines the current fundamental restriction
with the non-fundamental restriction to result in one, standardized,
fundamental investment restriction regarding senior securities.
SUB-PROPOSAL 2F:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING CONCENTRATION OF THE FUND'S INVESTMENTS IN THE SAME
INDUSTRY.
Under the 1940 Act, a fund's policy of concentrating its investments in
securities of companies in the same industry must be fundamental. Under the
federal securities laws, a mutual fund "concentrates" its investments if it
invests more than 25% of its "net" assets (exclusive of certain items such as
cash, U.S. government securities, securities of other investment companies,
and tax-exempt securities) in a particular industry or group of industries.
A fund is not permitted to concentrate its investments in a particular
industry unless it so states.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT RESTRICTION REGARDING
INDUSTRY CONCENTRATION HAVE ON THE FUND?
The Fund's existing fundamental restriction 7 recites the Fund's
concentration policy and states that the Fund may not invest more than 25% of
its assets in any single industry. The proposed restriction would help the
Fund achieve the goal of standardizing the language of the investment
restrictions among the Franklin Templeton Group of Funds. The proposed
restriction provides the Fund with marginally added flexibility because,
consistent with SEC interpretations, it exempts from the 25% limitation: (i)
securities of other investment companies, and (ii) securities issued or
guaranteed by the U. S. government or any of its agencies or
instrumentalities. It also recites the current federal securities law
requirement with respect to concentration that limits investments to "net" as
opposed to "total" assets. While the proposed restriction does not address
specifically the timing of the application of the concentration policy, as
the current restriction does, the parenthetical clarifying that the Fund may
not "invest" more than 25% of its assets in the securities industry is
adequate to reflect that the test applies at the time of investment. The
investment flexibility provided by the new concentration restriction will
help the Fund respond to future legal, regulatory, market or technical
changes. However, adoption of the proposed restriction is not expected to
change materially the way in which the Fund currently is managed as the Fund
does not intend to begin concentrating in shares of other investment
companies or the U. S. government or any of its agencies or instrumentalities.
SUB-PROPOSAL 2G:TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING DIVERSIFICATION OF INVESTMENTS.
The 1940 Act prohibits a "diversified" investment company, like the Fund,
from purchasing securities of any one issuer if, at the time of purchase, as
to 75% of the fund's total assets, more than 5% of the fund's total assets
would be invested in securities of that issuer, or the fund would own or hold
more than 10% of the outstanding voting securities of that issuer, except
that up to 25% of the fund's total assets may be invested without regard to
these limitations. Under the 1940 Act, these 5% and 10% limitations do not
apply to securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, or to the securities of other investment companies.
While the 1940 Act excludes the securities of other investment companies and
the U.S. government and its agencies and instrumentalities, the Fund's
current restriction 1 does not include a carve out for the securities of
other investment companies. In addition, although the 1940 Act prohibits a
fund from owning or holding more than 10% of the "outstanding voting
securities" of an issuer, the Fund's current restriction 1 prohibits the Fund
from holding more than 10% of "any or all classes" of the securities of an
issuer. Since the Fund's restriction excludes a broader class of securities
from the 10% limitation, it is more restrictive than the requirements of the
1940 Act.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT INVESTMENT DIVERSIFICATION
RESTRICTION HAVE ON THE FUND?
Amending the Fund's diversification policy would make it consistent with the
definition of a diversified investment company under the 1940 Act, and would
provide the Fund with greater investment flexibility. The proposed
restriction is similar to the current restriction, but would help the Fund
achieve the goal of standardizing the language of the investment restrictions
among the Franklin Templeton Group of Funds. The most significant change in
the proposed restriction is that it excludes from the 5% and 10% limitations
the purchase of the securities of other investment companies. With this
exclusion, the Fund would be able to invest cash held at the end of the day
in money market funds or other short-term investments without regard to the
5% and 10% investment limitations. The Fund, together with the other funds
in the Franklin Templeton Group of Funds, has obtained an exemptive order
from the SEC (the "Cash Sweep Order") which permits the Franklin and
Templeton funds to invest their uninvested cash in one or more Franklin or
Templeton money market funds. Amending the Fund's current restriction would
permit the Fund to take advantage of the investment opportunities presented
by the Cash Sweep Order, since the Cash Sweep Order contemplates relief from
the 1940 Act restrictions relating to the permissible percentage investments
in other investment companies.
