Registration Nos. 33-37846 and 811-6230
As filed with the Securities and Exchange Commission on July 2, 1996.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 5
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
TEMPLETON FUNDS ANNUITY COMPANY
(Name of Depositor)
700 Central Avenue, St. Petersburg, Florida 33701-3628
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number (800) 774-5001
Ellen F. Stoutamire
Templeton Funds Annuity Company
700 Central Avenue
St. Petersburg, Florida 33701-3628
(Name and Address of Agent for Service)
Copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective 60 days after filing
pursuant to paragraph (a) of Rule 485.
The Registrant has registered an indefinite number of its individual variable
annuity contracts under the Securities Act of 1933 pursuant to Rule 24f-2(a)(1)
under the Investment Company Act of 1940 and has filed its Rule 24f-2 Notice for
the fiscal year ended December 31, 1995 on or before February 29, 1996.
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<PAGE>
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
CROSS REFERENCE SHEET
Item No. Caption(s)
PART A
1 Cover Page
2 Glossary of Special Terms
3 Summary; Expense Table
4 Annuity Unit Values
5 Templeton Funds Annuity Company;
The Separate Account;
Templeton Variable Annuity Fund;
Voting Rights
6 Deductions and Charges
7 The Annuities; Substitution of Securities
and Other Changes; Cover Page
8 The Annuities
9 The Annuities
10 Purchase of Annuities; The Annuities;
Templeton Funds Annuity Company
11 N/A
12 Tax Information
13 N/A
14 Statement of Additional Information
Table of Contents
PART B
15 Cover Page
16 Table of Contents
17 Templeton Funds Annuity Company
18 Templeton Funds Annuity Company;
Independent Accountants
19 N/A
20 Templeton Funds Annuity Company;
Purchase of Annuities(in prospectus)
21 N/A
22 N/A
23 Financial Statements -- Templeton Funds
Annuity Company; Financial Statements --
Templeton Immediate Variable Annuity
Separate Account
<PAGE>
IN THE STATE OF CALIFORNIA
TEMPLETON FUNDS ANNUITY COMPANY
IS DOING BUSINESS AS
TEMPLETON FUNDS LIFE & ANNUITY INSURANCE COMPANY
<PAGE>
PROSPECTUS
__________, 1996
TEMPLETON IMMEDIATE VARIABLE ANNUITIES
ISSUED BY TEMPLETON IMMEDIATE VARIABLE ANNUITY
SEPARATE ACCOUNT
OF
TEMPLETON FUNDS ANNUITY COMPANY
700 Central Avenue
St. Petersburg, Florida 33701-3628
Telephone (800) 774-5001
A Templeton Immediate Variable Annuity ('Contract') is an immediate variable
annuity issued by Templeton Funds Annuity Company. The Contracts will not be
available to any investor who resides in a state where the Contracts may not
lawfully be sold. The minimum amount required to purchase a Contract is $10,000.
All assets under the Contracts are invested, through Templeton Immediate
Variable Annuity Separate Account (the 'Separate Account'), in shares of
Templeton Variable Annuity Fund (the 'Fund'). The value of the Contracts, and
the amount of each Annuity Payment, will vary with the performance of the Fund.
The Separate Account has registered an indefinite number of its individual
Contracts under the Securities Act of 1933.
The Fund has for its investment objective long term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments of any nation.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank; further, such shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
ANDEXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIESAND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THEACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS ACRIMINAL OFFENSE.
This Prospectus sets forth concisely information about the Contracts and the
Separate Account that a prospective investor should know before investing.
A Statement of Additional Information (the 'SAI') dated ___________, 1996, is on
file with the Securities and Exchange Commission and is, in its entirety,
incorporated by reference into and made a part of this Prospectus. (See page 19
for the Statement of Additional Information Table of Contents.) A copy of the
SAI is made available upon request and without charge by calling or writing
Templeton Funds Annuity Company at the address indicated above.
THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A CURRENT PROSPECTUS OF THE FUND. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
PAGE
Glossary of Special Terms
Expense Table
Contractholder Transaction Expenses
Separate Account Annual Expenses.
Templeton Variable Annuity Fund Annual Expenses
Examples.
Summary
Templeton Funds Annuity Company
The Separate Account.
Templeton Variable Annuity Fund
Purchase of Annuities
The Annuities
Payment Options
Death Benefit
Beneficiaries
Annuity Payments.
Annuity Units
Value of the Separate Account
Delays in Valuation and Payment
Deductions and Charges.
Tax Information
Internal Revenue Code Limitations on Qualified Contracts.
Federal Income Tax Status
(a) Federal Tax Status of the Company and the Separate Account.
(b) Federal Tax Status of Annuitants.
(c) Restrictions on Distributions Under 403(b) Plans.
(d) Rollovers and Direct Rollovers
(e) Withholding Income Taxation of Death Benefits.
Sales of Variable Annuity Contracts
Voting Rights
Substitution of Securities and Other Changes.
Performance Information
Illustration of Values
Statement of Additional Information Table of Contents
Appendix A.
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<TABLE>
<CAPTION>
GLOSSARY OF SPECIAL TERMS
<S> <C>
ANNUITANT A person on whose life the Annuity Payments are based.
ANNUITY A Templeton individual immediate variable annuity which
is purchased by the Contractholder.
ANNUITY BENEFITS Those benefit payments, including Annuity
Payments, made to an Annuitant, a Joint Annuitant, one
or more Beneficiaries and/or any of their respective
estates under the terms of the Contracts.
ANNUITY OPTION A form for payment of Annuity Benefits which is
selected in the application for the Contract.
ANNUITY PAYMENTS The monthly payments made in accordance with
the Annuity Option elected by the Contractholder.
ANNUITY STARTING DATE The date on which the first Annuity
Payment is calculated. The Annuity Starting Date may
not be more than 12 months from the Issue Date.
ANNUITY UNIT An accounting unit of measure used to calculate
the dollar amount of Annuity Payments and Annuity
Benefits under Annuity Options 2, 3, 4, 5 and 6. The
value of an Annuity Unit fluctuates generally with the
value of the Fund.
ASSUMED ANNUAL The interest rate upon which the annuity payments in
INTEREST RATE the Contract are based under Annuity Options 2, 3, 4,
5 and 6.
BENEFICIARY The person, persons or entity named by the
Contractholder to receive any proceeds, or to receive
Annuity Benefits, if any, after the last death of the
Annuitant and any Joint Annuitant.
BUSINESS DAY Any day the New York Stock Exchange is open for
trading, or any day in which the Securities and
Exchange Commission requires that the Separate Account
be valued.
CHARGE TO THE SEPARATE A daily charge equivalent to a percentage of the
ACCOUNT daily net asset value of the Separate Account.
CODE The Internal Revenue Code of 1986, as amended.
COMPANY Templeton Funds Annuity Company, a Florida insurance
company which maintains the Separate Account and issues
the Contracts.
CONTRACT MAINTENANCE An annual charge assessed at the end of each Contract
CHARGE year for administrative services performed by the
Company.
CONTRACT YEAR Each 12-month period beginning with the Issue Date.
CONTRACTHOLDER The person, persons or entity entitled to the ownership
rights stated in the Contract and in whose name the
Contract is issued.
FUND Templeton Variable Annuity Fund, the registered
open-end management investment company in which the
Contract's assets are invested by the Separate Account.
GENERAL ACCOUNT All Company assets other than those allocated
to any Separate Accounts.
INITIAL PAYMENT DATE The date of the first Annuity Payment,
which will be either the 1st or 15th day of a month as
elected in the application, depending on the date of
receipt of the initial Purchase Payment.
ISSUE DATE The date on which this Contract becomes effective.
JOINT ANNUITANT A person other than the Annuitant designated
by the Participant as a person on whose life Annuity
Payments may also be based.
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NET ASSET VALUE The total assets of the underlying mutual
fund (or other investment vehicle) less the liabilities
of that fund (or vehicle), as of the close of trading
on a Valuation Date.
NET PURCHASE PAYMENT(S) The Purchase Payments(s) less any Taxes levied.
NONQUALIFIED CONTRACT A contract which is not used in connection
with a retirement plan which meets the requirements of
Sections 401(a), 403(b) or 408 of the Code.
PAYEE The recipient of Annuity Payments or other benefits
under the Contract.
PURCHASE PAYMENT(S) Amount(s) paid to the Company to provide
benefits under the Contract.
QUALIFIED CONTRACT A Contract used in connection with a
retirement plan which meets the requirements of
Sections 401(a), 403(b) or 408 of the Code.
SEPARATE ACCOUNT Templeton Immediate Variable Annuity Separate Account,
a separate account of the Company registered with the
Securities and Exchange Commission as a unit investmen
trust. The Separate Account invests all its assets in
the Fund. The assets of the Separate Account are not
commingled with the general assets of the Company, and
the investment performance of the Separate Account is
kept separate from that of the general assets of the
Company.
SEPARATE ACCOUNT The Contract's proportionate share of the Separate
CONTRACT VALUE Account as defined in the Contract.
TAXES The taxes imposed on reserves in the Separate Account
or on net income received by the Company. Also, premium
taxes charged as a result of the issue, maintenance,
surrender or annuitization of the Contract.
TIVA UNIT An accounting unit of measure used to calculate
Annuity Payments and Annuity Benefits under Annuity
Option 1 and for measuring amounts credited to a
Contract before the Annuity Starting Date.
VALUATION DATE Any date on which the Separate Account is valued.
The Separate Account will be valued on the Issue Date
and on each Business Day thereafter.
VARIABLE ANNUITY An annuity with payments which vary as to
dollar amount in relation to the investment performance
of the Separate Account.
WITHDRAWAL CHARGE The charge assessed against certain withdrawals
from the Contract which shall be the contingent
deferred sales charge listed in the Expense Table.
</TABLE>
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<PAGE>
EXPENSE TABLE
CONTRACTHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases NONE
Contingent Deferred Sales Charge
(as a percentage of Purchase Payments)*
Less than 1 complete year since Purchase Payment. 5%
1 complete year since Purchase Payment. 4%
2 complete years since Purchase Payment 3%
3 complete years since Purchase Payment 2%
4 complete years since Purchase Payment 1%
5 or more complete years since Purchase Payment NONE
Annual Contract Maintenance Charge. $30.00
*The Applicable Contingent Deferred Sales Charge, as a percentage of Purchase
Payments, is applied only against nonscheduled withdrawals from a Contract
making Annuity Payments under Annuity Option 1. The Company does not intend to
impose a sales charge which exceeds any limitation on sales expenses set by any
regulatory or governing body having jurisdiction over the Separate Account or
its sale.
SEPARATE ACCOUNT ANNUAL EXPENSES
(As a percentage of average account value)
Mortality and Expense Risk Fee 1.20%
TEMPLETON VARIABLE ANNUITY FUND ANNUAL EXPENSES
(As a percentage of Fund average net assets)**
Management Fees. 0.50%
Other Expenses
Administrative Fees. 0.15%
Other (after fee reduction) .0.35% 0.50%
Total Fund Annual Expenses 1.00%
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Templeton Investment Counsel, Inc., the Fund's investment manager, has
voluntarily agreed to reduce its investment management fee to the extent
necessary to limit total expenses (excluding interest, taxes, brokerage
commissions, and extraordinary expenses) to 1% of the Fund's average daily net
assets until May 1, 1997. If such fee reduction is insufficient to so limit the
Fund's total expenses, the Fund's business manager, Templeton Funds Annuity
Company, has agreed to reduce its fee and , to the extent necessary, assume
other Fund expenses, so as to limit the Fund's expenses. Expenses borne by the
investment manager amounted to $0.01 per share for the fiscal year ended
December 31, 1995. If these expenses had been incurred by the Fund, the ratio of
expenses to average net assets would have been 1.06%.
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<PAGE>
SUMMARY
A Templeton Immediate Variable Annuity is designed to be used to distribute the
benefits of Individual Retirement Accounts (including rollovers of Individual
Retirement Accounts), qualified plans under Section 401(a), tax deferred
annuities under Section 403(b) of the Code, and to provide annuity income
benefits from non-tax qualified accumulations. The minimum Purchase Payment is
$10,000. Purchase Payments can be made until the Annuity Starting Date.
The Contractholder may select an Annuity Option which provides for the payment
of distributions that are based on the Internal Revenue Service Life Expectancy
Tables. Also, the Contractholder may select from a variety of payment options
based on the Annuitant's life (or the life of the Annuitant and that of a Joint
Annuitant) or for a period certain (see 'Payment Options'). The value of the
first Annuity Payment depends on the amount invested and the Annuity Payment
option selected by the Contractholder. The amount of each Annuity Payment
thereafter will fluctuate based on the performance of the underlying mutual fund
in which the Annuity assets are invested (see 'Templeton Variable Annuity
Fund'). The investment objective of the Fund is long term capital growth through
a flexible policy of investing in stocks and debt obligations of companies and
governments of any nation.
The Contracts are sold without a sales charge; however, a Withdrawal Charge
(contingent deferred sales charge) may be imposed on withdrawals in excess of
scheduled Annuity Payments under Annuity Option 1 (see 'Expense Table,' page 5).
