TABLE OF CONTENTS
On the following pages, you will find a report on each of the funds you have
chosen for your Templeton Variable Products Series Fund investments.
LETTER FROM THE PRESIDENT 2
TEMPLETON STOCK FUND 4
TEMPLETON
INTERNATIONAL FUND 7
TEMPLETON ASSET
ALLOCATION FUND 10
TEMPLETON BOND FUND 13
TEMPLETON MONEY
MARKET FUND 16
<PAGE>
February 15, 1995
Dear Contract Owner:
We are pleased to bring you the seventh annual report on the Templeton
Variable Products Series Fund, which covers the period ended December 31,
1994.
The past fiscal year has been a challenging one for global investors. In
response to rapid economic growth in the fourth quarter of 1993, the U.S.
Federal Reserve Board began raising short-term interest rates in February
1994 as a pre-emptive move against inflation. Over the course of the year,
the Federal Reserve raised the federal funds rate (the interest rate banks
charge each other for overnight loans) on six occasions, from 3.0% to 5.5%.
As a result, interest rates rose worldwide, which increased investor
uncertainty and led to volatility and, in some cases, declines in global
stock and bond markets.
This series of interest rate increases set a new tone for U.S. financial
markets and sent a message that the Federal Reserve has moved toward a more
restrictive and less accommodative economic policy. During the first half of
the year, cyclical stocks (those whose prices tend to move in tandem with the
economy) performed relatively well. In the latter half of the year,
growth-oriented stocks began to gain momentum, and therefore we increased our
growth stock holdings. We also found opportunities in financial-related
stocks, such as banks, savings and loans, and insurance companies.
Since most European markets performed poorly due to rising interest rates, we
did not change our overall European exposure dramatically during the year. We
feel that Europe remains very much a "stock picker's" market, with good
values available for the selective investor. Specifically, we like the growth
prospects of forestry product companies in Scandanavia and consumer stocks in
various European countries.
Emerging markets experienced an off year after an extremely successful 1993.
However, we did take advantage of cheaper stock prices by adding to our Latin
American telecommunication holdings. The Mexican government recently devalued
the peso, which had a negative effect on its stock market. Although history
has shown us that stock prices in a particular country usually rise after its
currency has been devalued, we believe that it will take time for the Mexican
stock market to regain the confidence of investors. We do not expect any
quick returns from our incremental investing in Mexico, but we think it
offers good value for the long term.
2
<PAGE>
Concerns about devaluation of Argentina's currency, which have put pressure on
its stock market, may also provide an opportunity to find stocks at attractive
prices.
In Asia, we reduced our overall exposure to Hong Kong equities. Hong Kong
stocks performed extremely well in the past few years, but investor sentiment
toward them may be erratic in the future due to the fact that China's
government is assuming control of Hong Kong in June 1997. Although we believe
that this may depress the valuations of many Hong Kong stocks, we are
beginning to find attractively priced stocks of Hong Kong companies that
should perform well in any investment environment. We continue to be
relatively underweighted in Japan, since we feel that this market remains
overvalued. Southeast Asia outside of Hong Kong has good long-term prospects,
but we are having a difficult time finding opportunities in the short term.
With regard to fixed-income investments, we shortened our average bond
maturities over the course of the year because of rising interest rates. In
such an environment, the prices of bonds with shorter maturities will decline
less than those with longer maturities. Although most bond prices fell during
the year, the German, Australian, and New Zealand bond markets performed
relatively well and offered attractive returns. Germany was largely insulated
from pressures on European bond markets due to its relatively mild economic
growth and the determination of the Bundesbank to keep inflation under
control. The Australian and New Zealand bond markets benefited from the
appreciation of their currencies due to rising commodity prices and
aggressive interest rate increases by the countries' central banks.
Although 1994 proved to be a difficult year for many global stock markets, we
are optimistic about inter-national investing and are diligently searching
the world for undervalued securities. We appreciate your participation in the
Templeton Variable Products Series Fund, and we look forward to an improved
investment environment in 1995.
Sincerely,
/s/ Chuck Johnson
Charles E. Johnson
President
3
<PAGE>
TEMPLETON STOCK FUND
The Templeton Stock Fund seeks capital growth through a policy of investing
primarily in common stocks issued by companies, large and small, in various
nations throughout the world.
The Fund's largest single-country exposure at the end of the fiscal year was
the U.S., which represented 31.5% of total net assets. As growth-oriented
stocks began to gain momentum in the second half of the year, we purchased
shares of Home Depot, LDDS Communications Inc., and Atlantic Southeast
Airlines Inc. We also began to find more opportunities in financial-related
stocks such as banks, savings and loans, and insurance companies.
European stocks as a whole experienced a difficult year due to rising
interest rates. Although our European exposure did not change significantly
over the course of the year, we added to our European pharmaceutical exposure
by purchasing additional shares of SmithKline Beecham PLC in the U.K. and
Astra AB in Sweden.
- --------------------------------------------------------------------------------
TEMPLETON STOCK FUND
Geographic Distribution on 12/31/94
Based on Total Net Assets
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
------------------- --------------
<S> <C>
Canada 1.4%
Australia/New Zealand 4.1%
Latin America 6.3%
Asia 9.4%
Europe 34.7%
United States 31.5%
Short-Term Obligations &
Other Net Assets 12.6%
</TABLE>
In Latin America, we took advantage of cheaper stock prices caused by the
devaluation of the Mexican peso and increased our holdings in Telefonos de
Mexico. We believe investor sentiment regarding the devaluation was overblown
and feel that Mexico still offers potential for long-term economic growth. At
the end of the year, our Mexican holdings represented 3.0% of the Fund's
total net assets. We also added to our holdings in Telecomunicacoes
Brasileiras SA, a Brazilian
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
TEMPLETON STOCK FUND
Top 10 Holdings on 12/31/94
Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
- ----------------------------------------------------------------
<S> <C>
Telebras-Telecomunicacoes Brasileiras SA;
Telecommunications, Brazil 2.1%
- ----------------------------------------------------------------
News Corp. Ltd.; Broadcasting &
Publishing, Australia 1.9%
- ----------------------------------------------------------------
Telefonos de Mexico SA;
Telecommunications, Mexico 1.9%
- ----------------------------------------------------------------
SmithKline Beecham PLC; Health &
Personal Care, U.K. 1.8%
- ----------------------------------------------------------------
Astra AB; Health & Personal Care,
Sweden 1.8%
- ----------------------------------------------------------------
Akzo Nobel NV; Chemicals, Netherlands 1.7%
- ----------------------------------------------------------------
BBC Brown Boveri Ltd., br.; Electrical &
Electronics, Switzerland 1.7%
- ----------------------------------------------------------------
Nike Inc.; Textiles & Apparel, U.S. 1.6%
- ----------------------------------------------------------------
Federal National Mortgage Assn.;
Financial Services, U.S. 1.5%
- ----------------------------------------------------------------
Total SA; Energy Sources, France 1.5%
- ----------------------------------------------------------------
</TABLE>
For a complete listing of portfolio holdings, please see page 18 of this report.
telephone company, which was the Fund's largest holding at the end of the fiscal
year.
During the year, we decreased our Hong Kong exposure, from 9.4% to 6.6% of
total net assets. We continue to like the valuations of some Hong Kong stocks,
but we believe investor sentiment toward them may be erratic in the near future
due to China's government assuming control of Hong Kong in 1997. We continued to
be relatively underweighted in Japan (2.1%), since we feel Japanese stocks are
overvalued.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors. These risks are
discussed in the prospectus.
5
<PAGE>
PERFORMANCE SUMMARY
The Templeton Stock Fund provided a total return of -2.20% for the one-year
period ended December 31, 1994. Of course, we have always maintained a long-term
perspective when managing the Fund, and we encourage contract owners to view
their investments in a similar manner. As you can see from the chart to the
right, the Fund delivered a cumulative total return of more than 87% since its
inception on August 24, 1988. Total return represents the change in the Fund's
net asset value and includes reinvestment of dividends. It does not include
deductions at the Fund or contract level for cost of insurance charges, premium
load, administrative charges, maintenance fees, premium tax charges, mortality
and expense risk charges or other charges that may be incurred under the
variable annuity contract for which the Fund serves as an underlying investment
vehicle.
The graph to the right compares the Fund's performance since inception with the
performance of the unmanaged Morgan Stanley Capital International (MSCI) World
Index. It also shows how an investment in the Fund over the same period has kept
your purchasing power ahead of inflation, as measured by the Consumer Price
Index (CPI). As you can see, the Fund has significantly outperformed both
indices over the past three years. Please remember that the Fund's performance
differs from that of an index because an index does not contain cash (the Fund
generally carries a certain percentage of cash at any given time) and includes
no management charges or other expenses. Of course, one cannot invest directly
in an index.
TEMPLETON STOCK FUND
Total Return Index Comparison
$10,000 Investment (8/24/88 - 12/31/94)
[GRAPH APPEARS HERE]
*Total return measures the change in the Fund's net asset value over the period
shown, assuming reinvestment of dividends and capital gains. It does not include
deductions at the Fund or contract level for cost of insurance charges, premium
load, administrative charges, maintenance fees, premium tax charges, mortality
and expense risk charges or other charges that may be incurred under the
variable annuity contract for which the Fund serves as an underlying investment
vehicle. Past performance is not indicative of future results.
**Source: U.S. Bureau of Labor Statistics
TEMPLETON STOCK FUND
Periods ended 12/31/94
<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ -2.20% 9.75% 10.40%
Cumulative
Total Return/2/ -2.20% 59.25% 87.48%
</TABLE>
1. Average annual total return represents the average annual increase in the
value of an investment and assumes reinvestment of dividends.
2. Cumulative total return represents the change in the Fund's net asset value
over the periods indicated and assumes reinvestment of dividends.
Note: Total return figures do not include deductions at the Fund or contract
level for cost of insurance charges, premium load, administrative charges,
maintenance fees, premium tax charges, mortality and expense risk charges or
other charges that may be incurred under the variable annuity contract for which
the Fund serves as an underlying investment vehicle. Investment return and
principal value will fluctuate with market conditions, currencies and the
economic and political climates of the countries where investments are made, and
shares, when redeemed, may be worth more or less than their initial cost. Past
performance is not indicative of future results.
6
<PAGE>
TEMPLETON INTERNATIONAL FUND
The Templeton International Fund seeks long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments outside the United States.
On December 31, 1994, equities represented 71% of the Fund's total net assets,
with the remaining 29% invested in cash and other liquid assets. Europe was our
largest geographic exposure at the end of the year. Since many European markets
experienced significant declines due to rising interest rates, we decreased this
weighting over the course of the year, from 50.4% to 44.0% of total net assets.
However, as European pharmaceutical stocks gained momentum in the second half of
the year, we added to our holdings of SmithKline Beecham PLC in the U.K. and
Astra AB in Sweden.
We also decreased the Fund's Latin American holdings, from 14.4% to 8.2% of
total assets. Although we were concerned about the devaluation of the Mexican
peso, we took advantage of cheaper stock prices by increasing our holdings in
Telefonos de Mexico. We believe investors over-reacted to the devaluation and
feel that Mexico still offers poten-
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL FUND
Geographic Distribution on 12/31/94
Based on Total Net Assets
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
----------------------------- --------------
<S> <C>
Canada 3.4%
Australia/New Zealand 4.0%
Latin America 8.2%
Asia 11.4%
Europe 44.0%
Short-Term Obligations &
Other Net Assets 29.0%
</TABLE>
tial for long-term economic growth. With the recent peso devaluation, the dollar
should go a long way in buying Mexican peso-denominated assets. At the end of
the year, our Mexican holdings represented 3.5% of the Fund's total net assets.
Because many Asian markets experienced a difficult year after posting
significant gains in the past few years, we decreased our Asian exposure, from
22.0% to 11.4%. We continue to like the valuations of Hong Kong stocks, but we
believe investor
7
<PAGE>
TEMPLETON INTERNATIONAL FUND
TOP 10 HOLDINGS ON 12/31/94
Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
- ----------------------------------------------------------------
[S] [C]
Telefonos de Mexico SA;
Telecommunications, Mexico 2.1%
- ----------------------------------------------------------------
SmithKline Beecham PLC; Health &
Personal Care, U.K. 2.1%
- ----------------------------------------------------------------
News Corp. Ltd.; Broadcasting &
Publishing, Australia 2.0%
- ----------------------------------------------------------------
Akzo Nobel NV; Chemicals, Netherlands 1.8%
- ----------------------------------------------------------------
Telefonica de Argentina SA, B, ADR;
Telecommunications, Argentina 1.6%
- ----------------------------------------------------------------
National Power PLC; Utilities - Electrical
& Gas, U.K. 1.5%
- ----------------------------------------------------------------
Volvo AB, B; Automobiles, Sweden 1.5%
- ----------------------------------------------------------------
BBC Brown Boveri Ltd., br.;
Electrical & Electronics, Switzerland 1.5%
- ----------------------------------------------------------------
European Vinyls Corp. EVC International
NV; Chemicals, Netherlands 1.5%
- ----------------------------------------------------------------
Total SA; Energy Sources, France 1.5%
- ----------------------------------------------------------------
For a complete listing of portfolio holdings, please see page 22 of this report.
sentiment toward them may be erratic in the near future due to the fact that
China's government is assuming control of Hong Kong in 1997. We remain
relatively underweighted in Japan, since we feel this market is overvalued.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors. These risks are
discussed in the prospectus.
