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TEMPLETON
VARIABLE
PRODUCTS
SERIES FUND
ANNUAL REPORT
DECEMBER 31, 1995
.Stock Fund
.International Fund
.Asset Allocation Fund
.Bond Fund
.Money Market Fund
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
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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.
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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...........................................................14
TEMPLETON MONEY MARKET FUND...................................................17
1
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LETTER FROM THE PRESIDENT
February 15, 1996
Dear Contract Owner:
We are pleased to bring you the annual report of the Templeton Variable Products
Series Fund for the period ended December 31, 1995.
The past fiscal year was characterized by unexpected advances in developed
markets and volatility in emerging markets. Falling interest rates, relatively
low inflation, strong corporate earnings, and an increased flow of capital into
mutual funds benefited many global stock and bond markets. These conditions
proved particularly bullish for U.S. stocks as the Dow Jones Industrial
Average/(R)/ reached record levels, with a gain for the year of more than 36%.*
In Europe, the equity markets of Switzerland, Sweden, and Spain posted
impressive results, while Germany's and Finland's were lackluster partly because
their local currencies appreciated versus the U.S. dollar during the year. These
stronger currencies eroded the competitiveness of Germany's industrial base and
hindered the profitability of Finland's rich natural-resource exports. Although
earnings and stock prices were negatively affected in local terms within these
two countries, the depreciation of the dollar led to moderately positive returns
(in U.S. dollar terms) for many German and Finnish stocks.
Emerging markets suffered considerably from a sharp selloff over the past 12
months as the negative effects of Mexico's December 1994 currency devaluation,
and subsequent decline of its equity market, spread to other developing markets
(including those in Asia). Rising interest rates and uncertainty surrounding
Hong Kong's 1997 reversion to China adversely affected Hong Kong's equity market
early in the year before it rebounded in the second half of the period.
With regard to fixed-income securities, many global markets strengthened after
providing dismal returns during 1994. This rebound was partly the result of
excessive investor pessimism being priced into financial markets in 1994. At the
beginning of 1995, fears of overheating global economies and increasing
inflation were common among investors, which caused fixed-income securities
markets to suffer. In March and April, however, investors began to realize that
interest rates around the world were too high for the pace of economic growth,
and by December, nearly all of the world's major central banks had eased their
monetary policies by lowering interest rates.
The depreciating U.S. dollar was one factor that separated 1995's best
performing bond markets from those that lagged. In general, non-U.S. markets
offered the highest
*Total return, calculated by Wilshire Associates, Inc., includes reinvested
dividends. One cannot invest directly in an index.
2
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returns, particularly European markets such as Sweden, Denmark, Spain, Germany
and France. One exception was the United Kingdom, whose currency remained
essentially unchanged versus the U.S. dollar. Japan's bond market underperformed
others as the yen depreciated significantly in July and August, after
appreciating in the beginning of the year. The relative performance of bond
markets closely tied to the U.S. market, such as Australia's and New Zealand's,
also lagged because their currencies failed to appreciate against the dollar by
as much as European currencies.
Looking forward, we believe global interest rates should continue to trend
downward, which would be beneficial to financial markets. The U.S. Federal
Reserve Board may ease monetary policy further if inflation remains subdued, and
European economic conditions should show a mix of modest growth and low
inflation, with the added benefit of fiscal reform that is occurring in a broad
range of markets. As always, we will continue to build and improve our ability
to serve investors while maintaining the traditional values and principles that
have served our clients well for so long.
We appreciate your participation in the Templeton Variable Products Series Fund
and welcome any comments or suggestions you may have.
Sincerely,
/s/ Charles E. Johnson
Charles E. Johnson
President
Templeton Variable Products Series Fund
3
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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.
During the past fiscal year, many global stock markets rebounded from their 1994
malaise, with U.S. stocks leading the way. The U.S. market, as measured by the
Dow Jones Industrial Average/(R)/, surged to all-time highs due to a combination
of falling interest rates, subdued inflation, better-than-expected corporate
earnings, and an increased flow of capital into mutual funds.
The financial services, banking, insurance, and pharmaceutical sectors performed
particularly well, which prompted us to sell portions of holdings such as
Citicorp, Allstate Corp., and Pfizer Inc. at significant gains. We also
recognized gains by selling shares of Aluminum Co. of America (ALCOA), MCI
Communications Corp., and Nike Inc. Over the course of the year, our overall
U.S. exposure decreased, from 31.5% of total net assets on December 31, 1994 to
29.8% on December 31, 1995.
Although we were net sellers of U.S. stocks during the year, we did purchase
additional shares of Federated Department Stores Inc., one of the nation's
largest department store operators, and initiated a position in Summit
Properties Inc., a real estate investment trust (REIT) with operations in
shopping centers, industrial buildings and apartments in the U.S. and Canada.
Economic growth was slower in Europe than in the U.S., and European stock market
performances were mixed during the fiscal year. Slower growth took its toll on
consumer-related industries and on cyclical commodity-producing industries,
where supply exceeded demand. Stronger
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TEMPLETON STOCK FUND
Geographic Distribution on 12/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
Europe 39.0%
North America 29.7%
Asia 5.8%
Latin America 5.6%
Australia/New Zealand 5.3%
Short-Term Obligations &
Other Net Assets 14.6%
European currencies versus the U.S. dollar also lowered profits from
international trade and made some companies more vulnerable to foreign
competition.
However, some sectors thrived. For instance, many banking institutions were able
to improve their balance sheets, which increased earnings and benefited their
stocks' prices. Pharmaceutical stocks also rebounded due to strong earnings and
mergers within the industry. Believing that this sector was undervalued after a
difficult 1994, we purchased shares of Pharmacia AB, a Swedish pharmaceutical
manufacturer that recently merged with Upjohn, and Ciba-Geigy AG, a Swiss
chemical and pharmaceutical company. The Fund's overall European exposure
increased over the course of the year, from 34.7% to 39.0% of total net assets.
Equity markets throughout Latin America were negatively affected in 1995 due to
uncertainty surrounding Mexico's December 1994 currency devaluation. As a result
of this crisis, many governments in the region were confronted with
4
<PAGE>
mounting pressures to support their local currencies.
Because we believed that 1994 valuations were rather high, we were in the
process of trimming our Latin American holdings as this situation unfolded,
which mitigated the effects of these market declines on the Fund's holdings in
this region. Although we had not foreseen volatility in these markets, we did
attempt to take advantage of it by purchasing shares of Madeco Manufacturera de
Cobre SA, a Chilean manufacturer of telecommunication cables and wires, and
Telefonica de Argentina SA, an Argentine telecommunications company. At the end
of the year, we were cautious regarding our exposure to Latin America, but were
beginning to find additional bargains in countries such as Brazil, Argentina and
Chile.
This discussion reflects the strategies we employed for the Fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings may change
in light of new circumstances as they arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
Fund.
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TEMPLETON STOCK FUND
Top 10 Holdings on 12/31/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
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<S> <C>
Pharmacia & Upjohn;
Health & Personal Care, U.S. 2.3%
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Federal National Mortgage Assn.;
Financial Services, U.S. 2.2%
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News Corp. Ltd.;
Broadcasting & Publishing, Australia 2.0%
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Astra AB;
Health & Personal Care, Sweden 1.9%
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Aegon NV;
Insurance, Netherlands 1.8%
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BBC Brown Boveri Ltd., br.;
Electrical & Electronics, Switzerland 1.7%
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BankAmerica Corp.;
Banking, U.S. 1.7%
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Telebras-Telecomunicacoes Brasileiras SA,
pfd.; Telecommunications, Brazil 1.7%
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SmithKline Beecham PLC;
Health & Personal Care, U.K. 1.7%
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Akzo Nobel NV;
Chemicals, Netherlands 1.5%
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</TABLE>
For a complete list of portfolio holdings, please see page 19 of this report.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors; developing markets
involve similar but heightened risks. These risks are discussed in the
prospectus.
5
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PERFORMANCE SUMMARY
The Templeton Stock Fund delivered a total return of 25.24% for the one-year
period ended December 31, 1995. Total return represents the change in the Fund's
share price, as measured by 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 below 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 outpaced both indices
over the past four 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.
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TEMPLETON STOCK FUND
Periods ended 12/31/95
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<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 25.24% 17.48% 12.31%
Cumulative
Total Return/2/ 25.24% 123.80% 134.80%
</TABLE>
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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. 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.
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TEMPLETON STOCK FUND
Total Return Index Comparison-$10,000 Investment (8/24/88-12/31/95)
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON STOCK FUND/1/,
MSCI WORLD INDEX/2/ AND CONSUMER PRICE INDEX/3/]
8/88 12/95
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Templeton Stock Fund $10,000 $23,480
MSCI World Index 10,000 19,920
Consumer Price Index 10,000 12,918
1. 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 predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
3. Source: U.S. Bureau of Labor Statistics.
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.
At the end of the fiscal year, the Fund held 90.4% of its total net assets in
equities, 0.1% in bonds, and 9.5% in short-term obligations and other assets.
European holdings comprised our largest geographic exposure, representing 56.9%
of the Fund's total net assets, up from 44.0% on December 31, 1994. During the
period, Europe's equity markets outperformed other international markets, and
our relatively high weighting in this region helped offset the effects of
declining markets elsewhere in the world. Markets in Sweden, Spain, and the
Netherlands performed particularly well. Sectors with the most significant gains
were financial stocks, whose earnings and prices reflected lower costs due to
improved balance sheets, and pharmaceuticals, which had been unpopular in 1994
as investors flocked to cyclical holdings, but rebounded nicely in 1995.
During the year, we purchased shares of several European banking institutions,
including Unidanmark AS (Denmark), Den Norske Bank (Norway), Sparbanken Sverige
AB and Stadshypotek AB (Sweden), and Banco Popular Espanol and Bankinter SA
(Spain). Believing that the pharmaceutical sector was undervalued after a
difficult 1994, we increased our holdings of Ciba-Geigy AG in Switzerland and
Pharmacia AB in Sweden, a company that recently merged with Upjohn.
Asian markets turned in mixed performances during the reporting period.
Uncertainty surrounding Hong Kong's 1997 reversion to China, and threats of
trade wars between China and the U.S., had a negative effect on the Hong Kong
equity market initially, but then it rebounded to end the year with a gain of
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL FUND
Geographic Distribution on 12/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
Europe 56.9%
Asia 12.6%
Australia/New Zealand 7.5%
Latin America 7.4%
North America 6.1%
Short-Term Obligations &
Other Net Assets 9.5%
more than 20%. Japan's market experienced a small loss, while the Australian and
New Zealand markets posted gains in excess of 10%. We took advantage of this
volatility in the Asian markets and increased our holdings of Hutchinson Whampoa
Ltd., Jardine Strategic Holdings Ltd., and Swire Pacific Ltd., three Hong Kong-
based multi-industry companies. We also purchased shares of Australia & New
Zealand Banking Group Ltd. and Westpac Banking Corp., two Australian banks whose
stocks appreciated after being depressed earlier in the year.
Our exposure to Latin America hindered the Fund's performance at the beginning
of the year, as the effects of Mexico's currency devaluation spilled over into
other emerging markets. However, volatility in Latin American equity markets
gave us the opportunity to purchase shares of some telecommunications companies
that we feel should benefit from growth and restructuring in this region.
Examples include Telefonica de Argentina SA, Telebras-Telecomunicacoes
Brasileiras SA, and Compania de Telecomunicaciones de Chile SA. We will continue
to monitor this region and look for stocks that
7
<PAGE>
appear to be well-positioned to take advantage of future economic growth.