An Annual Contract Maintenance Charge is imposed at the end of each Contract
year to compensate the Company for providing administrative services. The
current Annual Contract Maintenance Charge is $30. The Company assesses a charge
on an annual basis of 1.2% of assets of the Separate Account as compensation for
assuming mortality and expense risks. The Company guarantees that these charges
will not increase for Contracts already issued (see 'Deductions and Charges').
Expenses of Templeton Variable Annuity Fund are described in its prospectus.
Withdrawals in excess of the scheduled Annuity Payments may be made under
Annuity Option 1 under certain conditions. A Withdrawal Charge will be deducted
from any withdrawal in excess of the scheduled Annuity Payments. The maximum
amount of the Withdrawal Charge is 5% in the first Contract Year and reduces to
0% in years 6 and thereafter. Withdrawals in excess of scheduled Annuity
Payments are not permitted under Annuity Options 2, 3, 4, 5, and 6.
Any applicable state premium taxes will be deducted either from the Purchase
Payment at the time a Contract is purchased or from Annuity Payments or Annuity
Benefits, as required by the applicable taxing authority from time to time.
Where applicable, the full amount of premium taxes will be borne by this
Contract. The Contract may also be charged with its proportionate share of any
other taxes levied against the Separate Account. Under qualified plans, the
Contracts may not be assigned or pledged by the Annuitant, Joint Annuitant or
Beneficiary except in surrender of the Contract.
TEMPLETON FUNDS ANNUITY COMPANY
Templeton Funds Annuity Company (the 'Company'), 700 Central Avenue, St.
Petersburg, Florida 33701-3628, is the sponsor of the Separate Account. The
Company was organized as a Florida corporation on January 25, 1984 and is
licensed to engage in the life insurance business in Florida and other states.
The Company is an indirect wholly-owned subsidiary of Franklin Resources, Inc.
(See 'Templeton Funds Annuity Company' in the SAI for additional information.)
THE SEPARATE ACCOUNT
The Separate Account was established on November 6, 1990, by resolution of the
Board of Directors of the Company and is registered with the Securities and
Exchange Commission (the 'Commission') as a unit investment trust. This
registration does not involve any supervision by the Commission of the
administration or investment practices or policies of the Separate Account or of
the Fund. The Separate Account invests its assets, net of certain expenses (see
'Deductions and Charges'), exclusively in the Fund. Although empowered to
establish subaccounts which may make other investments, the Separate Account has
no present intention of so doing.
The Separate Account is administered and accounted for as part of the general
business of the Company, but the income and capital gains or losses from assets
allocated to the Separate Account, whether or not realized, are, in accordance
with the resolution establishing the Separate Account, credited to or charged
against those assets without regard to other income, gains or losses of the
Company. The assets of the Separate Account are not chargeable with liabilities
arising out of any other business of the Company. The obligations arising under
the Contracts are obligations of the Company.
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<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
The Fund is registered under the Investment Company Act of 1940 as an open-end
diversified management investment company and is currently used as a funding
vehicle for the Contracts. The Fund was organized as a Massachusetts business
trust on February 5, 1987. The Fund's investment objective is long term capital
growth. It pursues this objective through a flexible policy of investing
primarily in stocks and debt obligations of companies and governments of any
nation, including issuers inside as well as outside the United States. The
Fund's Investment Manager is Templeton Investment Counsel, Inc., an affiliate of
the Company. A prospectus containing more complete information concerning the
Fund accompanies this Prospectus and should be read carefully before purchasing
an Annuity.
The following is a graph showing how the Annuity Payments can fluctuate based on
past investment performance through December 31, 1995. The graph shows the
effect that the Fund's investment performance would have had if a Contract with
an Assumed Annual Interest Rate of 5%, providing an initial monthly Annuity
payment of $500, was purchased on the date the Fund commenced operations.
Annuity Payments increase for a given month if the annualized net rate of return
for that month is higher than the Assumed Annual Rate of Return, and decreases
for a given month if the annualized net rate of return is lower than the Assumed
Annual Rate of Return. The Purchase Payment necessary for an initial monthly
Annuity Payment of $500 will vary depending on the age and sex of the Annuitant
(and Joint Annuitant, if any), the Annuity Option, and the Annuity Starting
Date.
The graph takes into account all charges under the Contract and the actual
expenses of the Fund except the Annual Contract Maintenance Charge of $30.
[The following table replaces a graph.]
Date Plot Pts.
Feb. 88 500.00
Mar. 88 509.28
Apr. 88 490.67
May 88 486.57
Jun. 88 500.59
Jul. 88 493.85
Aug. 88 477.93
Sep 88 479.87
Oct. 88 497.78
Nov. 88 482.49
Dec. 88 486.58
Jan. 89 509.81
Feb. 89 534.90
Mar. 89 533.47
Apr. 89 543.25
May 89 555.77
Jun. 89 548.35
Jul. 89 567.57
Aug. 89 593.57
Sep. 89 604.64
Oct. 89 590.77
Nov. 89 596.85
Dec. 89 608.16
Jan. 90 596.55
Feb. 90 576.58
Mar. 90 573.16
Apr. 90 588.11
May 90 598.72
Jun. 90 611.16
Jul. 90 635.00
Aug. 90 566.38
Sep. 90 535.83
Oct. 90 503.57
Nov. 90 496.64
Dec. 90 513.38
Jan. 91 513.72
Feb. 91 573.89
Mar. 91 576.79
Apr. 91 591.19
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May 91 571.76
Jun. 91 564.21
Jul. 91 575.53
Aug. 91 555.85
Sep. 91 592.49
Oct. 91 594.40
Nov. 91 599.43
Dec. 91 594.62
Jan. 92 642.61
Feb. 92 647.42
Mar. 92 648.01
Apr. 92 649.04
May 92 666.55
Jun. 92 645.27
Jul. 92 657.25
Aug. 92 644.76
Sep. 92 640.75
Oct. 92 627.71
Nov. 92 634.00
Dec. 92 651.44
Jan. 93 677.80
Feb. 93 672.81
Mar. 93 687.67
Apr. 93 712.93
May 93 701.04
Jun. 93 716.23
Jul. 93 712.44
Aug. 93 754.13
Sep. 93 766.79
Oct. 93 802.20
Nov. 93 802.51
Dec. 93 823.26
Jan. 94 858.48
Feb. 94 872.79
Mar. 94 841.25
Apr. 94 807.54
May 94 816.97
Jun. 94 815.42
Jul. 94 830.11
Aug. 94 847.24
Sep. 94 844.49
0ct. 94 829.20
Nov. 94 809.31
Dec. 94 771.07
Jan. 95 763.03
Feb. 95 773.60
Mar. 95 767.76
Apr. 95 802.70
May 95 830.19
Jun. 95 848.34
Jul. 95 892.13
Aug. 95 880.81
Sep. 95 903.56
Oct. 95 892.40
Nov. 95 867.32
Dec. 95 885.18
PURCHASE OF ANNUITIES
Persons desiring to purchase a Contract must send a completed application and an
initial Purchase Payment to the Company. If the application can be accepted in
the form received, the Purchase Payment will be credited to the Contract within
two business days after receipt. If the Purchase Payment cannot be credited
within five business days after receipt because the application is incomplete,
the Company will contact
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the Applicant to explain the reason for the delay. The Company will immediately
return the initial Purchase Payment unless the Applicant specifically directs
the Company to retain the initial Purchase Payment until the application is
complete to the satisfaction of the Company. The Company reserves the right to
accept or reject any application at its sole discretion. The Contracts are
non-participating and, therefore, do not share in any profits of the Company.
The Contracts may be modified by the Company in order to maintain compliance
with applicable state and federal law. The Contracts are offered on a continuous
basis.
The minimum initial Purchase Payment is $10,000. Additional Purchase Payments
may be made until the Annuity Starting Date. Within 10 days of receipt of the
Contract by the Contractholder, the Contract may be returned by delivering or
mailing it to the Company and a refund will be made. Certain states may permit
the Contractholder more than 10 days to return the Contract. Within seven days
of receipt of the Contract and a written notice by the Contractholder, the
Company will issue a refund. Unless applicable law requires a refund equal to
the Purchase Payments, the Company will refund the value of the Contract
computed at the end of the Valuation Period during which the Contract is
received by the Company. No withdrawal charges will be assessed in this event.
The amount of the initial Annuity Payment will be determined on the 10th
Business Day prior to the Initial Payment Date specified in the application. If
the completed application and the Purchase Payment are received by the Company
before the Business Day on which the Company determines such Initial Annuity
Payment, the Purchase Payment will be allocated to the Separate Account for the
purchase of TIVA Units until the next following Annuity Starting Date prior to
the day of the month of the Initial Payment Date specified in the application.
At that time, the Units will be applied under the Annuity Option selected as
TIVA Units or converted to Annuity Units. The number of TIVA Units credited to
the Separate Account as a result of a Net Purchase Payment is determined by
dividing the Net Purchase Payment allocated to the Separate Account by the TIVA
Unit value next computed for the Separate Account following the allocation of
the Net Purchase Payment to the Separate Account. A TIVA Unit is an accounting
measure used to determine a contract's proportionate share of the Separate
Account. The value of a TIVA Unit was established at $1.00 for the first
Valuation Date of the Separate Account. After that date, the value of a TIVA
Unit increases or decreases in proportion to the net investment return of the
Separate Account. An Annuity Unit is an accounting measure used to calculate
Annuity Payments and Annuity Benefits under one or more of Annuity Options 2, 3,
4, 5, and 6. When an Annuitant selects one or more of Annuity Options 2, 3, 4,
5, or 6, the required TIVA Units credited to the Contract are converted to
Annuity Units. Thus, an increase or decrease in the value of a TIVA Unit will
have a positive or negative impact on the value of the Annuity Unit.
The Contracts are issued after the Company has accepted a completed application
and the initial Purchase Payment. The Contractholder may select an Annuity
Starting Date that is no later than 12 months after the date the Contract is
issued by the Company.
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THE ANNUITIES
A Templeton Immediate Variable Annuity is designed to be used to distribute the
benefits of Individual Retirement Accounts (including rollovers of Individual
Retirement Accounts), qualified plans under Section 401(a) of the Code, tax
deferred annuities under Section 403(b), and to provide annuity income benefits
from non-tax qualified accumulations. The minimum Purchase Payment is $10,000.
Purchase Payments can be made until the Annuity Starting Date. The
Contractholder may select a combination of Annuity Options from those shown
below and allocate parts of the Net Purchase Payment to each option selected.
The Contractholder must select at least one Annuity Option. An application will
not be accepted if no Annuity Option is selected.
Benefits payable under the Annuities will vary in amount based on the
performance of the Fund. However, because the Fund in which the assets used to
purchase the Annuity are invested fluctuates in value daily, there can be no
guarantee that the remaining value of an Annuity (net of deductions and charges)
together with any Annuity Payments already made, will at any given time exceed
or even equal the amount of assets used to purchase the Annuity. Also, the
Assumed Annual Interest Rate is a fulcrum rate and is used only to determine the
first Annuity Payment. The actual annual interest rate will fluctuate to reflect
whether the investment experience of the Fund is greater than or less than the
Assumed Annual Interest Rate.
PAYMENT OPTIONS
The Annuity Options available under the Contract are as follows:
Annuity Option 1--Life Expectancy Annuity--An Annuity payable monthly, quarterly
or annually which is calculated by dividing the Separate Account Contract Value
by the recalculated life expectancy of the Annuitant or the joint life
expectancy of the Annuitant and a Joint Annuitant each year (see Annuity Tables,
Appendix A). Life expectancies are determined in accordance with Publication 575
of the Internal Revenue Service (the 'IRS'). Net Purchase Payments will be used
to acquire TIVA Units, which will then be redeemed to pay the Annuity Option 1
Annuity Payments.
Annuity Option 2--Life Annuity--An Annuity payable monthly during the lifetime
of the Annuitant. The Annuity will stop with the last Annuity Payment due prior
to the death of the Annuitant. Only one Annuity Payment would be made under this
Annuity Option if the Annuitant dies before the second Annuity Payment is due;
only two Annuity Payments would be made if the Annuitant dies before the third
Annuity Payment is due, etc.
Annuity Option 3--Life Annuity with 60, 120 or 180 Monthly Payments
Guaranteed--An Annuity payable monthly during the lifetime of an Annuitant with
a guarantee that if, at the death of the Annuitant, Annuity Payments have been
made for less than 60, 120 or 180 months, as elected, then Annuity Payments will
be continued thereafter, to a Beneficiary designated by the Contractholder
during the remainder of the period.
Annuity Option 4--Joint and Last Survivor Annuity--An Annuity payable monthly
during the joint lifetime of the Annuitant and a designated Joint Annuitant.
Upon the death of the Annuitant, Annuity Payments will be made to the Joint
Annuitant during the Joint Annuitant's remaining lifetime at a level of 100%,
75% or 50% of the original level, as elected by the Contractholder. This
percentage is selected by the Contractholder in the application. Under this
Annuity Option, only one Annuity Payment would be made if both the Annuitant and
the Joint Annuitant die before the second Annuity Payment is due; only two
Annuity Payments would be made if they both die before the third Annuity Payment
is due, etc.
