<PAGE>
----------------------------------------------------------
TEMPLETON
VARIABLE
PRODUCTS
SERIES FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
.International Fund
.Asset Allocation Fund
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
TABLE OF
CONTENTS On the following pages, you will find a letter from the
President and a report on each of the funds you have chosen for
your Templeton Variable Products Series Fund investments:
<S> <C>
LETTER FROM THE PRESIDENT.................................... 2
TEMPLETON INTERNATIONAL FUND................................. 5
TEMPLETON ASSET ALLOCATION FUND.............................. 8
</TABLE>
<PAGE>
LETTER FROM August 15, 1996
THE PRESIDENT Dear Contract Owner:
We are pleased to bring you this semi-annual report of the
Templeton Variable Products Series International and Asset
Allocation Funds for the six months ended June 30, 1996.
During this period, global economic activity was marked by slow
growth outside the U.S. and unexpectedly strong domestic growth.
Emergence of this stronger growth disrupted a seemingly long-
term trend toward subdued growth and declining interest rates in
the U.S.
At the end of 1995, many economists were predicting that high
inventory levels would inhibit manufacturing production in the
U.S. and that consumers would be burdened by excessive personal
debt. These expectations were reinforced by severe winter
weather in many parts of the country and the prolonged budget
stalemate in Washington, D.C. In March 1996, however, the Labor
Department surprised Wall Street when it announced that the
economy had added 509,000 jobs in February, the strongest
monthly employment report in more than a decade. As a result,
long-term interest rates rose significantly and investors became
increasingly concerned about inflation and the possibility that
the Federal Reserve Board would raise short-term rates.
Within this environment, U.S. stock markets performed
exceptionally well as record amounts of money poured into equity
mutual funds. News of all-time market highs appeared nearly
every week, which further encouraged new investments and pushed
stock prices and market multiples even higher. However, as
slower corporate earnings growth and rising interest rates
emerged in the second quarter of the year, stock prices in a
variety of industries began to decline.
European equity markets turned in mixed performances during the
period. The markets in Sweden, Norway, and the Netherlands
performed well, with large gains in the chemical,
pharmaceutical, and banking sectors. However, the stock markets
of core countries such as the United Kingdom and Germany posted
relatively lackluster returns due primarily to their uncertain
economic prospects and low levels of consumer spending. Although
record-low inflation resulted in lower interest rates in these
countries, economic growth was depressed in part by restrictions
on government
<PAGE>
spending required for membership in the European Monetary Union.
This occurred when growth was already faltering and unemployment
was rising.
Emerging market equities performed strongly during the period as
investors re-focused their attention on these securities and
injected much-needed liquidity into many markets. Latin American
equity markets continued to recover from the "Tequila Effect,"
which had depressed stock prices following Mexico's currency
devaluation. Although Mexico has not recovered entirely from
this crisis, its stock market delivered strong returns during
the period, providing evidence that the government's austerity
program has successfully restored investor confidence. Brazil's
market also strengthened after the country's economy improved
significantly as a result of declining inflation and the
relative stability of its currency. The stock markets of
Malaysia, Thailand and Indonesia delivered impressive gains,
mainly because these countries attracted large amounts of
foreign capital due to their undervalued currencies.
With regard to fixed-income securities, many markets struggled
amid concerns about stronger economic growth and rising interest
rates. In the developed markets, the unexpected emergence of
stronger U.S. growth proved particularly troublesome as yields
rose and bond prices declined. Rising U.S. bond yields also
caused yields to rise in Japan and Germany, but because economic
growth was lower in these countries, their bond markets were not
as dramatically affected.
Stronger U.S. growth also increased the value of the dollar
relative to most other major currencies, which negatively
affected fixed-income investments denominated in foreign
currencies. During this reporting period, the dollar appreciated
5.7% versus the German mark, and 5.6% versus the Japanese yen.
Much of this appreciation resulted from expectations that the
U.S. Federal Reserve Board would raise interest rates to help
restrain economic growth.
Bond markets in developing countries fared much better than
their developed-market counterparts due primarily to improved
economic fundamentals and increased investor interest. The J.P.
Morgan Emerging Markets Bond Index, which tracks the performance
of bond markets in nine developing countries, delivered a total
return of 13.19% for the six months ended June 30, 1996, while
the Salomon Brothers World Government Bond
<PAGE>
Index, representative of government bonds in 14 developed
countries, reported a total return of -1.47% for the same
period.*
Looking forward, we believe the most important influences on
global stock and bond markets are likely to be the
sustainability of U.S. economic growth, the direction of the
dollar, and the prospects for a rebound in the core European
economies. Although we do not expect global economic growth to
increase substantially, we believe that the U.S. economy may be
in the midst of renewed growth that could last through the end
of the summer. We shall monitor these and other events as we
continue to search the world for the best possible investment
opportunities.
We appreciate your participation in the Templeton Variable
Products Series International and Asset Allocation Funds and
look forward to serving your investment needs in the years to
come.
Sincerely,
/s/ Charles E. Johnson
Charles E. Johnson
President
Templeton Variable Products Series Fund
*Indices are unmanaged and include price appreciation and
reinvested interest.
<PAGE>
TEMPLETON The Templeton International Fund seeks long-term capital growth
INTERNATIONAL through a flexible policy of investing in stocks and debt
FUND obligations of companies and governments outside the United
States.
We are pleased to report that the Fund provided a total return
of 10.90% for the six-month period ended June 30, 1996, as
discussed in the Performance Summary on page 7. It outperformed
its benchmark, the Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index, which posted a total return of
4.67% for the same period.* The Fund's strong performance was
primarily the result of our bottom-up, value style of investing
and our relative overweighting in markets that performed
exceptionally well during the period.
European holdings continued to comprise our largest geographic
exposure, representing 59.1% of the Fund's total net assets, up
from 56.9% on December 31, 1995. Compared to the EAFE Index, the
Fund was overweighted in Sweden, Norway, and the Netherlands--
three countries whose markets posted double-digit returns during
the period. These overweightings helped offset the relatively
lackluster returns of core European countries such as Germany
and the United Kingdom. Spain's equity market also performed
well, with large gains in the banking and telecommunications
industries. The share price of Telefonica de Espana SA, one of
Spain's largest telephone companies and the Fund's fifth largest
holding, appreciated 33% during the period. Although
Switzerland's equity market lagged behind other European
markets, our investments in Swiss pharmaceutical company Ciba-
Geigy AG, electricity company ABB AG (formerly BBC Brown Boveri
Ltd.), and food manufacturer
*Index is unmanaged and includes reinvested dividends.
[PIE CHART APPEARS HERE]
TEMPLETON INTERNATIONAL FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
<TABLE>
<S> <C>
Europe 59.1%
Asia 9.8%
Australia & New Zealand 7.2%
Latin America 6.7%
North American 5.3%
Short-Term Obligation
Other Net Assets 11.9%
</TABLE>
Nestle SA all outperformed the overall Swiss market. Following
strong performance by the company's stock, we sold our shares of
Nestle for a gain.
