<PAGE>
----------------------------------------------------------
[LOGO OF TEMPLETON INVESTMENT PLUS APPEARS HERE]
TEMPLETON
INVESTMENT
PLUS
SEMI-ANNUAL REPORT
JUNE 30, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
TABLE OF
CONTENTS
Templeton Investment Plus (TIP) is an individual deferred
variable annuity contract consisting of five sub-accounts. On
the following pages, you will find a report on each of the funds
available within TIP:
LETTER FROM THE PRESIDENT......................................2
TEMPLETON STOCK FUND...........................................5
TEMPLETON INTERNATIONAL FUND...................................8
TEMPLETON ASSET ALLOCATION FUND...............................11
TEMPLETON BOND FUND...........................................14
TEMPLETON MONEY MARKET FUND...................................16
<PAGE>
LETTER FROM August 15, 1996
THE PRESIDENT Dear Contract Owner:
We are pleased to bring you the semi-annual report of Templeton
Investment Plus 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 Templeton Investment Plus
and look forward to serving your investment needs in the years
to come.
Sincerely,
/s/Charles Johnson
Charles E. Johnson
President
Templeton Variable Products Series Fund
*Indices are unmanaged and include price appreciation and
reinvested interest.
<PAGE>
TEMPLETON The Templeton Stock Fund seeks capital growth through a policy
of investing primarily in common stocks issued by companies,
STOCK FUND large and small, in various nations throughout the world.
We are pleased to report that the Fund delivered a total return
of 10.60% 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 (MSCI)
World Index, which posted a total return of 7.33% for the same
period.* The Fund's strong performance was primarily the result
of our bottom-up, value style of investing and relative
overweighting in markets that performed exceptionally well
during the period.
Equity markets in the U.S. performed strongly during most of the
period under review despite rising interest rates in the second
quarter of 1996. The banking industry strengthened as many well-
established banks were able to increase their earnings while
decreasing liabilities. Rising stock prices of BankAmerica
Corp., NationsBank Corp., Chemical Banking Corp. and Barnett
Banks Inc. provided significant gains for the Fund. We sold our
position in Barnett after its stock met our target price, and
eliminated our shares of Chemical for a significant gain
following its merger with Chase Manhattan Corp. The
telecommunications industry rebounded in response to the passage
of the Telecommunications Bill, which enables companies to offer
customers services they were previously prohibited from
offering. As a result of this deregulation, the Fund's holdings
of Worldcom Inc., a nationwide provider of
*Index is unmanaged and includes reinvested dividends.
----------------------------------------------------------------
TEMPLETON STOCK FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
Europe 43.2%
North America 29.0%
[PIE CHART APPEARS HERE] Asia 7.3%
Australia & New Zealand 6.8%
Latin America 5.5%
Short-Term Obligations &
Other Net Assets 8.2%
digital fiber-optic networks, and Lucent Technologies Inc., a
recent spin-off from AT&T Corp., appreciated significantly.
Latin American equity markets rebounded due to improved economic
fundamentals in the region and renewed interest by foreign
investors. The telecommunications and electric utility
industries performed particularly well as demand for their
services continued to grow throughout many Latin American
countries. Our largest holding, Brazil's Telebras-
Telecomunicacoes Brasileiras SA, appreciated by more than 40%
during the six-month period. Additionally, the stock of Compania
de Telecomunicaciones de Chile SA also rose in value, prompting
us to sell the position for a significant gain. In our opinion,
Latin American utilities markets should continue to grow rapidly
<PAGE>
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.
In Europe, the equity markets of Sweden, Norway and the Netherlands performed
strongly, outpacing the markets of core countries such as Germany and the United
Kingdom. This helped the Fund's performance because we were overweighted in all
three countries. Although the Swiss stock market turned in a lackluster
performance compared with other European markets, the value of our holdings of
Swiss pharmaceutical company Ciba-Geigy AG and tourism giant Kuoni Reisen
Holding AG appreciated by 39% and 43%, respectively. This is a good example of
how our bottom-up, value style of investing enables us to discover companies
that often perform well regardless of the direction of the overall markets.
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 STOCK FUND
Top 10 Holdings on 6/30/96
Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
- -------------------------------------------------------------------------------
<S> <C>
Telebras-Telecomunicacoes Brasileiras SA,
pfd.; Telecommunications, Brazil 2.1%
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.
Financial Services, U.S. 2.1%
- -------------------------------------------------------------------------------
News Corp. Ltd.