Annuity Option 5--Joint and Last Survivor Annuity with 60, 120 or 180 Monthly
Payments Guaranteed--An Annuity payable monthly during the joint lifetime of an
Annuitant and a Joint Annuitant with no reduction in amount after the death of
the Annuitant and with a guarantee that if, at the latter death of either the
Annuitant or the Joint Annuitant, Annuity Payments have been made for less than
60, 120 or 180 months as elected, then Annuity Payments will be continued
thereafter to a Beneficiary designated by the Contractholder during the
remainder of said period.
Annuity Option 6--Unit Refund Life Annuity--An Annuity payable monthly during
the lifetime of an Annuitant, ceasing with the last Annuity Payment due prior to
the death of the Annuitant with a guarantee that, at the death of the Annuitant,
the Beneficiary will receive in one sum the then dollar value of the number of
Annuity Units equal to (1) the total net amount applied to purchase the Annuity
divided by the Annuity Unit value used to determine the first Annuity Payment,
minus (2) the product of the number of the Annuity Units represented by each
payment and the number of payments made. No payment will be made if the
difference of (1) minus (2) is negative.
Under Annuity Options 2 through 6, the first Annuity Payment for payments on a
monthly basis is determined on the basis of the Mortality Table and Interest
Rate Assumed in the Contract, and on the Annuity Option(s) specified in the
application (see Annuity Tables, Appendix A).
Other payment options may be arranged subject to prior approval by the Company.
All Annuity Payments will be made monthly, unless an arrangement is made with
the Company for less frequent payments.
Converting from Annuity Option 1.
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If Annuity Payments are being made under Annuity Option 1, the Contractholder
may elect to convert all or a portion from Annuity Option 1 and have the
remaining Annuity Payments made under any of Annuity Options 2, 3, 4, 5 and 6.
In the case of the conversion of a Qualified Contract to Annuity Options 3 or 5
with guaranteed payments, the period during which the guaranteed payments will
be paid under the option selected may not exceed the Annuitant's life expectancy
(or Annuitant's and Joint Annuitant's joint life expectancy), determined under
Publication 575, as of the date of the conversion. This restriction does not
apply to nonqualified plans.
See 'Tax Information--Internal Revenue Code Limitations on Qualified Contracts,'
regarding limitations and other requirements which should be considered when
selecting a payment option. Availability of certain options may be limited to
comply with provisions of the Internal Revenue Code. Nonscheduled Withdrawals
Under Annuity Option 1.
At any time that Annuity Payments under the Contract are being made under
Annuity Option 1, the Contractholder may terminate the Contract or withdraw a
portion of the Separate Account Contract Value in addition to scheduled Annuity
Payments. Withdrawal charges may apply to these nonscheduled withdrawals. The
request for termination or withdrawal must be sent to the Company's Home Office
in writing. Nonscheduled withdrawals will only be permitted in amounts of $1,000
or more.
The amount of the Withdrawal Charge will be the result of multiplying 1 by 2
below:
1. The nonscheduled withdrawal amount.
2. The appropriate Withdrawal Charge factor from the following Schedule:
Age of Purchase Payment in Complete Years
0 1 2 3 4 5 or more
Withdrawal Charge
to be Applied 5% 4% 3% 2% 1% 0%
The amount paid will be the nonscheduled withdrawal amount less the Withdrawal
Charge, calculated on a first-in, first-out basis.
The Separate Account Contract Value will be reduced by the nonscheduled
withdrawal amount which will reduce the amount available to make subsequent
Annuity Payments. Thus, Annuity Payments in subsequent years will be lower in
amount. Nonscheduled withdrawals may also reduce the Separate Account Contract
Value to zero. In that event, no further Annuity Payments would be made and the
Contract would terminate.
DEATH BENEFIT
In the event the Annuitant and any Joint Annuitant die before the Annuity
Starting Date under all Annuity Options, or if the Annuitant and any Joint
Annuitant die at any time when Annuity Option 1 is in effect, the Company will
pay a death benefit to the Beneficiary upon receipt of due proof of death. The
death benefit will be the greater of 1 or 2 below if the age, last birthday, of
the last to die of the Annuitant or any Joint Annuitant was 75 or younger at the
time of death:
1. The Separate Account Contract Value.
2. The amount of Net Purchase Payment(s) received by the Company for the
Contract, minus the total of all benefits paid under the Contract.
If the age, last birthday, of the last to die of the Annuitant or any Joint
Annuitant was more than 75 as of the date of death, the death benefit will be
the Separate Account Contract Value reduced by the Withdrawal Charge applicable
to a nonscheduled withdrawal based on the age of the Purchase Payments in
complete years at such date.
The death benefit under Annuity Option 1 will be payable in a lump sum cash
payment. However, the Beneficiary under a Nonqualified Contract (or a
Beneficiary under a Qualified Contract where the death of the Annuitant and the
death of Joint Annuitant occurs before the Annuity Starting Date) within 60 days
after the date that due proof of death is provided, may elect, in writing, in
lieu of a cash payment to have the death benefit paid under a method of
settlement set out in Annuity Options 2, 3 or 6 for the Beneficiary's life.
Other methods of settlement may also be made available upon prior approval by
the Company. Optional methods of settlement may be limited by applicable law.
Upon payment of the death benefit, the Contract will cease to be in force.
In the event of the death of the Annuitant and any Joint Annuitant after the
Annuity Starting Date where Annuity Options 2, 3, 4, 5 or 6 are in effect, the
death benefit, if any, will be payable under the particular option. For example,
if Annuity Option 2 or 4 has been selected, there will be no death benefit.
Where Annuity Option 3 or 5 has been selected, the Annuity Payment will continue
to the Beneficiary for the remainder of the guaranteed period selected.
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BENEFICIARIES
The Contractholder may designate a Beneficiary or Beneficiaries to receive any
remaining payments or sums which may become payable upon the last death of the
Annuitant and the Joint Annuitant. A Contractholder may also designate one or
more contingent Beneficiaries to receive Annuity Benefits in the event all
Beneficiaries die before all Annuity Benefits payable to such Beneficiaries have
been paid. These designations may be changed by the Contractholder from time to
time.
Unless otherwise provided in the application, any amount payable after the death
of the Annuitant and any Joint Annuitant will be payable in equal shares to such
Beneficiaries as are then living. If no Beneficiary is then living, payment will
be made in equal shares to such Contingent Beneficiaries as are then living. If
no Beneficiary or Contingent Beneficiary is then living, payment will be made to
the estate of the Annuitant. Designation of Beneficiaries under a Qualified
Contract purchased under a Section 401(a) or 403(b) plan may be limited.
ANNUITY PAYMENTS
In the case of a Qualified Contract where Annuity Option 1 is selected, any
Annuitant who is age 70 1/2 or older in the year of purchase must withdraw the
minimum distributions required for such year(s) prior to the purchase of the
Contract.
Where Annuity Option 1 is selected and if the Annuity Starting Date is before
the December 31st which follows purchase of the Contract, the Annuity Payments
for the balance of the Calendar year will be the result of dividing the Separate
Account Contract Value on the Annuity Starting Date by the life expectancy of
the Annuitant and any Joint Annuitant. For example, if the Contract is purchased
on August 31, 1996 and the Initial Payment Date is October 1, 1996, and if
monthly payments are selected, each monthly payment in 1996 will be the result
of the Separate Account Contract Value as of the Annuity Starting Date, divided
by the applicable life expectancy, divided by 12. At this time and each time an
Annuity Payment is paid subsequently, the Separate Account Contract Value will
be decreased by the amount of TIVA Units redeemed to pay the Annuity Payment.
The Separate Account Contract Value may also be reduced by the amount of any
applicable taxes for which no previous deduction has been made. Subsequent
Annuity Payments will be paid on the same day of each succeeding Annuity Payment
Interval throughout the Annuitant's lifetime or the lifetime of the Annuitant
and the Joint Annuitant until the total Separate Account Contract Value has been
paid. The Annuity Payments in subsequent years under Annuity Option 1 will be
equal to the remaining Separate Account Contract Value on the December 31
preceding each such year divided by the then appropriate life expectancy or
joint life expectancy.
The first payment under any of Annuity Options 2, 3, 4, 5 and 6 will be
determined in accordance with the annuity payment rate based on a 5% Assumed
Annual Interest Rate (unless the Company also offers an alternative assumed
interest rate and the alternative rate is selected). No purchase of an Annuity
will be effected until the Company has received proof acceptable to it of the
birthdate of the Annuitant and any Joint Annuitant. Once elected, all options
except Annuity Option 1 are irrevocable. Any Annuity Option elected as a
conversion from Annuity Option 1, once elected, is irrevocable. The amount of
each payment depends upon the Annuity Option or Option(s) chosen and the
Annuitant's and any Joint Annuitant's actual age at the time the first payment
is due. 'Actual age', as used above, means actual age to the nearest month on
the Annuity Starting Date.
Under Annuity Options 2 through 6 the first Annuity Payment is calculated as
provided in the Contract and shown on Contract Schedule 1. The first Annuity
Payment is then divided by the then current value of an Annuity Unit (see below)
to determine the fixed number of Annuity Units used to calculate each subsequent
Annuity Payment. Thereafter, each Annuity Payment is calculated by multiplying
the fixed number of Annuity Units, as determined above, by the current Annuity
Unit Value, less any applicable taxes. Since the value of an Annuity Unit will
fluctuate from month to month, the amount of each Annuity Payment may also be
expected to fluctuate. However, the Company guarantees that the Periodic Charge
will not be changed for any Annuity once issued. (See 'Deductions and Charges.')
ANNUITY UNITS
The value of an Annuity Unit was initially set at $1.00 upon commencement of the
Separate Account's operations. The value of an Annuity Unit is thereafter
determined as follows on each Payment Date:
First: The Net Investment Factor is determined by dividing (a) by (b) and adding
(c) to the result, where:
(a) is the net increase or decrease in the net asset value per share of the
Fund, plus the per share amount of any dividend or capital gain
distribution paid or deemed paid by the Fund since the preceding Payment
Date, plus or minus a per share charge or credit for any taxes incurred by
or reserved for in the Separate Account as of the end of the current
Payment Date which the Company determines to have resulted from maintenance
of the Separate Account;
(b) is the net asset value per share of the Fund on the preceding Payment Date,
plus or minus a per share charge or credit for any taxes incurred by or
reserved for in the Separate Account as of the end of the immediately
preceding Payment Date which the Company determines to have resulted from
maintenance of the Separate Account;
(c) is the net result of 1.000, less the Valuation Period Deduction Charge for
the charge to the Separate Account (see 'Deductions and Charges').
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The Net Investment Factor may be more or less than one.
Second: An Annuity Unit value for a Payment Date is equal to:
(a) the value of the Annuity Unit on the immediately preceding Payment Date;
(b) multiplied by the Net Investment Factor for the period from the preceding
Payment Date ending on the current Payment Date; and
(c) divided by the Assumed Net Investment Factor for that period.
The Assumed Net Investment Factor is equal to one plus the Assumed Annual
Interest Rate used in determining the basis for purchase of Annuities, adjusted
to reflect the performance of the Separate Account during the particular
valuationperiod. For example, using the 5% Assumed Annual Interest Rate, the
Assumed Net Investment Factor for a one-year valuation period would be 1.05. For
a one-day valuation period, the Assumed Net Investment Factor would be 1.000133.
The value of an Annuity Unit will increase only when the actual investment
results of the Separate Account exceeds the Assumed Annual Interest Rate. If
actual results are less than the Assumed Annual Interest Rate, the value of an
Annuity Unit will decrease.
The value of an Annuity Unit as of any date other than a given Payment Date is
equal to its value on the next succeeding Payment Date.
VALUE OF THE SEPARATE ACCOUNT
The value of the Separate Account on a Payment Date is equal to (a) its value on
the previous Payment Date, less (b) the Periodic Charge, the Administration Fee
and Taxes for the period since the preceding Payment Date (see 'Deductions and
Charges'), less (c) Annuity Benefits and nonscheduled withdrawals paid since the
previous Payment Date, plus (d) net new contributions, plus (e) any dividend or
capital gains distributions paid and reinvested for the Separate Account by the
Fund, and plus or minus (f) the increase or decrease in the net asset value of
the Fund since the preceding Payment Date.
DELAYS IN VALUATION AND PAYMENT
The determination of Net Asset Value, Annuity Unit value or Life Expectancy Unit
value and making of payments under the Annuities may be suspended or delayed:
(a) for any period (i) during which the New York Stock Exchange is closed other
than customary weekend and holiday closings or (ii) during which trading on
the New York Stock Exchange is restricted;
(b) for any period during which an emergency exists (as determined in
accordance with any applicable regulatory requirements) as a result of
which (i) disposal by the Separate Account or the Fund of securities owned
by it is not reasonably practicable or (ii) it is not reasonably
practicable for the Separate Account or the Fund fairly to determine the
value of its net assets; or
(c) for such other periods as the Commission may by order permit for the
protection of Participants, Annuitants, Joint Annuitants and/or
Beneficiaries.
DEDUCTIONS AND CHARGES
Any applicable state premium taxes and other taxes will be deducted either from
the initial Purchase Payment at the time an Annuity is purchased or from Annuity
Payments or Annuity Benefits, as required by applicable law from time to time.
Premium taxes on Contracts, where imposed, range from a minimum of .5% to a
maximum of 3.5%.