8
<PAGE>
PERFORMANCE SUMMARY
The Templeton International Fund provided a total return of -2.22% for the
one-year period ended December 31, 1994. Of course, we encourage contract
owners to view their investments from a long-term perspective. As you can see
from the chart to the right, the Fund has delivered a cumulative total return
of over 35% since its inception on May 1, 1992. Total return represents the
change in the Fund's net asset value and includes reinvestment of dividends
and capital gains. It does not include deductions at the Fund or contract
level for cost of insurance charges, premium load, administrative charges,
maintenance fees, premium tax charges, mortality and expense risk charges or
other charges that may be incurred under the variable annuity contract for
which the Fund serves as an underlying investment vehicle.
The graph to the right shows how an investment in the Fund, since its
inception, has kept your purchasing power ahead of inflation, as measured by
the Consumer Price Index (CPI). The graph also compares the Fund's
performance over the same period with that of the unmanaged Morgan Stanley
Europe, Australia, Far East (EAFE) Index. Please remember that the Fund's
performance differs from that of an index because an index does not contain
cash (the Fund generally carries a certain percentage of cash at any given
time) and includes no management charges or other expenses. Of course, one
cannot invest directly in an index.
TEMPLETON INTERNATIONAL FUND
Total Return Index Comparison
$10,000 Investment (5/1/92 - 12/31/94)
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON INTERNATIONAL FUND,
MSCI EAFE INDEX AND CONSUMER PRICE INDEX (CPI)]
<TABLE>
<CAPTION>
5/92 12/94
------- -------
<S> <C> <C>
Templeton International Fund* $10,000 $13,523
MSCI EAFE Index $10,000 $14,253
CPI** $10,000 $10,742
</TABLE>
*Total return measures the change in the Fund's net asset value over the period
shown, assuming reinvestment of dividends and capital gains. It does not include
deductions at the Fund or contract level for cost of insurance charges, premium
load, administrative charges, maintenance fees, premium tax charges, mortality
and expense risk charges or other charges that may be incurred under the
variable annuity contract for which the Fund serves as an underlying investment
vehicle. Past performance is not indicative of future results.
**Source: U.S. Bureau of Labor Statistics
TEMPLETON INTERNATIONAL FUND
Periods ended 12/31/94
<TABLE>
<CAPTION>
Since
Inception
1-Year (5/1/92)
<S> <C> <C>
Average Annual
Total Return/1/ -2.22% 11.98%
Cumulative
Total Return/2/ -2.22% 35.23%
</TABLE>
1. Average annual total return represents the average annual increase in the
value of an investment and assumes reinvestment of dividends and capital gains.
2. Cumulative total return represents the change in the Fund's net asset value,
and assumes reinvestment of dividends and capital gains.
Note: Total return figures do not include deductions at the Fund or contract
level for cost of insurance charges, premium load, administrative charges,
maintenance fees, premium tax charges, mortality and expense risk charges or
other charges that may be incurred under the variable annuity contract for which
the Fund serves as an underlying investment vehicle. Past expense limitations
increased the Fund's total returns. Investment return and principal value will
fluctuate with market conditions, currencies and the economic and political
climates of the countries where investments are made, and shares, when redeemed,
may be worth more or less than their initial cost. Past performance is not
indicative of future results.
9
<PAGE>
TEMPLETON ASSET ALLOCATION FUND
The Templeton Asset Allocation Fund seeks a high level of total return
through a flexible policy of investing in stocks of companies in any nation,
debt obligations of companies and governments of any nation, and money market
instruments. The Fund's assets are allocated among different investments
depending upon worldwide market and economic conditions.
As of December 31, 1994, the Fund's assets were invested as follows: 54.4%
equities, 25.0% bonds, and 20.6% short-term obligations and other assets.
During the year, we took advantage of cheaper stock prices and increased our
telecommunication exposure by purchasing shares of Telefonos de Mexico SA and
Telebras-Telecomunicacoes Brasileiras SA. Although we were concerned about
the recent devaluation of the Mexican peso, we feel that investors
over-reacted to it and that Mexico still offers potential for long-term
economic growth. At the end of the year, our Mexican holdings represented
2.2% of the Fund's total net assets. We believe concerns about devaluation of
Argentina's currency in 1995 have already been discounted by the market, and
there are now some good stocks available at reasonable prices. In Brazil,
President-elect Cardosa took office on January 1, 1995 and
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 12/31/94
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Description Amount
--------------------- ----------
<S> <C>
Fixed Income 25.0%
Stocks 54.4%
Short-Term Obligations &
Other Net Assets 20.6%
</TABLE>
we feel he could help provide a relatively stable economic environment for the
next few years.
In the U.S., some interest-rate-sensitive stocks are looking attractive for
the long term. We particularly favor some U.S. regional banks, savings and
loans, and life insurance companies, and have increased our position in the
Federal National Mortgage Association, making it one of the Fund's 10 largest
holdings.
The fixed-income portion of the Fund had a difficult time escaping the
erosion of capital caused by higher interest rates, but we did make some
10
<PAGE>
changes during the year that helped to reduce this risk to the portfolio. For
example, we shortened the portfolio's average bond maturity, from 8.15 years
on December 31, 1993 to 4.6 years on December 31, 1994. Since bonds with
shorter maturities usually decline in price less than those with longer
maturities during a period of rising interest rates, this change helped to
shield the Fund from further declines.
We steadily increased bond positions in the German, Australian, and New
Zealand markets, which offered superior returns during the year. Germany was
insulated from European bond market pressures due to its relatively mild
economic growth and the determination of the Bundesbank to keep inflation
under control. The Australian and New Zealand bond markets benefited from the
appreciation of their currencies due to rising commodity prices and
aggressive interest rate increases by the countries' central banks. We also
added short-term government bonds from these markets, which allowed the Fund
to benefit from the strong currencies without incurring the capital losses of
longer-term bonds.
Looking forward, we believe that economic trends
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 12/31/94
Based on Total Net Assets
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
--------------------- ----------
<S> <C>
Canada 4.5%
Latin America 6.2%
Asia 9.9%
United States 36.5%
Australia/
New Zealand 12.8%
Europe 30.1%
</TABLE>
established in 1994 will continue well into 1995. Commodity prices seem likely
to continue to rise, and we intend to emphasize those markets that could benefit
from such increases (Australia, New Zealand, and Canada). In Europe, we believe
the most attractive opportunities may be found in the U.K. and Germany, since
these countries have solid fiscal performance and relatively low inflation
rates.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors. These risks are
discussed in the prospectus.
11
<PAGE>
PERFORMANCE SUMMARY
The Templeton Asset Allocation Fund provided a total return of -2.96% for the
one-year period ended December 31, 1994. It is important, however, to view
your investments with a long-term perspective. As you can see from the chart
to the right, the Fund has delivered a cumulative total return of more than
80% since its inception on August 24, 1988. Total return represents the
change in the Fund's net asset value and includes reinvestment of dividends
and capital gains. It does not include deductions at the Fund or contract
level for cost of insurance charges, premium load, administrative charges,
maintenance fees, premium tax charges, mortality and expense risk charges or
other charges that may be incurred under the variable annuity contract for
which the Fund serves as an underlying investment vehicle.
The graph to the right shows how an investment in the Fund, since its
inception, has kept your purchasing power ahead of inflation, as measured by
the Consumer Price Index (CPI). The graph also compares the Fund's
performance to that of the Morgan Stanley Capital International (MSCI) World
Index and the Salomon Brothers World Bond Index. Please remember that the
Fund's performance differs from that of the indices because the indices are
unmanaged, do not contain cash (the Fund generally carries a certain
percentage of cash at any given time) and include no management charges or
other expenses. Of course, one cannot invest directly in an index.
TEMPLETON ASSET ALLOCATION FUND
Total Return Index Comparison
$10,000 Investment (8/24/88 - 12/31/94)
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON ASSET ALLOCATION FUND,
MSCI WORLD INDEX, SALOMON WORLD BOND INDEX AND CPI**]
<TABLE>
<CAPTION>
8/88 12/94
------ -------
<S> <C> <C>
Templeton Asset Allocation Fund* $10,000 $18,094
MSCI World Index 10,000 16,420
Solomon World Bond Index 10,000 18,499
CPI** 10,000 12,604
</TABLE>
*Total return measures the change in the Fund's net asset value over the
period shown, assuming reinvestment of dividends and capital gains. It does
not include deductions at the Fund or contract level for cost of insurance
charges, premium load, administrative charges, maintenance fees, premium
tax charges, mortality and expense risk charges or other charges that may
be incurred under the variable annuity contract for which the Fund serves
as an underlying investment vehicle. Past performance is not indicative of
future results.
**Source: U.S. Bureau of Labor Statistics
Templeton Asset Allocation Fund
Periods ended 12/31/94
<TABLE>
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return /1/ -2.96% 9.22% 9.79%
Cumulative
Total Return/2/ -2.96% 55.42% 80.94%
</TABLE>
1. Average annual total return represents the average annual increase in
the value of an investment and assumes reinvestment of dividends and
capital gains.
2. Cumulative total return represents the change in the Fund's net asset
value, and assumes reinvestment of dividends and capital gains.
Note: Total return figures do not include deductions at the Fund or
contract level for cost of insurance charges, premium load, administrative
charges, maintenance fees, premium tax charges, mortality and expense risk
charges or other charges that may be incurred under the variable annuity
contract for which the Fund serves as an underlying investment vehicle.
Past expense limitations increased the Fund's total returns. Investment
return and principal value will fluctuate with market conditions, currencies
and the economic and political climates of the countries where investments
are made, and shares, when redeemed, may be worth more or less than their
initial cost. Past performance is not indicative of future results.
12
<PAGE>
TEMPLETON BOND FUND
The Templeton Bond Fund seeks high current income through a flexible policy
of investing primarily in the debt securities of companies, governments and
government agencies of various nations throughout the world.
Global bond markets were buffeted throughout the year by rising interest
rates. In February 1994, the U.S. Federal Reserve signaled its discomfort
with strong domestic growth by raising short-term interest rates. This shift
in the direction of monetary policy reflected growing fears of inflation, not
only in the U.S., but also in developing markets of Southeast Asia and later
in Europe. Strong global economic growth was reinforced by increasing demand
for investment capital, which pushed interest rates higher in many of the
world's major markets.
The magnitude of interest rate increases for each country differed according
to its need for investment capital. Countries with significant domestic
savings rates like Japan and Germany could finance their own increased growth
internally, and thus yields in these markets tended to rise less than in
those countries that were more dependent upon foreign capital. Interest rates
in countries such as
TEMPLETON BOND FUND
Geographic Distribution on 12/31/94
Based on Total Net Assets
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
--------------------- ----------
<S> <C>
Canada 6.1%
Asia 6.2%
Latin America 6.4%
Australia/
New Zealand 20.4%
United States 30.5%
Europe 30.4%
</TABLE>
Sweden, Spain, and Italy rose significantly higher in order to attract the
relatively scarce global capital needed to finance domestic fiscal and trade
deficits. Rates in the U.S. did not rise as much as those in markets with large
financing needs, but the negative bond market outlook influenced the fate of the
dollar, which declined most of the year before recovering slightly in November
and December.
The Fund could not escape the erosion of capital caused by higher interest
rates, but we did make some changes during the year which helped to reduce
this risk to the portfolio. For example, we
13
<PAGE>
shortened the portfolio's average bond maturity, from 7.4 years to 5.25 years.
Since bonds with shorter maturities usually decline in price less than those
with longer maturities during a period of rising interest rates, this change
helped to shield the Fund from lower bond prices.
We steadily increased bond positions in the German, Australian, and New Zealand
markets, which offered superior returns during the year. Germany was insulated
from European bond market pressures due to its relatively mild economic growth
and the determination of the Bundesbank to control inflation. The Australian and
New Zealand markets benefited from the appreciation of their currencies due to
rising commodity prices and aggressive interest rate increases by the countries'
central banks. We also added short-term government bonds from these markets,
which allowed the Fund to benefit from the strong currencies without incurring
the capital losses of longer-term bonds.
Looking forward, we believe that economic trends established during 1994 will
continue well into 1995. Commodity prices seem likely to continue to rise,
and we intend to emphasize those markets that could benefit from such
increases (Australia, New Zealand, and Canada). In Europe, we believe the
most attractive opportunities may be found in the U.K. and Germany, since
these countries have solid fiscal performance and relatively low inflation
rates.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors. These risks are
discussed in the prospectus.
<PAGE>
PERFORMANCE SUMMARY
The Templeton Bond Fund delivered a total return of -4.88% for the one-year
period ended December 31, 1994. Total return represents the change in the
Fund's net asset value and includes reinvestment of dividends. It does not
include deductions at the Fund or contract level for cost of insurance
charges, premium load, administrative charges, maintenance fees, premium tax
charges, mortality and expense risk charges or other charges that may be
incurred under the variable annuity contract for which the Fund serves as an
underlying investment vehicle.
The graph to the right shows how an investment in the Fund, since its
inception, has kept your purchasing power ahead of inflation, as measured by
the Consumer Price Index (CPI). The graph also compares the Fund's
performance to that of the unmanaged Salomon Brothers World Bond Index.