Broadcasting & Publishing, Australia 1.8%
- -------------------------------------------------------------------------------
Astra AB
Health & Personal Care, Sweden 1.7%
- -------------------------------------------------------------------------------
BankAmerica Corp.
Banking, U.S. 1.7%
- -------------------------------------------------------------------------------
Intel Corp.
Electronic Components & Instruments, U.S. 1.7%
- -------------------------------------------------------------------------------
ABB AG, br.
Electrical & Electronics, Switzerland 1.6%
- -------------------------------------------------------------------------------
Evn Energie-Versorgung Niederoesterreich
AG; Utilities--Electrical & Gas, Austria 1.5%
- -------------------------------------------------------------------------------
Newbridge Networks Corp.
Data Processing & Reproduction, Canada 1.5%
- -------------------------------------------------------------------------------
Kuoni Reisen Holding AG, B
Leisure & Tourism, Switzerland 1.5%
- -------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 18 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
SUMMARY
The Templeton Stock Fund provided a total return of 10.60% 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 STOCK FUND
Periods ended 6/30/96
- --------------------------------------------------------------------------------
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 21.32% 17.68% 12.92%
Cumulative
Total Return/2/ 21.32% 125.78% 159.56%
Value of $10,000
Investment/3/ $12,132 $22,578 $25,956
- --------------------------------------------------------------------------------
</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
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.
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 10. 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL FUND
[PIE GRAPH APPEARS HERE]
Geographic Distribution on 6/30/96
Based on Total Net Assets
<S> <C>
Europe 59.1%
Asia 9.8%
Australia & New Zealand 7.2%
Latin America 6.7%
North America 5.3%
Short-Term Obligations
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 21 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
SUMMARY
The Templeton International Fund provided a total return of 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
- --------------------------------------------------------------------------------
Since
Inception
1-Year 3-Year (5/1/92)
<S> <C> <C> <C>
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
ASSET
ALLOCATION
FUND
The Templeton Asset Allocation Fund seeks a high level of total return through a
flexible policy of investing in stocks of companies in any nation, debt
obligations of companies and governments of any nation, and money market
instruments. The Fund's assets are allocated among different investments
depending upon worldwide market and economic conditions.
As of 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 6/30/96
Based on Total Net Assets
<S> <C>
[PIE CHART APPEARS HERE]
Stocks 64.9%
Bonds 26.4%
Short-Term Obligations & Other Net Assets 8.7%
</TABLE>
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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
<S> <C>
Europe 38.3%
United States 33.4%
Asia 6.2%
Latin America 5.5%
Australia & New Zealand 5.5%
Canada 2.4%
Short-Term Obligations & Other Net Assets 8.7%
</TABLE>
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
SUMMARY
The Templeton Asset Allocation Fund provided a total return of 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
- --------------------------------------------------------------------------------
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
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
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.
The value of many global fixed-income securities declined during the six months
under review due primarily 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 against most other major currencies
eroded the 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. We 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.
By the end of the reporting period, the average maturity stood at 5.0 years,
down from 5.3 years on December 31, 1995. In comparison, the average maturity of
the unmanaged J.P. Morgan Global Government Bond Index was 6.9 years on June
30, 1996, and remained relatively constant for the entire period. By reducing
the portfolio's average maturity in this manner, we were able to preserve
capital in the midst of a difficult, rising interest-rate environment.
From a currency perspective, we sought to take advantage of the appreciating
U.S. dollar during the period. Specifically, we reduced the Fund's exposure to
the lower-yielding currencies of France and Germany and increased its exposure
to the dollar, from 29.6% of total net assets on December 31, 1995 to 63.5% on
June 30, 1996.
Looking forward, we believe that, despite recent interest rate increases, global
eco-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TEMPLETON BOND FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
<S> <C>
Europe 39.8%
United States 30
Latin America 8.
Australia & New Zealand 6.8%
Canada 5.8%
Asia 3.8%
Short-Term Obligations & Other Net Assets 4.6%
</TABLE>
nomic activity will remain subdued and inflation will probably remain under
control. In Europe, economic conditions could be particularly weak due to
cutbacks in government spending and poor export growth, which would tend to
encourage stable or lower interest rates and somewhat weaker currency values.
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
SUMMARY
The Templeton Bond Fund provided a total return of 1.45% 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. 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 pre-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TEMPLETON BOND FUND
Periods ended 6/30/96
Since
Inception
1-Year 5-Year (8/24/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 6.66% 7.87% 7.49%
Cumulative
Total Return/2/ 6.66% 46.05% 76.29%
- --------------------------------------------------------------------------------
</TABLE>
1. Average annual total return represents the average annual increase in value
of an investment and assumes reinvestment of dividends.