This discussion reflects the strategies we employed for the Fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings may change
in light of new circumstances as they arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
Fund.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors; developing markets
involve similar but heightened risks. These risks are discussed in the
prospectus.
- --------------------------------------------------------------------------------
TEMPLETON
INTERNATIONAL FUND
Top 10 Holdings on 12/31/95
Based on Total Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Pharmacia & Upjohn;
Health & Personal Care, U.S. 2.4%
- --------------------------------------------------------------------------------
Volvo AB, B;
Automobiles, Sweden 2.1%
- --------------------------------------------------------------------------------
Alcatel Alsthom SA;
Electrical & Electronics, France 1.8%
- --------------------------------------------------------------------------------
Telecom Italia Spa, di Risp;
Telecommunications, Italy 1.7%
- --------------------------------------------------------------------------------
Iberdrola SA;
Utilities--Electrical & Gas, Spain 1.6%
- --------------------------------------------------------------------------------
Evn Energie-Versorgung
Niederoesterreich AG;
Utilities -- Electrical & Gas, Austria 1.6%
- --------------------------------------------------------------------------------
HSBC Holdings PLC;
Banking, Hong Kong 1.5%
- --------------------------------------------------------------------------------
Telebras-Telecomunicacoes
Brasileiras SA, pfd.;
Telecommunications, Brazil 1.5%
- --------------------------------------------------------------------------------
Cheung Kong Holdings Ltd.;
Multi-Industry, Hong Kong 1.5%
- --------------------------------------------------------------------------------
Compania Sevillana de Electricidad;
Utilities -- Electrical & Gas, Spain 1.5%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 22 of this report.
8
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PERFORMANCE SUMMARY
The Templeton International Fund delivered a total return of 15.78% for the one-
year period ended December 31, 1995. Total return represents the change in the
Fund's share price, as measured by 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 below 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). It also compares the Fund's performance to that of the unmanaged
Morgan Stanley Capital International 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
Periods ended 12/31/95
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
Inception
1-Year 3-Year (5/1/92)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 15.78% 18.59% 13.00%
Cumulative
Total Return/2/ 15.78% 66.72% 56.55%
- --------------------------------------------------------------------------------
</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 reductions by
the Fund's manager 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.
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL FUND
Total Return Index Comparison-$10,000 Investment (5/1/92-12/31/95)
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON INTERNATIONAL
FUND/1/, MSCI EAFE INDEX/2/ AND CONSUMER PRICE INDEX/3/]
5/92 12/95
------- -------
Templeton International Fund $10,000 $15,655
MSCI EAFE Index 10,000 15,900
Consumer Price Index 10,000 11,009
1. 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 predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
3. Source: U.S. Bureau of Labor Statistics.
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.
Many global stock and bond markets rebounded during the past fiscal year after
experiencing a difficult 1994. In the U.S., falling interest rates and strong
corporate earnings provided a solid foundation for record stock-market gains.
The Dow Jones Industrial Average/(R)/ registered a gain of more than 36% for the
year and, despite a staggering selloff of technology stocks in the fall, the
NASDAQ composite market was able to finish the year with an increase of nearly
40%.
Since the airline sector performed extremely well during this time, we sold our
holdings of Atlantic Southeast Airlines Inc. and AMR Corp. when valuations in
this sector appeared somewhat high. Interest-rate sensitive stocks in the U.S.
also performed strongly, and several of our bank holdings, such as Bank-America
Corp., CitiCorp, and Chemical Banking Corp., contributed significantly to the
Fund's performance. In response to their expanding presence in the stable asset
management business and revitalized credit card division, we increased our
holdings of American Express Co. We expect further consolidation within the
banking sector and will continue our search for undervalued financial-related
stocks.
In Europe, moderate growth, low inflation, and lower interest rates
characterized the United Kingdom and Germany.
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 12/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
Stocks 57.8%
Bonds 31.7%
Short-Term Obligations &
Other Net Assets 10.5%
The appreciation of the Deutchemark and other European currencies versus the
U.S. dollar lessened the competitiveness of German industry and reduced the
profitability of natural-resource exporters such as Finland. Although corporate
earnings and stock prices were negatively affected in local terms within these
two countries, the depreciation of the dollar led to moderate gains in dollar
terms for many stocks in these markets.
Continued restructuring of financial systems in Nordic countries led to improved
balance sheets and strong earnings for many banking institutions, especially
those in Sweden. This trend benefited the fund's holding of Sparbanken Sverige
AB, which is the central banking institution for the Swedish savings bank
system. Pharmaceutical stocks benefited in 1995 due to mergers, restructurings,
and renewed investor interest. Believing that this sector was undervalued
after a
10
<PAGE>
difficult 1994, we purchased additional shares of Pharmacia AB, a Swedish
pharmaceutical company that recently merged with Upjohn to the benefit of
stockholders.
Our exposure to Latin America negatively affected the Fund's performance at the
beginning of the fiscal year, as over-reaction to Mexico's fiscal woes spilled
over into other emerging markets in the region. Although the depreciation of the
peso depressed Mexico's equity market throughout the year, stability and
confidence returned to other Latin American markets later in the period. As a
result, our holdings in Chile and Brazil, particularly telecommunications
companies, offset much of the negative effects of Mexico's currency devaluation
by the end of the period.
Asian stock markets were mixed during the past fiscal year. In U.S. dollar
terms, the best performing market was Hong Kong, which declined early in the
year, before rebounding to end the period with a gain of more than 20%. We took
advantage of this early weakness and increased
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 12/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
United States 38.8%
Europe 30.8%
Asia 8.5%
Australia/New Zealand 5.2%
Latin America 3.9%
Canada 2.3%
short-Term Obligations &
Other Net Assets 10.5%
our position in Huchinson Whampoa Ltd., one of Hong Kong's largest trading and
distribution companies that we believe has the opportunity to benefit from the
rapid growth of trade throughout Asia.
The Thailand stock market slumped early in 1995, then rebounded midyear before
declining again at the end of the period. Volatility in this market at the
beginning of the year prompted us to add to our holdings of Bangkok Bank Public
Co. Ltd. We believe that investing in Thailand's banks is one of the best ways
to participate in this country's dynamic growth prospects.
The Australian and New Zealand equity markets performed well, registering
returns in excess of 10% for the year. Rising stock prices of Australian banks
such as Westpac Banking Corp. and National Australia Bank Ltd. provided
significant gains for the Fund. During the year, we initiated a position in
Burns Philp & Co. Ltd., a leading food processing company in Australia that we
believe may benefit from a growing demand for food in Asian countries.
Although the Japanese market rallied toward the end of the year, it was down
nearly 2% for the entire period. Because of our low Japanese exposure (2.2% of
total net assets), this had a limited effect on the Fund's overall performance.
With regard to fixed-income securities, the depreciating U.S. dollar was a key
element that separated 1995's best and worst performing markets. Bond markets
outside the U.S. offered the highest returns, especially European markets such
as Sweden, Denmark, Spain, Germany and France. One exception was the United
Kingdom, whose currency versus the dollar remained essentially unchanged for the
year. The performance
11
<PAGE>
of bond markets closely tied to the U.S. market, like Australia's and New
Zealand's, were relatively weak compared with other markets because their
currencies did not appreciate against the dollar as strongly as European
currencies. Japan's bond market performed poorly, as the yen depreciated
significantly in July and August after appreciating in the beginning of the
year.
We responded to these market conditions in several ways. First, we lengthened
the average maturity of our holdings because bonds with longer maturities
generally tend to appreciate more than shorter-term bonds when interest rates
decline. Additionally, we were selective concerning the markets in which we
invested. At the beginning of the fiscal year, we favored the more stable "hard
currency" countries such as Germany, Japan, and the United States, which
benefited from lower interest rates. As weaker economic conditions spread
throughout developed markets in the second half of the period, we diversified to
securities in countries that were offering higher yields, such as Sweden, Italy,
and Spain. These markets benefited from falling interest rates in Germany and
the U.S., and their local currencies also had greater potential for appreciation
versus the U.S. dollar. We continued to limit our exposure to Japan, where
interest rates were very low and, in our opinion, unlikely to decline further.
This discussion reflects the strategies we employed for the Fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings may change
in light of new circumstances as they arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
Fund.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors; developing markets
involve similar but heightened risks. These risks are discussed in the
prospectus.
12
<PAGE>
PERFORMANCE SUMMARY
The Templeton Asset Allocation Fund delivered a total return of 22.48% for the
one-year period ended December 31, 1995. Total return represents the change in
the Fund's share price, as measured by 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 below 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). It also compares the Fund's performance to that of the unmanaged
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 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
Periods ended 12/31/95
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 22.48% 15.66% 11.44%
Cumulative
Total Return/2/ 22.48% 106.97% 121.73%
- --------------------------------------------------------------------------------
</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 reductions by
the Fund's manager 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.
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN
TEMPLETON ASSET ALLOCATION FUND/1/, MSCI WORLD INDEX/2/,
SALOMON BROTHERS WORLD BOND INDEX/2/ AND CONSUMER PRICE INDEX/3/]
8/88 12/95
------- -------
Templeton Asset Allocation Fund $10,000 $22,173
MSCI World Index 10,000 19,920
Salomon Brothers World Bond Index 10,000 22,981
Consumer Price Index 10,000 12,918
1. 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 predictive of future results.
2. Indices are unmanaged and includes reinvested dividends or interest.
3. Source U.S. Bureau of Labor Statistics.
13
<PAGE>
TEMPLETON BOND FUND
The Templeton Bond Fund seeks high current income through a flexible policy of
investing primarily in debt securities of companies, governments and government
agencies of various nations throughout the world.
Investors enjoyed excellent performance from global bond markets during the
fiscal year ended December 31, 1995. Bond prices rose steadily during the year
due to slow economic growth, low inflation, and falling interest rates
worldwide. And most foreign currencies appreciated versus the U.S. dollar,
further increasing the value of foreign fixed-income securities. This was a
welcome relief after a very difficult 1994 when interest rates rose dramatically
and bond prices fell in many global markets.
The depreciating U.S. dollar was one key element that separated 1995's best and
worst performing bond markets. Those outside the U.S. offered the highest
returns, especially European markets such as Sweden, Denmark, Spain, Germany and
France. One exception was the United Kingdom, whose currency versus the dollar
remained essentially unchanged for the year. Japan's bond market performed
poorly, as the yen depreciated significantly in July and August after
appreciating in the beginning of 1995. The performance of bond markets closely
tied to the U.S. market, like Australia's and New Zealand's, also lagged other
markets because their currencies did not appreciate against the dollar as
strongly as European currencies.
We responded to these market conditions in several ways. First, we lengthened
the
- --------------------------------------------------------------------------------
TEMPLETON BOND FUND
Geographic Distribution on 12/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
Europe 43.7%
United States 23.6%
Australia/New Zealand 12.0%
Asia 11.6%
Canads 5.6%
Latin America 3.5%
average maturity of our holdings because bonds with longer maturities generally
tend to appreciate more than shorter-term bonds when interest rates decline.
Additionally, we were selective concerning the markets in which we invested. At
the beginning of the fiscal year, we favored the more stable "hard currency"
countries such as Germany, Japan, and the United States, which benefited from
lower interest rates. As weaker economic conditions spread throughout developed
markets in the second half of the period, we diversified to securities in
countries that were offering higher yields, such as Sweden, Italy, and Spain.