Please remember that the Fund's performance differs from that of an index
because an index does not contain cash (the Fund generally carries a certain
percentage of cash at any given time) and includes no management charges or
other expenses. Of course, one cannot invest directly in an index.
TEMPLETON BOND FUND
Total Return Index Comparison
$10,000 Investment (8/24/88 - 12/31/94)
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON BOND FUND*, SALOMON
BROS. WORLD BOND INDEX AND CPI**]
<TABLE>
<CAPTION>
8/88 12/94
------ -------
<S> <C> <C>
Templeton Bond Fund* $10,000 $15,121
Salomon Bros. World Bond Index 10,000 18,499
CPI** 10,000 12,604
</TABLE>
+++++++++++++++
*Total return measures the change in the Fund's net asset value over the period
shown, assuming reinvestment of dividends and capital gains. It does not include
deductions at the Fund or contract level for cost of insurance charges, premium
load, administrative charges, maintenance fees, premium tax charges, mortality
and expense risk charges or other charges that may be incurred under the
variable annuity contract for which the Fund serves as an underlying investment
vehicle. Past performance is not indicative of future results.
**Source: U.S. Bureau of Labor Statistics
TEMPLETON BOND FUND
Periods ended 12/31/94
<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return /1/ -4.88% 6.63% 6.73%
Cumulative
Total Return /2/ -4.88% 37.85% 51.21%
</TABLE>
1. Average annual total return represents the average annual increase in
the value of an investment and assumes reinvestment of dividends and
capital gains.
2. Cumulative total return represents the change in the Fund's net asset
value, and assumes reinvestment of dividends and capital gains.
Note: Total return figures do not include deductions at the Fund or
contract level for cost of insurance charges, premium load, administrative
charges, maintenance fees, premium tax charges, mortality and expense risk
charges or other charges that may be incurred under the variable annuity
contract for which the Fund serves as an underlying investment vehicle.
Past expense limitations increased the Fund's total returns. Investment
return and principal value will fluctuate with market conditions, currencies
and the economic and political climates of the countries where investments
are made, and shares, when redeemed, may be worth more or less than their
initial cost. Past performance is not indicative of future results.
15
<PAGE>
TEMPLETON MONEY MARKET FUND
The Templeton Money Market Fund seeks current income, stability of principal,
and liquidity by investing in money market instruments with maturities not
exceeding 397 days. The Fund may invest in short-term U.S. government
securities, certificates of deposit, time deposits, bankers' acceptances,
commercial paper and repurchase agreements.*
A combination of robust economic growth, strong retail sales and a relatively
low unemployment rate prompted the U.S. Federal Reserve Board to begin
raising short-term interest rates in February 1994, as a pre-emptive strike
against inflation. Over the course of the year, the Federal Reserve raised
the federal funds rate (the interest rate banks charge each other for
overnight loans) on six occasions, from 3.0% to 5.5%.
In response to higher rates, we began shortening the Fund's weighted average
maturity. By doing so, the Fund was able to reinvest its assets more quickly
in newer securities offering higher rates. Over the course of the year, the
Fund's average maturity was shortened, from 49.17 days to 22.41 days.
We believe modest interest rate increases are likely in 1995, given continued
strong economic growth and the very active role the Federal Reserve has taken
to curb inflationary pressures. Because of its relatively short weighted
average maturity, the Fund is well positioned to take advantage of any
further interest rate increases.
On December 31, 1994, the Fund's 7-day annualized yield was 4.93% and the
Fund's 30-day annualized yield was 5.58%.
*Please remember that an investment in the Fund is neither insured nor
guaranteed by the U.S. government, and that there can be no assurance that
the Fund will be able to maintain a stable net asset value of $1.00 per
share.
16
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 17.53 $ 13.33 $ 12.72 $ 10.29 $ 11.75
-------- -------- -------- -------- --------
Income from investment opera-
tions:
Net investment income .26 .23 .25 .27 .32
Net realized and unrealized
gain (loss) (.64) 4.23 .64 2.49 (1.57)
-------- -------- -------- -------- --------
Total from investment opera-
tions (.38) 4.46 .89 2.76 (1.25)
-------- -------- -------- -------- --------
Distributions:
Dividends from net invest-
ment income (.21) (.25) (.28) (.33) (.19)
Distributions from net real-
ized gains -- (.01) -- -- (.02)
-------- -------- -------- -------- --------
Total distributions (.21) (.26) (.28) (.33) (.21)
-------- -------- -------- -------- --------
Change in net asset value (.59) 4.20 .61 2.43 (1.46)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.94 $ 17.53 $ 13.33 $ 12.72 $ 10.29
======== ======== ======== ======== ========
TOTAL RETURN * (2.20)% 34.00% 7.12% 27.93% (10.23)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (000) $378,849 $298,392 $166,219 $116,943 $ 74,264
Ratio of expenses to average
net assets 0.73% 0.73% 0.75% 0.82% 0.85%
Ratio of net investment in-
come to average net assets 1.81% 1.88% 2.36% 2.82% 3.78%
Portfolio turnover rate 5.10% 4.88% 8.10% 41.24% 17.94%
</TABLE>
* TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE FUND OR CONTRACT LEVEL FOR
COST OF INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY
AND EXPENSE RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE
VARIABLE ANNUITY CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING
INVESTMENT VEHICLE.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS: 84.6%
Aerospace & Military
Technical Systems: 0.7%
Boeing Co. 25,000 $ 1,168,750
British Aerospace PLC 230,000 1,538,299
------------
2,707,049
------------
Appliances & Household Durables: 1.4%
Sony Corp. 94,000 5,335,008
------------
Automobiles: 3.0%
Bayerische Motorenwerke (BMW) 6,545 3,239,555
Ford Motor Co. 130,000 3,640,000
General Motors Corp. 18,000 760,500
Volvo AB, B 200,000 3,768,227
------------
11,408,282
------------
Banking: 13.3%
Banco Bilbao Vizcaya 73,200 1,815,749
Banco Popular Espanol 6,615 786,513
Bangkok Bank Public Co. Ltd., fgn. 100,000 1,067,516
BankAmerica Corp. 130,000 5,135,000
Bankinter SA 40,000 3,303,324
Banque Nationale de Paris NV 30,000 1,378,955
Banque Nationale de Paris, NV, ADR 10,600 492,900
Barclays PLC 400,000 3,820,520
Barnett Banks Inc. 44,700 1,715,363
C.S. Holding, br. 8,000 3,421,545
Chemical Banking Corp. 88,000 3,157,000
Citicorp 100,000 4,137,500
Crestar Financial Corp. 55,000 2,069,375
Grupo Financiero Banamex Accival SA, C 450,000 1,323,000
Grupo Financiero Banamex Accival SA, L 17,500 50,400
Grupo Financiero Serfin SA, ADR 50,000 375,000
Grupo Financiero Serfin SA, B 278,000 528,200
HSBC Holdings PLC 301,786 3,256,754
National Australia Bank Ltd. 332,376 2,664,347
NationsBank Corp. 59,000 2,662,375
Royal Bank of Canada 10,000 200,499
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Royal Bank of Scotland Group PLC 237,931 $ 1,464,781
Standard Chartered PLC 600,000 2,633,061
Westpac Banking Corp. 882,346 2,975,560
------------
50,435,237
------------
Broadcasting & Publishing: 1.2%
Grupo Televisa SA, GDS 5,000 158,750
News Corp. Ltd., ADR 260,000 4,062,500
News Corp. Ltd. 96,427 377,512
------------
4,598,762
------------
Business & Public Services: 1.5%
Columbia Healthcare Corp. 74,587 2,722,426
*National Medical Enterprises Inc. 200,000 2,825,000
------------
5,547,426
------------
Chemicals: 4.7%
Akzo Nobel NV 55,000 6,349,444
Bayer AG 16,000 3,706,763
DSM NV 30,000 2,383,202
Rhone-Poulenc SA, A 123,200 2,857,982
Solvay SA 5,000 2,373,467
------------
17,670,858
------------
Data Processing & Reproduction: 1.3%
*Newbridge Networks Corp. 130,000 4,972,500
------------
Electrical & Electronics: 4.1%
BBC Brown Boveri Ltd., br. 7,297 6,280,765
Hitachi Ltd. 274,000 2,722,109
Johnson Electric Holdings Ltd. 300,000 688,207
Motorola Inc. 72,000 4,167,000
Philips Electronics NV 50,000 1,480,500
------------
15,338,581
------------
Electronic Components & Instruments: 1.1%
Intel Corp. 66,000 4,215,750
------------
</TABLE>
18
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Energy Sources: 2.6%
Norsk Hydro AS 35,000 $ 1,376,710
Shell Transport & Trading Co. PLC 120,000 1,306,674
Societe Elf Aquitane SA 15,720 1,106,375
Total SA, B 95,000 5,517,506
Valero Energy Corp. 30,000 506,250
------------
9,813,515
------------
Financial Services: 5.2%
American Express Co. 100,000 2,950,000
Dean Witter Discover & Co. 110,612 3,746,982
Federal National Mortgage Assn. 78,400 5,713,400
First Financial Management Corp. 42,000 2,588,250
MBNA Corp. 180,000 4,207,500
Peregrine Investments Holdings Ltd. 500,000 588,045
------------
19,794,177
------------
Food & Household Products: 2.4%
Dairy Farm International Holdings Ltd. 2,000,000 2,145,396
Grupo Embotellador de Mexico SA, B 62,500 481,250
Nestle SA 4,000 3,809,524
Unilever NV 12,000 1,409,528
Vitro SA, ADR 100,000 1,400,000
------------
9,245,698
------------
Forest Products & Paper: 4.0%
*Assidomaen AB 150,000 3,573,087
Carter Holt Harvey Ltd. 1,239,126 2,538,331
Enso Gutzeit OY, R 300,000 2,577,254
International Paper Co. 49,000 3,693,375
PT Barito Pacific Timber, fgn. 64,000 101,183
Stora Kopparbergs Bergslags AB, B 45,000 2,713,124
------------
15,196,354
------------
Health & Personal Care: 5.5%
Astra AB, A 100,000 2,583,927
Astra AB, B 165,000 4,207,966
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Medeva PLC 747,357 $ 1,905,867
Pfizer Inc. 36,000 2,781,000
Pharmacia AB, A 50,000 800,748
Pharmacia AB, B 110,000 1,754,244
SmithKline Beecham PLC, ADR 200,000 6,850,000
------------
20,883,752
------------
Industrial Components: 1.0%
Goodyear Tire & Rubber Co. 110,000 3,698,750
------------
Insurance: 5.0%
Aegon NV 80,000 5,115,502
Aetna Life & Casualty Co. 70,000 3,298,750
Allstate Corp. 51,000 1,204,875
American International Group Inc. 29,062 2,848,076
International Nederlanden Group 90,000 4,251,397
London Insurance Group Inc. 15,000 245,945
Torchmark Corp. 60,000 2,092,500
------------
19,057,045
------------
Merchandising: 3.6%
*CUC International Inc. 40,000 1,340,000
*Federated Department Stores Inc. 60,000 1,155,000
Home Depot Inc. 110,000 5,060,000
*Kroger Co. 25,000 603,125
Limited Inc. 134,500 2,437,813
Sears Roebuck & Co. 70,000 3,220,000
------------
13,815,938
------------
Metals & Mining: 1.2%
Aluminum Co. of America 20,000 1,732,500
Reynolds Metals Co. 55,500 2,719,500
------------
4,452,000
------------
Multi-Industry: 3.5%
Hutchison Whampoa Ltd. 1,133,000 4,583,250
Jardine Matheson Holdings Ltd. 500,000 3,570,275
Jardine Strategic Holdings Ltd. 311,154 1,021,430
Pacific Dunlop Ltd. 4,295 11,421
Swire Pacific Ltd., A 620,000 3,862,229
Swire Pacific Ltd., B 304,500 299,089
------------
13,347,694
------------
</TABLE>
19
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Real Estate: 1.0%