2. Cumulative total return represents the change in the Fund's net asset value
over the periods indicated and assumes reinvestment of dividends.
- --------------------------------------------------------------------------------
dict or guarantee future results. Principal value and investment return will
fluctuate with 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
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 June 30, 1996, the Fund's 7-day annualized yield was 4.76%, the 30-day
annualized yield was 4.88%, and the average maturity of the portfolio was 17.44
days. Approximately 66% of the portfolio was invested in government agency paper
and 34% in repurchase agreements collateralized by U.S. Treasury notes.
After experiencing weak growth throughout 1995, the U.S. economy continued to
lose momentum in early 1996. Responding to prospects for continued slow growth
and low inflation, the Federal Reserve Board lowered the federal funds rate to
5.25% in January. Shortly thereafter, however, the economy showed signs of
increased growth. By the end of the first quarter of 1996, Gross Domestic
Product (GDP) growth had rebounded to an annualized rate of 2.2%, and the index
of leading economic indicators, consumer confidence and industrial production
all had risen significantly. Inflation, however, remained in check and the
producer price index rose only moderately. Since it could not find any
sustainable evidence of increasing inflation, the Federal Open Market Committee
left monetary policy unchanged in both March and May.
Looking forward, we believe that the Federal Reserve Board may tighten monetary
policy to some degree before the end of 1996 as evidence of a stronger economy
continues to build. In our opinion, the Fund is well-positioned to react to any
future interest-rate hikes due to its relatively short average maturity.
*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.
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK 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 $ 20.83 $ 16.94 $ 17.53 $ 13.33 $ 12.72 $ 10.29
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income .30 .40 .26 .23 .25 .27
Net realized and
unrealized gain (loss) 1.76 3.80 (.64) 4.23 .64 2.49
-------- -------- -------- -------- -------- --------
Total from investment
operations 2.06 4.20 (.38) 4.46 .89 2.76
-------- -------- -------- -------- -------- --------
Distributions:
Dividends from net
investment income (.40) (.27) (.21) (.25) (.28) (.33)
Distributions from net
realized gains (1.83) (.04) -- (.01) -- --
-------- -------- -------- -------- -------- --------
Total distributions (2.23) (.31) (.21) (.26) (.28) (.33)
-------- -------- -------- -------- -------- --------
Change in net asset
value (.17) 3.89 (.59) 4.20 .61 2.43
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 20.66 $ 20.83 $ 16.94 $ 17.53 $ 13.33 $ 12.72
======== ======== ======== ======== ======== ========
TOTAL RETURN* 10.60% 25.24% (2.20)% 34.00% 7.12% 27.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $570,079 $498,777 $378,849 $298,392 $166,219 $116,943
Ratio of expenses to
average net assets .64%** .66% .73% .73% .75% .82%
Ratio of net investment
income to average net
assets 3.17%** 2.18% 1.81% 1.88% 2.36% 2.82%
Portfolio turnover rate 12.30% 33.93% 5.10% 4.88% 8.10% 41.24%
Average commission rate
paid (per share) $ .0131
</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.