The Company assesses a Periodic Charge against the Separate Account, equal on an
annual basis to 1.2% of Separate Account assets. The Periodic Charge, in the
following amounts, compensates the Company for assuming the risks that mortality
experience will be lower than the rate assumed and that expenses will be greater
than what is assumed: 0.6% of average annual net assets to cover mortality risk
and 0.6% to cover the expense risk. The Periodic Charge is guaranteed as to
Annuities issued prior to the effective date of any change in the Periodic
Charge.
If the charges for mortality and expense risks are insufficient to cover the
actual costs of these items, the Company will bear the loss. Conversely, if such
charges prove to be more than sufficient, the Company will profit. To the extent
this charge results in a profit to the Company, such profit will be available
for use by the Company for, among other things, the payment of distribution,
sales, and other expenses.
The Company may also levy a charge against the Separate Account to reimburse the
Company for the amount of any tax liability paid or reserved by the Company that
results from the maintenance of the Separate Account.
An Annual Contract Maintenance Charge of $30 will be deducted immediately
following the end of each Contract Year. This charge is for administrative
services which do not include expenses of distributing the Contracts. This
deduction is intended to reimburse the Company for
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a portion of actual expenses incurred by it in administering the Contracts. The
Company does not expect to recover from the Annual Contract Maintenance Charge
an amount in excess in its accumulated administrative expenses. Even though the
administrative expenses may increase, the Company guarantees it will not
increase the amount of the Annual Contract Maintenance Charge. In the case of a
total withdrawal occurring 31 or more days after the beginning of a Contract
Year, the full annual Contract Maintenance Charge will be deducted.
The Contracts are sold without a sales charge. However, a Withdrawal Charge
(contingent deferred sales charge) may be imposed on withdrawals in excess of
the scheduled Annuity Payments under Annuity Option 1 (see 'Expense Table,' page
5).
For expenses borne by the Fund, see the current prospectus of the Fund.
TAX INFORMATION
INTERNAL REVENUE CODE LIMITATIONS ON QUALIFIED CONTRACTS
The availability or terms of any payment option may be modified or restricted to
the extent necessary to comply with U.S. Treasury Regulations covering
permissible distributions from qualified retirement plans. In addition, persons
contemplating the purchase of an Annuity should refer to the terms of their plan
for any limitation or restrictions regarding the form or commencement date of
benefits. In general, federal tax law requires that (1) distribution of the
entire Individual Retirement Account must be made by April 1 of the year after
the year in which the Annuitant attains age 70 1/2 or (2) distribution must
commence by such date. If distributions are commenced by such date, they must be
(a) over the life of the Annuitant or the lives of the Annuitant and any Joint
Annuitant or (b) over a period that does not exceed the life expectancy of the
Annuitant or the joint life expectancy of the Annuitant and any Joint Annuitant.
If the minimum distribution is not made, a 50% nondeductible excise tax is
imposed on the amount not distributed. The Annuity Options under the Contract
are designed to allow the Annuity Payments to comply with these distribution
rules. However, certain Annuity Options may not be available, depending on the
Annuity Option selected and the age of a non-spouse Joint Annuitant.
Restrictions on these Annuity Options include the following:
Annuity Option 1. If the Joint Annuitant is not the Annuitant's spouse, special
rules apply in calculating the joint life expectancy.
Annuity Options 3 or 5. The guaranteed payment period may not exceed the life
expectancy of the Annuitant (or joint life expectancy of the Annuitant and Joint
Annuitant) at the time of selection of such Annuity Option (whether on original
application or conversion from Annuity Option 1).
Annuity Option 4. If the Joint Annuitant is not the Annuitant's spouse, the 100%
Annuity Option is available only if the Annuitant is no more than 10 years older
than the Joint Annuitant. If the Annuitant is 10-19 years older than the
non-spouse Joint Annuitant only the 75% and 50% Annuity Options are available.
Only the 50% Annuity Option is available if the Annuitant is more than 19 years
older than the non-spouse Joint Annuitant.
Annuity Option 5. Annuity Option 5 is not available if the Joint Annuitant is
not the Annuitant's spouse and the Annuitant is more than 10 years older than
the Joint Annuitant.
FEDERAL INCOME TAX STATUS
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax adviser. The discussion is
based on the Company's understanding of current federal income tax laws as
theyare currently interpreted by the IRS. No representation is made regarding
the likelihood that either the particular laws or their interpretation will
continue. No attempt is made to consider any state or other tax laws which may
be applicable.
(A) FEDERAL TAX STATUS OF THE COMPANY AND THE SEPARATE ACCOUNT
General: The Company is taxed as a life insurance company under Part I,
Subchapter L of the Code. Because the Separate Account is not a separate entity
from the Company for purposes of the Code, the Company will be liable for any
federal income taxes which become payable with respect to the income of the
Separate Account. Under current law, no item of dividend income, interest income
or realized capital gain attributable, at a minimum, to appreciation after
January 1, 1985, of the Separate Account will be taxed to the Company to the
extent it is applied to increase reserves under the Contracts.
Under the principles set forth in IRS Revenue Ruling 81-225 and Section 817(h)
of the Code and regulations thereunder, the Company believes that the Company
will be treated as owner of the assets invested in the Separate Account for
federal income tax purposes, with the result that earnings and gains, if any,
derived from those assets will not be included in an Annuitant's gross income
until amounts are received pursuant to an Annuity.
The Fund will be required to adhere to regulations adopted pursuant to Section
817(h) of the Code prescribing asset diversification requirements for investment
companies whose shares are sold to insurance company separate accounts funding
variable annuity contracts. Pursuant to these regulations, on the last day of
each calendar quarter no more than 55% of the total assets of the Fund may be
represented by securities of any one issuer, no more than 70% may be represented
by securities of any two issuers, nor more than 80% may be represented by
securities of any three issuers, and no more than 90% may be represented by
securities of any four issuers. For this purpose, in the case of U.S. government
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<PAGE>
securities, each U.S. government agency or instrumentality is treated as a
separate issuer. Any security issued, guaranteed, or insured (to the extent so
guaranteed or insured) by the United States or an instrumentality of the United
States is treated as a U.S. government security.
(B) FEDERAL TAX STATUS OF ANNUITANTS
The Annuities are designed to distribute the benefits of Individual Retirement
Accounts or Annuities under Section 408, qualified plans under Section 401(a),
tax deferred annuities under Section 403(b), and for Nonqualified Contracts. The
tax rules applicable to participants in such qualified plans who purchase the
contract vary according to the type of plan and the terms and conditions of the
plan itself. Therefore, this discussion is designed to provide only general
information about the use of the Annuity in connection with the various types of
plans. Participants in plans are cautioned that the rights of any person to any
benefits under the plans may be subject to the terms and conditions of such plan
regardless of the terms and conditions of the Contract.
The Company believes that the Annuitant is not subject to federal income tax on
increases in Annuity value until payments are received under the Annuity. This
rule would not apply to certain Nonqualified Contracts where the Annuitant is
not the Contractholder. Federal income taxation of Annuity Payments and Annuity
Benefits is determined under Section 72 of the Code. Section 72 provides, in
general, that portion of each Annuity Payment which represents the Annuitant's
'investment' in the Annuity is excluded from gross income for income tax
purposes. ('Investment' refers generally to contributions that were not
deductible or excludable from income when made.) If the Annuity is purchased
entirely with assets which were excludable from the Annuitant's income, the
'investment' by the Annuitant will be deemed to be zero and distributions will
be fully taxable as payments are received. To the extent an Annuity is purchased
with contributions that were subject to income tax when made to such a plan
(such as an Individual Retirement Account where nondeductible contributions were
made), proportional amounts of each Annuity Payment may be excluded from gross
income for income tax purposes up to the aggregate amount of such contributions.
Once the excludable portion of Annuity Payments equals the investment in the
Contract, the balance of the Annuity Payments will be fully taxable. If Annuity
Option 1 is selected and nonscheduled withdrawals are made, such payments, if
from a Nonqualified Contract, are taxable to the extent that the value of the
Contract exceeds the investment in the Contract.
To the extent that nondeductible contributions were made to an individual
retirement account or annuity, a portion of any nonscheduled withdrawal
(determined in accordance with Form 8606, filed with the Annuitant's Federal
income tax return) from such Qualified Contract will be excluded from income.
The taxable portion of distributions to an Annuitant from a Nonqualified
Contract prior to age 59 1/2 are generally subject to a 10% early distribution
tax. Exceptions are available for substantially equal periodic payments made for
the life of the Annuitant or the joint lives of the Annuitant and Joint
Annuitant. Some of the Annuity Options available under the Contract would
satisfy this exception. Also, distributions from a Qualified Contract prior to
age 59 1/2 are generally subject to a 10% early distribution tax in addition to
regular income tax. An exception exists for distributions which are a part of a
series of payments over the life (or life expectancy) of the Annuitant and Joint
Annuitant. Under current law, distributions under Annuity Options 1 through 6
should qualify for the exception. However, the Annuitant should consult
qualified tax counsel concerning the availability of the exception. If the early
distribution tax does not apply as a result of the periodic distribution
exception for distributions prior to age 59 1/2, and if the series of payments
is subsequently modified, the tax for the year when the modification occurs will
be increased by an amount equal to the tax that would have been imposed but for
the exception, plus interest, if the modification takes place before the later
of (a) the date the taxpayer attains age 59 1/2 or (b) the date which is five
years from the date of the first payment. A modification would occur, for
instance, in the event of a nonscheduled withdrawal or a conversion from Annuity
Option 1 to another Annuity Option. This recapture provision does not apply for
distributions upon death or disability.
For Qualified Contracts, distributions in excess of $155,000 per year in the
case of periodic distributions and in excess of $775,000 in the case of lump sum
distributions may be subject to an additional 15% excise tax.
(C) RESTRICTIONS ON DISTRIBUTIONS UNDER 403(B) PLANS
Distributions attributable to contributions made pursuant to a salary reduction
agreement under a 403(b) plan may be paid only (a) after the Annuitant attains
age 59 1/2, separates from service, dies or becomes disabled, or (b) in case of
hardship. Therefore, one of these exceptions must exist before the Annuity
Starting Date.
(D) ROLLOVERS AND DIRECT ROLLOVERS
An individual receiving an eligible rollover distribution from a qualified plan
under Section 401(a) or tax-deferred annuity under Section 403(b) may elect a
direct rollover into an Individual Retirement Account or Annuity (or into
another 401(a) plan or 403(b) annuity, respectively) and avoid current taxation
on the amount of the direct rollover. In a direct rollover, the eligible
rollover distribution is paid directly from the plan or annuity to the
Individual Retirement Account, plan or Annuity (or 403(b) annuity). If a direct
rollover is not selected, an eligible rollover distribution is subject to a 20%
mandatory income tax withholding (see (e) below). However, if an eligible
rollover distribution is made to an individual instead of a direct rollover, the
individual may also avoid current taxation by rolling over the taxable portion
(including any tax withheld) into an Individual Retirement Account or Annuity
within 60 days of receipt.
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Rollovers may also be made of distributions from Individual Retirement Accounts
or Annuities. Such rollovers must be made within 60 days of receipt and are
limited to one per year. A rollover may not be made of the amount necessary to
meet the minimum distribution requirement for a particular year.
Transfers may also be made directly from other individual retirement
arrangements under Section 408 of the Code.
(E) WITHHOLDING
MANDATORY WITHHOLDING.
Nonscheduled payments under Option 1 from a Section 401(a) or Section 403(b)
plan will generally be treated as eligible rollover distributions, and therefore
will be subject to a 20% mandatory income tax withholding unless a direct
rollover to another plan or individual retirement arrangement is selected.
The 20% mandatory income tax withholding does not apply to individual retirement
arrangements.
ELECTIVE WITHHOLDING.
With respect to payments from a contract purchased under a 401(a) plan or a
403(b) annuity other than nonscheduled withdrawals under Option 1, and with
respect to all payments from an Individual Retirement Account, income tax
withholding is required unless the recipient makes an election not to have
federal income tax withheld from such payments. This election is revocable by
the recipient at any time.
The withholding rate, as determined from the recipient's withholding
certificate, will be applied against the taxable portion of each Annuity
Payment. If no withholding certificate is filed with the Company, tax will be
withheld from Annuity Payments and Annuity Benefits on the basis that the payee
is married with three withholding exemptions.
Persons who elect not to have withholding made are nonetheless liable for
federal income tax on the Annuity Payments and Annuity Benefits received by them
and may become subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient.
(F) INCOME TAXATION OF DEATH BENEFITS.
Upon the death of the Annuitant and any Joint Annuitant, remaining Annuity
Payments, if any, under the Annuity Option selected, or the death benefit
payable under Annuity Option 1, will be taxable to the Beneficiary, except that
any remaining investment in the Contract of the Annuitant will be assumed by the
Beneficiary. A lump sum distribution of the balance under Annuity Option 1 may
not be rolled into the Beneficiary's Individual Retirement Account.
SALES OF VARIABLE ANNUITY CONTRACTS
The distributor of the Contracts is Franklin Templeton Distributors, Inc.
('FTD'). FTD is an indirect wholly-owned subsidiary of Franklin Resources, Inc.