These markets benefited from falling interest rates in Germany and the U.S., and
their local currencies also had greater potential for appreciation versus the
U.S. dollar. We continued to limit our exposure to Japan,
14
<PAGE>
where interest rates were very low and, in our opinion, unlikely to decline
further.
The conditions that led to the strong performance of fixed-income markets in
1995 were still prevalent at year end, but we believed that they would exert
their influence on different countries in 1996. Therefore, during the last three
months of 1995, we increased our exposure to peripheral European markets like
Italy, Spain and the United Kingdom, where local currencies were strong and
interest rates likely to decline further. These markets may perform well when
interest rates in Germany and the U.S. are relatively stable, as they were by
the end of the reporting period. The Fund is also well-positioned to benefit
from potentially lower interest rates and the possibility of currency
appreciation in countries such as Australia, New Zealand and Canada.
This discussion reflects the strategies we employed for the Fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings may change
in light of new circumstances as they arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
Fund.
There are, of course, special risks involved with global investing related to
market, currency, economic, political, and other factors; developing markets
involve similar but heightened risks. These risks are discussed in the
prospectus.
15
<PAGE>
PERFORMANCE SUMMARY
The Templeton Bond Fund delivered a total return of 14.92% for the one-year
period ended December 31, 1995. Total return represents the change in the Fund's
share price, as measured by 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 below 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). It 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
Periods ended 12/31/95
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 14.92% 8.30% 7.81%
Cumulative
Total Return/2/ 14.92% 48.97% 73.76%
- --------------------------------------------------------------------------------
</TABLE>
1. Average annual total return represents the average annual increase in 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 reductions by
the Fund's manager 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.
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TEMPLETON BOND FUND/1/,
CONSUMER PRICE INDEX/3/ AND SALOMON BROTHER WORLD BOND INDEX/2/]
8/88 12/95
------- -------
Templeton Bond Fund $10,000 $17,376
Consumer Price Index 10,000 12,918
Salomon Brothers World Bond Index 10,000 22,981
1. 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 predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
3. Source U.S. Bureau of Labor Statistics.
16
<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.*
On December 31, 1995, the Fund's 7-day annualized yield was 5.29% and the 30-day
annualized yield was 5.36%.
Believing that inflation would rise following strong economic growth in 1994,
the U.S. Federal Reserve Board (the "Fed") continued to tighten monetary policy
by raising interest rates in February 1995. However, a moderating growth trend
early in 1995 enabled the Fed to begin to ease its monetary policy in the middle
of the year. Slower economic growth and relatively subdued inflation continued,
which resulted in lower interest rates throughout the second half of the year.
Although we began to receive a small influx of capital by the end of the fiscal
year, the Fund experienced a significant number of redemptions throughout the
period as investors moved out of money funds to take advantage of rallies in
stock and bond markets. Because of the need for liquidity, we kept the average
maturity of the portfolio between 30 and 40 days.
The U.S. economy appeared to be losing momentum as we entered 1996. We believe
that the Federal Reserve Board may continue to lower short-term interest rates
if slow growth and low inflation persist. Monetary policy moves will also most
likely be affected by the progress Congress and the President make toward a
balanced budget agreement. In our opinion, further rate cuts are not likely
until the budget impasse is resolved. As long as cash-flow activity permits, we
intend to extend the Fund's average maturity to take advantage of possible
future interest rate cuts.
*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.
17
<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
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 16.94 $ 17.53 $ 13.33 $ 12.72 $ 10.29
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income .40 .26 .23 .25 .27
Net realized and unrealized
gain (loss) 3.80 (.64) 4.23 .64 2.49
-------- -------- -------- -------- --------
Total from investment
operations 4.20 (.38) 4.46 .89 2.76
-------- -------- -------- -------- --------
Distributions:
Dividends from net
investment income (.27) (.21) (.25) (.28) (.33)
Distributions from net
realized gains (.04) -- (.01) -- --
-------- -------- -------- -------- --------
Total distributions (.31) (.21) (.26) (.28) (.33)
-------- -------- -------- -------- --------
Change in net asset value 3.89 (.59) 4.20 .61 2.43
-------- -------- -------- -------- --------
Net asset value, end of year $ 20.83 $ 16.94 $ 17.53 $ 13.33 $ 12.72
======== ======== ======== ======== ========
TOTAL RETURN* 25.24% (2.20)% 34.00% 7.12% 27.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000) $498,777 $378,849 $298,392 $166,219 $116,943
Ratio of expenses to average
net assets .66% .73% .73% .75% .82%
Ratio of net investment
income to average net
assets 2.18% 1.81% 1.88% 2.36% 2.82%
Portfolio turnover rate 33.93% 5.10% 4.88% 8.10% 41.24%
</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.
18
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Investment Portfolio, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS: 82.8%
Appliances & Household Durables: 1.1%
Sony Corp. 94,000 $ 5,633,538
------------
Automobiles: 2.6%
Bayerische Motorenwerke (BMW) 6,545 3,377,358
Ford Motor Co. 130,000 3,770,000
Volvo AB, B 290,500 5,947,805
------------
13,095,163
------------
Banking: 11.2%
Banco Bilbao Vizcaya 73,200 2,637,131
BankAmerica Corp. 130,000 8,417,500
Bankinter SA 50,000 4,863,974
Banque Nationale de Paris 30,000 1,353,278
Banque Nationale de Paris, ADR, 144A 10,600 478,158
Barnett Banks Inc. 44,700 2,637,300
C.S. Holding, br. 40,000 4,100,564
Chemical Banking Corp. 88,000 5,170,000
Fokus Bank AS 61,200 330,440
HSBC Holdings PLC 460,540 6,968,403
National Australia Bank Ltd. 332,376 2,989,171
NationsBank Corp. 59,000 4,107,875
Sparbanken Sverige AB, A, 144A 152,200 1,936,168
Unidanmark AS, A 125,900 6,230,654
Westpac Banking Corp. 882,346 3,908,597
------------
56,129,213
------------
Broadcasting & Publishing: 1.2%
News Corp. Ltd. 96,427 514,587
News Corp. Ltd., ADR 260,000 5,557,500
------------
6,072,087
------------
Business & Public Services: 3.4%
Columbia Healthcare Corp. 40,087 2,034,415
*Tenet Healthcare Corp. 200,000 4,150,000
Wheelabrator Technologies Inc. 370,000 6,197,500
WMX Technologies Inc. 150,000 4,481,250
------------
16,863,165
------------
Chemicals: 5.0%
Akzo Nobel NV 65,000 7,530,117
Bayer AG 16,000 4,248,666
DSM NV 15,000 1,235,878
Rhone-Poulenc SA, A 286,200 6,130,770
Solvay SA 10,800 5,862,385
------------
25,007,816
------------
Data Processing & Reproduction: 1.1%
*Newbridge Networks Corp. 130,000 5,378,750
------------
Electrical & Electronics: 4.2%
Alcatel Alsthom SA 32,385 2,792,107
BBC Brown Boveri Ltd., br. 7,297 8,476,792
*DSC Communications Corp. 73,700 2,717,688
Hitachi Ltd. 274,000 2,758,968
Motorola Inc. 72,000 4,104,000
------------
20,849,555
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Electronic Components &
Instruments: 1.5%
Intel Corp. 132,000 $ 7,491,000
------------
Energy Equipment & Services: 0.3%
Helikopter Service AS 104,550 1,279,207
------------
Energy Sources: 2.8%
Societe Elf Aquitane SA 92,520 6,816,667
Total SA, B 95,000 6,411,579
Transportadora de Gas del Sur SA, ADR, B 52,200 672,075
------------
13,900,321
------------
Financial Services: 4.3%
American Express Co. 125,000 5,171,875
Dean Witter Discover & Co. 110,612 5,198,764
Federal National Mortgage Assn. 88,400 10,972,650
------------
21,343,289
------------
Food & Household Products: 2.4%
Burns Philp & Co. Ltd. 3,177,503 7,108,666
*Grupo Embotellador de Mexico SA, B 187,500 298,931
Nestle SA 4,000 4,424,794
------------
11,832,391
------------
Forest Products & Paper: 3.7%
Asia Pacific Resources International, A 680,000 3,230,000
Assidomaen AB 150,000 3,251,812
Carter Holt Harvey Ltd. 1,239,126 2,673,254
Enso Gutzeit OY, R 463,300 3,086,467
International Paper Co. 98,000 3,711,750
Stora Kopparbergs Bergslags AB, B 225,000 2,692,907
------------
18,646,190
------------
Health & Personal Care: 7.1%
Astra AB, A 100,000 3,989,492
Astra AB, B 142,100 5,626,282
Ciba-Geigy AG 6,500 5,719,549
*Pharmacia & Upjohn 300,500 11,644,375
SmithKline Beecham PLC, ADR 148,300 8,230,650
------------
35,210,348
------------
Industrial Components: 2.3%