17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS: 88.4%
Appliances & Household Durables: 1.1%
Sony Corp. 94,000 $ 6,193,083
------------
Automobiles: 1.9%
Ford Motor Co. 130,000 4,208,750
Volvo AB, B 290,500 6,625,208
------------
10,833,958
------------
Banking: 9.2%
Banco Bilbao Vizcaya 73,200 2,967,915
BankAmerica Corp. 130,000 9,847,500
Bankinter SA 50,000 5,597,438
Banque Nationale de Paris 30,000 1,053,798
Banque Nationale de Paris, ADR, 144A 10,600 372,342
CS Holding, reg. 40,000 3,807,239
*Fokus Bank AS 1,160,000 6,327,224
HSBC Holdings PLC 460,540 6,960,977
National Australia Bank Ltd. 332,376 3,069,453
NationsBank Corp. 59,000 4,874,875
Sparbanken Sverige AB, A, 144A 152,200 1,976,922
Unidanmark AS, A 125,900 5,845,818
------------
52,701,501
------------
Broadcasting & Publishing: 1.2%
News Corp. Ltd. 96,427 546,421
News Corp. Ltd., ADR 260,000 6,110,000
------------
6,656,421
------------
Business & Public Services: 3.9%
Lex Service PLC 1,250,000 7,279,631
*Tenet Healthcare Corp. 200,000 4,275,000
Wheelabrator Technologies Inc. 370,000 5,642,500
WMX Technologies Inc. 150,000 4,912,500
------------
22,109,631
------------
Chemicals: 3.9%
Akzo Nobel NV 65,000 7,793,902
Rhone-Poulenc SA, A 286,200 7,527,406
Solvay SA 10,800 6,684,983
------------
22,006,291
------------
Data Processing & Reproduction: 2.5%
*Bay Networks Inc 217,000 5,587,750
*Newbridge Networks Corp. 130,000 8,515,000
------------
14,102,750
------------
Electrical & Electronics: 4.3%
ABB AG, br. 7,297 9,034,798
Alcatel Alsthom SA 32,385 2,826,625
*DSC Communications Corp. 73,700 2,220,213
Hitachi Ltd. 274,000 2,553,845
Motorola Inc. 123,700 7,777,638
------------
24,413,119
------------
Electronic Components &
Instruments: 2.9%
BICC 1,400,000 6,739,968
Intel Corp. 132,000 9,693,750
------------
16,433,718
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------
<S> <C> <C>
Energy Equipment & Services: 1.2%
Helikopter Services Group AS 585,000 $ 6,760,349
------------
Energy Sources: 2.6%
Societe Elf Aquitane SA 92,520 6,809,170
Total SA, B 95,000 7,050,785
Transportadora de Gas del Sur SA, ADR, B 77,700 951,825
------------
14,811,780
------------
Financial Services: 5.2%
American Express Co. 125,000 5,578,125
AXA SA 108,600 5,944,843
*AXA SA, new 2,230 119,904
Dean Witter Discover & Co. 110,612 6,332,537
Federal National Mortgage Assn. 353,600 11,845,600
------------
29,821,009
------------
Food & Household Products: 1.8%
Burns Philp & Co. Ltd. 3,177,503 5,993,639
Nestle SA 4,000 4,571,886
------------
10,565,525
------------
Forest Products & Paper: 4.9%
*Asia Pacific Resources International, A 680,000 5,100,000
Assidomaen AB 150,000 3,500,227
Carter Holt Harvey Ltd. 1,239,126 2,838,884
*Enso OY, R 463,300 3,611,130
Fletcher Challenge Ltd., Forestry Division 5,040,000 6,276,204
International Paper Co. 98,000 3,613,750
Stora Kopparbergs Bergslags AB, B 225,000 2,973,493
------------
27,913,688
------------
Health & Personal Care: 4.1%
Astra AB, A 100,000 4,425,313
Astra AB, B 127,000 5,543,422
Ciba-Geigy AG 6,500 7,928,414
Smithkline Beecham PLC, A, ADR 100,000 5,425,000
------------
23,322,149
------------
Industrial Components: 2.2%
Goodyear Tire & Rubber Co. 110,000 5,307,500
Madeco Manufacturera de Cobre SA, ADR 263,500 7,410,938
------------
12,718,438
------------
Insurance: 7.2%
Aetna Life & Casualty Co. 70,000 5,005,000
American International Group Inc. 43,593 4,299,360
GIO Austrailia Holdings Ltd. 2,939,803 7,231,959
HIH Winterthur International Holdings Ltd. 1,573,456 2,967,968
ING Group NV 225,000 6,715,040
Partnerre Ltd. 209,000 6,243,875
Reliastar Financial Corp. 144,000 6,210,000
Torchmark Corp. 60,000 2,625,000
------------
41,298,202
------------
Leisure & Tourism: 1.5%
Kuoni Reisen Holding AG, B 3,700 8,493,501
------------
</TABLE>
18
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS (CONT.)