Contracts will be sold through broker-dealers registered under the Securities
Exchange Act of 1934, whose representatives are authorized by applicable law to
sell Contracts under terms of agreement provided by FTD and terms of agreement
provided by the Company. For services it renders the Company pays FTD or such
other person if required under applicable law, an amount up to 5% of the
Purchase Payments under the Contracts. In addition, the Company will reimburse
FTD for sales related expenses. The Company through FTD or such other person,
pays dealers who sell Contracts an amount up to 5% of the Purchase Payments
under the Contracts. The amounts paid by the Company are not deducted from the
Purchase Payments. Deductions for Withdrawal Charges (as described in the
'Expense Table') may be used to reimburse the Company for commission payments to
broker-dealers.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote the
shares of the Fund held in the Separate Account at special meetings of the
shareholders of the Fund in accordance with instructions received from persons
having a voting interest in the Separate Account. The Company understands that
under present applicable law, persons currently receiving payments under an
Annuity have such voting interest. The Company will vote shares for which it has
not received instructions in the same proportion as it votes shares for which it
has received instructions.
The number of votes which a person has a right to instruct will be determined by
dividing the reserve for the applicable Annuity in the Separate Account by the
net asset value per share of the Fund. Such number of shares will be determined
as of a date coincident with the date established by the Fund for determining
shareholders eligible to vote at the meeting of the Fund, which shall not be
more than 90 days prior to any meeting of the Fund. Voting instructions will be
solicited by written communication at least 14 days prior to such meeting. The
votes attributable to each Annuity decrease as reserves allocated to that
Annuity decrease.
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SUBSTITUTION OF SECURITIES AND OTHER CHANGES
If the shares of the Fund should no longer be available for investment by the
Separate Account or if, in the judgment of the Company, further investment in
such shares should be inappropriate in view of the purpose of the Annuities, the
Company may substitute shares of another mutual fund or other investment vehicle
for shares of the Fund already purchased or to be purchased in the future under
the Annuities. No substitution of securities may take place without prior
approval of the Securities and Exchange Commission in accordance with such
requirements as it may impose, without notice to or approval by persons having
voting interest, or without complying with filing or other procedures
established by applicable state insurance regulators.
At the Company's election and subject to any necessary vote by persons having
the right to give instructions with respect to the voting of Fund shares, the
Separate Account may be operated as a management company under the Investment
Company Act of 1940 or in any other permitted form, or it may be deregistered
under the Act in the event registration is no longer required. The Company also
reserves the right to add or delete other separate accounts or subaccounts of
the Separate Account; to combine the Separate Account with other separate
accounts and to combine one or more subaccounts; or their successors or assigns;
to add or delete mutual funds, other investment vehicles, or series of either as
investments for a separate account or subaccounts; to add a fixed account
providing for the provision of Annuity Benefits out of the Company's general
account; and to split or combine the value of the Annuity Units provided such
action has no material effect on benefits or other provisions of Annuities
previously issued under the Contracts.
Upon notice to the person(s) currently receiving payments under an Annuity, the
Contracts or an Annuity may be modified by the Company, but only if such
modification: (1) is necessary to make the Contracts and/or the Annuities comply
with any law or regulation issued by a governmental agency to which the Company,
the Separate Account, the Contracts and/or an Annuity are subject; or (2) is
necessary to assure continued qualification of the Contracts or the Annuities
under the Internal Revenue Code or other applicable federal or state laws
relating to annuity contracts, deferred compensation plans, pension or profit
sharing plans, individual retirement accounts or other retirement plans, as such
laws may be amended from time to time; or (3) is necessary to reflect a change
in the operation of the Separate Account as described in the preceding
paragraph. In the event of any such modifications, the Company will make
appropriate endorsement to the Contracts and comply with the requirements and
procedures which the Securities and Exchange Commission and applicable state
insurance regulatory authorities may impose.
PERFORMANCE INFORMATION
Performance information for the Separate Account, including the yield and total
return, may appear in advertisements, report, and promotional literature to
current or prospective Contractowners.
ILLUSTRATION OF VALUES
The following tables have been prepared to show how investment performance
affects variable Annuity Payments over time. The variable Annuity Payment
amounts reflect three different assumptions for a constant investment return
before all expenses: 0%, 6%, and 12%. There are hypothetical rates of return
and, of course, the Company does not guarantee that the Contract will earn these
returns for any one year or any sustained period of time. The tables are for
illustrative purposes only and do not represent past or future investment
returns.
The variable Annuity Payments may be more or less than the payments shown if the
actual returns of the Fund are different than those illustrated. Since it is
very likely that investment returns will fluctuate over time, the amount of
variable Annuity Payments will also fluctuate. The total amount of Annuity
Payments ultimately received will depend on cumulative investment returns and
how long the Annuitant lives and the option chosen.
Another factor which determines the amount of variable Annuity Payments is the
5% Assumed Annual Interest Rate. Income will increase from one Payment Date to
the next if the annualized net rate of return during that time is greater than
the 5% Assumed Annual Interest Rate, and will decrease if the annualized net
rate of return is greater than the 5% Assumed Annual Interest Rate.
The payment amounts shown reflect the deduction of all fees and expenses. Actual
Fund fees and expenses may vary from year to year and thus may be higher or
lower than the assumed rate. The illustrations assume that the Fund will incur
expenses at the annual rate of 1.0% of the average daily net assets of the Fund.
(This is the amount of the Fund's total operating expenses, net of fee
reduction, as of 12/31/95.) The Mortality and Expense Risk Fee is calculated at
an annual rate of 1.20% of the average daily net assets of the Separate Account.
After taking these expenses and charges in to consideration, the illustrated
gross investment returns 0%, 6%, and 12% are approximately equal to net rates of
- -2.18%, 3.69%, and 9.56%, respectively.
- 17 -
<PAGE>
TEMPLETON IMMEDIATE VARIABLE ANNUITY
<TABLE>
<S> <C> <C> <C>
Annuitant: John Doe Annuity Purchase Amount: $100,000
Date of Birth: 1/1/26 Issue Date: 1/1/96
Annuity Option: Single Life Annuity Option 2 Initial Payment Date: 1/1/96
Premium Tax: 0% Frequency of Annuity Payment: Monthly
Annuity Factor: 7.39 Assumed Annual Interest Rate: 5%
</TABLE>
The amount of monthly variable Annuity Payments shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
the variable Annuity Payment that is actually received will depend on the
investment performance of the Fund. The variable annuity can go up or down and
no minimum dollar amount of variable Annuity Payment is guaranteed. Calculation
of the amounts shown takes into account a 5% Assumed Annual Interest Rate and
the expenses for the Fund as reflected in the Expense Table. Income will remain
constant at $739 per month when the annualized net rate of return after expenses
is 5%.
MONTHLY ANNUITY PAYMENTS
Annual rate of
return before
expenses: 0% 6.00% 12.00%
Annuity Annual rate of
Payment return after
Date Age expenses: -2.18% 3.69% 9.56%
January 1, 1996 70 739 739 739
January 1, 1997 71 688 730 771
January 1, 1998 72 641 721 805
January 1, 1999 73 598 712 840
January 1, 2000 74 557 703 876
January 1, 2001 75 519 694 914
January 1, 2006 80 364 652 1,131
January 1, 2011 85 256 612 1,399
January 1, 2016 90 179 575 1,731
January 1, 2021 95 126 540 2,141
January 1, 2026 100 88 508 2,648
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS.
[The following table replaces a graph]
Net rates of return -2.18% 3.69% 9.56%
Year 1 739 739 739
2 688 730 771
3 641 721 805
4 598 712 840
5 557 703 876
6 519 694 914
7 483 686 954
8 450 677 995
9 419 669 1,039
10 391 660 1,084
11 364 652 1,131
12 339 644 1,180
13 316 636 1,231
14 294 628 1,285
15 274 620 1,341
16 256 612 1,399
- 18 -
<PAGE>
17 238 605 1,460
18 222 597 1,523
19 207 590 1,589
20 193 583 1,658
21 179 575 1,731
22 167 568 1,806
23 156 561 1,884
24 145 554 1,966
25 135 547 2,052
26 126 540 2,141
27 117 534 2,234
28 109 527 2,331
29 102 520 2,432
30 95 514 2,538
31 88 508 2,648
- 19 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Templeton Funds Annuity Company
Independent Accountants
Financial Information
Financial Statements--Templeton Funds Annuity Company
Financial Statements--Templeton Immediate Variable Annuity Separate Account
- 20 -
<PAGE>
APPENDIX A
Dollar Value of FIRST Monthly Payment
for Each $1,000 of
Separate Account Contract Value
ANNUITY OPTION 1
The Contract provides that monthly payments under Annuity Option 1 are
calculated by dividing the Separate Account Contract Value by the life
expectancy and further dividing by 12. To assist in determining monthly payments
under Annuity Option 1, the following indicates the monthly payments for each
$1,000 of Separate Account Contract Value for both single life and joint life
expectancies based on the current IRS life expectancy tables, at the given ages.
ANNUITY OPTION 1(A)--SINGLE LIFE EXPECTANCY ANNUITY
FIRST MONTHLY PAYMENT USING
IRS LIFE EXPECTANCY TABLES
Actual First Monthly
Age Payment
50 $2.52
51 2.59
52 2.66
53 2.74
54 2.82
55 2.91
56 3.01
57 3.11
58 3.22
59 3.33
60 3.44
61 3.58
62 3.70
63 3.86
64 4.01
65 4.17
66 4.34
67 4.53
68 4.73
69 4.96
70 5.21
71 5.45
72 5.71
73 6.00
74 6.31
75 6.67
- 21 -
<PAGE>
ANNUITY OPTION 1(b)--JOINT LIFE EXPECTANCY ANNUITY
FIRST MONTHLY PAYMENT USING IRS LIFE EXPECTANCY TABLES
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $2.13 $2.25 $2.34 $2.41 $2.45 $2.48
55 2.25 2.42 2.58 2.70 2.79 2.84
60 2.34 2.58 2.81 3.02 3.18 3.29
65 2.41 2.70 3.02 3.33 3.61 3.82
70 2.45 2.79 3.18 3.61 4.05 4.43
75 2.48 2.84 3.29 3.82 4.43 5.05
- 22 -
<PAGE>
ANNUITY OPTION 2--LIFE ANNUITY
FIRST MONTHLY PAYMENT USING
5% ASSUMED INTEREST RATE
Actual First Monthly
Age Payment
50 $5.14
51 5.20
52 5.26
53 5.32
54 5.39
55 5.46
56 5.54
57 5.62
58 5.71
59 5.80
60 5.90
61 6.01
62 6.13
63 6.25
64 6.38
65 6.52
66 6.67
67 6.83
68 7.01
69 7.19
70 7.39
71 7.61
72 7.84
73 8.08
74 8.35
75 8.63
- 23 -
<PAGE>
ANNUITY OPTION 3
LIFE ANNUITY WITH 60, 120 OR 180 PAYMENTS GUARANTEED
FIRST MONTHLY PAYMENT
USING 5% ASSUMED INTEREST
Number of Guaranteed
Monthly Payments
Actual
Age 60 120 180
50 $5.13 $5.11 $5.07
51 5.19 5.16 5.12
52 5.25 5.22 5.17
53 5.31 5.28 5.23
54 5.38 5.34 5.29
55 5.45 5.41 5.35
56 5.53 5.48 5.41
57 5.61 5.56 5.48
58 5.69 5.64 5.55
59 5.78 5.72 5.62
60 5.88 5.81 5.70
61 5.99 5.91 5.78
62 6.10 6.01 5.86
63 6.22 6.11 5.95
64 6.34 6.22 6.03
65 6.48 6.34 6.13
66 6.62 6.46 6.22
67 6.77 6.59 6.31
68 6.94 6.73 6.41
69 7.11 6.87 6.51
70 7.30 7.02 6.61
71 7.49 7.17 6.70
72 7.70 7.33 6.80
73 7.93 7.49 6.89
74 8.16 7.66 6.99
75 8.41 7.83 7.08
- 24 -
<PAGE>
ANNUITY OPTION 4(a)--JOINT AND 100% SURVIVOR LIFE ANNUITY
FIRST MONTHLY PAYMENT USING 5% ASSUMED INTEREST RATE
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $4.72 $4.81 $4.89 $4.96 $5.02 $5.06
55 4.81 4.94 5.06 5.16 5.25 5.33
60 4.89 5.06 5.23 5.39 5.54 5.66
65 4.96 5.16 5.39 5.63 5.86 6.06
70 5.02 5.25 5.54 5.86 6.20 6.52
75 5.06 5.33 5.66 6.06 6.52 7.01
ANNUITY OPTION 4(b)--JOINT AND 75% SURVIVOR LIFE ANNUITY
FIRST MONTHLY PAYMENT USING 5% ASSUMED INTEREST RATE
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $4.82 $4.96 $5.11 $5.28 $5.45 $5.64
55 4.89 5.06 5.24 5.45 5.66 5.89
60 4.95 5.15 5.38 5.63 5.91 6.19
65 5.00 5.24 5.51 5.83 6.18 6.55
70 5.05 5.31 5.62 6.01 6.46 6.95
75 5.08 5.36 5.72 6.17 6.72 7.36
ANNUITY OPTION 4(c)--JOINT AND 50% SURVIVOR LIFE ANNUITY
FIRST MONTHLY PAYMENT USING 5% ASSUMED INTEREST RATE
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $4.92 $5.12 $5.35 $5.63 $5.98 $6.38
55 4.97 5.19 5.45 5.76 6.14 6.59
60 5.01 5.25 5.54 5.90 6.33 6.84
65 5.05 5.31 5.64 6.04 6.54 7.12
70 5.08 5.36 5.71 6.17 6.74 7.43
75 5.10 5.39 5.78 6.28 6.93 7.74
- 25 -
<PAGE>
ANNUITY OPTION 5(a)--JOINT AND 100% SURVIVOR LIFE ANNUITY
WITH 60 PAYMENTS GUARANTEED
FIRST MONTHLY PAYMENT USING 5% ASSUMED INTEREST RATE
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $4.72 $4.81 $4.89 $4.96 $5.02 $5.06
55 4.81 4.94 5.06 5.16 5.25 5.32
60 4.89 5.06 5.23 5.39 5.54 5.66
65 4.96 5.16 5.39 5.63 5.86 6.06
70 5.02 5.25 5.54 5.86 6.19 6.52
75 5.06 5.32 5.66 6.06 6.52 7.00
ANNUITY OPTION 5(b)--JOINT AND 100% SURVIVOR LIFE ANNUITY
WITH 120 PAYMENTS GUARANTEED
FIRST MONTHLY PAYMENT USING 5% ASSUMED INTEREST RATE
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $4.72 $4.81 $4.89 $4.96 $5.01 $5.05
55 4.81 4.94 5.05 5.16 5.25 5.32
60 4.89 5.05 5.22 5.39 5.53 5.64
65 4.96 5.16 5.39 5.62 5.84 6.03
70 5.01 5.25 5.53 5.84 6.17 6.47
75 5.05 5.32 5.64 6.03 6.47 6.90
ANNUITY OPTION 5(c)--JOINT AND 100% SURVIVOR LIFE ANNUITY
WITH 180 PAYMENTS GUARANTEED
FIRST MONTHLY PAYMENT USING 5% ASSUMED INTEREST RATE
Actual Age Your Actual Age
of Joint
Annuitant 50 55 60 65 70 75
50 $4.72 $4.81 $4.89 $4.95 $5.00 $5.04
55 4.81 4.93 5.05 5.15 5.23 5.29
60 4.89 5.05 5.21 5.37 5.50 5.60
65 4.95 5.15 5.37 5.59 5.79 5.95
70 5.00 5.23 5.50 5.79 6.07 6.31
75 5.04 5.29 5.60 5.95 6.31 6.64
- 26 -
<PAGE>
ANNUITY OPTION 6--UNIT REFUND LIFE ANNUITY
FIRST MONTHLY PAYMENT USING
5% ASSUMED INTEREST RATE
Actual First Monthly
Age Payment
50 $5.03
51 5.07
52 5.12
53 5.17
54 5.23
55 5.29
56 5.35
57 5.42
58 5.49
59 5.56
60 5.64
61 5.72
62 5.80
63 5.89
64 5.99
65 6.09
66 6.19
67 6.30
68 6.42
69 6.54
70 6.67
71 6.80
72 6.94
73 7.09
74 7.25
75 7.41
- 27 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION TO THE PROSPECTUS
FOR
TEMPLETON IMMEDIATE VARIABLE ANNUITIES
ISSUED BY
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
OF
TEMPLETON FUNDS ANNUITY COMPANY
700 Central Avenue
St. Petersburg, Florida 33701-3628
Dated _______________, 1996
This Statement of Additional Information is not a prospectus. It provides
information which is supplemental to that contained in the current Prospectus
for Templeton Immediate Variable Annuities, dated ____________________, 1996.