Cheung Kong Holdings Ltd. 550,000 $ 2,239,095
New World Development Co. Ltd. 600,000 1,601,292
------------
3,840,387
------------
Telecommunications: 7.4%
Alcatel Alsthom SA 32,385 2,764,943
Cable & Wireless PLC 230,000 1,352,984
*Compania de Telefonos de Chile SA,
ADR 31,000 2,441,250
*LDDS Communications Inc. 72,400 1,407,275
MCI Communications Corp. 202,000 3,711,750
Philippine Long Distance Telephone
Co. 10,000 551,250
STET (Sta Finanziaria Telefonica
Torino) SPA 1,094,500 3,225,469
Telefonica de Argentina SA, B, ADR 40,500 2,146,500
Telefonica de Espana SA 271,000 3,201,557
Telefonos de Mexico SA, L, ADR 171,800 7,043,800
------------
27,846,778
------------
Textiles & Apparel: 2.5%
*Fruit of the Loom Inc., A 125,000 3,375,000
Nike Inc., B 80,000 5,970,000
------------
9,345,000
------------
Transportation: 1.9%
*AMR Corp. 20,000 1,065,000
*Atlantic Southeast Airlines Inc. 76,100 1,179,550
British Airways PLC 400,000 2,234,112
*Nedlloyd Groep 40,000 1,311,135
Singapore Airlines Ltd., fgn. 140,000 1,287,136
------------
7,076,933
------------
Utilities--Electrical & Gas: 5.3%
American Electric Power Co. Inc. 61,000 2,005,375
Endesa-Empresa Nacional de
Electricidad SA 115,000 4,683,001
Iberdrola SA 200,000 1,233,808
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Pinnacle West Capital Corp. 90,000 $ 1,777,500
Southern Co. 142,000 2,840,000
Southern Electric PLC 400,000 5,050,221
VEBA AG 7,000 2,424,884
------------
20,014,789
------------
Wholesale & International Trade: 0.2%
Sime Darby Hongkong Ltd. 650,000 722,456
------------
TOTAL COMMON STOCKS
(cost $258,079,334) 320,380,719
------------
PREFERRED STOCKS: 2.8%
Dairy Farm International Holdings
Ltd., 6.50%, conv., pfd. 162,000 135,675
Jardine Strategic Holdings Ltd.,
7.50%, conv., pfd. 113,000 129,950
*News Corp. Ltd., ADR 130,000 1,803,750
News Corp. Ltd., pfd. 248,213 854,374
Telebras-Telecomunicacoes
Brasileiras SA 143,434,677 6,418,151
Telebras-Telecomunicacoes
Brasileiras SA, ADR 31,300 1,408,500
------------
TOTAL PREFERRED STOCKS
(cost $11,000,226) 10,750,400
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
----------
<S> <C> <C>
SHORT TERM OBLIGATIONS: 12.9%
(cost $48,853,721)
U.S. Treasury Bills, 4.75% to
5.45% with maturities
to 2/23/95 U.S.$ 49,003,000 48,864,569
------------
TOTAL INVESTMENTS: 100.3%
(cost $317,933,281) 379,995,688
OTHER ASSETS,
LESS LIABILITIES: (0.3)% (1,147,135)
------------
TOTAL NET ASSETS: 100.0% $378,848,553
============
</TABLE>
*NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 1, 1992
DECEMBER 31 (COMMENCEMENT
----------------- OF OPERATIONS) TO
1994 1993 DECEMBER 31, 1992
-------- ------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.83 $ 9.39 $ 10.00
-------- ------- -------
Income from investment operations:
Net investment income .12 .10 .06
Net realized and unrealized gain (loss) (.42) 4.34 (.67)
-------- ------- -------
Total from investment operations (.30) 4.44 (.61)
-------- ------- -------
Distributions:
Dividends from net investment income (.08) -- --
Dividends from net realized gain (.23) -- --
-------- ------- -------
Total distributions (.31) -- --
-------- ------- -------
Change in net asset value (.61) 4.44 (.61)
-------- ------- -------
Net asset value, end of year $ 13.22 $ 13.83 $ 9.39
======== ======= =======
TOTAL RETURN * (2.22)% 47.28% (6.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $150,090 $43,877 $ 7,050
Ratio of expenses to average net assets 0.83% 0.95% 1.40%**
Ratio of expenses, net of reimbursement,
to average net assets 0.83% 0.95% 1.00%**
Ratio of net investment income to average
net assets 1.89% 1.62% 1.76%**
Portfolio turnover rate 6.32% 15.65% 4.50%
</TABLE>
* TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE FUND OR CONTRACT LEVEL FOR
COST OF INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY
AND EXPENSE RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE
VARIABLE ANNUITY CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING
INVESTMENT VEHICLE.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------ ------------
<S> <C> <C>
COMMON STOCKS: 69.1%
Aerospace & Military Technical
Systems: 0.4%
British Aerospace PLC 90,000 $ 601,943
------------
Appliances & Household Durables:
1.0%
Email Ltd. 134,600 382,959
Sony Corp. 21,000 1,191,863
------------
1,574,822
------------
Automobiles: 4.0%
Bayerische Motorenwerke (BMW) 1,200 593,960
*Consorcio G Grupo Dina SA de CV 170,000 377,400
*Regie Nationale des Usines Renault
SA 53,000 1,751,451
Volkswagen AG 3,500 961,054
Volvo AB, B 120,000 2,260,936
------------
5,944,801
------------
Banking: 9.8%
ABN AMRO Holding NV 12,050 418,581
Argentaria Corporacion Bancaria de
Espana SA 13,000 460,741
Argentaria Corporacion Bancaria de
Espana SA, ADR 7,300 130,488
Australia & New Zealand Banking
Group Ltd. 259,510 855,034
Banco Bilbao Vizcaya 9,000 223,248
Banco Ganadero SA, ADR C 20,000 405,000
Banco Popular Espanol 4,000 475,594
Banco Portugues de Investimento SA 18,700 279,582
Bangkok Bank Public Co. Ltd., fgn. 175,000 1,868,154
Bankinter SA 1,000 82,583
Banque Nationale de Paris NV 16,000 735,443
Banque Nationale de Paris, NV, ADR 1,800 83,700
Barclays PLC 30,200 288,449
C.S. Holding, br. 2,000 855,386
Canadian Imperial Bank of Commerce 70,000 1,690,430
Daegu Bank Co. Ltd. 6,100 89,740
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Grupo Financiero Banamex
Accival SA, C 135,000 $ 396,900
Grupo Financiero Banamex
Accival SA, L 3,000 8,640
Grupo Financiero Serfin SA, ADR 12,500 93,750
Grupo Financiero Serfin SA, B 95,200 180,880
HSBC Holdings PLC 5,800 625,913
National Bank of Canada 110,000 744,965
Philippine National Bank 29,172 412,476
PT Bank Bali, fgn. 25,000 58,007
PT Panin Bank, fgn. 250,000 358,280
Standard Chartered PLC 128,000 561,720
Svenska Handelsbanken, A 48,000 633,062
Westpac Banking Corp. 496,849 1,675,538
------------
14,692,284
------------
Broadcasting & Publishing: 1.8%
Grupo Televisa SA, GDS 4,800 152,400
News Corp. Ltd., ADR 125,200 1,956,250
Oriental Press Group Limited 1,057,000 495,202
South China Morning Post Holdings
Ltd. 158,000 92,401
------------
2,696,253
------------
Building Materials & Components: 1.4%
Buderus AG 1,360 588,023
*Cementos Paz del Rio, ADR 11,000 220,000
Cie de Saint Gobain 11,454 1,316,749
------------
2,124,772
------------
Business & Public Services: 0.3%
Ecco SA 2,250 267,085
Societe Generale de Surveillance
Holdings Ltd., br. 100 138,237
------------
405,322
------------
Chemicals: 5.0%
Akzo Nobel NV 23,000 2,655,222
Bayer AG 1,110 257,157
DSM NV 16,000 1,271,041
</TABLE>
22
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
*European Vinyls Corp. EVC
International NV 50,000 $ 2,214,989
Rhone-Poulenc SA, A 9,800 227,339
Solvay SA 1,800 854,448
------------
7,480,196
------------
Data Processing & Reproduction: 1.4%
*Newbridge Networks Corp. 50,000 1,912,500
Sligos SA 2,000 135,181
------------
2,047,681
------------
Electrical & Electronics: 2.2%
BBC Brown Boveri Ltd., br. 2,600 2,237,904
Gold Peak Industries (Holdings) Ltd. 1,000 394
*Gold Peak Industries (Holdings)
Ltd., wts. 8,200 572
Hitachi Ltd. 110,000 1,092,818
------------
3,331,688
------------
Energy Equipment & Services: 0.8%
Koninklijke Pakhoed NV 45,000 1,192,465
------------
Energy Sources: 2.2%
Repsol SA 2,500 67,806
Societe Elf Aquitane SA 14,400 1,013,473
Total SA, B 38,000 2,207,002
------------
3,288,281
------------
Financial Services: 1.0%
Govett & Co. Ltd. 23,600 131,443
Invesco PLC 65,000 166,776
Korea Fund Inc. 36,510 830,603
Peregrine Investments Holdings Ltd. 300,000 352,827
------------
1,481,649
------------
Food & Household Products: 1.2%
Dairy Farm International Holdings
Ltd. 200,000 214,540
Embotelladora Andina SA, ADR 23,000 600,875
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Grupo Embotellador de Mexico SA, B 20,000 $ 154,000
Lam Soon Foods Inc. 205,000 38,682
Nestle SA 560 533,333
PT Japfa Comfeed Indonesia, fgn. 72,000 85,987
Vitro SA 14,350 65,867
Vitro SA, ADR 6,500 91,000
------------
1,784,284
------------
Forest Products & Paper: 4.6%
*Assidomaen AB 50,000 1,191,029
*Cartiere Burgo SPA 21,600 143,157
*Cartiere Burgo SPA, wts. 3,600 573
Enso Gutzeit OY, R 200,000 1,718,170
Kimberly Clark de Mexico SA, A 16,000 186,560
Metsa Serla OY, B 30,000 1,317,123
Munksjo AB 70,000 569,944
PT Barito Pacific Timber, fgn. 12,000 18,972
PT Pabrik Kertas Tjiwi Kimia, fgn. 10,080 18,803
Stora Kopparbergs Bergslags AB, B 30,000 1,808,749
------------
6,973,080
------------
Health & Personal Care: 6.6%
Astra AB, A 30,000 775,178
Astra AB, B 52,000 1,326,147
Ciba-Geigy AG 2,000 1,192,958
Hafslund Nycomed SA, B 65,000 1,355,268
Medeva PLC 222,277 566,838
Pharmacia AB, A 23,700 379,555
Pharmacia AB, B 80,000 1,275,814
SmithKline Beecham PLC, ADR 90,000 3,082,500
------------
9,954,258
------------
Insurance: 2.1%
Aegon NV 11,341 725,186
International Nederlanden Group 30,000 1,417,132
La France SA 180 26,793
London Insurance Group Inc. 50,000 819,818
Swiss Reinsurance Co. 400 241,036
------------
3,229,965
------------
</TABLE>
23
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Machinery & Engineering: 1.0%
*Tampella AB OY 169,300 $ 500,296
*Tampella AB OY, 144A 62,666 185,183
Valmet OY 39,000 741,705
------------
1,427,184
------------
Merchandising: 2.0%
Argyll Group PLC 275,000 1,153,040
Burton Group PLC 40,000 42,711
Karstadt AG 5,000 1,806,918
------------
3,002,669
------------
Metals & Mining: 0.7%
*ARBED SA 250 37,567
China Steel Corp., ADR 10,000 227,500
Maanshan Iron & Steel Co. Ltd., H 1,000,000 210,662
Pechiney SA, invt. ctf. 3,950 266,242
SIG-Schweizerische Industrie
Gesellschaft Holdings AG 160 303,051
South African Iron & Steel Industrial
Corp. Ltd. 8,353 9,600
------------
1,054,622
------------
Multi-Industry: 3.0%
DESC Sociedad de Fomento Industrial
SA, B 84,000 403,200
Hutchison Whampoa Ltd. 200,000 809,047
Jardine Matheson Holdings Ltd. 286,800 2,047,910
Jardine Strategic Holdings Ltd. 200,000 656,543
Swire Pacific Ltd., A 50,000 311,470
Wheelock & Co. Ltd. 126,000 209,254
------------
4,437,424
------------
Real Estate: 1.5%
Cheung Kong Holdings Ltd. 200,000 814,216
Hang Lung Development Co. Ltd. 700,000 995,153
*Hang Lung Development Co. Ltd., wts. 65,000 9,745
New World Development Co. Ltd. 151,000 402,992
------------
2,222,106
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Recreation, Other Consumer Goods: 0.6%
SMH AG, br. 1,800 $ 894,948
------------
Telecommunications: 7.4%
Alcatel Alsthom SA 8,000 683,018
Compania de Telefonos de Chile SA, ADR 14,300 1,126,125
Philippine Long Distance Telephone Co. 4,000 220,500
STET (Sta Finanziaria Telefonica
Torino)
SPA, di Risp 800,000 1,896,424
Telefonica de Argentina SA, B, ADR 44,000 2,332,000
Telefonica de Espana SA, ADR 50,000 1,756,250
Telefonos de Mexico SA, L, ADR 76,600 3,140,600
------------
11,154,917
------------
Transportation: 0.7%
*Nedlloyd Groep 24,800 812,904
Singapore Airlines Ltd., fgn. 33,000 303,396
------------
1,116,300
------------
Utilities--Electrical & Gas: 6.3%
*CEZ 19,000 924,839
Consolidated Electric Power Asia
Ltd., ADR 32,000 694,000
Cukurova Elektrik AS 661,000 169,487
Electricas Reunidas de Zaragoza 16,250 332,099