Latin American equity markets rebounded strongly as a result of
improved economic fundamentals and renewed interest by foreign
investors. The telecommunications and electric utility
industries performed well as demand for their services continued
to grow throughout many Latin American countries. This growth
led to higher stock prices for Compania de Telecomunicaciones de
Chile SA, a large Chilean telephone company and Telebras-
Telecomunicacoes Brasileiras SA, Brazil's largest phone company.
We believe that Latin American utilities markets should continue
to grow rapidly due to upcoming regulatory changes. For example,
Brazil is expected to deregulate its telephone industry over the
next few years, which should provide Telebras with significant
growth potential.
<PAGE>
Many Asian stock markets strengthened during the first four
months of 1996, but then declined in May and June as a result of
profit taking and growing concerns about economic fundamentals.
We took advantage of this weakness by adding to our holdings of
Consolidated Electric Power Asia Ltd., a Hong Kong-based
electric utility company, and initiating a position in Asia Pulp
& Paper Co. Ltd., a large Indonesian paper company. We continued
to limit our exposure to Japan, whose stock market ended the
period with only a slight gain in U.S. dollar terms. This was
beneficial to the Fund's performance because as of June 30,
1996, our Japanese holdings represented just 0.9% of total net
assets, compared with nearly a 40% weighting in the EAFE Index.
Although price/earnings ratios have come down since 1994, we
believe Japanese stocks remain very expensive by global
standards.
This discussion reflects the strategies we employed for the Fund
during the six-month reporting period, 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 as new circumstances 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.
<TABLE>
<CAPTION>
-------------------------------------------------------
TEMPLETON
INTERNATIONAL FUND
Top 10 Holdings on 6/30/96
Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
-------------------------------------------------------
<S> <C>
Volvo AB, B
Automobiles, Sweden 1.9%
-------------------------------------------------------
Stadshypotek AB, A
Banking, Sweden 1.6%
-------------------------------------------------------
Telecom Italia Spa, di Risp
Telecommunications, Italy 1.6%
-------------------------------------------------------
GIO Australia Holdings Ltd.
Insurance, Australia 1.5%
-------------------------------------------------------
Telefonica de Espana SA, ADR
Telecommunications, Spain 1.4%
-------------------------------------------------------
Fletcher Challenge Ltd., Forestry Division
Forest Products & Paper, New Zealand 1.4%
-------------------------------------------------------
Regie Nationale des Usines Renault SA
Automobiles, France 1.4%
-------------------------------------------------------
Compania Sevillana de Electricidad
Utilities--Electrical & Gas, Spain 1.4%
-------------------------------------------------------
Rhone-Poulenc SA, A
Chemicals, France 1.4%
-------------------------------------------------------
National Westminster Bank PLC
Banking, United Kingdom 1.4%
-------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 12 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.
<PAGE>
PERFORMANCE The Templeton International Fund provided a total return of
SUMMARY 10.90% for the six-month period ended June 30, 1996. Total
return represents the percent change in the Fund's share price,
as measured by net asset value, and includes reinvestment of
dividends and capital gains. This figure and all performance
figures shown to the right reflect all Fund operating expenses,
but do not include deductions 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. If
they had been included, performance would have been lower. For a
complete description of expenses, including any applicable sales
charges, please refer to the contract prospectus.
It should be remembered that performance data is historical and
cannot predict or guarantee future results. Principal value and
investment return will fluctuate with
<TABLE>
<CAPTION>
--------------------------------------------------------------
TEMPLETON INTERNATIONAL FUND
Periods ended 6/30/96
--------------------------------------------------------------
<S> <C> <C> <C>
Since
Inception
1-Year 3-Year (5/1/92)
Average Annual
Total Return/1/ 18.83% 17.95% 14.17%
Cumulative
Total Return/2/ 18.83% 64.11% 73.62%
Value of $10,000
Investment/3/ $11,883 $16,411 $17,362
</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 over the periods indicated and assumes
reinvestment of dividends and capital gains.
3. These figures represent the value of a hypothetical $10,000
investment in the Fund over the specified periods and assume
reinvestment of dividends and capital gains.
--------------------------------------------------------------
market conditions, currencies and the economic and political
climates of the countries where investments are made, and you
may have a gain or loss when you withdraw money.
<PAGE>
TEMPLETON The Templeton Asset Allocation Fund seeks a high level of total
ASSET return through a flexible policy of investing in stocks of
ALLOCATION companies in any nation, debt obligations of companies and
FUND governments of any nation, and money market instruments. The
Fund's assets are allocated among different investments
depending upon worldwide market and economic conditions.
As of June 30, 1996, the Fund's assets were invested as follows:
64.9% equities, 26.4% bonds, and 8.7% short-term obligations and
other net assets.
Many global equity markets performed strongly during the six
months under review. U.S. stocks continued to appreciate, mainly
due to a stronger dollar and record amounts of cash flowing into
equity mutual funds. As stronger-than-expected economic growth
emerged in the second half of the period, investors began to
favor stocks of companies with accelerating revenues and
increasing profits. After a two-year lull, retail stocks
rebounded in response to stronger sales, cost-cutting and
restructuring measures by many companies. Rising stock prices of
retailers such as Federated Department Stores, Home Depot Inc.
and Sears Roebuck & Co. provided significant gains for the Fund.
The telecommunications industry also rebounded following
Congress' approval of the Telecommunications Bill, which enables
companies to enter new markets and offer customers one-stop
shopping for their communications needs. In our opinion, the
Fund's holdings of Lucent Technologies Inc., a recent spin-off
from AT&T Corp., and MCI Communications Corp. should benefit
from this deregulation.
----------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 6/30/96
Based on Total Net Assets
Stocks 64.9%
[PIE CHART APPEARS HERE] Bonds 26.4%
Short-Term Obligations &
Other Net Assets 8.7%
European equity markets delivered mixed performances during the
period. Markets in Sweden, Norway, and the Netherlands
strengthened, while those in core countries such as Germany and
the United Kingdom lagged considerably. Spain's stock market
flourished, with large gains in the banking, electric utility,
and telecommunications industries. Rising stock prices of
Spanish companies such as Telefonica de Espana SA, Endesa-
Empressa Nacional de Electricidad SA, and Iberdrola SA provided
substantial gains for the Fund.
During the reporting period, Latin American stock markets
rebounded in response to improved economic fundamentals and
renewed interest by foreign investors. The telecommunications
and electric utility industries performed well
<PAGE>
as demand for their services continued to grow throughout many
countries. This led to significant appreciation for the Fund's
holdings of Telefonica de Argentina SA (Argentina) and Telebras-
Telecomunicacoes Brasileiras SA (Brazil). We believe that Latin
American utilities markets should continue to grow rapidly
because of impending regulatory changes. For example, Brazil is
expected to deregulate its telephone industry within the next
few years, which should provide Telebras with significant growth
potential.