Goodyear Tire & Rubber Co. 110,000 4,991,250
Madeco Manufacturera de Cobre SA, ADR 250,000 6,750,000
------------
11,741,250
------------
Insurance: 5.3%
Aegon NV 200,000 8,863,367
Aetna Life & Casualty Co. 70,000 4,847,500
American International Group Inc. 43,593 4,032,353
Ing Groep NV 90,000 6,022,096
Torchmark Corp. 60,000 2,715,000
------------
26,480,316
------------
Leisure & Tourism: 1.2%
Kuoni Reisen Holding AG, B 3,700 5,934,114
------------
</TABLE>
19
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Investment Portfolio, December 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Merchandising: 2.6%
*Federated Department Stores Inc. 200,000 $ 5,500,000
Home Depot Inc. 110,000 5,266,250
Limited Inc. 134,500 2,336,938
------------
13,103,188
------------
Metals & Mining: 1.7%
Companhia Siderurgica Nacional 16,300,000 335,408
Outokumpu OY, A 311,000 4,929,590
Reynolds Metals Co. 55,500 3,142,688
------------
8,407,686
------------
Multi-Industry: 2.0%
Hutchison Whampoa Ltd. 865,600 5,272,520
Jardine Matheson Holdings Ltd. 505,631 3,463,572
Jardine Strategic Holdings Ltd. 350,048 1,071,148
*Jardine Strategic Holdings Ltd., wts. 38,894 12,446
Pacific Dunlop Ltd. 4,295 10,056
------------
9,829,742
------------
Real Estate: 1.3%
Summit Properties Inc., REIT 333,800 6,634,275
------------
Telecommunications: 5.9%
Alcatel Cable SA 97,088 7,018,410
Compania de Telecomunicaciones de Chile SA, ADR 23,000 1,906,125
STET (Sta Finanziaria Telefonica Torino) SPA 1,094,500 3,090,029
Telefonica de Argentina SA, B, ADR 81,000 2,207,250
Telefonica de Espana SA 421,500 5,837,758
Telefonos de Mexico SA, L, ADR 221,800 7,069,875
*Worldcom Inc. 72,400 2,552,100
------------
29,681,547
------------
Textiles & Apparel: 0.6%
*Fruit of the Loom Inc., A 125,000 3,046,875
------------
Transportation: 0.8%
*Bremer Vulkan Verbund AG 104,000 2,900,875
Koninklijke Nedlloyd NV 40,000 908,807
------------
3,809,682
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
Utilities-Electrical & Gas: 7.2%
American Electric Power Co. Inc. 61,000 $ 2,470,500
*CEZ 100,000 3,615,090
Endesa-Empresa Nacional de Electricidad SA 115,000 6,513,190
Evn Energie-Versorgung Niederoesterreich AG 53,000 7,272,502
Iberdrola SA 706,000 6,460,511
Southern Co. 142,000 3,496,750
VEBA AG 140,000 5,994,212
------------
35,822,755
------------
TOTAL COMMON STOCKS (cost $312,081,491) 413,223,463
------------
PREFERRED STOCKS: 2.5%
Cemig-Cia Energetica de Minas Gerais, pfd. 12,676,000 280,399
Dairy Farm International Holdings Ltd., 6.50%, conv.,
pfd. 162,000 130,410
News Corp. Ltd., pfd. 248,213 1,160,408
News Corp. Ltd., pfd., ADR 130,000 2,502,500
Telebras-Telecomunicacoes Brasileiras SA, pfd. 143,434,677 6,906,469
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR 31,300 1,482,838
------------
TOTAL PREFERRED STOCKS (cost $6,833,372) 12,463,024
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
----------
<S> <C> <C> <C>
BONDS: 0.1%
(cost $115,260)
Jardine Strategic Holdings Ltd., 7.50%, conv.,
5/07/49 U.S. 113,000 123,170
------------
SHORT TERM OBLIGATIONS: 13.4%
(cost $67,028,851)
U.S. Treasury Bills, 4.25% to 5.34% with
maturities to 2/22/96 U.S. 67,319,000 67,072,234
------------
TOTAL INVESTMENTS: 98.8%
(cost $386,058,974) 492,881,891
OTHER ASSETS, LESS LIABILITIES: 1.2% 5,895,238
------------
TOTAL NET ASSETS: 100.0% $498,777,129
============
</TABLE>
* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
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
MAY 1, 1992
YEAR ENDED DECEMBER 31 (COMMENCEMENT
--------------------------- OF OPERATIONS) TO
1995 1994 1993 DECEMBER 31, 1992
-------- -------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 13.22 $ 13.83 $ 9.39 $ 10.00
-------- -------- ------- -------
Income from investment
operations:
Net investment income .23 .12 .10 .06
Net realized and unrealized gain
(loss) 1.83 (.42) 4.34 (.67)
-------- -------- ------- -------
Total from investment operations 2.06 (.30) 4.44 (.61)
-------- -------- ------- -------
Distributions:
Dividends from net investment
income (.10) (.08) -- --
Distributions from net realized
gains (.05) (.23) -- --
-------- -------- ------- -------
Total distributions (.15) (.31) -- --
-------- -------- ------- -------
Change in net asset value 1.91 (.61) 4.44 (.61)
-------- -------- ------- -------
Net asset value, end of year $ 15.13 $ 13.22 $ 13.83 $ 9.39
======== ======== ======= =======
TOTAL RETURN* 15.78% (2.22)% 47.28% (6.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $353,141 $150,090 $43,877 $ 7,050
Ratio of expenses to average net
assets .71% .83% .95% 1.40%**
Ratio of expenses, net of
reimbursement, to average net
assets .71% .83% .95% 1.00%**
Ratio of net investment income to
average net assets 2.36% 1.89% 1.62% 1.76%**
Portfolio turnover rate 5.19% 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS: 88.2%
Appliances & Household Durables: 0.6%
Email Ltd. 432,000 $ 1,027,471
Sony Corp. 21,000 1,258,556
------------
2,286,027
------------
Automobiles: 3.9%
Bayerische Motorenwerke (BMW) 1,200 619,225
Regie Nationale des Usines Renault SA 78,000 2,245,865
Volkswagen AG 10,500 3,521,844
Volvo AB, B 364,600 7,464,956
------------
13,851,890
------------
Banking: 17.5%
ABN AMRO NV 99,050 4,519,415
Argentaria Corporacion Bancaria de Espana SA 13,000 535,862
Argentaria Corporacion Bancaria de Espana SA, ADR 7,300 146,913
Australia & New Zealand Banking Group Ltd. 1,037,510 4,865,834
Banco Bilbao Vizcaya 9,000 324,237
Banco Ganadero SA, ADR, C 20,000 260,000
Banco Popular Espanol 16,000 2,950,701
Banco Portugues de Investimento SA 18,700 223,513
Bangkok Bank Public Co. Ltd., fgn. 373,800 4,540,802
Bankinter SA 32,000 3,112,943
Banque Nationale de Paris 96,000 4,330,488
Banque Nationale de Paris, ADR, 144A 11,800 532,289
Barclays PLC 30,200 346,593
C.S. Holding, br. 10,000 1,025,141
Canadian Imperial Bank of Commerce 160,000 4,761,382
Daegu Bank Co. Ltd. 40,000 614,012
*Den Norske Bank 1,100,000 2,848,076
Grupo Financiero Banamex Accival SA, B 335,000 561,011
Grupo Financiero Banamex Accival SA, L 19,900 29,560
HSBC Holdings PLC 35,800 5,416,877
National Bank of Canada 440,000 3,585,687
*Philippine National Bank 83,462 922,759
PT Panin Bank, fgn. 250,000 224,142
Shinhan Bank Co. Ltd. 30,600 685,763
Sparbanken Sverige AB, A, 144A 152,000 1,933,624
Stadshypotek AB, A 50,000 1,001,137
Standard Chartered PLC 86,200 733,594
Svenska Handelsbanken, A 48,000 997,222
Unidanmark AS, A 100,000 4,948,891
Westpac Banking Corp. 1,121,849 4,969,542
------------
61,948,010
------------
Broadcasting & Publishing: 0.9%
Grupo Televisa SA, GDS 4,800 108,000
News Corp. Ltd., ADR 125,200 2,676,150
Oriental Press Group Limited 1,277,000 388,096
South China Morning Post Holdings Ltd. 158,000 96,547
------------
3,268,793
------------
Building Materials & Components: 0.5%
*Cementos Paz del Rio SA, ADR, 144A 21,000 315,000
Cie de Saint Gobain 13,454 1,467,110
------------
1,782,110
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
Business & Public Services: 0.2%
Ecco SA 2,250 $ 340,464
Societe Generale de Surveillance Holdings Ltd., br. 100 198,526
------------
538,990
------------
Chemicals: 5.6%
Akzo Nobel NV 40,000 4,633,918
Bayer AG 1,110 294,751
DSM NV 16,000 1,318,270
European Vinyls Corp. EVC International NV 50,000 1,301,417
Kemira OY, 144A 454,500 3,810,905
Rhone-Poulenc SA, A 189,800 4,065,759
Solvay SA 8,100 4,396,789
------------
19,821,809
------------
Data Processing & Reproduction: 1.1%
*Newbridge Networks Corp. 90,000 3,723,750
Sligos SA 2,000 164,999
------------
3,888,749
------------
Electrical & Electronics: 5.2%
Alcatel Alsthom SA 72,000 6,207,556
BBC Brown Boveri Ltd., br. 4,000 4,646,727
Hitachi Ltd. 250,000 2,517,306
Philips Electronics NV 135,000 4,887,335
------------
18,258,924
------------
Energy Equipment & Services: 0.4%
Koninklijke Pakhoed NV 55,000 1,513,950
------------
Energy Sources: 3.2%
Repsol SA 2,500 81,925
Societe Elf Aquitane SA 43,600 3,212,350
Total SA, B 70,000 4,724,321
YPF Sociedad Anonima, ADR 144,700 3,129,138
------------
11,147,734
------------
Financial Services: 0.5%
Govett & Co. Ltd. 23,600 84,663
Invesco PLC 65,000 255,894
Korea Fund Inc. 45,660 1,004,520
Peregrine Investments Holdings Ltd. 300,000 387,973
------------
1,733,050
------------
Food & Household Products: 1.6%
Burns Philp & Co. Ltd. 1,878,200 4,201,883
*Grupo Embotellador de Mexico SA, B 250,800 399,850
*Grupo Embotellador de Mexico SA de CV, GDR 38,200 353,350
Nestle SA 560 619,471
Vitro SA 26,700 41,529
Vitro SA, ADR 12,720 60,420
------------
5,676,503
------------
Forest Products & Paper: 4.1%
Assidomaen AB 60,000 1,300,725
Cartiere Burgo SPA 21,600 107,589
Enso Gutzeit OY, R 200,000 1,332,384
</TABLE>
22
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, December 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Fletcher Challenge Ltd., Forestry Division 2,050,000 $ 2,921,602
Kimberly Clark de Mexico SA, A 159,500 2,406,455
Metsa Serla OY, B 80,450 2,476,465
Munksjo AB 70,000 458,415
Stora Kopparbergs Bergslags AB, B 300,000 3,590,543
------------
14,594,178
------------