Electricidad de Caracas 435,383 528,134
Endesa-Empresa Nacional de
Electricidad SA 1,000 40,722
Endesa-Empresa Nacional de
Electricidad SA, ADR 18,000 729,000
Hongkong Electric Holdings Ltd. 131,000 358,081
Iberdrola SA 14,500 89,451
National Power PLC 300,000 2,295,128
*Shandong Huaneng Power 100,000 962,500
South Wales Electricity 104,000 1,454,614
VEBA AG 2,600 900,671
------------
9,478,726
------------
Wholesale & International Trade: 0.1%
Computer 2000 AG 400 105,834
------------
TOTAL COMMON STOCKS
(cost $103,948,227) 103,698,474
------------
</TABLE>
24
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
PREFERRED STOCKS: 2.0%
ABN Amro Holdings NV, conv., pfd. 803 $ 26,737
Dairy Farm International Holdings Ltd., 6.50%,
conv., pfd. 6,000 5,025
*News Corp. Ltd., ADR 60,100 833,888
News Corp. Ltd., pfd 75,000 258,158
Jardine Strategic Holdings Ltd., 7.50%, conv., pfd. 13,000 14,950
Telebras-Telecomunicacoes Brasileiras SA 4,866,533 217,759
Telebras-Telecomunicacoes Brasileiras SA, ADR 35,400 1,593,000
------------
TOTAL PREFERRED STOCKS
(cost $1,341,455) 2,949,517
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN
LOCAL
CURRENCY VALUE
------------ -------------
<S> <C> <C>
SHORT TERM OBLIGATIONS: 29.4%
(cost $44,147,820)
U.S. Treasury Bills, 4.75% to 5.47% with
maturities to 2/23/95 U.S. $ 44,336,000 $ 44,169,242
-------------
TOTAL INVESTMENTS: 100.5%
(cost $149,437,502) 150,817,233
OTHER ASSETS, LESS LIABILITIES: (0.5)% (726,854)
-------------
TOTAL NET ASSETS: 100.0% $ 150,090,379
=============
</TABLE>
*NON-INCOME PRODUCING
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 16.55 $ 13.49 $ 12.85 $ 10.45 $ 11.62
-------- -------- ------- ------- -------
Income from investment opera-
tions:
Net investment income .44 .42 .39 .40 .34
Net realized and unrealized
gain (loss) (.92) 3.03 .66 2.38 (1.23)
-------- -------- ------- ------- -------
Total from investment operations (.48) 3.45 1.05 2.78 (.89)
-------- -------- ------- ------- -------
Distributions:
Dividends from net investment
income (.31) (.35) (.41) (.38) (.25)
Distributions from net realized
gains (.07) (.04) -- -- (.03)
-------- -------- ------- ------- -------
Total distributions (.38) (.39) (.41) (.38) (.28)
-------- -------- ------- ------- -------
Change in net asset value (.86) 3.06 .64 2.40 (1.17)
-------- -------- ------- ------- -------
Net asset value, end of year $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45
======== ======== ======= ======= =======
TOTAL RETURN * (2.96)% 26.12% 8.42% 27.05% (7.80)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $288,172 $183,360 $79,242 $35,821 $22,702
Ratio of expenses to average net
assets 0.75% 0.77% 0.80% 0.89% 1.03%
Ratio of expenses, net of reim-
bursement, to average net as-
sets 0.75% 0.77% 0.80% 0.89% 1.00%
Ratio of net investment income
to average net assets 4.02% 4.16% 4.47% 3.99% 4.56%
Portfolio turnover rate 51.36% 81.50% 120.53% 76.65% 8.46%
</TABLE>
* TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE FUND OR CONTRACT LEVEL FOR
COST OF INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY
AND EXPENSE RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE
VARIABLE ANNUITY CONTRACT FOR WHICH THE FUND SERIES AS AN UNDERLYING
INVESTMENT VEHICLE.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS: 51.8%
Aerospace & Military Technical Systems: 0.7%
Boeing Co. 27,000 $ 1,262,250
British Aerospace PLC 130,000 869,473
------------
2,131,723
------------
Appliances & Household Durables: 0.8%
Sony Corp. 42,000 2,383,727
------------
Automobiles: 1.5%
Ford Motor Co. 42,000 1,176,000
General Motors Corp. 15,000 633,750
Volvo AB, B 130,000 2,449,348
------------
4,259,098
------------
Banking: 8.5%
Banco Popular Espanol 3,220 382,853
Bangkok Bank Public Co. Ltd., fgn. 60,000 640,510
Bank of Montreal 10,000 186,241
BankAmerica Corp. 64,000 2,528,000
Bankinter SA 19,625 1,620,693
Banque Nationale de Paris NV 15,000 689,478
Banque Nationale de Paris, NV, ADR 5,400 251,100
Barclays PLC 137,500 1,313,304
Barnett Banks Inc. 15,000 575,625
C.S. Holding, br. 3,050 1,304,464
Canadian Imperial Bank of Commerce 20,000 482,980
Chemical Banking Corp. 50,000 1,793,750
Citicorp 60,000 2,482,500
Corestates Financial Corp. 18,000 468,000
Crestar Financial Corp. 46,000 1,730,750
Grupo Financiero Banamex Accival SA, C 200,000 588,000
Grupo Financiero Banamex Accival SA, L 10,000 28,800
Grupo Financiero Serfin
SA, ADR 25,000 187,500
Grupo Financiero Serfin SA, B 178,500 339,150
HSBC Holdings PLC 182,200 1,966,229
National Australia Bank Ltd. 50,603 405,637
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
NationsBank Corp. 30,000 $ 1,353,750
Royal Bank of Canada 1,400 28,070
Royal Bank of Scotland Group PLC 54,310 334,350
Standard Chartered PLC 280,000 1,228,762
Toronto Dominion Bank 8,000 121,191
Westpac Banking Corp. 449,074 1,514,425
------------
24,546,112
------------
Broadcasting & Publishing: 0.9%
Grupo Televisa SA, GDS 4,500 142,875
News Corp. Ltd., ADR 160,000 2,500,000
------------
2,642,875
------------
Business & Public Services: 0.7%
Columbia Healthcare Corp. 31,500 1,149,750
*National Medical
Enterprises Inc. 70,000 988,750
------------
2,138,500
------------
Chemicals: 3.1%
Akzo Nobel NV 28,700 3,313,255
Bayer AG 4,400 1,019,360
DSM NV 25,000 1,986,001
Rhone-Poulenc SA, A 31,800 737,693
Solvay SA 4,000 1,898,774
------------
8,955,083
------------
Data Processing & Reproduction: 1.1%
*Newbridge Networks Corp. 80,000 3,060,000
------------
Electrical & Electronics: 1.7%
BBC Brown Boveri Ltd., br. 4,260 3,666,720
Hitachi Ltd. 80,000 794,776
Motorola Inc. 4,000 231,500
Philips Electronics NV 10,000 296,100
------------
4,989,096
------------
Electronic Components & Instruments: 0.4%
Intel Corp. 18,000 1,149,750
------------
</TABLE>
27
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Energy Sources: 1.3%
Norsk Hydro AS 9,660 $ 379,972
Shell Transport & Trading Co. PLC 80,000 871,116
Societe Elf Aquitane SA 4,000 281,520
Total SA, B 39,000 2,265,081
------------
3,797,689
------------
Financial Services: 3.3%
American Express Co. 44,000 1,298,000
Dean Witter Discover & Co. 74,683 2,529,887
Federal National Mortgage Assn. 30,000 2,186,250
MBNA Corp. 127,500 2,980,313
Mercury Asset Management Group PLC 12,500 135,232
Peregrine Investments Holdings Ltd. 350,000 411,632
------------
9,541,314
------------
Food & Household Products: 1.4%
Dairy Farm International Holdings Ltd. 1,000,000 1,072,698
Grupo Embotellador de Mexico SA, B 58,900 453,530
Nestle SA 1,200 1,142,857
Unilever NV 3,400 399,366
Unilever PLC 12,300 222,742
Vitro SA, ADR 41,500 581,000
------------
3,872,193
------------
Forest Products & Paper: 2.9%
*Assidomaen AB 90,000 2,143,852
Carter Holt Harvey Ltd. 293,020 600,247
Enso Gutzeit OY, R 225,000 1,932,941
International Paper Co. 25,000 1,884,375
PT Barito Pacific Timber, fgn. 36,000 56,915
Stora Kopparbergs Bergslags AB, B 30,000 1,808,749
------------
8,427,079
------------
Health & Personal Care: 3.3%
Astra AB, A 45,000 1,162,767
Astra AB, B 90,000 2,295,254
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Medeva PLC 233,722 $ 596,024
Pfizer Inc. 11,000 849,750
Pharmacia AB, B 100,000 1,594,768
SmithKline Beecham
PLC, ADR 85,000 2,911,250
------------
9,409,813
------------
Industrial Components: 0.7%
Goodyear Tire & Rubber Co. 60,000 2,017,500
------------
Insurance: 2.5%
Aegon NV 25,000 1,598,594
Aetna Life & Casualty Co. 16,700 786,988
Allstate Corp. 27,000 637,875
International Nederlanden Group 50,000 2,361,887
London Insurance Group Inc. 5,700 93,459
Swiss Reinsurance Co. 253 152,455
Torchmark Corp. 45,000 1,569,375
------------
7,200,633
------------
Merchandising: 2.6%
*Federated Department
Stores Inc. 130,000 2,502,500
Home Depot Inc. 65,000 2,990,000
Sears Roebuck & Co. 42,000 1,932,000
------------
7,424,500
------------
Metals & Mining: 0.6%
Aluminum Co. of America 6,000 519,750
Reynolds Metals Co. 22,000 1,078,000
------------
1,597,750
------------
Multi-Industry: 2.2%
Hutchison Whampoa Ltd. 744,000 3,009,654
Jardine Matheson
Holdings Ltd. 220,800 1,576,633
Jardine Strategic Holdings Ltd. 150,000 492,407
Swire Pacific Ltd., A 192,000 1,196,045
Swire Pacific Ltd., B 158,000 155,192
------------
6,429,931
------------
Real Estate: 0.9%
Cheung Kong Holdings Ltd. 450,000 1,831,987
New World Development Co. Ltd. 300,000 800,646
------------
2,632,633
------------
</TABLE>
28
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Telecommunications: 5.2%
Alcatel Alsthom SA 12,619 $ 1,077,376
Cable & Wireless PLC 100,000 588,254
Compania de Telefonos de Chile SA,
ADR 20,000 1,575,000
*LDDS Communications Inc. 60,100 1,168,194
MCI Communications Corp. 96,000 1,764,000
STET (Sta Finanziaria Telefonica
Torino) SPA 477,000 1,405,709
Telefonica de Argentina SA, B, ADR 30,000 1,590,000
Telefonica de Espana SA 130,000 1,535,802
Telefonos de Mexico SA, L, ADR 100,900 4,136,900
------------
14,841,235
------------
Textiles & Apparel: 2.2%
*Fruit of the Loom Inc., A 90,000 2,430,000
Nike Inc., B 51,000 3,805,875
------------
6,235,875
------------
Transportation: 0.8%
*AMR Corp. 4,500 239,625
Atlantic Southeast Airlines Inc. 60,500 937,750
British Airways PLC 100,000 558,528
*Nedlloyd Groep 20,000 655,568
------------
2,391,471
------------
Utilities--Electrical & Gas: 2.4%
American Electric Power Co. Inc. 20,000 657,500
Endesa-Empresa Nacional de
Electricidad SA 30,500 1,242,013
Endesa-Empresa Nacional de
Electricidad SA, ADR 7,000 283,500
Iberdrola SA 85,000 524,368
Pinnacle West Capital Corp. 40,000 790,000
Southern Co. 34,000 680,000
Southern Electric PLC 120,000 1,515,066
VEBA AG 3,500 1,212,442
------------
6,904,889
------------
Wholesale & International Trade: 0.1%
Sime Darby Hongkong Ltd. 300,000 333,441
------------
TOTAL COMMON STOCKS
(cost $129,155,685) 149,313,910
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
PREFERRED STOCKS: 2.6%
*News Corp. Ltd., ADR 80,000 $ 1,110,000
News Corp. Ltd., pfd. 200,000 688,420
Santander Finance Ltd., B, pfd. 91,500 1,875,750
Telebras-Telecomunicacoes Brasileiras SA 40,981,336 1,833,758
Telebras-Telecomunicacoes Brasileiras SA, ADR 45,600 2,052,000
------------
TOTAL PREFERRED STOCKS
(cost $5,628,802) 7,559,928
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
--------------
<S> <C> <C> <C>
BONDS: 25.0%
AMR Corp.,
9.00%, 8/01/12 U.S. 1,000,000 897,640
China Bank of Yankee,
8.25%, 3/15/14 U.S. 2,230,000 1,947,125
Federal Home Loan Mortgage Corp.:
7.50%, 3/01/07 U.S. 214,857 205,726
pool #1004 G,
7.95%, 11/15/19 U.S. 1,000,000 970,310
pool #1080 I,
7.00%, 12/15/19 U.S. 898,380 864,969
Essar Gujarat Ltd.,
8.025%, FRN, 7/15/99 U.S. 2,765,000 2,765,000
Eurofima,
9.875%, 1/17/07 Aus. 1,000,000 751,990
Goldman Sachs Group LP,
(principal and interest is linked to the
change in the Indonesian Rupiah to U.S.
Dollar foreign exchange rate between
purchase date (2,179.25 Rupiah/U.S.
Dollar) and maturity date) U.S. 2,410,000 2,373,850
Government of Australia,
6.75%, 11/15/06 Aus. 1,985,000 1,191,468
Government of Canada:
10.25%, 12/01/98 Can. 9,983,000 7,398,914
</TABLE>
29
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY VALUE
------------- ------------
<S> <C> <C> <C>
BONDS (CONT.)