With regard to fixed-income securities, many global markets
declined during the reporting period due to rising interest
rates and a stronger U.S. dollar. Rising interest rates in
several developed countries caused bond prices to decline, and
the appreciation of the dollar eroded the
----------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
Europe 38.3%
United States 33.4%
Asia 6.2%
[PIE CHART APPEARS HERE] Latin America 5.5%
Australia & New Zealand 5.5%
Canada 2.4%
Short-Term Obligations &
Other Net Assets 8.7%
value of bonds denominated in foreign currencies. Responding to
these conditions, we took a more conservative approach with
regard to the Fund's bond maturities and currency exposure. The
Fund began the reporting period holding bonds with maturities
that were somewhat longer than the market average, and therefore
more susceptible to interest rate movements. As interest rates
started to rise, we began reducing the average maturity of the
portfolio, which enabled us to preserve capital in the midst of
a difficult, rising interest-rate environment. From a currency
perspective, we significantly increased the Fund's exposure to
the dollar, while reducing its exposure to the lower-yielding
currencies of France and Germany.
This discussion reflects the strategies we employed for the Fund
during the six-month reporting period, 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 as new circumstances 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.
<PAGE>
PERFORMANCE The Templeton Asset Allocation Fund provided a total return of
SUMMARY 8.27% for the six-month period ended June 30, 1996. Total
return represents the percent change in the Fund's share price,
as measured by net asset value, and includes reinvestment of
dividends and capital gains. This figure and all performance
figures shown to the right reflect all Fund operating expenses,
but do not include deductions 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. If
they had been included, performance would have been lower. For a
complete description of expenses, including any applicable sales
charges, please refer to the contract prospectus.
It should be remembered that performance data is historical and
cannot predict or guarantee future results. Principal value and
investment return will fluctuate with
<TABLE>
<CAPTION>
---------------------------------------------------------
TEMPLETON
ASSET ALLOCATION FUND
Periods ended 6/30/96
---------------------------------------------------------
<S> <C> <C> <C>
Since
Inception
1-Year 5-Year (8/24/88)
Average Annual
Total Return/1/ 18.46% 15.35% 11.80%
Cumulative
Total Return/2/ 18.46% 104.23% 139.94%
Value of $10,000
Investment/3/ $11,846 $20,423 $23,994
---------------------------------------------------------
</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 over the periods indicated and assumes
reinvestment of dividends and capital gains.
3. These figures represent the value of a hypothetical $10,000
investment in the Fund over the specified periods and assume
reinvestment of dividends and capital gains.
---------------------------------------------------------
market conditions, currencies and the economic and political
climates of the countries where investments are made, and you
may have a gain or loss when you withdraw money.
<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
SIX MONTHS MAY 1, 1992
ENDED YEAR ENDED DECEMBER 31 (COMMENCEMENT
JUNE 30, 1996 --------------------------- OF OPERATIONS) TO
(UNAUDITED) 1995 1994 1993 DECEMBER 31, 1992
------------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.13 $ 13.22 $ 13.83 $ 9.39 $ 10.00
-------- -------- -------- ------- -------
Income from investment
operations:
Net investment income .32 .23 .12 .10 .06
Net realized and
unrealized gain (loss) 1.31 1.83 (.42) 4.34 (.67)
-------- -------- -------- ------- -------
Total from investment
operations 1.63 2.06 (.30) 4.44 (.61)
-------- -------- -------- ------- -------
Distributions:
Dividends from net
investment income (.24) (.10) (.08) -- --
Distributions from net
realized gains (.07) (.05) (.23) -- --
-------- -------- -------- ------- -------
Total distributions (.31) (.15) (.31) -- --
-------- -------- -------- ------- -------
Change in net asset
value 1.32 1.91 (.61) 4.44 (.61)
-------- -------- -------- ------- -------
Net asset value, end of
period $ 16.45 $ 15.13 $ 13.22 $ 13.83 $ 9.39
======== ======== ======== ======= =======
TOTAL RETURN* 10.90% 15.78% (2.22)% 47.28% (6.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $534,360 $353,141 $150,090 $43,877 $ 7,050
Ratio of expenses to
average net assets .65%** .71% .83% .95% 1.40%**
Ratio of expenses, net
of reimbursement, to
average net assets .65%** .71% .83% .95% 1.00%**
Ratio of net investment
income to average net
assets 5.01%** 2.36% 1.89% 1.62% 1.76%**
Portfolio turnover rate 5.79% 5.19% 6.32% 15.65% 4.50%
Average commission rate
paid (per share) $ .0163
</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.
11
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS: 86.6%
Appliances & Household Durables: 0.5%
Email Ltd. 432,000 $ 1,120,446
Sony Corp. 21,000 1,383,561
------------
2,504,007
------------
Automobiles: 4.1%
Regie Nationale des Usines Renault SA 296,000 7,647,062
Volkswagen AG 10,500 3,912,421
Volvo AB, B 455,000 10,376,831
------------
21,936,314
------------
Banking: 17.1%
ABN AMRO NV 99,050 5,319,836
Argentaria Corporacion Bancaria de Espana SA 135,600 5,921,675
Argentaria Corporacion Bancaria de Espana SA, ADR 7,300 160,600
Australia & New Zealand Banking Group Ltd. 1,037,510 4,908,877
Banco Bilbao Vizcaya 9,000 364,908
Banco Ganadero SA, ADR C 20,000 390,000
Banco Popular Espanol 16,000 2,854,888
Bangkok Bank Public Co. Ltd., fgn. 373,800 5,064,881
Bankinter SA 32,000 3,582,360
Banque Nationale de Paris 185,000 6,498,421
Banque Nationale de Paris, ADR, 144A 11,800 414,494
Barclays PLC 30,200 362,539
BPI Socieda de Gestora de Participacoes Socias SA 18,700 237,110
Canadian Imperial Bank of Commerce 160,000 5,162,424
CS Holding, reg. 10,000 951,810
Daegu Bank Co. Ltd. 40,000 590,631
Den Norske Bank 1,880,000 5,706,582
HSBC Holdings PLC 35,800 5,411,104
*Merita Ltd., A 3,400,000 7,194,136
National Bank of Canada 440,000 3,674,052
National Westminster Bank PLC 766,000 7,327,867
*PT Panin Bank, fgn. 250,000 230,934
Shinhan Bank Co. Ltd. 30,600 700,646
Sparbanken Sverige AB, A, 144A 152,000 1,974,324
Stadshypotek AB, A 375,000 8,382,420
Svenska Handelsbanken, A 48,000 1,004,078
Unidanmark AS, A 150,000 6,964,834