Health & Personal Care: 6.2%
Astra AB, A 30,000 1,196,848
Astra AB, B 52,000 2,058,879
Ciba-Geigy AG 4,000 3,519,723
Hafslund Nycomed SA, B 65,000 1,647,037
Medeva PLC 1,578 6,568
*Pharmacia & Upjohn 219,800 8,517,250
SmithKline Beecham PLC, ADR 90,000 4,995,000
------------
21,941,305
------------
Insurance: 3.9%
Aegon NV 28,352 1,256,471
Baloise-Holding 1,600 3,328,999
Ing Groep NV 45,000 3,011,048
London Insurance Group Inc. 50,000 1,011,794
Skandia Foersaekrings AB, free 180,000 4,864,169
Swiss Reinsurance Co. 400 465,366
------------
13,937,847
------------
Machinery & Engineering: 1.0%
Hitachi Koki Co. Ltd. 100,000 906,230
*Tampella AB OY 1,369,300 1,730,066
*Tampella AB OY, 144A 62,666 79,176
Valmet OY 39,000 967,586
------------
3,683,058
------------
Merchandising: 2.1%
Argyll Group PLC 400,000 2,112,064
*Cifra SA, B 2,470,000 2,567,647
Dairy Farm International Holdings Ltd. 839,000 771,880
Karstadt AG 5,000 2,050,138
------------
7,501,729
------------
Metals & Mining: 1.2%
*Bohler Uddeholm AG, 144A 39,610 3,021,717
China Steel Corp., ADR, 144A 10,000 174,800
Companhia Siderurgica Nacional 12,700,000 261,330
Maanshan Iron & Steel Co. Ltd., H 1,000,000 139,670
Pechiney SA, invt. ctf. 3,950 149,224
*Pechiney SA, wts. 3,950 8
SIG--Schweizerische Industrie Gesellschaft Holdings AG 160 334,287
------------
4,081,036
------------
Multi-Industry: 4.8%
Cheung Kong Holdings Ltd. 850,000 5,177,498
*DESC SA, B 84,000 308,127
Hutchison Whampoa Ltd. 600,000 3,654,704
Jardine Matheson Holdings Ltd. 566,800 3,882,580
Jardine Strategic Holdings Ltd. 225,000 688,500
*Jardine Strategic Holdings Ltd., wts. 25,000 8,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
Swire Pacific Ltd., A 400,000 $ 3,103,783
Wheelock & Co. Ltd. 126,000 215,907
------------
17,039,099
------------
Real Estate: 0.5%
Hang Lung Development Co. Ltd. 700,000 1,113,482
New World Development Co. Ltd. 152,783 665,863
------------
1,779,345
------------
Recreation, Other Consumer Goods: 0.3%
SMH AG, br. 1,800 1,076,723
------------
Telecommunications: 9.9%
Compania de Telecomunicaciones de Chile SA, ADR 28,300 2,345,363
Hong Kong Telecommunications Ltd. 2,100,000 3,747,818
Koninklijke PTT Nederland 120,000 4,366,769
Philippine Long Distance Telephone Co., ADR 4,000 216,500
STET (Sta Finanziaria Telefonica Torino) SPA, di Risp 1,850,000 3,769,306
Telecom Italia Spa, di Risp 4,850,000 5,914,969
Tele Danmark AS, B 82,500 4,498,542
Telefonica de Argentina SA, B, ADR 132,000 3,597,000
Telefonica de Espana SA, ADR 70,000 2,931,250
Telefonos de Mexico SA, L, ADR 112,600 3,589,125
------------
34,976,642
------------
Transportation: 0.8%
*Bremer Vulkan Verbund AG 84,000 2,343,015
Koninklijke Nedlloyd NV 24,800 563,460
------------
2,906,475
------------
Utilities-Electrical & Gas: 12.1%
Australian Gas & Light Company 1,000,000 3,753,419
*CEZ 19,000 686,867
Compania Sevillana de Electricidad 660,000 5,125,474
Consolidated Electric Power Asia Ltd., ADR, 144A 32,000 578,000
Electricas Reunidas de Zaragoza 41,250 931,781
Electricidad de Caracas 753,455 514,879
Endesa-Empresa Nacional de Electricidad SA, ADR 60,000 3,435,000
Endesa-Empresa Nacional de Electricidad SA 1,000 56,636
Evn Energie-Versorgung Niederoesterreich AG 40,500 5,557,289
Hongkong Electric Holdings Ltd. 131,000 429,467
Iberdrola SA 626,500 5,733,017
National Power PLC 516,000 3,602,031
Shandong Huaneng Power 100,000 675,000
Southern Electric PLC 185,000 2,597,217
Thames Water Group PLC 549,000 4,791,558
VEBA AG 98,000 4,195,949
------------
42,663,584
------------
Wholesale & International Trade: 0.1%
Computer 2000 AG 400 119,382
------------
TOTAL COMMON STOCKS (cost $282,274,312) 312,016,942
------------
</TABLE>
23
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, December 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
PREFERRED STOCKS: 2.2%
ABN Amro NV, conv., pfd. 803 $ 34,484
Cemig-Cia Energetica de Minas Gerais, pfd. 10,123,000 223,926
Dairy Farm International Holdings Ltd., 6.50%, conv.,
pfd. 6,000 4,830
News Corp. Ltd., pfd., ADR 110,100 2,119,425
Telebras-Telecomunicacoes Brasileiras SA, pfd. 4,866,533 234,327
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR 108,800 5,154,400
------------
TOTAL PREFERRED STOCKS (cost $5,758,228) 7,771,392
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY** VALUE
---------- ------------
<S> <C> <C> <C>
BONDS: 0.1% (cost $13,260)
Jardine Strategic Holdings Ltd., 7.50%, conv.,
5/07/49 U.S. 13,000 $ 14,170
------------
SHORT TERM OBLIGATIONS: 10.4%
(cost $36,606,430)
U.S. Treasury Bills, 4.25% to 5.34% with
maturities to 2/22/96 U.S. 36,793,000 36,624,251
------------
TOTAL INVESTMENTS: 100.9%
(cost $324,652,230) 356,426,755
OTHER ASSETS, LESS LIABILITIES: (0.9)% (3,285,581)
------------
TOTAL NET ASSETS: 100.0% $353,141,174
============
</TABLE>
* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<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
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45
-------- -------- -------- ------- -------
Income from investment
operations:
Net investment income .57 .44 .42 .39 .40
Net realized and
unrealized gain (loss) 2.87 (.92) 3.03 .66 2.38
-------- -------- -------- ------- -------
Total from investment
operations 3.44 (.48) 3.45 1.05 2.78
-------- -------- -------- ------- -------
Distributions:
Dividends from net
investment income (.41) (.31) (.35) (.41) (.38)
Distributions from net
realized gains -- (.07) (.04) -- --
-------- -------- -------- ------- -------
Total distributions (.41) (.38) (.39) (.41) (.38)
-------- -------- -------- ------- -------
Change in net asset value 3.03 (.86) 3.06 .64 2.40
-------- -------- -------- ------- -------
Net asset value, end of
year $ 18.72 $ 15.69 $ 16.55 $ 13.49 $ 12.85
======== ======== ======== ======= =======
TOTAL RETURN* 22.48% (2.96)% 26.12% 8.42% 27.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000) $406,123 $288,172 $183,360 $79,242 $35,821
Ratio of expenses to
average net assets .66% .75% .77% .80% .89%
Ratio of net investment
income to average net
assets 3.73% 4.02% 4.16% 4.47% 3.99%
Portfolio turnover rate 43.02% 51.36% 81.50% 120.53% 76.65%
</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.
25
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS: 55.6%
Appliances & Household Durables: 0.6%
Sony Corp. 42,000 $ 2,517,113
------------
Automobiles: 1.5%
Ford Motor Co. 42,000 1,218,000
General Motors Corp. 40,000 2,085,000
Volvo AB, B 130,000 2,661,669
------------
5,964,669
------------
Banking: 9.3%
Banco Popular Espanol 3,220 593,829
Bangkok Bank Public Co. Ltd., fgn. 157,800 1,916,904
BankAmerica Corp. 64,000 4,144,000
Bankinter SA 39,625 3,854,699
Banque Nationale de Paris 15,000 676,639
Banque Nationale de Paris, ADR, 144A 5,400 243,590
Barclays PLC 137,500 1,578,030
Barnett Banks Inc. 15,000 885,000
C.S. Holding, br. 15,250 1,563,340
Canadian Imperial Bank of Commerce 70,000 2,083,104
Chemical Banking Corp. 50,000 2,937,500
Citicorp 60,000 4,035,000
Crestar Financial Corp. 46,000 2,719,750
Grupo Financiero Banamex Accival SA, B 200,000 334,932
HSBC Holdings PLC 282,200 4,269,952
National Australia Bank Ltd. 50,603 455,090
NationsBank Corp. 30,000 2,088,750
Sparbanken Sverige AB, A, 144A 113,800 1,447,674
Westpac Banking Corp. 449,074 1,989,298
------------
37,817,081
------------
Broadcasting & Publishing: 0.8%
News Corp. Ltd., ADR 160,000 3,420,000
------------
Business & Public Services: 1.1%
*Tenet Healthcare Corp. 70,000 1,452,500
WMX Technologies Inc. 100,000 2,987,500
------------
4,440,000
------------
Chemicals: 3.0%
Akzo Nobel NV 48,700 5,641,795
Bayer AG 4,400 1,168,383
DSM NV 25,000 2,059,797
Rhone-Poulenc SA, A 61,800 1,323,835
Solvay SA 4,000 2,171,254
------------
12,365,064
------------
Data Processing & Reproduction: 1.5%
*Microsoft Corp. 25,000 2,193,750
*Newbridge Networks Corp. 90,000 3,723,750
------------
5,917,500
------------
Electrical & Electronics: 3.4%
Alcatel Alsthom SA 27,619 2,381,201
BBC Brown Boveri Ltd., br. 4,260 4,948,765
*DSC Communications Corp. 63,900 2,356,313
Hitachi Ltd. 80,000 805,538
Motorola Inc. 4,000 228,000
Philips Electronics NV 90,000 3,258,224
------------
13,978,041
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------
<S> <C> <C>
Electronic Components & Instruments: 1.1%
BICC 570,000 $ 2,443,161
Intel Corp. 36,000 2,043,000
-----------
4,486,161
-----------
Energy Sources: 0.7%
Societe Elf Aquitane SA 4,000 294,711
Total SA, B 39,000 2,632,122
-----------
2,926,833
-----------
Financial Services: 4.0%
American Express Co. 129,000 5,337,375
Dean Witter Discover & Co. 74,683 3,510,101
Federal National Mortgage Assn. 40,000 4,965,000
MBNA Corp. 57,500 2,120,313
Peregrine Investments Holdings Ltd. 350,000 452,635
-----------
16,385,424
-----------
Food & Household Products: 1.2%
Burns Philp & Co. Ltd. 1,603,300 3,586,881
*Grupo Embotellador de Mexico SA, B 176,700 281,712
Unilever NV 3,400 478,559
Unilever PLC 12,300 252,716
Vitro SA, ADR 49,800 236,550
-----------
4,836,418
-----------
Forest Products & Paper: 2.1%
Assidomaen AB 90,000 1,951,087
Carter Holt Harvey Ltd. 293,020 632,153