In addition, the proposed investment restriction clarifies that the 5% and
10% limitations do not apply as to 25% of the Fund's total assets. Finally,
the proposed restriction also clarifies that the Fund's 10% investment
limitation excludes only an issuer's "outstanding voting securities," rather
than "any or all classes" of an issuer. However, it is not currently
anticipated that adoption of the proposed restriction would materially change
the way the Fund is managed.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE SUB-PROPOSALS 2A-2G
PROPOSAL 3: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTIONS
WHICH TEN (10) FUNDAMENTAL INVESTMENT RESTRICTIONS IS THE BOARD RECOMMENDING
THAT THE FUND ELIMINATE?
Several of the Fund's fundamental investment restrictions were originally
drafted pursuant to state laws and regulations, which, due to NSMIA, are no
longer in accordance with SEC staff positions because the positions have
either changed or are no longer relevant to the Fund. Since NSMIA eliminated
the states' ability to substantively regulate investment companies, the Fund
is no longer legally required to include current restrictions 5, 6, 8, 9, 12,
13, 14, 15, 16 and 17 among its fundamental investment restrictions.
Advisory has recommended, and the Board has determined, that all of these
current fundamental investment restrictions should be eliminated.
The exact wording of these ten restrictions (referred to in this Proposal 3
as the "Restrictions") has been compiled in Exhibit B, which is entitled
"Current Fundamental Investment Restrictions Proposed to be Eliminated," for
ease of reference.
ILLIQUID AND RESTRICTED SECURITIES:
The Fund's current restrictions 5 and 17 limit the Fund's ability to invest
in illiquid securities, and restriction 14 limits the Fund's ability to
purchase restricted securities. Illiquid securities are securities which may
not be readily sold within seven days at the price at which they are being
accounted for. Similarly, restricted securities are subject to certain
contractual or other restrictions on their resale. Restricted securities are
often considered to be illiquid because their disposition is often difficult
or requires more than seven days. The Board is recommending that all three
of these fundamental investment restrictions be eliminated. These
restrictions likely originated under certain state securities laws. While
based on previous SEC positions, under NSMIA, such restrictions are no longer
required by the states. The SEC does not require a fund's illiquid
securities restriction to be fundamental. In addition, there is currently no
SEC requirement that a fund state a restricted securities policy.
Under the current restrictions, the Fund is prevented from investing more
than 10% of its assets in securities which are illiquid. The SEC recently
amended its position to permit funds to invest up to 15% of their assets in
illiquid securities. However, the Fund may not take advantage of this new
SEC position because its existing policies relating to investments in
illiquid securities are both fundamental and contain a lower percentage
limitation. Since the current policy is fundamental, it may only be changed
by a shareholder vote. Eliminating this as a fundamental policy would enable
the Fund to both take advantage of the current SEC position, and to respond
to future SEC changes in this area without the delay and expense of a
shareholder vote, thereby providing the Fund with additional investment
flexibility. Although the Fund's policy relating to illiquid securities
would no longer be fundamental, the Fund would continue to be subject to the
SEC rules and regulations in this area, which do not require them to be
fundamental.
The Fund's current restriction 14 was adopted because historically the states
required a fund to include a restriction relating to restricted securities.
In addition, most restricted securities were traditionally considered
illiquid to the extent that they could not be sold within seven days.
Therefore restricted securities raised liquidity concerns. However, current
SEC rules have substantially increased the number of restricted securities
that can now be considered liquid and, in addition, have given to Trustees
the ability to determine, under specific guidelines, that a security is
liquid. The most common form of liquid restricted securities would be Rule
144A securities. Elimination of this restriction would allow the Fund
greater flexibility to invest in restricted securities.
Elimination of these restrictions should not have an impact on the day to day
management of the Fund as the Fund does not currently intend to increase the
percentages in which the Fund invests in either illiquid or restricted
securities.
CONTROL OR MANAGEMENT:
The Fund's current fundamental investment restriction 6 limits the Fund's
ability to invest for purposes of exercising control or management. This
restriction was enacted in response to various state securities laws and is
no longer required under NSMIA. Typically, if a fund acquires a large
percentage of the securities of a single issuer, it will be deemed to have
invested in such issuer for the purposes of exercising control or
management. This restriction was intended to ensure that a mutual fund would
not make investments in order to become engaged in the business of managing
another company or to influence management.