6.25%, 9/15/95 Can. 850,000 $ 596,863
Government of Italy:
12.00%, 10/01/95 Itl. 3,750,000,000 2,318,896
12.00%, 1/01/97 Itl. 465,000,000 289,177
12.00%, 1/20/98 Itl. 1,250,000,000 772,888
12.00%, 5/19/98 Itl. 1,000,000,000 627,620
FRN, 7/26/99 Ger. 10,000,000 6,433,273
FRN, 8/01/99 Itl. 455,000,000 279,676
Government of Netherlands,
zero, 1/15/23 Neth. 5,000,000 313,094
Government of New Zealand:
8.00%, 11/15/95 N.Z. 5,000,000 3,160,233
8.00%, 4/15/04 N.Z. 5,900,000 3,661,169
Henderson Capital International Ltd., 4.25%,
10/27/96 U.S. 3,000,000 2,898,750
Hidroelectrica Alicura SA, 8.375%, 3/15/99 U.S. 2,000,000 1,752,500
Korea Development Bank,
9.48%, 4/02/01 U.S. 500,000 515,195
National Bank of Hungary,
8.80%, 10/01/02 U.S. 3,000,000 2,536,620
New South Wales Treasury Corp., 7.00%,
4/01/04 Aus. 1,200,000 744,043
News America Holdings Inc., 8.625%, 2/01/03 U.S. 1,000,000 972,690
Peoples Republic of China,
6.50%, 2/17/04 U.S. 500,000 424,619
Pohang Iron & Steel, 6.625%, 7/01/03 U.S. 1,000,000 873,290
Proctor & Gamble Co., 10.875%, 8/15/01 Can. 500,000 373,374
Province of British Columbia,
7.75%, 6/16/03 Can. 1,625,000 1,047,808
Queensland Treasury Corp. Exch. Global,
8.00%, 5/14/03 Aus. 3,775,000 2,528,256
Republic of Argentina, 6.50%, FRN, 3/31/05 U.S. 2,150,000 1,376,000
Telefonica de Argentina SA, 8.375%, 10/01/00 U.S. 1,470,000 1,198,050
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY VALUE
----------- ------------
<S> <C> <C> <C>
TNT Pacific Finance Ltd.,
9.00%, conv., 7/27/98 Aus. 165,000 $ 117,683
Treasury Corp. of Victoria,
8.25%, 10/15/03 Aus. 4,736,000 3,179,840
U.S. Treasury Bond, 6.25%, 8/15/23 U.S. 2,862,000 2,326,377
U.S. Treasury Note, 6.25%, 2/15/03 U.S. 1,175,000 1,062,641
U.K. Treasury Bonds:
7.00%, 8/06/97 U.K. 2,100,000 3,195,109
7.75%, 9/08/06 U.K. 2,440,000 3,568,068
9.00%, 7/12/11 U.K. 2,240,000 3,630,434
------------
TOTAL BONDS
(cost $76,900,369) 72,141,228
------------
SHORT TERM OBLIGATIONS: 21.5%
Australia Treasury Bills, 6.61% to 7.84% with
maturities to 3/08/95 Aus. 12,830,000 9,890,811
Federal Home Loan Mortgage Corp.,
4.79% to 5.90%, 1/04/95 U.S. 4,710,000 4,709,246
Federal National Mortgage Assn., 5.75% to 5.86%
with maturities to 1/13/95 U.S. 8,350,000 8,342,705
Greece Treasury Bills, 18.73% to 19.00% with
maturities to 2/28/95 Gr. 646,000,000 2,628,330
New Zealand Treasury Bills, 7.16% to 8.00% with
maturities to 2/08/95 N.Z. 7,590,000 4,823,342
U.S. Treasury Bills, 4.06% to 5.35% with
maturities to 3/02/95 U.S. 31,490,000 31,382,001
------------
TOTAL SHORT TERM OBLIGATIONS
(cost $63,150,139) 61,776,435
------------
TOTAL INVESTMENTS: 100.9%
(cost $274,834,995) 290,791,501
UNREALIZED LOSS IN FORWARD EXCHANGE CONTRACTS: (0.1)% (Note 5) (238,648)
OTHER ASSETS, LESS LIABILITIES: (0.8)% (2,380,635)
------------
TOTAL NET ASSETS: 100.0% $288,172,218
============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
30
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.15 $ 10.91 $ 10.99 $ 10.35 $ 10.32
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .71 .60 .58 .61 .60
Net realized and unrealized gain
(loss) (1.28) .65 .03 1.02 .05
------- ------- ------- ------- -------
Total from investment operations (.57) 1.25 .61 1.63 .65
------- ------- ------- ------- -------
Distributions:
Dividends from net investment in-
come (.55) (.005) (.57) (.64) (.62)
Distributions from net realized
gains (.17) (.005) (.12) (.35) --
------- ------- ------- ------- -------
Total distributions (.72) (.01) (.69) (.99) (.62)
------- ------- ------- ------- -------
Change in net asset value (1.29) 1.24 (.08) .64 .03
------- ------- ------- ------- -------
Net asset value, end of year $ 10.86 $ 12.15 $ 10.91 $ 10.99 $ 10.35
======= ======= ======= ======= =======
TOTAL RETURN * (4.88)% 11.46% 5.53% 15.86% 6.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $29,343 $29,347 $15,674 $ 8,142 $ 4,076
Ratio of expenses to average net
assets 0.90% 0.83% 1.00% 1.06% 1.56%
Ratio of expenses, net of reim-
bursement, to average net assets 0.90% 0.83% 1.00% 1.00% 1.00%
Ratio of net investment income to
average net assets 6.80% 6.50% 6.93% 7.63% 7.65%
Portfolio turnover rate 203.91% 170.33% 147.77% 551.45% 107.58%
</TABLE>
* TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE FUND OR CONTRACT LEVEL FOR
COST OF INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY
AND EXPENSE RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE
VARIABLE ANNUITY CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING
INVESTMENT VEHICLE.
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
-------------- -----------
<S> <C> <C> <C>
BONDS--CORPORATE: 19.4%
Aracruz Celulose SA, 10.375%, 1/31/02 U.S. 500,000 $ 458,750
Essar Gujarat Ltd., 8.025%, FRN, 7/15/99 U.S. 284,000 284,000
Ford Motor Credit Corp., 8.21%, 3/16/99 U.S. 1,300,000 1,289,691
General Motors Corp., 7.625%, 2/15/97 U.S. 375,000 369,548
Henderson Capital International Ltd.,
4.25%, 10/27/96 U.S. 1,000,000 966,250
Hidroelectrica Alicura SA, 8.375%,
3/15/99 U.S. 1,000,000 876,250
Rogers Cablesystems Ltd., 9.65%, 1/15/14 Can. 550,000 325,432
Softe SA, 8.75%, 3/24/97 Itl. 1,000,000,000 578,761
Telefonica de Argentina SA, 11.875%,
11/01/04 U.S. 600,000 544,500
-----------
TOTAL BONDS--CORPORATE
(cost $6,126,427) 5,693,182
-----------
BONDS--GOVERNMENT & GOVERNMENT
AGENCIES: 67.1%
European Investment Bank, 6.00%, 8/10/99 U.K. 300,000 418,605
Government National Mortgage Assn.,
7.98%, 11/15/19 U.S. 409,913 383,525
Government of Canada, 10.25%, 12/01/98 Can. 1,240,000 919,028
Government of Italy, 5.00%, FRN, 7/26/99 Ger. 1,775,000 1,141,906
Government of Netherlands,
zero, 1/15/23 Neth. 10,000,000 626,188
Government of New Zealand:
8.00%, 11/15/95 N.Z. 2,800,000 1,769,731
8.00%, 7/15/98 N.Z. 2,150,000 1,332,837
Kingdom of Denmark, 6.125%, 4/15/98 Ger. 2,200,000 1,379,259
National Bank of Hungary,
8.80%, 10/01/02 U.S. 250,000 211,385
NHA, Bank Nova Scotia, 6.375%, 11/01/97 Can. 296,223 197,257
NHA, CIBC,
8.25%, 6/01/97 Can. 494,177 346,126
Queensland Treasury Corp.,
8.875%, 11/08/96 Aus. 1,880,000 1,425,839
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
-------------- -----------
<S> <C> <C> <C>
Republic of Portugal, 5.00%, FRN, 7/15/99 Ger. 750,000 $ 483,028
Treuhandanstalt, 5.625%, 9/24/98 Ger. 2,400,000 1,471,812
U.K. Treasury Bond:
7.00%, 8/06/97 U.K. 210,000 319,511
7.00%, 11/06/01 U.K. 1,000,000 1,427,121
U.S. Treasury Notes:
4.75%, 2/15/97 U.S. 1,000,000 941,875
8.75%, 10/15/97 U.S. 1,700,000 1,739,313
7.875%, 1/15/98 U.S. 1,700,000 1,702,655
Western Australia Treasury,
9.00%, 4/15/99 Aus. 1,970,000 1,461,506
-----------
TOTAL BONDS--GOVERNMENT &
GOVERNMENT AGENCIES
(cost $20,129,597) 19,698,507
-----------
INDEXED SECURITIES: 2.0%
Goldman Sachs Group LP, (principal and
interest is linked to the change in the
Indonesian Rupiah to U.S. Dollar foreign
exchange rate between purchase date
(2,179.25 Rupiah/U.S. Dollar) and
maturity date) U.S. 580,000 571,300
-----------
TOTAL INDEXED SECURITIES
(cost $580,000)
SHORT TERM OBLIGATIONS: 10.1%
Federal National Mortgage Assn., 5.86%,
1/05/95 U.S. 700,000 699,769
Greece Treasury Bills, 18.73% to 19.00%
with
maturities to 2/28/95 Gr. 212,800,000 865,918
U.S. Treasury Bills, 4.25% to
5.30% with maturities to 3/02/95 U.S. 1,396,000 1,386,483
-----------
TOTAL SHORT TERM OBLIGATIONS
(cost $2,917,928) 2,952,170
-----------
TOTAL INVESTMENTS: 98.6%
(cost $29,753,952) 28,915,159
UNREALIZED LOSS IN FORWARD
EXCHANGE CONTRACTS: (0.1)% (Note 5) (16,159)