This Statement should be read in conjunction with the Prospectus, which may be
obtained by calling (800) 774-5001, or by writing Templeton Funds Annuity
Company, P. O. Box 33030, St. Petersburg, FL 33733-8030.
<PAGE>
TABLE OF CONTENTS
Page
Templeton Funds Annuity Company......................................... 1
Independent Accountants................................................. 1
Performance Information................................................. 1
Financial Information................................................... 1
Financial Statements--Templeton Funds Annuity Company................... 2
Financial Statements--Templeton Immediate Variable Annuity Separate Account 12
TEMPLETON FUNDS ANNUITY COMPANY
Templeton Funds Annuity Company (the "Company"), the sponsor of Templeton
Immediate Variable Annuity Separate Account (the "Separate Account"), is a
Florida insurance company which was organized on January 25, 1984 and is
licensed to engage in the life insurance business in Florida. The Company is
underwriter of Contracts pursuant to which Templeton Immediate Variable
Annuities are issued, and is custodian of the assets of the Separate Account.
The Company is wholly owned by Franklin Agency, Inc. ("Franklin Agency") and is
located at 700 Central Avenue, St. Petersburg, Florida 33701-3628. Franklin
Agency is an affiliate of Franklin Templeton Distributors, Inc., ("FTD"), a
registered broker-dealer which serves as principal underwriter for all of the
publicly-distributed open- end Templeton Funds. Franklin Agency and FTD are
wholly-owned subsidiaries of Franklin Resources, Inc. ("Franklin"), a
publicly-traded financial services company whose stock is listed on the New York
Stock Exchange. Franklin and its affiliates act as an investment adviser to
several of the funds in the Franklin Templeton group of funds.
INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. serves as independent accountant for
the Separate Account.
PERFORMANCE INFORMATION
Performance information for the Separate Account, including yield and total
return, may appear in advertisements, reports, and promotional literature to
current or prospective Contractowners.
Quotations of yield for the Separate Account will be based on all
investment income per Annuity Unit earned during a particular 30-day period,
less expenses accrued during the period ("net
1
<PAGE>
investment income"), and will be computed by dividing net investment income by
the value of the Annuity Unit on the last day of the period, according to the
following formula: YIELD = 2[((a - b) / 1)6 - 1]
cd
where a = net investment income earned during the period by
the Fund attributable to shares owned by the
Separate Account,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Annuity Units outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per Annuity Unit on the last
day of the period.
Quotations of average annual total return for the Separate Account will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in an Annuity over a period of one, five, and ten years
(or, if less, up to the life of the Separate Account), calculated pursuant to
the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment
of $1,000, T = the average annual total return, n = the number of years, and ERV
= the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures reflect the deduction of the
Mortality and Expense Risk Fee. Performance information for the Separate Account
may also be advertised based on the historical performance of the Fund for
periods beginning prior to the date the Separate Account commenced operations.
Any such performance calculation will be based on the assumption that the
Separate Account was in existence throughout the stated period and that the
contractual charges and expenses of the Separate Account during the period were
equal to those currently assessed under the Contract. Quotations of total return
may simultaneously be shown for the same or other periods that do not take into
account certain contractual charges.
Performance information for the Separate Account may be compared, in
reports and promotional literature, to the Standard & Poor's 500 Stock Index
("S&P 500"), the Dow Jones Industrial Average ("DJIA"), or other indices that
measure performance of a pertinent group of securities so that investors may
compare the Separate Account's results with those of a group of securities
widely regarded by investors as representative of the securities markets in
general or representative of a particular type of security. Performance
information may also be compared to (i) other groups of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications or persons who
rank such investment companies on overall performance or other criteria; and
(ii) the Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in an Annuity. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for the Separate Account reflects only the
performance of a hypothetical Contract, the assets of which are invested in the
Fund, during a particular time period on which the calculations are based.
Performance information should be considered in light of the
2
<PAGE>
investment objectives and policies of the Fund, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
Reports and promotional literature may also contain other information
including the ranking of the Separate Account derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria.
For the one-year period ended December 31, 1995, and for the period of
December 31, 1991 (commencement of operations) to December 31, 1995, the average
annual total return of the Separate Account, reflecting the deduction for the
Administration Fee and the Mortality and Expense Risk Fee, was 24.00% and
14.73%, respectively. The performance reflected does not take into account the
annual contract maintenance charge of $30.00.
FINANCIAL INFORMATION
The financial statements of the Company included in this Statement of
Additional Information ("SAI") should be considered only as bearing on the
ability of the Company to meet its obligations under the Contracts.
3
<PAGE>
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
Statement of Assets and Liabilities
December 31, 1995
ASSETS
Investments in Templeton Variable Annuity
Fund, at value (cost $2,534,094) $2,850,241
Receivable From Templeton Funds Annuity
Company 2,746
NET ASSETS $2,852,987
Net assets attributable to annuitants --
Annuity reserves (Note 1) $2,852,987
STATEMENT OF OPERATIONS
Year ended December 31, 1995
Investment Income:
Income:
Dividend distributions $27,780
Capital gains distributions 187,518
Total income 215,298
EXPENSES:
Periodic charge (Note 2) 31,970
NET INVESTMENT INCOME 183,328
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 55,113
Unrealized appreciation
of investments for the period 331,054
Net gain on investments 386,167
NET INCREASE IN NET ASSETS FROM OPERATIONS $569,495
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $183,328 $28,027
Net realized gain on
investments 55,113 30,910
Unrealized appreciation
(depreciation) of
investments for the 331,054 (196,928)
Net increase (decrease)
in net assets from
operations 569,495 (137,991)
ANNUITY UNIT
TRANSACTIONS:
Proceeds from units sold
50,000 1,612,975
Annuity payments (283,752) (156,710)
Increase (decrease) in
annuity reserves for
mortality experience
(Note 1) 958 8,986
Net increase (decrease)
in net assets derived
from annuity unit
transactions (232,794) 1,465,251
Total increase in net
assets 336,701 1,327,260
NET ASSETS:
Beginning of year 2,516,286 1,189,026
End of year $2,852,987 $2,516,286
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
Notes to Financial Statements
1. SUMMARY OF ACCOUNTING POLICIES
The Templeton Immediate Variable Annuity Separate Account (the Separate Account)
was established on November 6, 1990 by resolution of the Board of Directors of
Templeton Funds Annuity Company (the Company) and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Separate Account
is sold exclusively for use with the Templeton Immediate Variable Annuity which
is designed to be used to distribute the benefits of tax deferred retirement
plans and to provide annuity income from non-tax qualified accumulation. The
Separate Account invests all its assets in the Templeton Variable Annuity Fund
(the Fund). The following is a summary of significant accounting policies
followed by the Separate Account in the preparation of its financial statements.
A. VALUATION OF SECURITIES:
Investment in shares of the Fund are carried in the Statement of Assets and
Liabilities at net asset value (market value).
B. DIVIDENDS:
Dividend income and capital gain distributions are recorded as income on the
ex-dividend date and reinvested in additional shares of the Fund.
C. INCOME TAXES:
Operations of the Separate Account form a part of the Company, which is taxed as
a life insurance company under the Internal Revenue Code (the Code). Under
current law, no federal income taxes are payable with respect to the Separate
Account. Under the principles set forth in Internal Revenue Service Ruling 81-
225 and Section 817(h) of the Code and regulations thereunder, the Company
understands that it will be treated as owner of the assets invested in the
Separate Account for federal income tax purposes, with the result that earnings
and gains, if any, derived from those assets will not be included in an
Annuitant's gross income until amounts are received pursuant to an Annuity.
D. ANNUITY RESERVES:
Annuity reserves are computed according to the 1983a Blended Unisex Mortality
Table, with a 50% male/female content. The assumed interest rate is 5%. Charges
to annuity reserves for mortality experience are reimbursed to the Company if
the reserves required are less than originally estimated. If additional reserves
are required, the Company reimburses the Separate Account.
<PAGE>
2. Periodic Charge
The Company assesses a Periodic Charge against the Separate Account, equal on an
annual basis to 1.2% of Separate Account assets. The Periodic Charge, in the
following amounts, compensates the Company for expenses of administering the
Separate Account and for assuming the risks that mortality experience will be
lower than the rate assumed and the expenses will be greater than what is
assumed: 0.6% to cover expense risk and 0.6% to cover the mortality risk. The
Periodic Charge is guaranteed as to Annuities issued prior to the effective date
of any change in the Periodic Charge.
3. Investment Transactions
During the year ended December 31, 1995, purchases and sales of Templeton
Variable Annuity Fund shares aggregated $312,364 and $311,670 respectively.
Realized gains and losses are reported on an identified cost basis.
4. Concentrations of Credit Risk
Financial instruments which potentially subject the Separate Account to
concentrations of credit risk consist of investments in the Templeton Variable
Annuity Fund. The Fund's investment securities are managed by professional
investment managers within established guidelines. As of December 31, 1995, in
management's opinion, the Separate Account had no significant concentrations of
credit risk.
<PAGE>
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
Report of Independent Accountants
The Participants of
Templeton Immediate Variable Annuity Separate Account
We have audited the accompanying statement of assets and liabilities of
Templeton Immediate Variable Annuity Separate Account as of December 31, 1995,
and the related statement of operations for the year then ended and the
statements of changes in net assets for the years ended December 31, 1995 and
1994. These financial statements are the responsibility of the Separate
Accounts' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1995, by correspondence with
the Templeton Variable Annuity Fund. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Templeton Immediate Variable
Annuity Separate Account as of December 31, 1995, and the results of its
operations for the year then ended and the changes in its net assets for the
years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 9, 1996
<PAGE>
COOPERS & LYBRAND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Templeton Funds Annuity Company
St. Petersburg, Florida
We have audited the accompanying balance sheets of Templeton Funds Annuity
Company as of December 31, 1995 and 1994, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Templeton Funds Annuity Company
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1, effective January 1, 1994, the Company adopted Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
/s/ COOPERS & LYBRAND, L.L.P.