------------
91,356,431
------------
Broadcasting & Publishing: 0.5%
News Corp. Ltd., ADR 125,200 2,942,200
------------
Building Materials & Components: 0.4%
*Cementos Paz del Rio SA, ADR, 144A 21,000 278,250
Cie de Saint Gobain 13,454 1,801,974
------------
2,080,224
------------
Chemicals: 5.3%
Akzo Nobel NV 58,000 6,954,559
DSM NV 16,000 1,590,150
European Vinyls Corp. EVC International NV 50,000 1,553,797
Kemira OY, 144A 563,632 5,902,161
Rhone-Poulenc SA, A 279,800 7,359,079
Solvay SA 8,100 5,013,737
------------
28,373,483
------------
Data Processing & Reproduction: 1.1%
*Newbridge Networks Corp. 90,000 5,895,000
------------
Electrical & Electronics: 3.4%
ABB AG, br. 4,000 4,952,609
Alcatel Alsthom SA 72,000 6,284,298
Hitachi Ltd. 250,000 2,330,150
Philips Electronics NV 135,000 4,393,140
------------
17,960,197
------------
Electronic Components & Instruments: 0.9%
BICC 1,000,000 4,814,263
------------
Energy Equipment & Services: 0.3%
Koninklijke Pakhoed NV 55,000 1,435,063
------------
Energy Sources: 2.9%
Hafslund ASA, B 65,000 415,636
Repsol SA 2,500 87,008
Societe Elf Aquitane SA 87,200 6,417,635
Total SA, B 70,000 5,195,315
YPF Sociedad Anonima, ADR 144,700 3,255,750
------------
15,371,344
------------
Financial Services: 1.3%
Baer Holding AG 5,100 5,506,899
Invesco PLC 65,000 233,181
Korea Fund Inc. 45,660 964,568
London Pacific Group Ltd. 23,600 94,375
Peregrine Investments Holdings Ltd. 300,000 432,129
*Peregrine Investments Holdings Ltd., wts. 30,000 3,721
------------
7,234,873
------------
Food & Household Products: 2.0%
Burns Philp & Co. Ltd. 1,878,200 3,542,799
*Grupo Embotellador de Mexico SA, B 250,800 456,301
*Grupo Embotellador de Mexico SA de CV, GDR 38,200 405,875
Northern Foods PLC 2,183,100 6,272,107
Vitro SA 26,700 61,954
Vitro SA, ADR 12,720 87,450
------------
10,826,486
------------
Forest Products & Paper: 5.6%
*Asia Pulp & Paper Co. Ltd., ADR 369,600 4,527,600
Assidomaen AB 60,000 1,400,091
Cartiere Burgo SPA 21,600 118,100
*Enso OY, R 200,000 1,558,873
Fletcher Challenge Ltd., Forestry Division 6,166,000 7,678,388
Kimberly Clark de Mexico SA, A 159,500 2,912,426
Metsa Serla OY, B 402,250 2,866,049
Munksjo AB 70,000 549,766
Norske Skogindustrier AS, A 141,400 4,270,291
Stora Kopparbergs Bergslags AB, B 300,000 3,964,658
------------
29,846,242
------------
</TABLE>
12
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Health & Personal Care: 3.7%
Astra AB, A 30,000 $ 1,327,594
Astra AB, B 52,000 2,269,748
Ciba-Geigy AG 4,000 4,879,024
*Nycomed ASA, B 65,000 901,380
Pharmacia & Upjohn Inc. 119,800 5,316,125
Smithkline Beecham PLC, A, ADR 90,000 4,882,500
------------
19,576,371
------------
Insurance: 5.9%
Aegon NV 28,352 1,306,636
Baloise-Holding 1,600 3,480,904
GIO Austrailia Holdings Ltd. 3,280,000 8,068,849
ING Groep NV 112,500 3,357,520
London Insurance Group Inc. 50,000 1,047,427
Partnerre Ltd. 230,000 6,871,250
Skandia Foersaekrings AB, free 270,000 7,156,774
Swiss Reinsurance Co. 400 411,118
------------
31,700,478
------------
Machinery & Engineering: 0.4%
Hitachi Koki Co. Ltd. 101,000 996,756
Valmet OY 78,000 1,322,020
------------
2,318,776
------------
Merchandising: 3.7%
Argyll Group PLC 1,200,000 6,466,642
*Cifra SA, B 2,470,000 3,575,557
Dairy Farm International Holdings Ltd. 839,000 708,955
Karstadt AG 5,000 1,992,962
Koninklijke Bijenkorf Beheer NV 80,300 6,789,364
------------
19,533,480
------------
Metals & Mining: 1.8%
Boehler Uddeholm AG 39,610 3,071,547
China Steel Corp., ADR, 144A 10,000 257,500
Companhia Siderurgica Nacional 12,700,000 323,776
Maanshan Iron & Steel Co. Ltd., H 1,000,000 175,694
*Pechiney SA, A 134,145 5,421,343
SIG (Schweizerische Industrie Gesellschaft) Holdings
AG 160 378,804
------------
9,628,664
------------
Multi-Industry: 3.4%
Cheung Kong Holdings Ltd. 850,000 6,121,823
Hutchison Whampoa Ltd. 600,000 3,774,828
Jardine Matheson Holdings Ltd. 566,800 4,165,980
Jardine Strategic Holdings Ltd. 225,000 720,000
*Jardine Strategic Holdings Ltd., wts. 25,000 7,750
Swire Pacific Ltd., A 400,000 3,423,441
------------
18,213,822
------------
Real Estate: 0.4%
*Fastighets AB Tornet, A 15,200 123,969
Hang Lung Development Co. Ltd. 700,000 1,315,764
New World Development Co. Ltd. 152,783 708,576
------------
2,148,309
------------
Recreation & Other Consumer Goods: 0.2% ------------
*SMH AG, br. 1,800 $ 1,252,549
------------
Telecommunications: 10.1%
Compania de Telecomunicaciones de Chile SA, ADR 28,300 2,776,938
Hong Kong Telecommunications Ltd. 2,100,000 3,770,952
Koninklijke PTT Nederland 120,000 4,545,295
Philippine Long Distance Telephone Co., ADR 4,000 232,500
STET (Sta Finanziaria Telefonica Torino) SPA, di Risp 1,850,000 4,867,309
Telecom Italia Spa, di Risp 4,850,000 8,333,736
Tele Danmark AS, B 123,750 6,231,862
Telefonica de Argentina SA, B, ADR 198,000 5,865,750
Telefonica de Espana SA, ADR 140,000 7,717,500
Telefonica de Peru, B 2,812,143 5,709,468
Telefonos de Mexico SA, L, ADR 112,600 3,772,100
------------
53,823,410
------------
Transportation: 0.8%
Koninklijke Nedlloyd NV 24,800 571,469
Qantas Airways Ltd., ADR, 144A 231,900 3,956,794
------------
4,528,263
------------
Utilities--Electrical & Gas: 10.8%
Australian Gas & Light Company 1,000,000 4,157,661
British Gas PLC 1,300,000 3,633,992
*CEZ 19,000 756,188
Compania Sevillana de Electricidad 802,368 7,396,541
Consolidated Electric Power Asia Ltd. 1,495,700 2,473,269
Consolidated Electric Power Asia Ltd., ADR, 144A 32,000 528,000
Electricas Reunidas de Zaragoza 41,250 1,127,886
Electricidad de Caracas 816,242 678,563
Endesa-Empresa Nacional de Electricidad SA 1,000 62,419
Endesa-Empresa Nacional de Electricidad SA, ADR 60,000 3,757,500
Evn Energie-Versorgung Niederoesterreich AG 48,600 6,720,045
Hongkong Electric Holdings Ltd. 131,000 399,393
Iberdrola SA 626,500 6,436,057
National Grid Holdings PLC 122,100 322,354
National Power PLC 516,000 4,158,964
Shandong Huaneng Power 100,000 825,000
Southern Electric PLC 172,050 1,902,404
Thames Water Group PLC 799,000 7,035,548
VEBA AG 98,000 5,214,720
------------
57,586,504
------------
TOTAL COMMON STOCKS (cost $401,925,337) 462,886,753
------------
PREFERRED STOCKS: 1.5%
ABN Amro NV, conv., pfd. 803 39,550
Cemig-Cia Energetica de Minas Gerais, pfd. 0,123,000 269,167
Dairy Farm International Holdings Ltd., 6.50%,
conv., pfd. 6,000 4,395
Jardine Strategic Holdings Ltd., 7.50%, conv., 5/07/49 13,000 14,170
News Corp. Ltd., ADR 110,100 2,215,763
</TABLE>
13
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
PREFERRED STOCKS (CONT.)