Eliminating this restriction will not have any impact on the day to day
management of the Fund because the Fund has not in the past, and has no
present intention, of investing in an issuer for the purposes of exercising
control or management. Further, the goal of this restriction, namely to
limit a fund's ability to control another issuer, is embodied in the 1940 Act
diversification rule, which is proposed to be incorporated in the proposed
investment restriction relating to diversification (described in Sub-Proposal
2g). The diversification restriction limits the Fund's ability to own more
than a certain percentage of any one issuer, which acts to limit its ability
to exercise control or management over another company.
UNSEASONED COMPANIES:
The Fund's current fundamental investment restriction 8 limits the Fund's
ability to invest in companies which have a record of less than three years
of continuous operations. Such relatively new companies are considered to be
unseasoned companies. This restriction was originally included in response
to the various state law requirements to which mutual funds were previously
subject. This restriction was intended to ensure a fund's stability through
its investment in companies with a proven track record. However, this
three-year restriction is unnecessary since under the rising dividends
criteria, the Fund will invest only in the securities of companies that have
increased dividends over the past ten years. As discussed earlier in the
introduction, under NSMIA the Fund is no longer required to retain a
fundamental policy regarding investments in unseasoned companies.
Elimination of this restriction should not have an impact on the day to day
management of the Fund as the Fund has not previously, nor does it currently
intend, to invest in unseasoned companies.
SECURITIES ON MARGIN:
The Fund's current fundamental investment restriction 9 limits the Fund's
ability to purchase securities on margin or sell securities short. This
restriction was originally included in response to the various state law
requirements which specifically required funds to have policies in this
regard. As discussed earlier in the introduction, under NSMIA the Fund is no
longer required by state law to retain specific fundamental policies
regarding these types of investment activities. The Fund's ability to sell
securities short is addressed in the proposed restriction relating to issuing
senior securities (described in Sub-Proposal 2e). Further, a fund's purchase
of securities on margin would clearly be viewed as creating a senior security
and would be prohibited under the 1940 Act and the Fund's proposed
restriction as described in Sub-Proposal 2e. Thus, there remains no reason
to specifically address purchasing securities on margin in a separate
restriction. As a general matter, elimination of this fundamental
restriction relating to purchasing securities on margin should not have an
impact on the day to day management of the Fund, since the 1940 Act
prohibitions on these types of transactions would continue to apply to the
Fund.
INVESTMENT IN OTHER INVESTMENT COMPANIES:
The Fund's current investment restriction number 12 limits the Fund's ability
to invest in other open-end investment companies except in connection with a
merger, consolidation, acquisition or reorganization. This restriction,
which is inconsistent with the 1940 Act provisions in this regard, was
originally included in the Fund's fundamental investment restrictions in
response to various state law requirements. Under NSMIA, however, the Fund
is no longer legally required to retain such a policy as a fundamental
restriction.
Upon elimination of this restriction, the Fund would remain subject to the
1940 Act restrictions (or any exemption from such restrictions) on a fund's
ability to invest in other open-end funds. The 1940 Act restrictions state
that a fund may not purchase more than 3% of another fund's total outstanding
voting stock, commit more than 5% of its assets to the purchase of another
fund's securities, or have more than 10% of its total assets invested in
securities of all other funds.
Elimination of this restriction should not have an impact on the day to day
management of the Fund as the Fund does not intend to begin pursuing its
investment objective through the purchase of other open-end investment
company securities. Elimination of the restriction would, however, permit
the Fund to invest cash held at the end of the day in money market funds.
This would permit the Fund to take advantage of the investment opportunities
presented by the Cash Sweep Order, since the Cash Sweep Order contemplates
relief from the 1940 Act restrictions relating to the permissible percentage
invested in other investment companies in certain limited circumstances.
SECURITIES WITH UNLIMITED LIABILITY:
The Fund's current fundamental investment restriction 13 limits the Fund's
ability to invest in assessable securities or securities involving unlimited
liability on the part of the Fund. This restriction was originally included
in response to the various state law requirements to which mutual funds used
to be subject. As discussed earlier in the introduction, under NSMIA the
Fund is no longer required to retain a fundamental policy regarding
investments in securities with unlimited liability.
Elimination of this restriction should not have an impact on the day to day
management of the Fund as the Fund has not previously, nor does it currently
intend, to invest in securities with unlimited liability.