Tampa, Florida
February 9, 1996
<PAGE>
TEMPLETON FUNDS ANNUITY COMPANY
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS 1995 1994
Cash and investments:
Cash and cash equivalents $ 1,153,899 $ 447,200
Investments in securities 13,244,216 12,121,344
14,398,115 12,568,544
Receivables:
Interest 242,920 244,639
Due from affiliates 16,485 6,756
Other 120,589 123,058
Refundable income taxes 0 39,786
Other assets 293,132 159,730
Recoverable on future annuity
benefits liability 3,825,883 225,282
Assets held in separate
accounts 14,114,938 12,566,130
$ 33,012,062 $ 25,933,925
LIABILITIES AND
STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued
expenses $ 281,656 $ 234,575
Due to affiliates 152,302 133,459
Income taxes payable 59,635 0
Deferred income taxes
payable 540,000 76,000
Liability for future annuity
benefits 3,825,883 225,282
Liabilities related to
separate accounts 14,114,938 12,566,130
Total liabilities 18,974,414 13,235,446
Stockholder's equity:
Common stock, par value $1
per share; authorized
and issued
2,500,000 shares 2,500,000 2,500,000
Additional paid-in capital 5,976,970 5,976,970
Unrealized investment gains
(losses), net 741,192 (48,535)
Retained earnings 4,819,486 4,270,044
Total stockholder's 14,037,648 12,698,479
equity
$ 33,012,062 $ 25,933,925
The accompanying notes are an integral part of these financial statements.
<PAGE>
TEMPLETON FUNDS ANNUITY COMPANY
STATEMENTS OF INCOME
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue:
Premiums and annuity
considerations $ 3,905,740 $2,383,931 $ 1,408,228
Business management fees 1,393,325 1,024,304 584,766
Interest and dividends 894,563 831,367 806,120
$6,193,628 $4,239,602 $2,799,114
Benefits and expenses:
Salaries and other
compensation costs 707,290 631,375 393,894
Annuity and death benefits 1,820,940 1,432,045 1,231,016
Increase in liability for
future annuity benefits 1,992,025 777,619 35,650
Professional fees 136,709 213,521 251,577
Other 783,776 578,203 390,917
5,440,740 3,632,763 2,303,054
Income before income taxes
and realized gains on sales of
investments 752,888 606,839 496,060
Realized gains on sales of
investments 65,475 156,427 499,435
Income before taxes 818,363 763,266 995,495
Income taxes (credits)
Current 303,921 240,140 395,836
Deferred (35,000) (46,000) (37,000)
268,921 194,140 358,836
Net Income 549,442 569,126 636,659
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TEMPLETON FUNDS ANNUITY COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<S> <C> <C> <C> <C> <C>
Unrealized
Additional Investment
Common Stock Paid-in Gains Retained
Shares Amount Capital (Losses), Net Earnings
Balance, December
31, 1992 $ 2,500,000 $ 2,500,000 $ 5,976,970 $ 738,888 $ 3,064,259
Net income 0 0 0 0 636,659
Increase in
unrealized
investment gains,
net of deferred
taxes of $127,000 0 0 0 209,821 0
Balance, December
31, 1993 2,500,000 2,500,000 5,976,970 948,709 3,700,918
Net income 0 0 0 0 569,126
Increase in
unrealized
investment (losses)
net of deferred
taxes of $602,000 0 0 0 (997,244) 0
Balance, December
31, 1994 2,500,000 2,500,000 5,976,970 (48,535) 4,270,044
Net income 0 0 0 0 549,442
Increase in
unrealized
investment gains,
net of deferred
taxes of $499,000 0 0 0 789,727 0
Balance, December
31, 1995 2,500,000 2,500,000 5,976,970 $ 741,192 $4,819,486
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TEMPLETON FUNDS ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Cash flows from operating activities:
Net income $ 549,422 $ 569,126 $ 636,659
Adjustments to reconcile net
income to net cash provided
by operating activities:
Realized gains on sales of
investments (65,475) (156,427) (499,435)
Amortization of premium on
investments 60,270 60,270 60,270
Accretion of discount on
investments (78,183) (52,704) (25,897)
Deferred income taxes (35,000) (46,000) (37,000)
Change in asset and liability
accounts:
Receivables (5,541) (36,483) (51,286)
Refundable income taxes 39,786 (39,786) 67,000
Accounts payable, accrues
expenses and due to affiliates 65,924 132,010 89,929
Income taxes payable 59,635 (58,210) 58,210
Net cash provided by operating 590,858 371,796 298,450
activities
Cash flows from investing activities:
Purchases of investments (1,786,586) (3,522,594) (2,612,046)
Proceeds on sales and maturities of
investments 2,035,829 3,097,767 2,352,910
Increase in other assets (133,402) (80,423) (23,358)
Net cash provided by (used in)
investing activities 115,841 (505,250) (282,494)
Net increase (decrease) in cash and
cash equivalents 706,699 (133,454) 15,956
Cash and cash equivalents:
Beginning of year 447,200 580,654 564,698
End of year $ 1,153,899 $ 447,200 $580,654
Supplemental disclosure of cash flow information:
Income taxes paid during the year $ 204,499 $ 338,136 $ 270,626
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TEMPLETON FUNDS ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS - Templeton Funds Annuity Company (the Company) is a wholly
owned subsidiary of Templeton Global Investors, Inc. (TGII). Prior to December
1, 1993, the Company was a wholly owned subsidiary of Templeton Funds
Management, Inc. (TFM). On December 1, 1993, all of the Company's stock was
transferred to TGII by dividend. On October 30, 1992, as part of a merger
agreement between TGII's parent and Franklin Resources, Inc. (Franklin), the
stock of TGII was sold to Franklin. As a result of the merger, the Company
became an indirect wholly owned subsidiary of Franklin. On January 1, 1996,
ownership of the Company was transferred to Franklin Agency, Inc.
The Company operates as a life insurance enterprise, with its principal product
being variable annuity contracts sold to participants throughout the 39 states
and the District of Columbia where it is licensed to do business. The Company
has established the Templeton Funds Retirement Annuity Separate Account and the
Templeton Immediate Variable Annuity Separate Account (the Separate Accounts),
which are registered with the Securities and Exchange Commission as unit
investment trusts. The Separate Accounts constitute separate records of the
Company's fiduciary responsibility to fund its liability to holders of the
variable annuity contracts. Investment income, gains and losses of the separate
accounts are not reflected in the Company's financial statements. The Company is
also engaged in certain reinsurance activities as described in Note 4.
A summary of the Company's significant accounting policies follows:
BASIS OF PRESENTATION - The accompanying financial statements are prepared in
accordance with generally accepted accounting principles, which differ in some
respects with accounting practices prescribed by the Insurance Department of the
State of Florida. The more significant differences are as follows: (a) policy
reserves are not computed on "surplus relief" contracts which do not transfer
substantial risk to the Company, (b) unrealized investment gains and losses are
reported as a separate component of stockholder's equity, (c) deferred income
taxes are recognized, and (d) deferral of policy acquisition costs.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to use estimates and assumptions
based on analytical methods in determining deferred acquisition costs, deferred
income taxes, liabilities for future annuity benefits, and various other
accruals. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS - For purposes of statement of cash flows, the Company
considers all debt instruments which have a maturity of three months or less
from the date of purchase and other highly liquid investments which are readily
convertible into cash to be cash equivalents. Cash equivalents are stated at
cost, which approximates value.
VALUATION OF SECURITIES - Effective January 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115 (SFAS No.
115), Accounting for Certain Investments in Debt and Equity Securities, that
addresses the accounting and reporting for investments in marketable equity
securities and for all investments in debt securities. SFAS No. 115 requires
investments in debt and marketable equity securities to be classified in three
categories and accounted for as follows: held to maturity (recorded at amortized
cost), available for sale (recorded at fair value with unrealized gains and
losses reported as a separate component of stockholder's equity), and trading
securities (recorded at fair value with unrealized gains and losses included in
earnings). As investments in securities were previously stated at value and were
<PAGE>
deemed to be available for sale, there was no cumulative effect of adopting SFAS
No. 115. The cost of investments sold is determined by specific identification.
SEPARATE ACCOUNTS - The assets of the Separate Accounts are stated at market
value and are not subject to claims which may arise out of other business
activities of the Company. Investment income and investment gains and losses
related to the assets of the Separate Accounts accrue directly to the contract
holders.
Annuity reserves held in the Separate Accounts are computed according to the
1983a Blended Unisex Mortality Table with a 50% male/female content. The assumed
interest rates are 9%, 7%, 5%, and 3%. Changes to annuity reserves for mortality
experience are reimbursed to the Company if the reserves required are less than
originally estimated. If additional reserves are required, the Company
reimburses the Separate Accounts.
RECOVERABLE ON FUTURE ANNUITY BENEFITS LIABILITY - This recoverable represents
assets held by the ceding insurance company for holders of variable annuity
contracts issued under a modified coinsurance agreement described in Note 4.
DEFERRED POLICY ACQUISITION COSTS - The costs of acquiring new business,
principally first-year commissions, have been deferred. These acquisition costs
are being amortized in proportion to the present value of expected future gross
profits. Unamortized deferred acquisition costs of approximately $239,000 and
$117,000 are included in other assets at December 31, 1995 and 1994,
respectively.
LIABILITY FOR FUTURE ANNUITY BENEFITS - The liability for future annuity
benefits represents annuity reserves the Company has assumed under a modified
coinsurance agreement described in Note 4. Annuity reserves are computed
according to the 1983a Blended Unisex Mortality Table with a 50% male/female
content. The assumed interest rates are 5% and 3%.
REVENUES - Premiums and annuity considerations are recognized when due. Business
management fees are recorded as revenue when earned. Interest and dividends are
recognized on the accrual basis.
INCOME TAXES - Deferred income taxes are provided on temporary differences which
represent the differences between the tax bases of unrealized investment gains
and losses, and death and surrender benefits and reserves for policy benefits
and the amounts at which these items are reported in the financial statements
using the enacted marginal tax rate. Deferred income tax expense or credits are
based on changes in the asset or liability from period to period. Deferred tax
amounts are adjusted to reflect changes in tax rates or other provisions of tax
law in the period in which a new tax law is enacted.
RECLASSIFICATION - Certain amounts in the 1993 and 1994 financial statements
have been reclassified to conform with the presentation adopted in 1995.
<PAGE>
2. INVESTMENTS IN SECURITIES:
Investments in securities available for sale at December 31, 1995 and 1994 are
as follows:
<TABLE>
<S> <C> <C> <C> <C>
1995
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
U.S. Treasury securities $7,472,066 $1,202,345 $ 0 $8,674,411
Convertible debentures 3,312,409 132,281 138,190 3,306,500
Municipal bonds 1,248,549 14,756 0 1,263,305
$12,033,024 $1,349,382 $ 138,190 $13,244,216
1994
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
U.S. Treasury securities $7,533,934 $ 402,127 $ 128,397 $7,807,664
Convertible debentures 3,416,948 30,005 329,828 3,117,125
Municipal bonds 1,247,997 0 51,442 1,196,555
$12,198,879 $ 432,132 $ 509,667 $12,121,344
</TABLE>
The cost and market value of investments at December 31, 1995 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
certain of these obligations.
Amortized Market
Cost Value
Due in one year or less $ 995,778 $ 995,778
Due after one year through five years 4,648,092 4,880,234
Due after five years through ten years 2,351,506 2,484,220
Due after ten years 4,037,648 4,883,984
$ 12,033,024 $
13,244,216
Gross realized investment gains were $71,277, $173,802 and $508,922 and gross
realized investment losses were $6,633, $17,375 and $9,487 for 1995, 1994 and
1993, respectively.
At December 31, 1995 and 1994, securities with a market value of $4,038,333 and
$4,858,214 have been pledged as collateral in connection with the bulk
reinsurance contract referred to in Notes 1 and 4 and in accordance with state
insurance laws for the protection of the Company's policyholders and creditors.
3. RELATED PARTY TRANSACTIONS:
The Company provides business management services to certain Templeton mutual
funds. Total business management fee revenue for these services amounted to
$1,393,325, $1,024,304, and $584,766 in 1995, 1994, and 1993, respectively.
Expenses related to business management services provided by TFM and TGII of
$297,680, $216,664, and $120,833 in 1995, 1994, and 1993, respectively, are
included in other expenses in the accompanying financial statements.
The Company shares office space, personnel and other common administrative
expenses with its
<PAGE>
parent and affiliated companies. Rent is allocated on the basis of square
footage utilized; administrative and shared expenses are allocated on the basis
of the number of employees. Total rental and administrative cost amounted to
$114,208, $54,693 and $21,399 in 1995, 1994 and 1993, respectively.