Telebras-Telecomunicacoes Brasileiras SA, pfd. 4,866,533 $ 339,734
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR 72,500 5,047,813
------------
TOTAL PREFERRED STOCKS (cost $4,527,404) 7,930,592
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY** VALUE
--------------- ------------
<S> <C> <C>
SHORT TERM OBLIGATIONS: 12.0% (cost $64,263,628)
U.S. Treasury Bills 4.83% to 5.10% with
maturities to 9/12/96 U.S. 64,645,000 $ 64,279,313
------------
TOTAL INVESTMENTS: 100.1%
(cost $470,716,369) 535,096,658
OTHER ASSETS, LESS LIABILITIES: (0.1)% (736,990)
------------
TOTAL NET ASSETS: 100.0% $534,359,668
============
</TABLE>
* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1996 ----------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 18.72 $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45
-------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income .39 .57 .44 .42 .39 .40
Net realized and
unrealized gain (loss) 1.11 2.87 (.92) 3.03 .66 2.38
-------- -------- -------- -------- ------- -------
Total from investment
operations 1.50 3.44 (.48) 3.45 1.05 2.78
-------- -------- -------- -------- ------- -------
Distributions:
Dividends from net
investment income (.58) (.41) (.31) (.35) (.41) (.38)
Distributions from net
realized gains (.45) -- (.07) (.04) -- --
-------- -------- -------- -------- ------- -------
Total distributions (1.03) (.41) (.38) (.39) (.41) (.38)
-------- -------- -------- -------- ------- -------
Change in net asset
value .47 3.03 (.86) 3.06 .64 2.40
-------- -------- -------- -------- ------- -------
Net asset value, end of
period $ 19.19 $ 18.72 $ 15.69 $ 16.55 $ 13.49 $ 12.85
======== ======== ======== ======== ======= =======
TOTAL RETURN* 8.27% 22.48% (2.96)% 26.12% 8.42% 27.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $480,778 $406,123 $288,172 $183,360 $79,242 $35,821
Ratio of expenses to
average net assets .64%** .66% .75% .77% .80% .89%
Ratio of net investment
income to average net
assets 4.57%** 3.73% 4.02% 4.16% 4.47% 3.99%
Portfolio turnover rate 41.82% 43.02% 51.36% 81.50% 120.53% 76.65%
Average commission rate
paid (per share) $ .0182
</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.
15
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C> <C>
COMMON STOCKS: 62.6%
Appliances & Household Durables: 0.6%
Sony Corp. 42,000 $ 2,767,122
------------
Automobiles: 3.1%
Fiat Spa 1,285,000 4,335,486
Ford Motor Co. 84,000 2,719,500
General Motors Corp. 40,000 2,095,000
Volvo AB, B 260,000 5,929,618
------------
15,079,604
------------
Banking: 10.6%
Bangkok Bank Public Co. Ltd., fgn. 157,800 2,138,144
BankAmerica Corp. 64,000 4,848,000
Bankinter SA 39,625 4,435,969
Banque Nationale de Paris 130,000 4,566,458
Banque Nationale de Paris, ADR, 144A 5,400 189,684
Barclays PLC 137,500 1,650,632
Canadian Imperial Bank of Commerce 70,000 2,258,561
Citicorp 60,000 4,957,500
Crestar Financial Corp. 32,800 1,750,700
CS Holding, reg. 15,250 1,451,510
Den Norske Bank 2,178,900 6,613,867
HSBC Holdings PLC 282,200 4,265,401
*Komercni Banka AS, GDR, 144A 45,000 1,215,000
*Merita Ltd., A 2,250,000 4,760,825
NationsBank Corp. 30,000 2,478,750
Sparbanken Sverige AB, A, 144A 113,800 1,478,145
Westpac Banking Corp. 449,074 1,987,100
------------
51,046,246
------------
Broadcasting & Publishing: 0.8%
News Corp. Ltd., ADR 160,000 3,760,000
------------
Business & Public Services: 0.7%
WMX Technologies Inc. 100,000 3,275,000
------------
Chemicals: 3.4%
Akzo Nobel NV 48,700 5,839,431
DSM NV 25,000 2,484,609
Rhone-Poulenc SA, A 201,800 5,307,584
Solvay SA 4,000 2,475,920
------------
16,107,544
------------
Data Processing & Reproduction: 4.0%
*Bay Networks Inc. 150,000 3,862,500
*Microsoft Corp. 25,000 3,003,125
*Newbridge Networks Corp. 90,000 5,895,000
*Optical Data Systems Inc. 300,000 6,600,000
------------
19,360,625
------------
Electrical & Electronics: 4.0%
ABB AG, br. 4,260 5,274,529
Alcatel Alsthom SA 27,619 2,410,639
*DSC Communications Corp. 63,900 1,924,988
Hitachi Ltd. 80,000 745,648
Motorola Inc. 94,000 5,910,250
Philips Electronics NV 90,000 2,928,760
------------
19,194,814
------------
Electronic Components & Instruments: 1.1%
BICC 570,000 $ 2,744,130
Intel Corp. 36,000 2,643,750
------------
5,387,880
------------
Energy Sources: 0.6%
Total SA, B 39,000 2,894,533
------------
Financial Services: 3.8%
American Express Co. 129,000 5,756,625
Dean Witter Discover & Co. 74,683 4,275,602
Federal National Mortgage Assn. 160,000 5,360,000
MBNA Corp. 86,250 2,458,125
Peregrine Investments Holdings Ltd. 350,000 504,150
*Peregrine Investments Holdings Ltd., 35,000 4,341
wts. ------------
18,358,843
------------
Food & Household Products: 0.8%
Burns Philp & Co. Ltd. 1,603,300 3,024,262
Unilever NV 3,400 492,407
Unilever PLC 12,300 244,502
------------
3,761,171
------------
Forest Products & Paper: 2.0%
Assidomaen AB 90,000 2,100,136
Carter Holt Harvey Ltd. 293,020 671,320
*Enso OY, R 225,000 1,753,733
International Paper Co. 50,000 1,843,750
Stora Kopparbergs Bergslags AB, B 225,000 2,973,493
------------
9,342,432
------------
Health & Personal Care: 0.5%
Medeva PLC 272,675 1,062,887