MANAGEMENT OWNERSHIP OF SECURITIES:
The Fund's current restriction 15 limits the Fund's ability to invest in
securities issued by companies whose securities are owned in certain amounts
by Trustees and officers of the Fund, or its investment manager, Advisory.
This policy originated many years ago with a now obsolete state securities
law. As discussed earlier in the introduction, under NSMIA the Fund is no
longer required to retain a fundamental policy regarding management ownership
of securities.
As a general matter, elimination of this fundamental restriction should not
have an impact on the day to day management of the Fund, as the 1940 Act
restrictions still apply to the Fund.
TAX DIVERSIFICATION FOR VARIABLE ANNUITY FUNDS:
The Fund's current restriction 16 prohibits the Fund from investing in a
manner which does not comply with the investment diversification requirements
of Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"). Section 817(h) of the Code applies to investment companies, like the
Fund, which are held by segregated asset accounts of one or more insurance
companies, and which are only available to the public through the purchase of
a variable contract. Under Section 817(h) of the Code and applicable
Treasury Regulations, the Fund will be "adequately diversified" for purposes
of the Code, if: (i) no more than 55% of the value of the total assets of the
Fund may be represented by any one investment, (ii) no more than 70% by any
two investments, (iii) no more than 80% by any three investments, and (iv) no
more than 90% by any four investments. The Fund seeks to maintain compliance
with the diversification provisions set forth in the Code and the Treasury
Regulations in order to take advantage of certain tax opportunities available
to insurance funds. As discussed earlier in the introduction, under NSMIA
the Fund is not required to retain a fundamental policy that it invest in a
manner which is consistent with Section 817(h) of the Code.
As a general matter, elimination of this fundamental restriction should not
have an impact on the day to day management of the Fund since the
restrictions of the Code and applicable Treasury Regulations will continue to
apply to the Fund, and the Fund will continue to invest in a manner which
complies with the diversification rules set forth in Section 817(h) of the
Code and applicable Treasury Regulations.
WHY IS THE BOARD RECOMMENDING THAT THE RESTRICTIONS BE ELIMINATED, AND WHAT
EFFECT WILL SUCH ELIMINATION HAVE ON THE FUND?
The Board has determined that eliminating the Restrictions is consistent with
the federal securities laws, and will conform the Fund's list of fundamental
restrictions with standardized investment restrictions adopted by other
Franklin and Templeton funds. By both standardizing and reducing the total
number of investment restrictions that can be changed only by a shareholder
vote, the Board believes that the Fund will be able to minimize the costs and
delays associated with holding future shareholder meetings to revise
fundamental policies that become outdated or inappropriate.
The Board believes that eliminating the Restrictions is in the best interest
of the Fund's shareholders as it will provide the Fund with increased
flexibility to pursue its investment goal.
WHAT ARE THE RISKS, IF ANY, IN ELIMINATING THE RESTRICTIONS?
The Board does not anticipate that eliminating the Restrictions will result
in any additional risk to the Fund. Although the Fund's current
Restrictions, as drafted, are no longer legally required, the Fund's ability
to invest in these areas will continue to be subject to the limitations of
the 1940 Act, any exemptive orders granted under the 1940 Act, and the Code.
Further, the Fund has no current intention to change its present investment
practices as a result of eliminating these Restrictions.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 3
PROPOSAL 4: OTHER BUSINESS
The Trustees do not intend to bring any matters before the Meeting other
than Proposals 1, 2, and 3 and are not aware of any other matters to be
brought before the Meeting by others. If any other matters do properly
come before the Meeting, the persons named in the proxy will use their best
judgment in voting on such matters.
INFORMATION ABOUT THE TRUST AND THE FUND
The Trust was organized as a Massachusetts business trust on April 26, 1988
and is registered under the 1940 Act as an open-end diversified investment
management company. The Trust currently has twenty-five series of shares
(each, a "Series"). Shares of the Series are sold only to insurance
company separate accounts to serve as the investment vehicle for certain
variable annuity and life insurance contracts.
THE INVESTMENT MANAGER. Franklin Advisory Services, LLC ("Advisory"), One
Parker Plaza, Ninth Floor, Fort Lee, New Jersey 07024, serves as the
Trust's investment manager. Advisory is wholly owned by Franklin
Resources, Inc. ("Resources").