The Company also provides group term life insurance coverage on the employees of
certain affiliated companies. The Company reinsures a portion of its risk with
another company. Net premiums from group term life insurance amounted to
$63,118, $44,997 and $35,172 in 1995, 1994 and 1993, respectively.
4. REINSURANCE:
The Company has assumed a portion of risk associated with specified insurance
policies written by the ceding company under a bulk reinsurance agreement, which
is in substance a surplus relief contract. The Company has retroceded a portion
of its assumed risk, and has structured the agreement so that its net risk
decreases annually to zero over a ten-year period. The Company has determined
that its risk of material loss under the bulk reinsurance agreement is remote
and, accordingly, accounts for the contracts as financing transactions and
provides no reserves.
Effective July 1, 1994, the Company entered into a modified coinsurance
agreement, whereby the Company assumes a 50% quota share of single premium
immediate variable annuity contracts issued by the ceding company.
The Company has also ceded a portion of its risk related to group term life
insurance coverage provided to employees of certain affiliated companies.
An analysis of the impact of reinsurance on the Company's operations is as
follows:
1995 1994 1993
Direct premiums and annuity
considerations $ 576,926 $2,187,478 $1,431,413
Assumed premiums and annuity
considerations 3,368,921 227,585 0
Ceded reinsurance premiums and
annuity considerations
(40,107) (31,132) (23,185)
Premiums and annuity considerations
$3,905,740 $2,383,931 $1,408,228
The Company is contingently liable for reinsurance ceded to reinsurance
companies in the event such reinsurance companies are unable to pay their
portion of the claims. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities or economic characteristics of the reinsurance to
minimize exposure to significant losses from reinsurer insolvencies. At December
31, 1995, the Company does not believe there to be a significant concentration
of credit risk related to its reinsurance program.
<PAGE>
5. EMPLOYEE RETIREMENT PLAN:
The Company's parent has a defined contribution retirement plan covering
substantially all of the Company's employees. The Company's contribution to the
plan for the years ended December 31, 1995, 1994 and 1993 was $65,070, $83,632
and $42,935, respectively.
6. INCOME TAXES:
The provisions for federal and state income taxes for the years ended December
31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
Federal $ 232,441 $ 154,240 $ 307,472
State 36,480 39,900 51,364
$ 268,921 $ 194,140 $ 358,836
Income tax expense is less than the expected statutory rate due to the benefit
of Alternative Minimum Tax credits and tax-exempt interest.
Deferred income tax credits reflected in the statement of income arise primarily
from death and surrender benefits, and the net decrease in reserves under the
reinsurance and retrocession agreements.
At December 31, 1995 and 1994, the tax effects of temporary differences resulted
in net deferred tax payables of $540,000 and $76,000, respectively, computed as
follows:
1995 1994
Reserves under reinsurance and
retrocession agreements,
net of death and surrender
benefits $ 79,000 $ 113,000
Unrealized gains and (losses) on investments
470,000 (29,000)
Deferred bonuses (9,000) (8,000)
$ 540,000 $ 76,000
7. STATUTORY FINANCIAL INFORMATION:
The consolidated financial statements of the Company included herein have been
prepared in conformity with generally accepted accounting principles (GAAP). The
company separately reports to the Insurance Department of the State of Florida
on the basis of statutory accounting practices. <PAGE>
A reconciliation between consolidated GAAP stockholder's equity and statutory
capital and surplus of the Company follows:
1995 1994
Stockholder's equity (GAAP) $ 14,037,648 $ 12,698,479
Less certain asset exclusions:
Deferred policy acquisition
costs (239,032) (116,891)
Prepaid expenses (54,100) (42,839)
(293,132) (159,730)
Statutory investment reserves (345,980) (310,015)
GAAP accounting rules:
Income taxes (FAS 109) 540,000 76,000
Reinsurance (FAS 113) (199,250) (298,885)
Investments (FAS 115) (1,211,192) 77,535
Other (7,190) (6,782)
Statutory capital and surplus $12,520,904 $12,076,602
Results of the Company's operations for the years ended December 31, 1995, 1994,
and 1993 reconciled to a statutory basis are as follows:
1995 1994 1993
GAAP net income $549,442 $569,126 $636,659
Deferred policy acquisition costs
(122,141) (82,975) (24,082)
Statutory investment reserves
(23,180) (14,572) (238,338)
GAAP accounting rules:
Income taxes (FAS 109) (35,000) (46,000) (37,000)
Reinsurance (FAS 113) 99,633 99,614 89,808
Other (407) 11,301 24,903
Statutory net income $468,347 $536,494 $451,950
Payments of cash dividends are subject to restrictions relating to statutory
surplus and are limited to an amount equal to or less than the greater of
statutory net operating profits or realized capital gains for the immediately
preceding calendar year, among other restrictions.
8. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of cash and cash equivalents and separate account
assets. The Company maintains its cash and cash equivalents with what it
believes to be high credit quality financial institutions.
Separate account assets principally consist of investments in Templeton Variable
Annuity Fund, an open-end diversified management investment company whose
investments are managed by professional investment managers within established
guidelines. As of December 31, 1995, in management's opinion the Company has no
concentration of credit risk.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part B:
Templeton Immediate Variable Annuity Separate
Account of Templeton Funds Annuity Company
Report of Independent Accountants
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Templeton Funds Annuity Company
Report of Independent Accountants
Balance Sheets
Statements of Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(b) Exhibits
(10) Consent of Independent Public Accountants
(14) Financial Data Schedule
All other relevant exhibits have been previously filed and are incorporated
by reference.*
--------------------
* For other exhibits, reference is made to the Registrant's Registration
Statement filed on November 16, 1990 and Pre-Effective Amendment No. 2 to the
Registration Statement filed on April 29, 1991.
1
<PAGE>
Item 25. Directors and Executive Officers of the Depositor
Name and Principal Positions and Offices
Business Address With Depositor
Gordon W. Campbell Director, Vice Chairman
425 22nd Avenue, North
St. Petersburg, Florida 33709
Richard P. Austin Director, President, and
700 Central Avenue Chief Executive Officer
St. Petersburg, Florida 33701-3628
Thomas M. Mistele Director, Executive Vice
700 Central Avenue President, Secretary,
St. Petersburg, Florida 33701-3628 and General Counsel
Louie N. Adcock, Jr. Director
Fisher & Sauls, P.A.
100 Second Avenue South
Suite 700, City Center
St. Petersburg, Florida 33701
Thomas A. Watson Director
4989 62nd Avenue South
St. Petersburg, Florida 33715
Martin L. Flanagan Director, Treasurer
777 Mariners Island Blvd.
San Mateo, California 94404-1585
Thomas C. Banzhof Director, Chairman
777 Mariners Island Blvd.
San Mateo, California 94404-1585
David J. Tobin Senior Vice President,
700 Central Avenue Chief Operations Officer
St. Petersburg, Florida 33701-3628
2
<PAGE>
Item 26. Persons Controlled By or Under Common Control with the Depositor or
Registrant
Reference is made to the section entitled "Templeton Funds Annuity Company" in
Part B of this Registration Statement.
Item 27. Number of Contractholders
As of April 22, 1996, the Registrant had 33 contractowners.
Item 28. Indemnification
Article VIII of the Articles of Incorporation of Securities Fund Annuities, Inc.
(now Templeton Funds Annuity Company) provides:
"This corporation shall indemnify any incorporator, director or officer to the
full extent permitted by law."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provision, or otherwise, the Registrant 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 Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and the Registrant will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
(a) Franklin Templeton Distributors, Inc. also acts as principal underwriter of
shares of the following investment companies:
AGE High Income Fund, Inc.
Franklin Balance Sheet Investment Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
3
<PAGE>
Franklin Federal Tax-Free Income Fund Franklin Gold Fund Franklin
Investors Securities Trust Franklin Managed Trust Franklin Money
Fund Franklin Municipal Securities Trust Franklin New York Tax-Free
Income Fund Franklin New York Tax-Free Trust Franklin Premier
Return Fund Franklin Real Estate Securities Trust Franklin
Strategic Series Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Japan Fund
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 Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Global Real Estate Securities Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Variable Annuity Fund
Templeton Variable Products Series Fund
(b) The directors and executive officers of Franklin Templeton Distributors,
Inc., located at 700 Central Avenue, P.O. Box 33030, St. Petersburg,
Florida 33733 and 777 Mariners Island Boulevard, San Mateo, California
94404, are as follows:
4
<PAGE>
Name Position with Underwriter
Charles B. Johnson Chairman of the Board
Gregory E. Johnson President
Rupert H. Johnson, Jr. Executive Vice President and
Director
Harmon E. Burns Executive Vice President and
Director
Edward V. McVey Senior Vice President
Kenneth V. Domingues Senior Vice President
William J. Lippman Senior Vice President
Deborah R. Gatzek Senior Vice President and
Assistant Secretary
Richard C. Stoker Senior Vice President
Charles E. Johnson Senior Vice President
Peter Jones Senior Vice President
James K. Blinn Vice President
Richard O. Conboy Vice President
Jimmy A. Escobedo Vice President
Bert W. Feuss Vice President
Loretta Fry Vice President
Robert N. Geppner Vice President
Mike Hackett Vice President
Phillip J. Kearns Vice President
Ken Leder Vice President
5
<PAGE>
Jack Lemein Vice President
John R. McGee Vice President
Thomas M. Mistele Vice President
H. G. (Toby) Mumford Vice President
Vivian J. Palmieri Vice President
Kent P. Strazza Vice President
Kenneth A. Lewis Treasurer
Leslie M. Kratter Secretary
Reference is made to "Sales of Variable Annuity Contracts" in the Prospectus.
Item 30. Location of Accounts and Records
Registrant's accounts and records are maintained by Templeton Funds Annuity
Company, 700 Central Avenue, St. Petersburg, Florida 33701-3628.
Item 31. Management Related Services
N/A
Item 32. Undertakings
(a) Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any application or
enrollment form for the purchase of an Annuity offered by the Prospectus, a
space that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication affixed to
or included in the Prospectus that an applicant can remove to send for a
Statement of Additional Information.
6
<PAGE>
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
N-4 promptly upon written or oral request.
* * * * *
Registrant hereby represents that it is relying on the American Council of Life
Insurance (p.a.d. November 28, 1988) no-action letter and that it is complying
with the provisions of paragraph (1) - (4) of the response letter with respect
to the contracts offered pursuant to this Registration Statement.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 5 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of St.
Petersburg in the state of Florida on the 28th day of June, 1996.
TEMPLETON IMMEDIATE VARIABLE ANNUITY SEPARATE ACCOUNT
(Registrant)
By: TEMPLETON FUNDS ANNUITY COMPANY
(Depositor)
By:
/s/ Richard P. Austin
President
ATTEST:
/s/ Thomas M. Mistele
Thomas M. Mistele
Executive Vice President,
Secretary and General Counsel
8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
Director and June 28, 1996
Gordon W. Campbell* Chairman
Director and June 28, 1996
Richard P. Austin* President
/s/ Thomas M. Mistele Director, Executive Vice June 28, 1996
Thomas M. Mistele President, Secretary and
General Counsel
Director June 28, 1996
Louie N. Adcock, Jr.*
Director June 28, 1996
Thomas A. Watson*
Director and June 28, 1996
Martin L. Flanagan* Treasurer
Director June 28, 1996
Thomas C. Banzhof*
Senior Vice President and June 28, 1996
David J. Tobin* Chief Operating Officer
</TABLE>
*By: /s/ Thomas M. Mistele
Thomas M. Mistele
as attorney-in-fact
*Powers of Attorney contained in the Registration Statement filed on
November 6, 1990, the Post-Effective Amendment No. 1 to the Registration
Statement filed on May 1, 1992, and the Post- Effective Amendment No. 3 to the
Registration Statement filed on April 29, 1994.
9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
24(b)(10) Consent of Independent Public Accountants
24(b)(14) Financial Data Schedule
[LOGO]
Coopers & Lybrand L.L.P.
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 5 to the
Registration Statement of the Templeton Immediate Variable Annuity Separate
Account on Form N-4 (Registration Nos. 33-37846 and 811-6230) of our reports
dated February 9, 1996, on our audits of the financial statements of the
Templeton Immediate Variable Annuity Separate Account, which report is included
in the Annual Report to Contract Owners of the Templeton Variable Annuity Fund
for the year ended December 31, 1995, and the Templeton Funds Annuity Company
for the years ended December 31, 1995 and 1994, which are included in the
Post-Effective Amendment to the Registration Statement.
/s/ Coopers & Lybrand L.L.P.
June 26, 1996
Jacksonville, Florida
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International).
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton Immediate Variable Annuity Separate Account December 31, 1995 annual
report and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2534094
<INVESTMENTS-AT-VALUE> 2850241
<RECEIVABLES> 2746
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2852987
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2852987
<DIVIDEND-INCOME> 215198
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 31970
<NET-INVESTMENT-INCOME> 183328
<REALIZED-GAINS-CURRENT> 55113
<APPREC-INCREASE-CURRENT> 331054
<NET-CHANGE-FROM-OPS> 569495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163713
<NUMBER-OF-SHARES-REDEEMED> 38409
<SHARES-REINVESTED> 12923
<NET-CHANGE-IN-ASSETS> 336701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31970
<AVERAGE-NET-ASSETS> 2684637
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