Smithkline Beecham PLC, A, ADR 25,000 1,356,250
------------
2,419,137
------------
Industrial Components: 2.1%
Goodyear Tire & Rubber Co. 60,000 2,895,000
Madeco Manufacturera de Cobre SA, ADR 162,500 4,570,313
SKF AB, B 117,500 2,795,084
------------
10,260,397
------------
Insurance: 3.4%
Aetna Life & Casualty Co. 16,700 1,194,050
Allstate Corp. 65,935 3,008,284
ING Groep NV 125,000 3,730,578
Skandia Foersaekrings AB, free 245,000 6,494,110
Torchmark Corp. 45,000 1,968,750
------------
16,395,772
------------
Merchandising: 2.8%
Dairy Farm International Holdings Ltd. 1,000,000 845,000
*Federated Department Stores Inc. 200,000 6,825,000
Home Depot Inc. 65,000 3,510,000
Sears Roebuck & Co. 42,000 2,042,250
------------
13,222,250
------------
</TABLE>
16
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
Metals & Mining: 0.3%
Companhia Siderurgica Nacional 16,100,000 $ 410,457
Reynolds Metals Co. 22,000 1,146,750
------------
1,557,207
------------
Multi-Industry: 2.9%
Cheung Kong Holdings Ltd. 600,000 4,321,287
Hutchison Whampoa Ltd. 444,000 2,793,373
Jardine Matheson Holdings Ltd. 220,800 1,622,880
Jardine Strategic Holdings Ltd. 168,750 540,000
Nokia AB, A 122,000 4,504,324
------------
13,781,864
------------
Real Estate: 0.3%
New World Development Co. Ltd. 303,543 1,407,770
------------
Telecommunications: 7.1%
Alcatel Cable SA 64,500 5,491,763
Lucent Technologies Inc. 63,000 2,386,125
MCI Communications Corp. 196,000 5,022,500
*SPT Telecom AS 31,950 3,901,865
STET (Sta Finanziaria Telefonica Torino) SPA 477,000 1,617,767
STET (Sta Finanziaria Telefonica Torino) SPA, di
Risp 1,200,000 3,157,173
Telefonica de Argentina SA, B, ADR 60,000 1,777,500
Telefonica de Espana SA 260,000 4,793,563
Telefonos de Mexico SA, L, ADR 180,900 6,060,150
------------
34,208,406
------------
Textiles & Apparel: 1.3%
*Fruit of the Loom Inc., A 160,000 4,080,000
Nike Inc., B 20,000 2,055,000
------------
6,135,000
------------
Transportation: 2.7%
Koninklijke Nedlloyd NV 50,000 1,152,155
Qantas Airways Ltd., ADR, 144A 376,000 6,415,500
Stena Line AB, B free 125,100 595,174
Unitor AS 286,000 4,627,083
------------
12,789,912
------------
Utilities-Electrical & Gas: 3.7%
British Gas PLC 3,200,000 8,945,211
*CEZ 7,580 301,679
Endesa-Empresa Nacional de Electricidad SA 30,500 1,903,793
Endesa- Empresa Nacional de Electricidad SA, ADR 22,000 1,377,750
Iberdrola SA 85,000 873,208
*Kohinoor Energy Ltd. 1,167,000 625,089
Pinnacle West Capital Corp. 40,000 1,215,000
Southern Co. 34,000 837,250
VEBA AG 35,000 1,862,400
------------
17,941,380
------------
TOTAL COMMON STOCKS (cost $234,242,162) 300,454,909
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C> <C>
PREFERRED STOCKS: 2.3%
Cemig-Cia Energetica de
Minas Gerais, pfd. 12,676,000 $ 337,050
News Corp. Ltd., pfd. 200,000 974,575
News Corp. Ltd., pfd.,
ADR 80,000 1,610,000
Santander Finance Ltd.,
B, pfd. 91,500 2,127,375
Telebras-
Telecomunicacoes
Brasileiras SA, pfd. 40,981,336 2,860,919
Telebras-
Telecomunicacoes
Brasileiras SA, pfd.,
ADR 45,600 3,174,900
------------
TOTAL PREFERRED STOCKS
(cost $5,933,046) 11,084,819
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL IN LOCAL
CURRENCY**
------------------
<S> <C> <C> <C>
BONDS: 26.4%
Buoni Poliennali del Tes:
8.50%, 8/01/99 Itl. 1,935,000,000 1,266,166
10.50%, 9/01/05 Itl. 4,435,000,000 3,121,510
Essar Gujarat Ltd.,
8.099%, FRN, 7/15/99, 144A U.S. 2,765,000 2,640,575
European Investment Bank,
5.875%, 11/26/99 Jpn. 280,000,000 2,888,016
Federal Republic of Germany,
Bundeschatweis,
6.875%, 12/02/98 Ger. 700,000 485,145
Federal Republic of Germany, Bundesobl
110,
5.375%, 2/22/99 Ger. 2,630,000 1,765,500
Federal Republic of Germany, Unity, 8.75%,
8/20/01 Ger. 1,800,000 1,346,966
Government of Australia,
7.00%, 4/15/00 Aus. 7,395,000 5,545,596
Government of Canada,
10.50%, 3/01/01 Can. 4,140,000 3,453,007
Government of Denmark:
9.00%, 11/15/98 Den. 4,328,000 801,471
8.00%, 5/15/03 Den. 8,392,000 1,516,376
Government of Italy, 10.50%, 7/15/00 Itl. 7,175,000,000 4,974,604
Government of Spain:
12.25%, 3/25/00 Sp. 335,100,000 2,975,205
11.30%, 1/15/02 Sp. 183,200,000 1,611,525
10.00%, 2/28/05 Sp. 267,120,000 2,228,695
Kingdom of Denmark:
9.00%, 11/15/00 Den. 3,365,000 634,743
8.00%, 11/15/01 Den. 14,247,000 2,598,655
Kingdom of Sweden, 10.25%, 5/05/03 Swe. 8,400,000 1,431,359
Korea Development Bank,
9.48%, 4/02/01 U.S. 500,000 548,165
Pohang Iron & Steel, 6.625%, 7/01/03 U.S. 1,000,000 959,240
Republic of Argentina:
10.95%, 11/01/99 U.S. 1,025,000 1,069,844
8.375%, 12/20/03 U.S. 1,280,000 1,110,400
L, 5.25%, VRN, 3/31/23 U.S. 2,560,000 1,404,800
Republic of Australia,
12.00%, 11/15/01 Aus. 2,650,000 2,379,220
Republic of Ireland, 6.25%, 10/18/04 Irl. 700,000 1,034,491
Sweden Kingdom, 13.00%, 6/15/01 Swe. 22,000,000 4,046,880
Treuhandanstalt, 7.125%, 1/29/03 Ger. 5,100,000 3,532,614
U.S. Treasury Bond, 6.375%, 8/15/02 U.S. 10,915,000 10,828,007
U.S. Treasury Notes:
6.125%, 7/31/00 U.S. 24,305,000 24,035,458
6.25%, 8/31/00 U.S. 21,850,000 21,696,395
</TABLE>
17
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY** VALUE
--------------- ------------
<S> <C> <C> <C>
BONDS (CONT.)