OTHER ASSETS, LESS LIABILITIES: 1.5% 444,381
-----------
TOTAL NET ASSETS: 100.0% $29,343,381
===========
</TABLE>
**CURRENCY OF COUNTRIES INDICATED.
32
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net investment income .03 .02 .03 .05 .07
Dividends from net investment in-
come (.03) (.02) (.03) (.05) (.07)
------- ------- ------- ------- -------
Change in net asset value -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN * 3.48% 2.41% 3.10% 5.59% 7.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $33,090 $16,992 $21,454 $22,046 $17,982
Ratio of expenses to average net
assets 0.71% 0.75% 0.69% 0.70% 0.84%
Ratio of expenses, net of reim-
bursement, to average net assets 0.71% 0.75% 0.69% 0.70% 0.84%
Ratio of net investment income to
average net assets 3.56% 2.38% 3.02% 5.28% 7.19%
</TABLE>
* TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE FUND OR CONTRACT LEVEL FOR
COST OF INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY
AND EXPENSE RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE
VARIABLE ANNUITY CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING
INVESTMENT VEHICLE.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market Fund
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
---------- -----------
<S> <C> <C>
GOVERNMENT & GOVERNMENT
AGENCIES: 99.8%
Federal Farm Credit Bank:
3.83%, 3/01/95 $ 500,000 $ 499,948
Federal Home Loan Bank:
4.78%, 1/09/95 1,000,000 998,805
5.90%, 1/11/95 850,000 848,468
5.36%, 2/13/95 1,000,000 993,449
5.40%, 2/15/95 1,000,000 993,100
4.84%, 2/28/95 1,000,000 992,068
Federal Home Loan Mortgage Corp.:
5.37%, 1/03/95 1,680,000 1,679,248
5.55%, 1/04/95 310,000 309,809
5.88%, 1/23/95 8,250,000 8,219,008
5.42%, 3/02/95 1,000,000 990,816
Federal National Mortgage Assn.:
5.92%, 1/05/95 200,000 199,836
5.78%, 1/05/95 2,250,000 2,248,194
5.89%, 1/06/95 480,000 479,529
5.80%, 1/06/95 1,125,000 1,123,913
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
---------- -----------
<S> <C> <C>
5.82%, 1/12/95 $ 650,000 $ 648,739
5.15%, 1/25/95 1,000,000 996,424
5.25%, 2/28/95 460,000 456,042
4.89%, 2/28/95 500,000 495,993
5.37%, 3/22/95 1,000,000 987,917
Overseas Private Investment Corp.:
5.77%, 9/15/02 1,750,000 1,750,000
5.77%, 10/01/06 1,800,000 1,800,000
Student Loan Marketing Assn.:
5.92%, 3/09/95 1,000,000 1,000,060
5.54%, 4/13/95 1,000,000 1,000,000
U.S. Treasury Bills:
4.10%, 1/12/95 170,000 169,768
5.14%, 1/26/95 2,160,000 2,151,982
4.66%, 2/02/95 700,000 697,010
4.20%, 2/02/95 310,000 308,806
-----------
TOTAL INVESTMENTS:
(cost $33,038,928) 33,038,928
OTHER ASSETS, LESS LIABILITIES: 0.2% 51,207
-----------
TOTAL NET ASSETS: 100.0% $33,090,135
===========
</TABLE>
34
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value
(identified cost $317,933,281) $379,995,688
Receivables:
Investment securities sold 140,410
Fund shares sold 608,869
Dividends and interest 940,559
------------
Total assets 381,685,526
------------
Liabilities:
Payables:
Investment securities purchased 2,210,188
Fund shares redeemed 131,494
Accrued expenses 495,291
------------
Total liabilities 2,836,973
------------
Net assets, at value $378,848,553
============
Net assets consist of:
Undistributed net investment income $ 6,357,335
Net unrealized appreciation 62,062,407
Accumulated net realized gain 487,602
Net capital paid in on shares of beneficial interest 309,941,209
------------
Net assets, at value $378,848,553
============
Shares outstanding 22,360,813
============
Net asset value
($378,848,553 / 22,360,813) $ 16.94
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment Income: (net of $479,583 foreign taxes
withheld)
Dividends $ 6,986,797
Interest 1,947,485
------------
Total income $ 8,934,282
Expenses:
Management fees (Note 3) 1,686,602
Administrative fees (Note 3) 488,365
Custodian fees 186,000
Reports to shareholders 103,000
Audit fees 30,350
Legal fees 4,000
Registration and filing fees 49,000
Trustees' fees and expenses 5,500
Other 12,532
------------
Total expenses 2,565,349
------------
Net investment income 6,368,933
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,872,591
Foreign currency transactions (210,294)
------------
2,662,297
Net unrealized depreciation on investments (19,221,431)
------------
Net realized and unrealized loss (16,559,134)
------------
Net decrease in net assets resulting from
operations $(10,190,201)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,368,933 $ 4,137,075
Net realized gain from security and foreign cur-
rency transactions 2,662,297 2,913,031
Net unrealized appreciation (depreciation) (19,221,431) 58,803,586
------------ ------------
Net increase (decrease) in net assets resulting
from operations (10,190,201) 65,853,692
Distributions to shareholders:
From net investment income (3,863,504) (3,374,542)
From net realized capital gain -- (89,771)
Fund share transactions (Note 2) 94,510,645 69,783,518
------------ ------------
Net increase in net assets 80,456,940 132,172,897
Net assets:
Beginning of year 298,391,613 166,218,716
------------ ------------
End of year $378,848,553 $298,391,613
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value
(identified cost $149,437,502) $150,817,233
Cash 78,184
Receivables:
Investment securities sold 1,821,089
Fund shares sold 1,057,032
Dividends and interest 320,855
------------
Total assets 154,094,393
------------
Liabilities:
Payables for investment securities purchased 3,788,606
Accrued expenses 215,408
------------
Total liabilities 4,004,014
------------
Net assets, at value $150,090,379
============
Net assets consist of:
Undistributed net investment income $ 1,529,145
Unrealized appreciation on investments 1,379,731
Accumulated net realized gain 425,413
Net capital paid in on shares of beneficial interest 146,756,090
------------
Net assets, at value $150,090,379
============
Shares outstanding 11,354,019
============
Net asset value
($150,090,379 / 11,354,019) $ 13.22
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment Income: (net of $163,085
foreign taxes withheld)
Dividends $1,486,734
Interest 718,262
----------
Total income $ 2,204,996
Expenses:
Management fees (Note 3) 404,532
Administrative fees (Note 3) 112,136
Custodian fees 62,500
Reports to shareholders 16,759
Audit fees 23,400
Legal fees 4,900
Registration fees 38,500
Trustees' fees and expenses 7,200
Other 4,748
----------
Total expenses 674,675
-----------
Net investment income 1,530,321
Realized and unrealized gain (loss)
Net realized gain (loss) on:
Investments 546,452
Foreign currency transactions (110,667)
----------
435,785
Net unrealized depreciation on
investments (6,228,265)
----------
Net realized and unrealized loss (5,792,480)
-----------
Net decrease in net assets resulting from operations $(4,262,159)
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,530,321 $ 309,799
Net realized gain from security and foreign cur-
rency transactions 435,785 920,268
Net unrealized appreciation (depreciation) (6,228,265) 7,699,862
------------ -----------
Net increase (decrease) in net assets resulting
from operations (4,262,159) 8,929,929
Distributions to shareholders:
From net investment income (310,975) --
From net realized gain (894,051) --
Fund share transactions (Note 2) 111,680,756 27,896,774
------------ -----------
Net increase in net assets 106,213,571 36,826,703
Net assets:
Beginning of year 43,876,808 7,050,105
------------ -----------
End of year $150,090,379 $43,876,808
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value
(identified cost $274,834,995) $290,791,501
Cash 62,782
Receivables:
Investment securities sold 1,459,445
Fund shares sold 571,029
Dividends and interest 2,021,850
Unrealized gain in forward exchange contracts
(Note 5) 100,434
------------
Total assets 295,007,041
------------
Liabilities:
Payables:
Investment securities purchased 6,067,406
Fund shares redeemed 30,089
Unrealized loss in forward exchange contracts
(Note 5) 339,082
Accrued expenses 398,246
------------
Total liabilities 6,834,823
------------
Net assets, at value $288,172,218
============
Net assets consist of:
Undistributed net investment income $ 9,238,298
Net unrealized appreciation 15,717,858
Accumulated net realized loss (4,437,750)
Net capital paid in on shares of beneficial interest 267,653,812
------------
Net assets, at value $288,172,218
============
Shares outstanding 18,368,728
============
Net asset value
($288,172,218 / 18,368,728) $ 15.69
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment Income: (net of $210,579
foreign taxes withheld)
Dividends $ 3,268,031
Interest 8,203,045
-----------
Total income $ 11,471,076
Expenses:
Management fees (Note 3) 1,186,540
Administrative fees (Note 3) 329,978
Custodian fees 137,300
Reports to shareholders 48,200
Audit fees 24,900
Legal fees 4,500
Registration and filing fees 59,500
Trustees' fees and expenses 6,800
Amortization of organization costs 2,033
Other 4,918
-----------
Total expenses 1,804,669
------------
Net investment income 9,666,407
Realized and unrealized loss:
Net realized loss on:
Investments (2,375,401)
Foreign currency transactions (2,062,347)
-----------
(4,437,748)
-----------
Net unrealized depreciation on:
Investments (13,384,072)
Foreign currency translation of other assets and
liabilities (343,717)
-----------
(13,727,789)
-----------
Net realized and unrealized loss (18,165,537)
------------
Net decrease in net assets resulting from
operations $ (8,499,130)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 9,666,407 $ 5,065,062
Net realized gain (loss) from security and for-
eign currency transactions (4,437,748) 475,111
Net unrealized appreciation (depreciation) (13,727,789) 23,377,320
------------ ------------
Net increase (decrease) in net assets resulting
from operations (8,499,130) 28,917,493
Distributions to shareholders:
From net investment income (3,982,153) (2,291,831)
From net realized capital gain (841,797) (229,183)
Fund share transactions (Note 2) 118,135,628 77,721,558
------------ ------------
Net increase in net assets 104,812,548 104,118,037
Net assets:
Beginning of year 183,359,670 79,241,633
------------ ------------
End of year $288,172,218 $183,359,670
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value
(identified cost $29,753,952) $28,915,159
Receivables:
Investment securities sold 59,236
Fund shares sold 3,180
Interest 607,189
-----------
Total assets 29,584,764
-----------
Liabilities:
Payables for fund shares redeemed 63,271
Unrealized loss in forward exchange contracts (Note 5) 16,159
Accrued expenses 161,953
-----------
Total liabilities 241,383
-----------
Net assets, at value $29,343,381
===========
Net assets consist of:
Undistributed net investment income $ 2,016,673
Net unrealized depreciation (854,952)
Accumulated net realized loss (2,575,723)
Net capital paid in on shares of beneficial interest 30,757,383
-----------
Net assets, at value $29,343,381
===========
Shares outstanding 2,703,173
===========
Net asset value
($29,343,381 / 2,703,173) $ 10.86
===========
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Interest income: (net of $6,498
foreign taxes withheld) $ 2,305,578
Expenses:
Management fees (Note 3) $ 149,843
Administrative fees (Note 3) 41,507
Custodian fees 22,200
Reports to shareholders 13,500
Audit fees 17,900
Legal fees 6,000
Registration and filing fees 4,500
Trustees' fees and expenses 9,000
Other 4,285
----------
Total expenses 268,735
-----------
Net investment income 2,036,843
Realized and unrealized loss:
Net realized loss on:
Investments (1,980,955)
Foreign currency transactions (576,941)
----------
(2,557,896)
----------
Net unrealized depreciation on:
Investments (1,045,466)
Foreign currency translation of other assets and lia-
bilities (33,733)
----------
(1,079,199)
----------
Net realized and unrealized loss (3,637,095)
-----------
Net decrease in net assets resulting from operations $(1,600,252)
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,036,843 $ 1,450,370
Net realized gain (loss) from security and foreign
currency transactions (2,557,896) 408,873
Net unrealized appreciation (depreciation) (1,079,199) 347,321
----------- -----------
Net increase (decrease) in net assets resulting
from operations (1,600,252) 2,206,564
Distributions to shareholders:
From net investment income (1,463,533) (7,893)
From net realized gain (417,139) (7,894)
Fund share transactions (Note 2) 3,477,319 11,482,352
----------- -----------
Net increase (decrease) in net assets (3,605) 13,673,129
Net assets:
Beginning of year 29,346,986 15,673,857
----------- -----------
End of year $29,343,381 $29,346,986
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investments in securities, at value and cost $33,038,928
Cash 13,256
Receivables:
Fund shares sold 180,659
Interest 88,123
-----------
Total assets 33,320,966
-----------
Liabilities:
Payables:
Investment securities purchased 169,748
Dividends 1,573
Accrued expenses 59,510
-----------
Total liabilities 230,831
-----------
Net assets (equivalent to $1.00 per share based on 33,090,135
shares of beneficial interest outstanding) $33,090,135
===========
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Interest income $1,075,951
Expenses:
Management fees (Note 3) $88,106
Administrative fees (Note 3) 34,881
Custodian fees 10,000
Reports to shareholders 8,300
Audit Fees 15,400
Registration Fees 4,450
Legal Fees 4,700
Trustees' fees and expenses 8,162
Other 5,192
-------
Total expenses 179,191
----------
Net investment income 896,760
Net realized loss on investments (6,688)
----------
Net increase in net assets resulting from operations $ 890,072
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 896,760 $ 376,627
Net realized loss from security transactions (6,688) --
----------- -----------
Net increase in net assets resulting from opera-
tions 890,072 376,627
Distributions to shareholders from net investment
income (890,072) (376,627)
Fund share transactions (Note 2) 16,098,487 (4,462,415)
----------- -----------
Net increase (decrease) in net assets 16,098,487 (4,462,415)
Net assets:
Beginning of year 16,991,648 21,454,063
----------- -----------
End of year $33,090,135 $16,991,648
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Variable Products Series Fund (the Trust) is a Massachusetts business
trust and an open-end, diversified management investment company registered un-
der the Investment Company Act of 1940. The Trust is divided into five series
(the Funds), each with its own investment objective and policies. The five
funds of the Trust are: Templeton Stock Fund, Templeton International Fund,
Templeton Asset Allocation Fund, Templeton Bond Fund and Templeton Market Money
Fund. The following summarizes the Trust's significant accounting policies.
a. Securities Valuations:
Securities held by Templeton Stock, International, Asset Allocation, and Bond
Funds listed or traded on a recognized national or foreign stock exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange
on which the securities are traded. Over-the-counter securities and listed se-
curities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and ap-
proved in good faith by the Board of Trustees. Securities held by Templeton
Money Market Fund are valued using the amortized cost valuation method, which
involves valuing a portfolio security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium.
b. Foreign Exchange Contracts:
Templeton Asset Allocation and Bond Funds may enter into forward exchange con-
tracts and currency option contracts in order to hedge against foreign exchange
risks.
(i) Forward Exchange Contracts: These contracts are valued daily and each
Fund's equity therein, representing unrealized gain or loss on the con-
tracts, is included in the Statement of Assets and Liabilities. Realized
and unrealized gains and losses are included in the Statement of Opera-
tions.
(ii) Currency Option Contracts: Options purchased are recorded as investments;
options written (sold) are accounted for as liabilities. When an option
expires, the premium (original option value) is realized as a gain if the
option was written or realized as a loss if the option was purchased. When
the exercise of an option results in a cash settlement, the difference be-
tween the premium and the settlement proceeds is realized as a gain or
loss. When securities are acquired or delivered upon exercise of an op-
tion, the acquisition cost or sale proceeds are adjusted by the amount of
the premium. When an option is closed, the difference between the premium
and the cost to close the position is realized as a gain or loss.
C. Indexed Securities:
The Bond Fund and Asset Allocation Fund may invest in debt instruments in which
the principal and/or interest is dependent on another factor such as a yield
curve, currency exchange rates or commodity prices. The Fund's objective in
holding these notes, commonly called structured notes, is to tailor the Fund's
investment based on specific risk and returns it wishes to assume while avoid-
ing unwanted risk or change the Fund's exposure to a particular foreign ex-
change rate or the spread between two foreign exchange rates.
D. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it will cus-
tomarily enter into a foreign exchange contract to minimize currency risk from
the trade date to the settlement date of such transaction.