THE TRUST ADMINISTRATOR. Under an agreement with Advisory, Franklin
Templeton Services, Inc. ("FT Services"), 777 Mariners Island Blvd., San
Mateo, CA 94404, provides certain administrative services and facilities
for the Trust. FT Services is a wholly owned subsidiary of Resources, and
is an affiliate of Advisory and the Trust's principal underwriter.
THE UNDERWRITER. The underwriter for the Trust is Franklin Templeton
Distributors, Inc., 777 Mariners Island Blvd., San Mateo, CA 94404.
THE TRANSFER AGENT. The transfer agent, registrar and dividend
disbursement agent for the Trust is Franklin/Templeton Investor Services,
Inc., 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777.
THE CUSTODIAN. The Bank of New York, Mutual Funds Division, 90 Washington
Street, New York, NY 10286, acts as custodian of the Trust's securities
and other assets.
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS. The Trust's last audited
financial statements and annual report, for the fiscal year ended December
31, 1998, and its semi-annual report dated June 30, 1999, are available
free of charge. To obtain a copy, please call 1-800/DIAL BEN(R) or forward a
written request to Franklin/Templeton Investor Services, Inc., 777 Mariners
Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777.
PRINCIPAL SHAREHOLDERS. [FRANKLIN TO COMPLETE WHEN INFORMATION IS
AVAILABLE.]
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Name and address of Number of shares owned Percent of class owned
beneficial owner
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However, the Insurance Companies will exercise voting rights attributable
to the shares held by them in accordance with voting instructions received
from owners of the contracts issued by them. To this extent, the Insurance
Companies do not exercise control over the Trust or the Fund by virtue of
the voting rights arising from their record ownership of Trust shares.
In addition, to the knowledge of the Trust's management, as of __________,
1999, no Trustee of the Trust owned 1% or more of the outstanding shares of
the Trust, and the Officers and Trustees of the Trust owned, as a group,
less than 1% of the outstanding shares of the Trust.
ADDITIONAL INFORMATION ABOUT VOTING AND THE MEETING
SOLICITATION OF PROXIES. In addition to soliciting by mail, the Trustees
and the employees of the Insurance Companies and Resources and its
affiliates may solicit voting instructions from Contract Owners in person
or by telephone. The cost of soliciting these proxies will be borne by the
Trust. The Trust does not reimburse Trustees, officers, or regular
employees and agents involved in the solicitation of proxies.
QUORUM. Forty percent (40%) of the shares entitled to vote shall
constitute a quorum at the Meeting. Shares whose proxies reflect an
abstention on any item are all counted as shares present and entitled to
vote for purposes of determining the presence of a quorum.
METHODS OF COUNTING THE VOTES. The inspector of election will count the
total number of votes cast "for" approval of each of the proposals for the
purposes of determining whether sufficient affirmative votes have been
cast. Abstentions will be included for purposes of determining whether a
quorum is present at the Meeting, and will not be counted for purposes of
determining whether the matters to be voted upon at the Meeting have been
approved, and will have the effect of a negative vote on a proposal.
Each of the Insurance Companies holding the shares of the Funds have agreed
to vote their shares in proportion to and in the manner instructed by
Contract Owners. If a Contract Owner gives no instructions by not
returning the voting instruction card, the relevant Insurance Company will
vote the shares in the same proportion as shares of that Fund for which it
has received instructions. If a Contract Owner returns a signed voting
instruction card, but does not indicate specific instructions, the shares
will be voted in accordance with the Trustees' recommendations.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY. The Trust is
not required, and does not intend, to hold regular annual meetings of
shareholders. Shareholders wishing to submit proposals for consideration
for inclusion in a proxy statement for the next meeting of shareholders
should send their written proposals to the Trust's offices, 777 Mariners
Island Blvd., San Mateo, CA 94404, so they are received within a
reasonable time before any such meeting. No business other than the
matters described above is expected to come before the Meeting, but should
any other matter requiring a vote of shareholders arise, including any
question as to an adjournment or postponement of the Meeting, the persons
named on the proxy card will vote on such matters according to their best
judgment in the interests of the Trust.