United Kingdom:
12.00%, 11/20/98 U.K. 1,790,000 $ 3,100,401
9.50%, 1/15/99 U.K. 1,265,000 2,088,541
9.50%, 10/25/04 U.K. 2,520,000 4,312,220
United Mexican States, 9.75%, 2/06/01 U.S. 3,510,000 3,492,450
------------
TOTAL BONDS
(cost $127,740,610) 126,924,240
------------
SHORT TERM OBLIGATIONS: 7.3%
Federal Home Loan Bank,
5.19%, 7/29/96 U.S. 4,615,000 4,596,032
Federal Home Loan Mortgage Corp., 5.24% to
5.27% with
maturities to 7/15/96 U.S. 24,145,000 24,124,737
Federal National Mortgage Assn.,
5.24% to 5.25% with
maturities to 9/09/96 U.S. 6,070,000 6,033,122
U.S. Treasury Bill, 5.02%, 8/22/96 U.S. 388,000 385,207
------------
TOTAL SHORT TERM OBLIGATIONS
(cost $37,821,502) 35,139,098
------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY VALUE VALUE
-------------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS: 0.3%
(cost $1,646,000)
Morgan Stanley Inc., 5.25%, 7/01/96
Collateralized by $1,700,000
U.S. Treasury Bill, 9/05/96,
Value $1,683,529 U.S. 1,646,720 $ 1,646,000
------------
TOTAL INVESTMENTS: 98.9% (cost $407,383,320) 475,249,066
UNREALIZED LOSS IN FORWARD EXCHANGE
CONTRACTS: (0.1)% (40,025)
OTHER ASSETS, LESS LIABILITIES: 1.2% 5,568,650
------------
TOTAL NET ASSETS: 100.0% $480,777,691
============
</TABLE>
* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $470,716,369) $535,096,658
Cash 57,027
Receivables:
Fund shares sold 1,025,168
Dividends and interest 2,831,637
------------
Total assets 539,010,490
------------
Liabilities:
Payables:
Investment securities purchased 4,282,659
Fund shares redeemed 9,348
Accrued expenses 358,815
------------
Total liabilities 4,650,822
------------
Net assets, at value $534,359,668
============
Net assets consist of:
Undistributed net investment income $ 10,665,582
Net unrealized appreciation 64,380,289
Accumulated net realized gain 1,232,894
Net capital paid in on shares of beneficial interest 458,080,903
------------
Net assets, at value $534,359,668
============
Shares outstanding 32,478,537
============
Net asset value per share ($534,359,668 / 32,478,537) $ 16.45
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $1,473,637
foreign taxes withheld)
Dividends $11,410,362
Interest 1,124,407
-----------
Total income $12,534,769
Expenses:
Management fees (Note 3) 1,047,295
Administrative fees (Note 3) 251,946
Custodian fees 73,500
Reports to shareholders 29,200
Audit fees 12,000
Legal fees (Note 3) 1,500
Trustees' fees and expenses 14,000
Other 6,967
-----------
Total expenses 1,436,408
-----------
Net investment income 11,098,361
Realized and unrealized gain:
Net realized gain on:
Investments 1,258,773
Foreign currency transactions 71,560
-----------
1,330,333
Net unrealized appreciation on investments 32,605,764
-----------
Net realized and unrealized gain 33,936,097
-----------
Net increase in net assets resulting from operations $45,034,458
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 11,098,361 $ 5,890,627
Net realized gain on investment and foreign
currency transactions 1,330,333 1,822,295
Net unrealized appreciation 32,605,764 30,394,794
------------ ------------
Net increase in net assets resulting from
operations 45,034,458 38,107,716
Distributions to shareholders:
From net investment income (6,297,332) (1,444,552)
From net realized gain (1,836,721) (619,093)
Fund share transactions (Note 2) 144,318,089 167,006,724
------------ ------------
Net increase in net assets 181,218,494 203,050,795
Net assets:
Beginning of period 353,141,174 150,090,379
------------ ------------
End of period $534,359,668 $353,141,174
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $407,383,320) $475,249,066
Cash 155,166
Receivables:
Investment securities sold 1,643,477
Fund shares sold 450,374
Dividends and interest 4,260,752
Unrealized gains on forward exchange contracts (Note 5) 1,992
------------
Total assets 481,760,827
------------
Liabilities:
Payables for investment securities purchased 604,599
Unrealized loss on forward exchange contracts (Note 5) 42,017
Accrued expenses 336,520
------------
Total liabilities 983,136
------------
Net assets, at value $480,777,691
============
Net assets consist of:
Undistributed net investment income $ 10,139,858
Net unrealized appreciation 67,818,043
Accumulated net realized gain 17,081,784
Net capital paid in on shares of beneficial interest 385,738,006
------------
Net assets, at value $480,777,691
============
Shares outstanding 25,052,130
============
Net asset value per share
($480,777,691/25,052,130) $ 19.19
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $653,723 foreign taxes
withheld)
Dividends $6,107,323
Interest 5,393,417
----------
Total income $11,500,740
Expenses:
Management fees (Note 3) 1,041,883
Administrative fees (Note 3) 253,022
Custodian fees 68,500
Reports to shareholders 19,000
Audit fees 9,000
Legal fees (Note 3) 2,000
Trustees fees and expenses 14,000
Other 6,366
----------
Total expenses 1,413,771
-----------
Net investment income 10,086,969
Realized and unrealized gain
Net realized gain on:
Investments 17,496,482
Foreign currency transactions 10,633
----------
17,507,115
----------
Net unrealized appreciation on:
Investments 7,099,808
Foreign currency translation of other
assets and liabilities (56,494)
----------
7,043,314
----------
Net realized and unrealized gain 24,550,429
-----------
Net increase in net assets resulting from operations $34,637,398
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 10,086,969 $ 12,948,965
Net realized gain on investment and foreign
currency transactions 17,507,115 12,565,625
Net unrealized appreciation 7,043,314 45,056,871
------------ ------------
Net increase in net assets resulting from
operations 34,637,398 70,571,461
Distributions to shareholders:
From net investment income (12,811,622) (7,825,461)
From net realized gain (10,050,497) --
Fund share transactions (Note 2) 62,879,444 55,204,750
------------ ------------
Net increase in net assets 74,654,723 117,950,750
Net assets:
Beginning of period 406,122,968 288,172,218
------------ ------------
End of period $480,777,691 $406,122,968
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited)
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton International Fund and Templeton Asset Allocation Fund (the Funds)
are a seperate series of Templeton Variable Products Series Fund (the Trust),
a Massachusetts business trust, which is an open-end, diversified management
investment company registered under the Investment Company Act of 1940.