40
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rate.
E. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
F. Distribution to Shareholders:
Templeton Money Market Fund's net investment income (consisting principally of
interest accrued or discount earned less amortization of premium and estimated
expenses) is declared as a dividend daily, including weekends and holidays, im-
mediately prior to the determination of net asset value, and is paid monthly.
Templeton Stock, International, Asset Allocation, and Bond Funds normally pay
annual dividends representing substantially all of their net investment income
and distribute annually any net realized capital gains. Distributions to share-
holders are recorded on the ex-dividend date.
G. Security Transactions, Investment Income, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividends on foreign securities is
recorded as soon as information is available to the Fund. Interest income and
estimated expenses are accrued daily. Distributions to shareholders, which are
determined in accordance with income tax regulations, are recorded on the ex-
dividend date.
41
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At December 31, 1994, there were an unlimited number of shares of beneficial
interest authorized ($0.01 par value). Transactions in the Fund's shares were
as follows:
<TABLE>
<CAPTION>
TEMPLETON STOCK FUND
-------------------------------------------------
1994 1993
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 7,300,635 $128,222,948 5,942,664 $90,522,891
Shares issued on
reinvestment of
distributions 221,703 3,862,069 252,869 3,464,314
Shares redeemed (2,181,965) (37,574,372) (1,640,551) (24,203,687)
---------- ------------ ---------- -----------
Net increase 5,340,373 $ 94,510,645 4,554,982 $69,783,518
========== ============ ========== ===========
<CAPTION>
TEMPLETON INTERNATIONAL FUND
-------------------------------------------------
1994 1993
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 9,440,218 $128,557,308 2,619,612 $29,974,405
Shares issued on
reinvestment of
distributions 88,932 1,205,026 -- --
Shares redeemed (1,346,946) (18,081,578) (198,943) (2,077,631)
---------- ------------ ---------- -----------
Net increase 8,182,204 $111,680,756 2,420,669 $27,896,774
========== ============ ========== ===========
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND
-------------------------------------------------
1994 1993
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 7,349,436 $119,000,722 5,264,300 $78,823,285
Shares issued on
reinvestment of
distributions 298,716 4,821,275 183,614 2,521,013
Shares redeemed (357,371) (5,686,369) (245,205) (3,622,740)
---------- ------------ ---------- -----------
Net increase 7,290,781 $118,135,628 5,202,709 $77,721,558
========== ============ ========== ===========
<CAPTION>
TEMPLETON BOND FUND
-------------------------------------------------
1994 1993
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 775,899 $ 8,775,844 1,292,320 $15,181,471
Shares issued on
reinvestment of
distributions 167,093 1,874,785 1,379 15,787
Shares redeemed (654,733) (7,173,310) (314,959) (3,714,906)
---------- ------------ ---------- -----------
Net increase 288,259 $ 3,477,319 978,740 $11,482,352
========== ============ ========== ===========
</TABLE>
42
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON MONEY MARKET FUND
--------------------------------------------------
1994 1993
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 62,016,452 $62,016,452 28,286,323 $28,286,323
Shares issued on
reinvestment of distributions 888,510 888,510 376,627 376,627
Shares redeemed (46,806,475) (46,806,475) (33,125,365) (33,125,365)
----------- ----------- ----------- -----------
Net increase (decrease) 16,098,487 $16,098,487 (4,462,415) $(4,462,415)
=========== =========== =========== ===========
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI) and Templeton Funds Annuity Company (TFAC), the
Funds' investment manager and administrative manager, respectively. TICI serves
as investment manager of the Templeton Stock, International, and Asset Alloca-
tion Funds; and Templeton Global Bond Managers, a division of TICI, serves as
investment manager of the Templeton Bond and Money Market Funds. Templeton
Stock, International, Asset Allocation and Bond Funds each pay a monthly in-
vestment management fee, equal on an annual basis, to 0.50% of its average
daily net assets up to $200 million, 0.45% of such net assets from $200 million
up to $1.3 billion, and 0.40% of such net assets in excess of $1.3 billion.
Templeton Money Market Fund pays a monthly investment management fee equal on
an annual basis to 0.35% of its average daily net assets up to $200 million,
0.30% of such net assets from $200 million up to $1.3 billion, and 0.25% of
such net assets in excess of $1.3 billion.
Each Fund pays TFAC its allocable share of a monthly fee equivalent on an an-
nual basis to 0.15% of the combined average daily net assets of the Funds, re-
duced to 0.135% of such assets in excess of $200 million, 0.10% of such assets
in excess of $700 million, 0.075% of such assets in excess of $1.2 billion.
TFAC has voluntarily agreed to bear all expenses of the Funds in excess of 1%
of the average daily net assets until May 1, 1995.
4. PURCHASES AND SALES OF SECURITIES
The cost of securities for federal income tax purposes is the same as that
shown in the investment portfolios. Realized gains and losses are reported on
an identified cost basis.
The aggregate gross unrealized appreciation and depreciation of portfolio secu-
rities, based on cost for federal income tax purposes, and purchases and sales
of securities (excluding short-term securities) for the year ended December 31,
1994, were as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
STOCK INTERNATIONAL ASSET BOND
FUND FUND ALLOCATION FUND FUND
------------ ------------- --------------- -----------
<S> <C> <C> <C> <C>
Unrealized appreciation $ 72,256,982 $ 8,211,140 $ 27,531,012 $ 364,570
Unrealized depreciation (10,194,575) (6,831,409) (11,574,506) (1,203,363)
------------ ----------- ------------ -----------
Net unrealized
appreciation
(depreciation) $ 62,062,407 $ 1,379,731 $ 15,956,506 $ (838,793)
============ =========== ============ ===========
Purchases $ 99,297,165 $77,644,745 $178,863,247 $55,440,135
============ =========== ============ ===========
Sales $ 15,489,307 $ 3,699,733 $110,086,376 $55,716,096
============ =========== ============ ===========
</TABLE>
At December 31, 1994, Templeton Asset Allocation and Bond Funds had tax basis
capital losses of $2,600,000 and $1,900,000, respectively, which may be carried
over to offset future capital gains. Such losses expire December 31, 2002.
43
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
During the year ended December 31, 1994, Templeton Asset Allocation and Bond
Funds have been parties to financial instruments with off-balance sheet risks,
primarily forward exchange contracts, futures contracts, and written currency
options, in order to minimize the risk to the Funds with respect to their port-
folio transactions from adverse changes in the relationship between the U.S.
dollar and foreign currencies and interest rates. These instruments involve
market risks in excess of the amount recognized on the Statements of Assets and
Liabilities; some of these risks have been minimized by offsetting contracts.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts, future movement in currency value and interest rates and con-
tract positions that are not exact offsets. The contract amounts indicate the
extent of the Funds' involvement in such contracts.
Forwards: A forward exchange contract is an agreement between two parties to
exchange different currencies at a specified rate at an agreed upon future
date.
At December 31, 1994, the Asset Allocation and Bond Funds had outstanding for-
ward exchange contracts for the purchase and sale of currencies as set out be-
low. These contracts are reported in the financial statements at each Fund's
net equity, as measured by the difference between the forward exchange rates at
the reporting date and the forward exchange rates at the dates of entry into
the contract:
<TABLE>
<S> <C>
TEMPLETON ASSET ALLOCATION FUND
Contracts to sell:
8,500,000 Deutschemarks for 5,506,786 U.S. dollars, Janu-
ary 13, 1995 $ 19,765
4,700,000 Australian dollars for 3,642,829 U.S. dollars,
January 17, 1995 2,398
---------
22,163
---------
Contracts to sell:
5,000,000 Deutschemarks for 3,163,816 U.S. dollars, Janu-
ary 20, 1995 $ (64,354)
10,500,000 Deutschemarks for 6,687,302 U.S. dollars, Jan-
uary 25, 1995 (92,622)
Unrealized loss from offsetting forward exchange con-
tracts (182,106)
---------
(339,082)
---------
Contracts to buy:
2,000,000 Deutschemarks for 1,272,564 U.S. dollars, Janu-
ary 25, 1995 18,850
5,000,000 Deutschemarks for 3,177,629 U.S. dollars, Janu-
ary 25, 1995 50,906
Unrealized gain from offsetting forward exchange con-
tracts 8,515
---------
78,271
---------
Net unrealized loss in forward exchange contracts $(238,648)
=========
TEMPLETON BOND FUND
Contracts to sell:
1,100,000 Netherland Guilders for 625,636 U.S. dollars,
January 20, 1995 $ (8,342)
925,000,000 Italian Lira for 561,116 U.S. dollars, Janu-
ary 31, 1995 (7,817)
---------
Net unrealized loss in forward exchange contracts $ (16,159)
=========
</TABLE>
44
<PAGE>
Templeton Variable Products Series Fund
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
Templeton Variable Products Series Fund
We have audited the accompanying statements of assets and liabilities, includ-
ing the investment portfolios, of Templeton Stock Fund, Templeton International
Fund, Templeton Asset Allocation Fund, Templeton Bond Fund and Templeton Money
Market Fund series of Templeton Variable Products Series Fund (the Trust) as of
December 31, 1994, and the related statements of operations the statements of
changes in net assets and the financial highlights for the periods indicated in
the accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights 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 as of De-
cember 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Stock Fund, Templeton International Fund, Templeton Asset Allocation
Fund, Templeton Bond Fund and Templeton Money Market Fund series of Templeton
Variable Products Series Fund as of December 31, 1994, the results of their op-
erations, the changes in their net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
February 3, 1995
45
<PAGE>
NOTES
-----
<PAGE>
THE FRANKLIN TEMPLETON GROUP
- --------------------------------------------------------------------------------
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Franklin Templeton Japan Fund
Templeton American Trust
Templeton Americas
Government Securities Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Rising
Dividends Fund
Templeton Growth Fund
Templeton Income Fund
Templeton Money Fund
Templeton Real Estate
Securities Fund
Templeton Smaller
Companies Growth Fund
Templeton World Fund
FRANKLIN GROUP OF FUNDS(R)
FRANKLIN GLOBAL/
INTERNATIONAL FUNDS
Franklin Global Health Care
Fund
Franklin Global Government
Income Fund
Franklin Global Utilities Fund
Franklin International Equity
Fund
Franklin Pacific Growth Fund
FUNDS SEEKING CAPITAL GROWTH
Franklin California Growth
Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin Small Cap Growth Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Income Fund
Franklin Equity Income Fund
Franklin Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Premier Return Fund
Franklin U.S. Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin Federal Tax-Free
Income Fund
Franklin High Yield Tax-Free
Income Fund
Franklin California High Yield
Municipal Fund
Franklin Alabama Tax-Free
Income Fund
Franklin Arizona Tax-Free
Income Fund
Franklin California Tax-Free
Income Fund
Franklin Colorado Tax-Free
Income Fund
Franklin Connecticut Tax-Free
Income Fund
Franklin Florida Tax-Free
Income Fund
Franklin Georgia Tax-Free
Income Fund
Franklin Hawaii Municipal
Bond Fund
Franklin Indiana Tax-Free
Income Fund
Franklin Kentucky Tax-Free
Income Fund
Franklin Louisiana Tax-Free
Income Fund
Franklin Maryland Tax-Free
Income Fund
Franklin Missouri Tax-Free
Income Fund
Franklin New Jersey Tax-Free
Income Fund
Franklin New York Tax-Free
Income Fund
Franklin North Carolina Tax-Free
Income Fund
Franklin Oregon Tax-Free
Income Fund
Franklin Pennsylvania Tax-Free
Income Fund
Franklin Puerto Rico Tax-Free
Income Fund
Franklin Texas Tax-Free
Income Fund
Franklin Virginia Tax-Free
Income Fund
Franklin Washington Municipal
Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin Insured Tax-Free
Income Fund
Franklin Arizona Insured
Tax-Free Income Fund
Franklin California Insured
Tax-Free Income Fund
Franklin Florida Insured
Tax-Free Income Fund
Franklin Massachusetts Insured
Tax-Free Income Fund
Franklin Michigan Insured
Tax-Free Income Fund
Franklin Minnesota Insured
Tax-Free Income Fund
Franklin New York Insured
Tax-Free Income Fund
Franklin Ohio Insured
Tax-Free Income Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable
U.S. Government
Securities Fund
Franklin Short-Intermediate
U.S. Government Securities
Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND INCOME
Franklin Money Fund
Franklin Federal Money Fund
Franklin Tax-Exempt Money
Fund
Franklin California Tax-Exempt
Money Fund
Franklin New York Tax-Exempt
Money Fund
IFT Franklin U.S. Treasury
Money Market Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged U.S.
Government Securities Fund
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
<PAGE>
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
700 Central Avenue
St. Petersburg, Florida 33701
This report must be preceded or accompanied
by the prospectus of the annuity contract
and the Templeton Variable Products
Series Fund prospectuses which set
forth the costs, risks and advantages of an
investment in the funds. These reports
and prospectuses do not constitute an
offering in any jurisdiction in which such
offering may not lawfully be made.
TLTRAV A 12/94
[LOGO OF RECYCLED PAPER APPEARS HERE]
TEMPLETON
VARIABLE
PRODUCTS
SERIES FUND
Annual Report
December 31, 1994
.Stock Fund
.International Fund
.Asset Allocation Fund
.Bond Fund
.Money Market Fund
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