By order of the Board of Trustees,
Deborah R. Gatzek
SECRETARY
Dated: ___________, 1999
San Mateo, California
<TABLE>
<CAPTION>
EXHIBIT A
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED
TO BE AMENDED OR ELIMINATED
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PROPOSAL
OR RESTRICTION CURRENT FUNDAMENTAL RESTRICTION PROPOSED FUNDAMENTAL RESTRICTION
SUB-PROPOSAL
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<S> <C> <C> <C>
2g Diversification1. With respect to 75% of its total 7. Purchase the securities of
assets. . . purchase the securities of any one issuer (other than
any one issuer (other than cash, cash the U.S. government or any of
items and obligations of the U.S. its agencies or
Government) if immediately thereafter, instrumentalities or
and as a result of the purchase, the securities of other
fund would (a) have more than 5% of investment companies) if
the value of its total assets invested immediately after such
in the securities of such issuer or investment (a) more than 5%
(b) hold more than 10% of any or all of the value of the fund's
classes of the securities of any one total assets would be
issuer; invested in such issuer or
(b) more than 10% of the
outstanding voting securities
of such issuer would be owned
by the fund, except that up
to 25% of the value of the
fund's total assets may be
invested without regard to
such 5% and 10% limitations.
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2a Borrowing 2. Borrow money in an amount in excess of 1. Borrow money, except that the
5% of the value of its total assets, fund may borrow money from
except from banks for temporary or banks or affiliated
emergency purposes, and not for direct investment companies to the
investment in securities; extent permitted by the 1940
Act, or any exemptions
therefrom which may be
granted by the SEC, or for
temporary or emergency
purposes and then in an
amount not exceeding 33 1/3%
of the value of the fund's
total assets (including the
amount borrowed).
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2c Lending 3. Lend its assets, except through the 3. Make loans to other persons
purchase or acquisition of bonds, except (a) through the
debentures or other debt securities of lending of its portfolio
any type customarily purchased by securities, (b) through the
institutional investors, or through purchase of debt securities,
loans of portfolio securities, or to loan participations and/or
the extent the entry into a repurchase engaging in direct corporate
agreement may be deemed a loan; loans in accordance with its
investment objectives and
policies, and (c) to the
extent the entry into a
repurchase agreement is
deemed to be a loan. The fund
may also make loans to
affiliated investment
companies to the extent
permitted by the 1940 Act or
any exemptions therefrom
which may be granted by the
SEC.
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2b Underwriting 4. Underwrite securities of other issuers 2. Act as an underwriter except
. . . except insofar as a fund may be to the extent the fund may be
technically deemed an underwriter deemed to be an underwriter
under the federal securities laws in when disposing of securities
connection with the disposition of it owns or when selling its
portfolio securities; own shares.
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3 Illiquid 5. Purchase illiquid securities, Proposed to be Eliminated.
Securities including illiquid securities which,
at the time of acquisition, could be
disposed of publicly by the [fund]
only after registration under the
Securities Act of 1933, if as a result
more than 10% of [its] net assets
would be invested in such illiquid
securities;
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3 Control or 6. Invest in securities for the purpose Proposed to be Eliminated.
Management of exercising management or control of
the issuer;
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2f Concentration 7. Invest more than 25% of its assets 6. Concentrate (invest more than
(measured at the time of the most 25% of its net assets) in
recent investment) in any single securities of issuers in a
industry; 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).
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3 Unseasoned 8. Invest in companies which have a Proposed to be Eliminated.
Companies record of less than three years of
continuous operation, including the
operations of any predecessor
companies;
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2e, 3 Senior 9. Maintain a margin account with a 5. Issue securities senior to
Securities securities dealer or effect short the fund's presently
sales; authorized shares of
beneficial interest. Except
that this restriction shall
not be deemed to prohibit the
fund from (a) making any
permitted borrowings, loans,
mortgages or pledges, (b)
entering into options,
futures contracts, forward
contracts, repurchase
transactions, or reverse
repurchase transactions, or
(c) making short sales of
securities to the extent
permitted by the 1940 Act and
any rule or order thereunder,
or SEC staff interpretations
thereof.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
2d Commodities 10. Invest in commodities or commodity 4. Purchase or sell real estate
pools . . . . Securities or other and commodities, except that
investments backed by commodities are the fund may purchase or sell
not considered commodities or securities of real estate
commodity contracts for the purposes investment trusts, may
of this restriction; 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.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
2d Real Estate 11. Invest directly in real estate. . . . 4. Purchase or sell real estate
First mortgage loans or other direct and commodities, except that
obligations secured by real estate are the fund may purchase or sell
not considered real estate for securities of real estate
purposes of this restriction; 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.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
3 Investment in 12. Invest in the securities of other Proposed to be Eliminated.
other open-end investment companies (except
Investment that securities of another open-end
Companies investment company may be acquired
pursuant to a plan of reorganization,
merger, consolidation or
acquisition).