Enso Gutzeit OY, R 225,000 1,498,932
International Paper Co. 50,000 1,893,750
Stora Kopparbergs Bergslags AB, B 225,000 2,692,907
-----------
8,668,829
-----------
Health & Personal Care: 3.3%
Astra AB, B 45,000 1,781,722
Medeva PLC 233,722 972,753
*Pharmacia & Upjohn 241,000 9,338,750
SmithKline Beecham PLC, ADR 25,000 1,387,500
-----------
13,480,725
-----------
Industrial Components: 0.9%
Goodyear Tire & Rubber Co. 60,000 2,722,500
Madeco Manufacturera de Cobre SA, ADR 34,700 936,900
-----------
3,659,400
-----------
Insurance: 3.0%
Aegon NV 62,500 2,769,802
Aetna Life & Casualty Co. 16,700 1,156,475
Allstate Corp. 65,935 2,711,577
ING Groep NV 50,000 3,345,609
Torchmark Corp. 45,000 2,036,250
-----------
12,019,713
-----------
Merchandising: 2.8%
Dairy Farm International Holdings Ltd. 1,000,000 920,000
*Federated Department Stores Inc. 200,000 5,500,000
Home Depot Inc. 65,000 3,111,875
Sears Roebuck & Co. 42,000 1,638,000
-----------
11,169,875
-----------
</TABLE>
26
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio December 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Metals & Mining: 0.4%
Companhia Siderurgica Nacional 16,100,000 $ 331,293
Reynolds Metals Co. 22,000 1,245,750
------------
1,577,043
------------
Multi-Industry: 2.1%
Cheung Kong Holdings Ltd. 600,000 3,654,704
Hutchison Whampoa Ltd. 444,000 2,704,481
Jardine Matheson Holdings Ltd. 220,800 1,512,480
Jardine Strategic Holdings Ltd. 168,750 516,375
------------
8,388,040
------------
Real Estate: 0.3%
New World Development Co. Ltd. 303,543 1,322,910
------------
Telecommunications: 7.0%
Alcatel Cable SA 47,672 3,446,169
MCI Communications Corp. 196,000 5,120,500
*SPT Telecom AS 31,950 3,019,350
STET (Sta Finanziaria Telefonica Torino) SPA 477,000 1,346,682
STET (Sta Finanziaria Telefonica Torino) SPA, di
Risp 1,200,000 2,444,955
Telefonica de Argentina SA, B, ADR 60,000 1,635,000
Telefonica de Espana SA 260,000 3,600,989
Telefonos de Mexico SA, L, ADR 180,900 5,766,188
*Worldcom Inc. 60,100 2,118,525
------------
28,498,358
------------
Textiles & Apparel: 1.9%
*Fruit of the Loom Inc., A 160,000 3,900,000
Nike Inc., B 54,000 3,759,750
------------
7,659,750
------------
Transportation: 1.1%
Koninklijke Nedlloyd NV 50,000 1,136,009
Unitor AS 240,000 3,296,443
------------
4,432,452
------------
Utilities-Electrical & Gas: 2.5%
American Electric Power Co., Inc. 20,000 810,000
*CEZ 6,280 227,028
Endesa-Empresa Nacional de
Electricidad SA 30,500 1,727,411
Endesa-Empresa Nacional de
Electricidad SA, ADR 22,000 1,259,500
Iberdrola SA 85,000 777,824
Pinnacle West Capital Corp. 40,000 1,150,000
Southern Co. 34,000 837,250
Southern Electric PLC 120,000 1,684,681
VEBA AG 35,000 1,498,553
------------
9,972,247
------------
TOTAL COMMON STOCKS (cost $171,701,680) 225,903,646
------------
PREFERRED STOCKS: 2.2%
Cemig-Cia Energetica de Minas Gerais, pfd. 12,676,000 280,399
News Corp. Ltd., pfd. 200,000 935,010
News Corp. Ltd., pfd., ADR 80,000 1,540,000
Santander Finance Ltd., B, pfd. 91,500 2,253,188
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
Telebras-Telecomunicacoes Brasileiras
SA, pfd. 40,981,336 $ 1,973,277
Telebras-Telecomunicacoes Brasileiras
SA, pfd., ADR 45,600 2,160,300
------------
TOTAL PREFERRED STOCKS (cost $5,933,046) 9,142,174
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
-------------
<S> <C> <C> <C>
BONDS: 31.7%
Buoni Poliennali del Tes:
8.50%, 8/01/99 Itl. 1,245,000,000 $ 777,219
10.50%, 9/01/05 Itl. 1,935,000,000 1,151,314
Deutsche Bundespost, 7.75%, 10/01/04 Ger. 3,640,000 2,788,793
Essar Gujarat Ltd.,
8.40%, FRN, 7/15/99, 144A U.S. 2,765,000 2,737,350
Eurofima,
9.875%, 1/17/07 Aus. 1,000,000 810,144
European Investment Bank,
5.875%, 11/26/99 Jpn. 280,000,000 3,171,128
Federal Home Loan Bank,
7.735%, 2/09/98 U.S. 1,700,000 1,779,152
Federal Home Loan Mortgage Corp., 7.82%,
1/27/98 U.S. 2,240,000 2,347,090
Federal National Mortgage Assn., 7.74%,
2/03/98 U.S. 4,100,000 4,293,520
Federal Republic of Germany, Bundes, 8.00%,
1/21/02 Ger. 2,400,000 1,886,127
Federal Republic of Germany, Bundeschatweis,
6.875%, 12/02/98 Ger. 2,145,000 1,601,215
Federal Republic of Germany, Bundesobl 110,
5.375%, 2/22/99 Ger. 2,630,000 1,891,003
Federal Republic of Germany,
Unity, 8.75%, 8/20/01 Ger. 5,140,000 4,175,298
Government of Canada,
10.50%, 3/01/01 Can. 4,140,000 3,538,477
Government of Denmark:
9.00%, 11/15/98 Den. 4,328,000 848,418
8.00%, 5/15/03 Den. 8,392,000 1,605,517
Government of France:
8.125%, 5/25/99 Fr. 10,560,000 2,321,281
8.50%, 3/28/00 Fr. 9,612,000 2,158,725
9.50%, 1/25/01 Fr. 9,058,000 2,129,934
Government of Italy,
10.50%, 7/15/00 Itl. 3,090,000,000 1,961,102
Government of Spain:
12.25%, 3/25/00 Sp. 211,630,000 1,917,581
11.30%, 1/15/02 Sp. 183,200,000 1,627,354
10.00%, 2/28/05 Sp. 132,900,000 1,111,517
Henderson Capital International Ltd.,
5.00%, 10/27/96 U.S. 3,000,000 3,082,500
International Bank Recon/Dev.:
6.75%, 3/15/00 Jpn. 200,000,000 2,339,643
7.125%, 4/12/05 Ger. 2,160,000 1,601,643
Kingdom of Denmark,
8.00%, 11/15/01 Den. 14,247,000 2,753,613
</TABLE>
27
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio December 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY** VALUE
----------- ------------
<S> <C> <C> <C>
BONDS (CONT.)
Kingdom of Sweden:
10.25%, 5/05/03 Swe. 8,400,000 $ 1,399,804
9.00%, 4/20/09 Swe. 4,500,000 704,214
Korea Development Bank,
9.48%, 4/02/01 U.S. 500,000 576,130
New South Wales Treasury Corp.,
7.00%, 4/01/04 Aus. 1,200,000 822,426
Pohang Iron & Steel,
6.625%, 7/01/03 U.S. 1,000,000 1,014,730
Queensland Treasury Corp., Exch. Global, 8.00%,
5/14/03 Aus. 5,055,000 3,710,547
Thailand Military Bank:
11.125%, 6/03/96 Thai. 10,000,000 395,077
11.00% 6/05/96 Thai. 11,000,000 433,952
Treasury Corp. of Victoria,
8.25%, 10/15/03 Aus. 4,736,000 3,515,110
U.S. Treasury Bonds:
6.25%, 8/15/23 U.S. 2,862,000 2,944,740
7.625%, 2/15/25 U.S. 4,656,000 5,693,403
U.S. Treasury Notes:
8.50%, 5/15/97 U.S. 1,405,000 1,465,148
8.75%, 10/15/97 U.S. 8,770,000 9,295,442
8.125%, 2/15/98 U.S. 14,800,000 15,651,000
9.125%, 5/15/99 U.S. 1,370,000 1,528,838
6.875%, 7/31/99 U.S. 1,000,000 1,050,000
6.125%, 7/31/00 U.S. 3,800,000 3,911,606
7.50%, 11/15/01 U.S. 4,023,000 4,430,972
6.25%, 2/15/03 U.S. 1,175,000 1,225,854
7.25%, 5/15/04 U.S. 5,275,000 5,855,250
United Kingdom:
9.50%, 1/15/99 U.K. 565,000 946,808
6.75%, 11/26/04 U.K. 1,335,000 1,985,126
United Mexican States,
FRN, 7/20/97, 144A U.S. 1,800,000 1,840,500
------------
TOTAL BONDS
(cost $125,427,707) 128,803,335
------------
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY** VALUE
----------- ------------
<S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 9.4%
Bangkok Bank, 11.50%, 5/16/96 Thai. 10,000,000 $ 396,553
Federal Home Loan Bank:
5.59%--5.70%, 1/08/96 U.S. 2,795,000 2,792,429
5.59%--5.62%, 1/12/96 U.S. 5,230,000 5,222,050
5.50%, 1/16/96 U.S. 2,080,000 2,074,280
5.30%, 3/27/96 U.S. 3,435,000 3,391,616
Federal Home Loan Mortgage Corp.:
5.75%, 1/02/96 U.S. 1,000,000 1,000,000
5.59%, 1/05/96 U.S. 3,000,000 2,998,590
5.65%, 1/18/96 U.S. 3,450,000 3,441,409
5.50%--5.51%, 1/22/96 U.S. 12,340,000 12,294,663
Federal National Mortgage Assn.:
5.68%, 1/05/96 U.S. 2,640,000 2,638,759
5.70%, 1/09/96 U.S. 140,000 139,852
5.65%, 1/17/96 U.S. 700,000 698,384
Sweden Treasury Bill, 8.68%, 11/20/96 Swe. 7,000,000 976,682
------------
TOTAL SHORT TERM OBLIGATIONS
(cost $38,086,051) 38,065,267
------------
TOTAL INVESTMENTS: 98.9%
(cost $341,148,484) 401,914,422
UNREALIZED GAIN IN FORWARD EXCHANGE CONTRACTS: 0.1%
(Note 5) 23,065
OTHER ASSETS, LESS LIABILITIES: 1.0% 4,185,481
------------
TOTAL NET ASSETS: 100.0% $406,122,968
============
</TABLE>
* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<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
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 10.86 $ 12.15 $ 10.91 $ 10.99 $ 10.35
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income .80 .71 .60 .58 .61
Net realized and unrealized gain
(loss) .76 (1.28) .65 .03 1.02
------- ------- ------- ------- -------
Total from investment operations 1.56 (.57) 1.25 .61 1.63
------- ------- ------- ------- -------
Distributions:
Dividends from net investment
income (.54) (.55) (.005) (.57) (.64)
Distributions from net realized
gains -- (.17) (.005) (.12) (.35)
------- ------- ------- ------- -------
Total distributions (.54) (.72) (.01) (.69) (.99)
------- ------- ------- ------- -------
Change in net asset value 1.02 (1.29) 1.24 (.08) .64
------- ------- ------- ------- -------
Net asset value, end of year $ 11.88 $ 10.86 $ 12.15 $ 10.91 $ 10.99
======= ======= ======= ======= =======
TOTAL RETURN* 14.92% (4.88)% 11.46% 5.53% 15.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $32,910 $29,343 $29,347 $15,674 $8,142
Ratio of expenses to average net
assets .78% .90% .83% 1.00% 1.06%
Ratio of expenses, net of
reimbursement, to average net
assets .78% .90% .83% 1.00% 1.00%
Ratio of net investment income to
average net assets 7.14% 6.80% 6.50% 6.93% 7.63%
Portfolio turnover rate 188.11% 203.91% 170.33% 147.77% 551.45%
</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.