Merchandising: 3.1%
*Federated Department Stores Inc. 200,000 $ 6,825,000
Home Depot Inc. 110,000 5,940,000
House of Fraser PLC 1,901,700 5,138,772
------------
17,903,772
------------
Metals & Mining: 1.5%
Companhia Siderurgica Nacional 16,300,000 415,555
Outokumpu OY, A 311,000 5,237,555
Reynolds Metals Co. 55,500 2,892,938
------------
8,546,048
------------
Multi-Industry: 2.4%
Hutchison Whampoa Ltd. 865,600 5,445,819
Jardine Matheson Holdings Ltd. 505,631 3,716,388
Jardine Strategic Holdings Ltd. 350,048 1,120,154
*Jardine Strategic Holdings Ltd., wts. 38,894 12,057
La Cemento Nacional CA, GDR 200 36,200
Metro Pacific Corp. 10,491,000 3,123,275
------------
13,453,893
------------
Real Estate: 2.3%
*Fastighets AB Tornet, A 15,220 124,132
National Health Investors Inc. 203,500 6,664,625
Summit Properties Inc., REIT 337,000 6,613,625
------------
13,402,382
------------
Telecommunications: 7.4%
Alcatel Cable SA 97,450 8,297,244
Lucent Technologies Inc. 51,000 1,931,625
*SPT Telecom AS 52,600 6,423,727
STET (Sta Finanziaria Telefonica Torino) SPA 1,094,500 3,712,047
Telefonica de Argentina SA, B, ADR 81,000 2,399,625
Telefonica de Espana SA 421,500 7,771,103
Telefonos de Mexico SA, L, ADR 221,800 7,430,300
*Worldcom Inc. 72,400 4,009,150
------------
41,974,821
------------
Textiles & Apparel: 1.3%
Dawson International PLC 3,450,000 4,393,403
*Fruit of the Loom Inc., A 125,000 3,187,500
------------
7,580,903
------------
Transportation: 0.2%
Koninklijke Nedlloyd NV 40,000 921,724
------------
Utilities-Electrical & Gas: 8.6%
American Electric Power Co. Inc. 61,000 2,600,125
*CEZ 100,000 3,979,937
Compania Sevillana de Electricidad 820,000 7,559,080
Consolidated Electric Power Asia Ltd. 2,700,400 4,465,345
Endesa-Empresa Nacional de Electricidad SA 115,000 7,178,235
Evn Energie-Versorgung Niederoesterreich AG 63,600 8,794,133
Iberdrola SA 706,000 7,252,764
VEBA AG 140,000 7,449,600
------------
49,279,219
------------
TOTAL COMMON STOCKS (cost $385,854,987) 504,217,875
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
PREFERRED STOCKS: 3.4%
Cemig-Cia Energetica de Minas Gerais, pfd. 12,676,000 $ 337,050
Jardine Strategic Holdings Ltd., 7.50%, conv.,
5/07/49 2,831,000 3,085,790
News Corp. Ltd., pfd. 248,213 1,209,510
News Corp. Ltd., ADR, pfd. 130,000 2,616,250
Telebras-Telecomunicacoes Brasileiras
SA, pfd. 143,434,677 10,013,216
Telebras-Telecomunicacoes Brasileiras
SA, ADR, pfd. 31,300 2,179,263
------------
TOTAL PREFERRED STOCKS (cost $9,784,342) 19,441,079
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
-----------
<S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 7.8% (cost $44,407,061)
U.S. Treasury Bills, 4.83% to 5.10% with
maturities to 9/12/96 U.S. 44,553,000 44,419,122
------------
TOTAL INVESTMENTS: 99.6%
(cost $440,046,390) 568,078,076
OTHER ASSETS, LESS LIABILITIES: 0.4% 2,001,440
------------
TOTAL NET ASSETS: 100.0% $570,079,516
============
</TABLE>
* NON-INCOME PRODUCING.
** PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<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.
20
<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
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
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>
21
<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
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
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. 10,123,000 269,167
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>
22
<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.
23
<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.
24
<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
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
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., wts. 35,000 4,341
------------
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>
25
<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>
26
<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.