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
3 Securities 13. Invest in assessable securities or Proposed to be Eliminated.
with securities involving unlimited
Unlimited liability on the part of the fund;
Liability
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
3 Restricted 14. Invest an aggregate of more than 10% Proposed to be Eliminated.
Securities of its assets in securities with legal
or contractual restrictions on resale,
securities on resale, securities which
are not readily marketable (including
over-the-counter options and assets
used to cover such options), and
repurchase agreements with more than
seven days to maturity;
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
3 Management 15. Purchase or retain any security if any Proposed to be Eliminated.
Ownership of officer, director or security holder
Securities of the issuer is at the same time an
officer, trustee or employee of the
Trust or of the fund's Manager and
such person owns beneficially more
than one-half of 1% of the securities
and all such persons owning more than
one-half of 1% own more than 5% of the
outstanding securities of the issuer;
or
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
3 Tax 16. Invest its assets in a manner which Proposed to be Eliminated.
Diversification does not comply with the investment
for Variable diversification requirements of
Annuity Funds Section 817(h) of the Code.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
3 Illiquid 17. Invest more than 10% of its assets in Proposed to be Eliminated.
Securities illiquid securities (including
illiquid equity securities, repurchase
agreements of more than seven days
duration, over-the-counter options and
assets used to cover such options and
other securities which are not readily
marketable), as more fully described
in the prospectus and SAI.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT B
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE ELIMINATED
Ten of the Fund's current fundamental investment restrictions have been
proposed to be eliminated, and are listed in the table below.
- -------------------------------------------------------------------------------
SUBJECT CURRENT INVESTMENT RESTRICTION STATES THAT THE FUND MAY NOT:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Illiquid 5. Purchase illiquid securities, including illiquid securities
Securities which, at the time of acquisition, could be disposed of
publicly by the funds only after registration under the
Securities Act of 1933, if as a result more than 10% of
their net assets would be invested in such illiquid
securities;
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Control or 6. Invest in securities for the purpose of exercising
Management management or control of the issuer;
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Unseasoned 8. Invest in companies which have a record of less than three
Companies years of continuous operation, including the operations of
any predecessor companies;
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Senior 9. Maintain a margin account with a securities dealer or effect
Securities short sales;
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Investment in 12. Invest in the securities of other open-end investment
other Investment companies (except that securities of another open-end
Companies investment company may be acquired pursuant to a plan of
reorganization, merger, consolidation or acquisition).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Securities 13. Invest in assessable securities or securities involving
with Unlimited unlimited liability on the part of the fund;
Liability
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Restricted 14. Invest an aggregate of more than 10% of its assets in
Securities securities with legal or contractual restrictions on resale,
securities on resale, securities which are not readily
marketable (including over-the-counter options and assets
used to cover such options), and repurchase agreements with
more than seven days to maturity;
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Management 15. Purchase or retain any security if any officer, director or
Ownership of security holder of the issuer is at the same time an
Securities officer, trustee or employee of the Trust or of the fund's
Manager and such person owns beneficially more than one-half
of 1% of the securities and all such persons owning more
than one-half of 1% own more than 5% of the outstanding
securities of the issuer; or
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Tax 16. Invest its assets in a manner which does not comply with the
Diversification investment diversification requirements of Section 817(h) of
for Variable the Code.
Annuity Funds
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Illiquid 17. Invest more than 10% of its assets in illiquid securities
Securities (including illiquid equity securities, repurchase agreements
of more than seven days duration, over-the-counter options
and assets used to cover such options and other securities
which are not readily marketable), as more fully described
in the prospectus and SAI.
- -------------------------------------------------------------------------------
THESE VOTING INSTRUCTIONS ARE SOLICITED BY ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA IN CONNECTION WITH A SOLICITATION OF PROXIES BY THE TRUSTEES OF
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST.