Templeton International Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and govern-
ments outside the United States. Templeton Asset Allocation Fund seeks a high
level of total return through a flexible policy of investing in stocks and
debt obligations of companies and governments of any nation, and money market
instruments. The following summarizes the Trust's significant accounting poli-
cies.
a. Securities Valuations:
Securities held by the Funds that are listed or traded on a recognized na-
tional or foreign exchange or NASDAQ are valued at the last reported sales
prices on the principal exchange on which the securities are traded. Over-the-
counter securities and listed 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 Trust-
ees.
b. Foreign Exchange Contracts:
The Funds may enter into forward exchange contracts and currency option con-
tracts 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
expires, the premium (original option value) is realized as a gain if the
option was written or realized as a loss if the option was purchased.
When the exercise of an option results in a cash settlement, the
difference 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 acquisition cost or sale proceeds are adjusted by the
amount of the premium. When an option is closed, the difference between
the premium and the cost to close the position is realized as a gain or
loss.
c. Indexed Securities:
Templeton 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 invest-
ments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement 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 Reve-
nue Code applicable to regulated investment companies and to distribute all
its taxable income to its shareholders. Therefore, no provision has been made
for income taxes.
f. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expenses during the report-
ing period. Actual results could differ from those estimates.
g. Distributions to Shareholders:
The Funds normally pay annual dividends representing substantially all of
their net investment income and distribute annually any net realized capital
gains. Distributions to shareholders, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
h. 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.
21
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At June 30, 1996, there were an unlimited number of shares of beneficial inter-
est authorized ($0.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 9,451,566 $149,290,969 13,352,012 $186,603,778
Shares issued on
reinvestment of
distributions 524,439 8,134,053 160,096 2,063,645
Shares redeemed (837,134) (13,106,933) (1,526,461) (21,660,699)
--------- ------------ ---------- ------------
Net increase 9,138,871 $144,318,089 11,985,647 $167,006,724
========= ============ ========== ============
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 2,843,587 $ 53,672,947 4,076,702 $ 68,918,715
Shares issued on
reinvestment of
distributions 1,240,484 22,862,119 506,348 7,828,137
Shares redeemed (720,985) (13,655,622) (1,262,734) (21,542,102)
--------- ------------ ---------- ------------
Net increase 3,363,086 $ 62,879,444 3,320,316 $ 55,204,750
========= ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI) and Templeton Funds Annuity Company (TFAC), the
Funds' investment manager and administrative manager, respectively.
The Funds each pay a monthly investment management fee, equal on an annual ba-
sis, to 0.50% of its average daily net assets up to $200 million, 0.45% of such
net assets from $200 million up to $1.3 billion, and 0.40% of such net assets
in excess of $1.3 billion. Each Fund pays TFAC its allocable share of a monthly
fee equivalent on an annual basis to 0.15% of the combined average daily net
assets of the Trust, reduced to 0.135% of such assets in excess of $200 mil-
lion, 0.10% of such assets in excess of $700 million, 0.075% of such assets in
excess of $1.2 billion.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $3,500 for the six months ended June
30, 1996.
4. PURCHASES AND SALES OF SECURITIES
The cost of securities for federal income tax purposes for Asset Allocation
Fund is the same as that shown in the investment portfolio. Cost for tax pur-
poses for International Fund is $471,060,791. Realized gains and losses are re-
ported 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 six months ended June
30, 1996, were as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
INTERNATIONAL ASSET
FUND ALLOCATION FUND
------------- ---------------
<S> <C> <C>
Unrealized appreciation $ 76,221,905 $ 77,947,364
Unrealized depreciation (12,186,038) (10,081,618)
------------ ------------
Net unrealized appreciation $ 64,035,867 $ 67,865,746
============ ============
Purchases $140,463,380 $222,855,224
============ ============
Sales $ 23,319,743 $176,633,447
============ ============
</TABLE>
22
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
During the six months ended June 30, 1996, Templeton Asset Allocation Fund has
been a party to financial instruments with off-balance sheet risks, primarily
forward exchange contracts and future contracts, in order to minimize the risk
to the Fund with respect to its 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 recog-
nized on the Statements of Assets and Liabilities; some of these risks have
been minimized by offsetting contracts. Risks arise from the possible inability
of counterparties to meet the terms of their contracts, future movement in cur-
rency value and interest rates and contract positions that are not exact off-
sets. 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 June 30, 1996, the Asset Allocation Fund had outstanding forward exchange
contracts for the purchase and sale of currencies as set out below. These con-
tracts are reported in the financial statements at the Funds' 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:
126,675,000 Japanese yen for 1,161,378 U.S. dollars,
July 15,1996 $ 997
177,770,000 Japanes yen for 1,629,423 U.S. dollars, July
15, 1996 995
--------
1,992
--------
Contracts to sell:
5,269,000 Deutschemarks for 3,452,818 U.S. dollars, July
19, 1996 (17,129)
10,580,000 Deutschemarks for 6,950,855 U.S. dollars,
July 23, 1996 (18,345)
10,538,000 Deutschemarks for 6,938,829 U.S. dollars, Au-
gust 1, 1996 (6,543)
--------
(42,017)
--------
Net unrealized loss in forward exchange contracts $(40,025)
========
</TABLE>
23
<PAGE>
Notes
-----
<PAGE>
- --------------------------------------------------------------------------------
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
- --------------------------------------------------------------------------------
<PAGE>
[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.
[RECYCLED PAPER LOGO APPEARS HERE]