29
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Investment Portfolio, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
-------------- -----------
<S> <C> <C> <C>
BONDS--CORPORATE: 23.2%
Abril SA, 12.00%, 10/25/03, 144A U.S. 475,000 $ 479,156
Baden Wuerttemberg L-Finance NV, 6.75%,
6/22/05 Ger. 2,110,000 1,520,501
Essar Gujarat Ltd., 8.40%, FRN, 7/15/99, 144A U.S. 284,000 281,160
Ford Motor Credit Corp.,
8.21%, 3/16/99 U.S. 1,300,000 1,394,263
General Motors Corp.,
7.625%, 2/15/97 U.S. 375,000 383,183
Henderson Capital International Ltd., 5.00%,
10/27/96 U.S. 1,000,000 1,027,500
KFW International Finance,
6.25%, 10/15/03 Ger. 900,000 639,204
Softe SA,
8.75%, 3/24/97 Itl. 1,000,000,000 615,457
Statkraft SF,
7.50%, 11/10/99 Ger. 1,700,000 1,283,846
-----------
TOTAL BONDS--CORPORATE
(cost $7,477,875) 7,624,270
-----------
BONDS--GOVERNMENT & GOVERNMENT
AGENCIES: 67.6%
Buoni Poliennali del Tes:
8.50%, 8/01/99 Itl. 645,000,000 383,771
10.50%, 9/01/05 Itl. 415,000,000 259,073
European Investment Bank,
5.875%, 11/26/99 Jpn. 113,000,000 1,279,777
Federal Republic of Germany, Bundes, 8.00%,
1/21/02 Ger. 400,000 314,354
Government of Canada,
10.50%, 3/01/01 Can. 1,491,000 1,274,365
Government of Denmark:
9.00%, 11/15/98 Den. 1,635,000 320,509
8.00%, 5/15/03 Den. 3,306,000 632,488
Government of France:
8.125%, 5/25/99 Fr. 3,530,000 775,958
8.50%, 3/28/00 Fr. 3,558,000 799,079
9.50%, 1/25/01 Fr. 3,352,000 788,203
Government of Italy,
10.50%, 7/15/00 Itl. 1,020,000,000 647,354
Government of New Zealand:
6.50%, 2/15/00 N.Z. 490,000 310,108
8.00%, 4/15/04 N.Z. 445,000 304,283
Government of Spain:
12.25%, 3/25/00 Sp. 69,830,000 632,730
11.30%, 1/15/02 Sp. 61,200,000 543,636
10.00%, 2/28/05 Sp. 44,400,000 371,342
International Bank Recon/Dev.:
6.75%, 3/15/00 Jpn. 68,000,000 795,479
7.125%, 4/12/05 Ger. 855,000 633,984
Kingdom of Denmark,
8.00%, 11/15/01 Den. 3,429,000 662,746
Kingdom of Norway,
6.125%, 5/05/98 Ger. 1,700,000 1,236,428
Kingdom of Sweden:
10.25%, 5/05/03 Swe. 2,500,000 416,608
9.00%, 4/20/09 Swe. 1,700,000 266,037
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
-------------- -----------
<S> <C> <C> <C>
New South Wales Treasury Corp., 7.00%,
2/01/00 Aus. 2,300,000 $ 1,667,974
NHA, Bank Nova Scotia,
6.375%, 11/01/97 Can. 294,183 215,764
NHA, CIBC,
8.25%, 6/01/97 Can. 491,461 369,502
Thailand Military Bank, CD
11.00%, 6/05/96 Thai. 12,000,000 473,402
Treasury Corp. of Victoria,
8.25%, 10/15/03 Aus. 1,260,000 935,186
U.S. Treasury Bonds:
7.25%, 5/15/16 U.S. 102,000 116,471
7.625%, 2/15/25 U.S. 335,000 409,641
U.S. Treasury Notes:
7.50%, 11/15/01 U.S. 320,000 352,451
7.25%, 5/15/04 U.S. 2,000,000 2,220,000
11.625%, 11/15/04 U.S. 150,000 212,297
United Kingdom:
9.50%, 1/15/99 U.K. 190,000 318,396
6.75%, 11/26/04 U.K. 445,000 661,709
United Mexican States, FRN,
7/20/97, 144A U.S. 650,000 664,625
-----------
TOTAL BONDS--GOVERNMENT &
GOVERNMENT AGENCIES
(cost $21,764,718) 22,265,730
-----------
SHORT TERM OBLIGATIONS: 6.2%
Federal Home Loan Mortgage Corp., 5.65%,
1/18/96 U.S. 100,000 99,751
IBM Australia, 12.00%, 3/26/96 Aus. 950,000 714,068
Sweden Treasury Bill,
8.68%, 11/20/96 Swe. 2,000,000 279,052
U.S. Treasury Bills,
4.92% to 5.40% with
maturities to 2/29/96 U.S. 940,000 935,485
-----------
TOTAL SHORT TERM OBLIGATIONS
(cost $2,029,764) 2,028,356
-----------
TOTAL INVESTMENTS: 97.0%
(cost $31,272,357) 31,918,356
UNREALIZED GAIN ON FORWARD EXCHANGE
CONTRACTS: 0.1% (Note 5) 9,899
OTHER ASSETS, LESS LIABILITIES: 2.9% 981,697
-----------
TOTAL NET ASSETS: 100.0% $32,909,952
===========
</TABLE>
* PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<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
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<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 .05 .03 .02 .03 .05
Dividends from net investment
income (.05) (.03) (.02) (.03) (.05)
------- ------- ------- ------- -------
Change in net asset value -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN* 5.35% 3.48% 2.41% 3.10% 5.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $20,723 $33,090 $16,992 $21,454 $22,046
Ratio of expenses to average net
assets .63% .71% .75% .69% .70%
Ratio of net investment income to
average net assets 5.29% 3.56% 2.38% 3.02% 5.28%
</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 Money Market Fund
Investment Portfolio, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C> <C>
GOVERNMENT & GOVERNMENT
AGENCIES: 86.9%
Federal Farm Credit Bank:
5.77%, 1/23/96 U.S. $1,065,000 $ 1,061,359
5.65%, 1/25/96 U.S. 1,000,000 996,233
Federal Home Loan Bank:
5.66%, 1/08/96 U.S. 1,960,000 1,957,843
5.65%, 1/08/96 U.S. 1,000,000 998,901
5.58%, 1/18/96 U.S. 1,000,000 997,365
5.57%, 2/21/96 U.S. 500,000 496,055
5.54%, 2/28/96 U.S. 1,200,000 1,189,289
Federal Home Loan Mortgage Corp.:
5.65%, 1/16/96 U.S. 1,050,000 1,047,528
5.58%, 1/26/96 U.S. 1,190,000 1,185,389
5.42%, 2/22/96 U.S. 1,000,000 992,171
Federal National Mortgage Assn.:
5.67%, 1/16/96 U.S. 1,000,000 995,668
5.67%, 1/24/96 U.S. 1,500,000 1,494,566
5.57%, 1/29/96 U.S. 1,000,000 994,488
9.35%, 2/12/96 U.S. 2,000,000 2,008,111
6.46%, 3/27/96 U.S. 1,600,000 1,599,783
-----------
TOTAL GOVERNMENT &
GOVERNMENT AGENCIES 18,014,749
-----------
<CAPTION>
MATURITY
VALUE
----------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS: 11.6%
Chase Securities Inc., 5.50%, 1/02/96
Collateralized by $955,000
U.S. Treasury Note,
7.875%, 4/15/98, Value $1,024,000 U.S. 1,000,611 1,000,000
SBC Capital Markets Inc., 5.80%, 1/02/96
Collateralized by $1,395,000
U.S. Treasury Note,
5.80%, 8/31/97, Value $1,412,000 U.S. 1,407,907 1,407,000
-----------
TOTAL REPURCHASE AGREEMENTS 2,407,000
-----------
TOTAL INVESTMENTS: 98.5%
(cost $20,421,749) 20,421,749
OTHER ASSETS, LESS LIABILITIES: 1.5% 301,665
-----------
TOTAL NET ASSETS: 100.0% $20,723,414
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $386,058,974) $492,881,891
Cash 5,288
Receivables:
Investment securities sold 11,253,634
Fund shares sold 1,117,549
Dividends and interest 897,106
------------
Total assets 506,155,468
------------
Liabilities:
Payables:
Investment securities purchased 6,722,997
Fund shares redeemed 242,139
Accrued expenses 413,203
------------
Total liabilities 7,378,339
------------
Net assets, at value $498,777,129
============
Net assets consist of:
Undistributed net investment income $ 9,623,498
Net unrealized appreciation 106,822,917
Accumulated net realized gain 44,353,369
Net capital paid in on shares of beneficial interest 337,977,345
------------
Net assets, at value $498,777,129
============
Shares outstanding 23,939,892
============
Net asset value per share ($498,777,129 / 23,939,892) $ 20.83
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<S> <C> <C>
Investment income: (net of $729,511 foreign taxes
withheld)
Dividends $9,440,530
Interest 3,211,348
----------
Total income $12,651,878
Expenses:
Management fees (Note 3) 2,102,259
Administrative fees (Note 3) 558,645
Custodian fees 133,228
Reports to shareholders 49,500
Audit fees 33,000
Legal fees (Note 3) 3,500
Registration and filing fees 15,000
Trustees' fees and expenses 21,500
Other 13,724
----------
Total expenses 2,930,356
-----------
Net investment income 9,721,522
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 44,862,339
Foreign currency transactions (397,321)
----------
44,465,018
Net unrealized appreciation on investments 44,760,510
----------
Net realized and unrealized gain 89,225,528
-----------
Net increase in net assets resulting from
operations $98,947,050
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 9,721,522 $ 6,368,933
Net realized gain on investment and foreign cur-
rency transactions 44,465,018 2,662,297
Net unrealized appreciation (depreciation) 44,760,510 (19,221,431)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 98,947,050 (10,190,201)
Distributions to shareholders:
From net investment income (6,245,065) (3,863,504)
From net realized gain (809,545) --
Fund share transactions (Note 2) 28,036,136 94,510,645
------------ ------------
Net increase in net assets 119,928,576 80,456,940
Net assets:
Beginning of year 378,848,553 298,391,613
------------ ------------
End of year $498,777,129 $378,848,553
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $324,652,230) $356,426,755
Cash 362,265
Receivables:
Investment securities sold 1,938,071
Fund shares sold 1,272,118
Dividends and interest 884,536
------------
Total assets 360,883,745
------------
Liabilities:
Payables:
Investment securities purchased 7,253,686
Fund shares redeemed 168,932
Accrued expenses 319,953
------------
Total liabilities 7,742,571
------------
Net assets, at value $353,141,174
============
Net assets consist of:
Undistributed net investment income $ 5,864,553
Net unrealized appreciation 31,774,525
Accumulated net realized gain 1,739,282
Net capital paid in on shares of beneficial interest 313,762,814
------------
Net assets, at value $353,141,174
============
Shares outstanding 23,339,666
============
Net asset value per share
($353,141,174 / 23,339,666) $ 15.13
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<S> <C> <C>
Investment income: (net of $751,735
foreign taxes withheld)
Dividends $ 5,476,175
Interest 2,181,702
-----------
Total income $ 7,657,877
Expenses:
Management fees (Note 3) 1,222,834
Administrative fees (Note 3) 312,500
Custodian fees 115,500
Reports to shareholders 23,160
Audit fees 21,000
Legal fees (Note 3) 3,000
Registration and filing fees 48,000
Trustees' fees and expenses 14,738
Other 6,518
-----------
Total expenses 1,767,250
-----------
Net investment income 5,890,627
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 1,836,770
Foreign currency transactions (14,475)
-----------
1,822,295
Net unrealized appreciation on investments 30,394,794
-----------
Net realized and unrealized gain 32,217,089
-----------
Net increase in net assets resulting from operations $38,107,716
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 5,890,627 $ 1,530,321
Net realized gain on investment and foreign
currency transactions 1,822,295 435,785
Net unrealized appreciation (depreciation) 30,394,794 (6,228,265)
------------ ------------
Net increase (decrease) in net assets
resulting from operations 38,107,716 (4,262,159)
Distributions to shareholders:
From net investment income (1,444,552) (310,975)
From net realized gain (619,093) (894,051)
Fund share transactions (Note 2) 167,006,724 111,680,756
------------ ------------
Net increase in net assets 203,050,795 106,213,571
Net assets:
Beginning of year 150,090,379 43,876,808
------------ ------------
End of year $353,141,174 $150,090,379
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $341,148,484) $401,914,422
Cash 46,407
Receivables:
Investment securities sold 15,744,757
Fund shares sold 671,176
Dividends and interest 4,240,129
Unrealized gains on forward exchange contracts (Note 5) 35,632
------------
Total assets 422,652,523
------------
Liabilities:
Payables:
Investment securities purchased 15,900,232
Fund shares redeemed 287,426
Unrealized loss on forward exchange contracts (Note 5) 12,567
Accrued expenses 329,330
------------
Total liabilities 16,529,555
------------
Net assets, at value $406,122,968
============
Net assets consist of:
Undistributed net investment income $ 12,864,511
Net unrealized appreciation 60,774,729
Accumulated net realized gain 9,625,166
Net capital paid in on shares of beneficial interest 322,858,562
------------
Net assets, at value $406,122,968
============
Shares outstanding 21,689,044
============
Net asset value per share ($406,122,968 / 21,689,044) $ 18.72
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<S> <C> <C>
Investment income: (net of $410,348 foreign taxes
withheld)
Dividends $ 4,886,747
Interest 10,353,283
-----------
Total income $15,240,030
Expenses:
Management fees (Note 3) 1,662,023
Administrative fees (Note 3) 437,041
Custodian fees 76,000
Reports to shareholders 45,000
Audit fees 25,000
Legal fees (Note 3) 1,500
Registration and filing fees 20,000
Trustees' fees and expenses 18,500
Other 6,001
-----------
Total expenses 2,291,065
-----------
Net investment income 12,948,965
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 13,442,755
Foreign currency transactions (877,130)
-----------
12,565,625
-----------
Net unrealized appreciation on:
Investments 44,809,432
Foreign currency translations of other assets and
liabilities 247,439
-----------
45,056,871
-----------
Net realized and unrealized gain 57,622,496
-----------
Net increase in net assets resulting from operations $70,571,461
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 12,948,965 $ 9,666,407
Net realized gain (loss) on investment and for-
eign currency transactions 12,565,625 (4,437,748)