The undersigned hereby instructs Allianz Life Insurance Company of North
America to vote shares of the Franklin Rising Dividends Securities Fund, a
series of Franklin Templeton Variable Insurance Products Trust, attributable
to the undersigned's variable annuity or variable life insurance contract at
the Special Shareholder's Meeting to be held at 777 Mariners Island Blvd.,
H.L. Jamieson Auditorium, San Mateo, California at 10:00 a.m. Pacific time on
the ___ day of February, 2000, and at any adjournments thereof, as
indicated below, with respect to the matters set forth on the reverse side
and described in the Notice of Special Meeting and Proxy Statement dated
__________, receipt of which is hereby acknowledged.
PLEASE SIGN IN THE BOX BELOW
Note: If a contract is held jointly, each contract owner should sign. If
only one contract owner signs, his or her signature will be binding. If the
contract owner is a corporation, the President or Vice President should sign
in his or her own name, indicating title. If the contract owner is a
partnership, a partner should sign in his or her own name, indicating that he
or she is a "Partner." If the contract owner is a trust, the trustee should
sign in his or her own name, indicating that he or she is a "Trustee."
---------------------
---------------------
Signature(s), Title(s) if applicable.
Dated:
THESE VOTING INSTRUCTIONS, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE CONTRACT OWNER. IF THESE VOTING INSTRUCTIONS ARE EXECUTED
AND NO DIRECTION IS MADE, THESE VOTING INSTRUCTIONS WILL BE VOTED FOR ALL
PROPOSALS AND SUB-PROPOSALS AND IN THE DISCRETION OF THE INSURANCE COMPANY
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSALS 1, 2, 3 AND 4.
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
Proposals FOR AGAINST ABSTAIN
1. To modify the Fund's current
criteria for the selection of
portfolio companies related to
debt as a part of the issuer's
capital structure, which is
fundamental.
2. To approve amending certain
of the Fund's fundamental
investment restrictions, as
described more fully in the
proxy statement:
2A. Borrowing
2B. Underwriting
2C. Lending
2D. Investing in real estate
and commodities
2E. Issuing of senior securities
2F. Industry concentration
2G. Diversification of
investments
3. To approve the elimination of
certain of the Fund's fundamental
investment restrictions, as described
more fully in the proxy statement.
GRANT WITHHOLD ABSTAIN
4. To grant the proxyholders
authority to vote upon any other
business that may properly
come before the meeting or any
adjournments thereof.
PLEASE SIGN, DATE AND RETURN THE VOTING INSTRUCTION FORM IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. VOTING INSTRUCTIONS MUST BE RECEIVED BY _________ TO
BE VOTED FOR THE MEETING TO BE HELD ON _____________.
PROXY CARD (FOR PARTICIPATING INSURANCE COMPANY)
VOTING INSTRUCTIONS FORM -- FRANKLIN RISING DIVIDENDS SECURITIES FUND OF THE
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Special Meeting of Shareholders To Be Held On
February 8, 2000
BY SIGNING AND DATING THE LOWER PORTION OF THIS CARD YOU AUTHORIZE THE
PROXIES TO VOTE YOUR SHARES AS MARKED BELOW.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF Franklin TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. THE UNDERSIGNED
APPOINTS, , AND
, WITH FULL POWER OF SUBSTITUTION, TO VOTE ALL THE
SHARES OF THE FRANKLIN RISING DIVIDENDS SECURITIES FUND ATTRIBUTABLE TO HIM
OR HER AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AT 777 MARINERS
ISLAND BLVD, SAN MATEO, CALIFORNIA 94404. AT [10 AM PST], FEBRUARY 8, 2000
AND ANY ADJOURNMENT OF THE MEETING AS FOLLOWS.
Proposals FOR AGAINST ABSTAIN
1. To modify the Fund's current
criteria for the selection of
portfolio companies related to
debt as a part of the issuer's
capital structure, which is
fundamental.
2. To approve amending certain
of the Fund's fundamental
investment restrictions, as
described more fully in the
proxy statement:
2A. Borrowing
2B. Underwriting
2C. Lending
2D. Investing in real estate
and commodities
2E. Issuing of senior
securities
2F. Industry concentration
2G. Diversification of
investments
3. To approve the elimination
of certain of the Fund's fundamental
investment restrictions, as described
more fully in the proxy statement.
GRANT WITHOLD ABSTAIN
4. To grant the proxyholders
authority to vote upon any other
business that may properly come
before the meeting or any adjournments
thereof.
THE TRUSTEES RECOMMEND VOTING "FOR" THE PROPOSALS AND GRANTING AUTHORITY TO
THE PROXY HOLDERS TO VOTE ON OTHER BUSINESS.
SIGN HERE: DATE:
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