Net unrealized appreciation (depreciation) 45,056,871 (13,727,789)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 70,571,461 (8,499,130)
Distributions to shareholders:
From net investment income (7,825,461) (3,982,153)
From net realized gain -- (841,797)
Fund share transactions (Note 2) 55,204,750 118,135,628
------------ ------------
Net increase in net assets 117,950,750 104,812,548
Net assets:
Beginning of year 288,172,218 183,359,670
------------ ------------
End of year $406,122,968 $288,172,218
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $31,272,357) $31,918,356
Cash 23,571
Receivables:
Investment securities sold 115
Fund shares sold 21,750
Interest 1,027,295
Unrealized gains on forward
exchange contracts (Note 5) 14,646
-----------
Total assets 33,005,733
-----------
Liabilities:
Payables for fund shares redeemed 9,011
Accrued expenses and other 82,023
Unrealized loss on forward
exchange contracts (Note 5) 4,747
-----------
Total liabilities 95,781
-----------
Net assets, at value $32,909,952
===========
Net assets consist of:
Undistributed net investment income $ 2,220,183
Net unrealized appreciation 651,979
Accumulated net realized loss (1,382,684)
Net capital paid in on shares of beneficial interest 31,420,474
-----------
Net assets, at value $32,909,952
===========
Shares outstanding 2,770,281
===========
Net asset value
per share ($32,909,952 / 2,770,281) $ 11.88
===========
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<S> <C> <C>
Interest income $2,471,556
Expenses:
Management fees (Note 3) $ 156,062
Administrative fees (Note 3) 46,117
Custodian fees 7,800
Reports to shareholders 8,800
Audit fees 16,000
Legal fees (Note 3) 2,500
Registration and filing fees 500
Trustees' fees and expenses 1,000
Other 3,355
---------
Total expenses 242,134
----------
Net investment income 2,229,422
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 862,279
Foreign currency transactions (250,013)
---------
612,266
---------
Net unrealized appreciation on:
Investments 1,484,792
Foreign currency translations of other assets and
liabilities 22,139
---------
1,506,931
---------
Net realized and unrealized gain 2,119,197
----------
Net increase in net assets resulting from operations $4,348,619
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,229,422 $ 2,036,843
Net realized gain (loss) on investment and foreign
currency transactions 612,266 (2,557,896)
Net unrealized appreciation (depreciation) 1,506,931 (1,079,199)
----------- -----------
Net increase (decrease) in net assets
resulting from operations 4,348,619 (1,600,252)
Distributions to shareholders:
From net investment income (1,445,139) (1,463,533)
From net realized gain -- (417,139)
Fund share transactions (Note 2) 663,091 3,477,319
----------- -----------
Net increase (decrease) in net assets 3,566,571 (3,605)
Net assets:
Beginning of year 29,343,381 29,346,986
----------- -----------
End of year $32,909,952 $29,343,381
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value and cost $20,421,749
Cash 291,140
Interest receivable 105,823
-----------
Total assets 20,818,712
-----------
Liabilities:
Payables:
Fund shares redeemed 41,897
Dividends 7,581
Accrued expenses 45,820
-----------
Total liabilities 95,298
-----------
Net assets (equivalent to $1.00 per share based
on 20,723,414 shares of beneficial interest outstanding) $20,723,414
===========
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<S> <C> <C>
Interest income $1,258,717
Expenses:
Management fees (Note 3) $74,375
Administrative fees (Note 3) 26,463
Custodian fees 2,400
Reports to shareholders 7,100
Audit fees 13,000
Legal fees (Note 3) 2,500
Registration and filing fees 1,200
Trustees' fees and expenses 5,500
Other 1,802
-------
Total expenses 134,340
----------
Net investment income 1,124,377
Net realized loss on investments (2,159)
----------
Net increase in net assets resulting from operations $1,122,218
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,124,377 $ 896,760
Net realized loss from security transactions (2,159) (6,688)
----------- -----------
Net increase in net assets resulting from opera-
tions 1,122,218 890,072
Distributions to shareholders from net investment
income (1,122,218) (890,072)
Fund share transactions (Note 2) (12,366,721) 16,098,487
----------- -----------
Net increase (decrease) in net assets (12,366,721) 16,098,487
Net assets:
Beginning of year 33,090,135 16,991,648
----------- -----------
End of year $20,723,414 $33,090,135
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<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 consists of 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 that are listed or traded on a recognized national or foreign stock ex-
change 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 securities 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 approved in good faith by the Board of Trustees. Securities held by Temple-
ton 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 International, Asset Allocation, and Bond Funds may enter into for-
ward exchange contracts 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 contracts,
is included in the Statement of Assets and Liabilities. Realized and
unrealized gains and losses are included in the Statement of Operations.
(ii) Currency Option Contracts: Options purchased are recorded as investments;
options written (sold) are accounted for as liabilities. When an option ex-
pires, the premium (original option value) is realized as a gain if the op-
tion 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 between
the premium and the settlement proceeds is realized as a gain or loss. When
securities are acquired or delivered upon exercise of an option, the acquisi-
tion 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 Transactions:
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.
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.
38
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
F. Distributions 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, which are determined in accordance with income tax regulations, 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.
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At December 31, 1995, 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
----------------------------------------------------
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 4,174,973 $ 78,300,364 7,300,635 $128,222,948
Shares issued on
reinvestment of
distributions 416,778 7,056,045 221,703 3,862,069
Shares redeemed (3,012,672) (57,320,273) (2,181,965) (37,574,372)
----------- ------------ ----------- ------------
Net increase 1,579,079 $ 28,036,136 5,340,373 $ 94,510,645
=========== ============ =========== ============
<CAPTION>
TEMPLETON INTERNATIONAL FUND
----------------------------------------------------
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 13,352,012 $186,603,778 9,440,218 $128,557,308
Shares issued on
reinvestment of
distributions 160,096 2,063,645 88,932 1,205,026
Shares redeemed (1,526,461) (21,660,699) (1,346,946) (18,081,578)
----------- ------------ ----------- ------------
Net increase 11,985,647 $167,006,724 8,182,204 $111,680,756
=========== ============ =========== ============
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND
----------------------------------------------------
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 4,076,702 $ 68,918,715 7,349,436 $119,000,722
Shares issued on
reinvestment of
distributions 506,348 7,828,137 298,716 4,821,275
Shares redeemed (1,262,734) (21,542,102) (357,371) (5,686,369)
----------- ------------ ----------- ------------
Net increase 3,320,316 $ 55,204,750 7,290,781 $118,135,628
=========== ============ =========== ============
<CAPTION>
TEMPLETON BOND FUND
----------------------------------------------------
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 468,705 $ 5,243,821 775,899 $ 8,775,844
Shares issued on
reinvestment of
distributions 136,463 1,445,139 167,093 1,874,785
Shares redeemed (538,060) (6,025,869) (654,733) (7,173,310)
----------- ------------ ----------- ------------
Net increase 67,108 $ 663,091 288,259 $ 3,477,319
=========== ============ =========== ============
<CAPTION>
TEMPLETON MONEY MARKET FUND
----------------------------------------------------
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 40,985,931 $ 40,985,931 62,016,452 $ 62,016,452
Shares issued on
reinvestment of
distributions 1,116,228 1,116,228 888,510 888,510
Shares redeemed (54,468,880) (54,468,880) (46,806,475) (46,806,475)
----------- ------------ ----------- ------------
Net increase (decrease) (12,366,721) $(12,366,721) 16,098,487 $ 16,098,487
=========== ============ =========== ============
</TABLE>
39
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
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 investment 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 bil-
lion. 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, but no waiver was made dur-
ing the fiscal year ended December 31, 1995.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $13,000 for the year ended December
31, 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, except for International Fund in which cost
for tax purposes is $324,996,653. 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,
1995, 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 $119,977,709 $ 48,100,532 $ 68,761,610 $ 1,060,752
Unrealized depreciation (13,154,792) (16,670,430) (7,995,672) (414,753)
------------ ------------ ------------ -----------
Net unrealized
appreciation $106,822,917 $ 31,430,102 $ 60,765,938 $ 645,999
============ ============ ============ ===========
Purchases $135,556,431 $191,926,663 $215,859,512 $55,593,176
============ ============ ============ ===========
Sales $130,466,547 $ 11,007,490 $137,258,999 $53,899,232
============ ============ ============ ===========
</TABLE>
At December 31, 1995, Bond Fund had tax basis capital losses of $2,400,000
which may be carried over to offset future capital gains. Such losses expire in
varying amounts to December 31, 2003.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
During the year ended December 31, 1995, Templeton Asset Allocation and Bond
Funds have been parties to financial instruments with off-balance sheet risks,
primarily forward exchange contracts, futures contracts, in order to minimize
the risk to the Funds with respect to their portfolio 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 in-
ability of counterparties to meet the terms of their contracts, future movement
in currency value and interest rates and contract 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, 1995, 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:
140,000,000 Japanese yen for 1,392,896 U.S. dollars,
January 9, 1996 $ 35,180
225,000 Canadian dollars for 165,265 U.S. dollars, January
11, 1996 452
--------
35,632
Unrealized loss from offsetting forward exchange contracts (12,567)
--------
Net unrealized gain in forward exchange contracts $ 23,065
========
TEMPLETON BOND FUND
Contracts to sell:
50,000,000 Japanese yen for 497,463 U.S. dollars, January
9, 1996 $ 12,564
120,000 Canadian dollars for 87,900 U.S. dollars, January
11, 1996 241
1,000,000,000 Italian lira for 628,536 U.S. dollars,
January 31, 1996 1,841
--------
14,646
Unrealized loss from offsetting forward exchange contracts (4,747)
--------
Net unrealized gain in forward exchange contracts $ 9,899
========
</TABLE>
40
<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 Interna-
tional Fund, Templeton Asset Allocation Fund, Templeton Bond Fund and Temple-
ton Money Market Fund series of Templeton Variable Products Series Fund (the
Trust) as of December 31, 1995, and the related statements of operations, the
statements of changes in net assets, and the financial highlights for the pe-
riods indicated in the accompanying financial statements. These financial
statements and financial highlights are the responsibility of the Trust's man-
agement. Our responsibility is to express an opinion on these financial state-
ments 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
highlights 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, 1995, 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 state-
ment 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, 1995, the results of their
operations, the changes in their net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting prin-
ciples.
/s/ McGladrey & Pullen, LLP
New York, New York
January 31, 1996
41
<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701
This report must be preceded or accompanied
by the Templeton Variable Products Series
Fund prospectus which sets 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 A95 02/96
[LOGO OF RECYCLED PAPER APPEARS HERE]