27
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond 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 $ 11.88 $ 10.86 $ 12.15 $ 10.91 $ 10.99 $ 10.35
------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income .45 .80 .71 .60 .58 .61
Net realized and
unrealized gain (loss) (.30) .76 (1.28) .65 .03 1.02
------- ------- ------- ------- ------- -------
Total from investment
operations .15 1.56 (.57) 1.25 .61 1.63
------- ------- ------- ------- ------- -------
Distributions:
Dividends from net
investment income (1.25) (.54) (.55) (.005) (.57) (.64)
Distributions from net
realized gains -- -- (.17) (.005) (.12) (.35)
------- ------- ------- ------- ------- -------
Total distributions (1.25) (.54) (.72) (.01) (.69) (.99)
------- ------- ------- ------- ------- -------
Change in net asset
value (1.10) 1.02 (1.29) 1.24 (.08) .64
------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 10.78 $ 11.88 $ 10.86 $ 12.15 $ 10.91 $ 10.99
======= ======= ======= ======= ======= =======
TOTAL RETURN* 1.45% 14.92% (4.88)% 11.46% 5.53% 15.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $31,449 $32,910 $29,343 $29,347 $15,674 $ 8,142
Ratio of expenses to
average net assets .68%** .78% .90% .83% 1.00% 1.06%
Ratio of expenses, net
of reimbursement, to
average net assets .68%** .78% .90% .83% 1.00% 1.00%
Ratio of net investment
income to average net
assets 7.58%** 7.14% 6.80% 6.50% 6.93% 7.63%
Portfolio turnover rate 83.64% 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.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
------------- -----------
<S> <C> <C> <C>
BONDS--CORPORATE: 15.7%
Abril SA, 12.00%, 10/25/03, 144A U.S. 475,000 $ 489,250
Essar Gujarat Ltd.,
8.099%, FRN, 7/15/99, 144A U.S. 284,000 271,220
Ford Motor Credit Corp.,
8.21%, 3/16/99 U.S. 1,300,000 1,351,311
General Motors Corp.,
7.625%, 2/15/97 U.S. 375,000 378,900
KFW International Finance,
6.25%, 10/15/03 Ger. 900,000 589,601
Softe SA, 8.75%, 3/24/97 Itl. 1,000,000,000 652,032
Statkraft SF, 7.50% 11/10/99 Ger. 1,700,000 1,191,403
-----------
TOTAL BONDS--CORPORATE (cost $5,021,085) 4,923,717
-----------
BONDS--GOVERNMENT & GOVERNMENT
AGENCIES: 79.7%
Buoni Poliennali del Tes:
8.50%, 8/01/99 Itl. 645,000,000 422,055
10.50%, 9/01/05 Itl. 1,955,000,000 1,375,998
European Investment Bank,
5.875%, 11/26/99 Jpn. 90,000,000 928,291
Government of Australia,
7.00%, 4/15/00 Aus. 2,000,000 1,499,823
Government of Canada,
10.50%, 3/01/01 Can. 1,491,000 1,243,583
Government of Denmark:
9.00%, 11/15/98 Den. 1,635,000 302,774
8.00%, 5/15/03 Den. 3,306,000 597,371
Government of Italy, 10.50%, 7/15/00 Itl. 330,000,000 228,797
Government of Spain:
12.25%, 3/25/00 Sp. 105,670,000 938,197
11.30%, 1/15/02 Sp. 61,200,000 538,348
10.00%, 2/28/05 Sp. 83,360,000 695,508
International Bank for Reconstruction and
Development, 7.125%, 4/12/05 Ger. 655,000 446,331
Kingdom of Denmark,
8.00%, 11/15/01 Den. 3,429,000 625,450
Kingdom of Sweden,
10.25%, 5/05/03 Swe. 2,500,000 426,000
NHA, Bank Nova Scotia,
6.375%, 11/01/97 Can. 293,103 216,171
NHA, CIBC, 8.25%, 6/01/97 Can. 490,010 366,644
Republic of Australia
12.00%, 11/15/01 Aus. 715,000 641,941
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
------------- -----------
<S> <C> <C> <C>
Republic of Argentina:
10.95%, 11/01/99 U.S. 350,000 $ 365,313
8.375%, 12/20/03 U.S. 440,000 381,700
5.25%, L, VRN, 3/31/23 U.S. 655,000 359,431
Republic of Ireland, 6.25%, 10/18/04 Irl. 220,000 325,126
Sweden Kingdom, 13.00%, 6/15/01 Swe. 6,200,000 1,140,484
U.S. Treasury Bond,
6.375%, 8/15/02 U.S. 1,920,000 1,904,698
U.S. Treasury Note:
6.125%, 7/31/00 U.S. 3,370,000 3,332,627
6.25%, 8/31/00 U.S. 2,100,000 2,085,237
United Kingdom:
12.00%, 11/20/98 U.K. 375,000 649,525
9.50%, 1/15/99 U.K. 390,000 643,898
9.50%, 10/25/04 U.K. 775,000 1,326,179
United Mexican States,
9.75%, 2/06/01 U.S. 1,080,000 1,074,600
-----------
TOTAL BONDS--GOVERNMENT & GOVERNMENT AGENCIES
(cost $25,135,924) 25,082,100
-----------
SHORT TERM OBLIGATIONS: 1.7%
Federal Home Loan Mortgage Corp., 5.27% to
5.28% with
maturities to 7/18/96 U.S. 440,000 438,906
Federal National Mortgage Assn., 5.28%,
7/15/96 U.S. 75,000 74,844
U.S. Treasury Bill, 5.09%, 8/22/96 U.S. 20,000 19,856
-----------
TOTAL SHORT TERM OBLIGATIONS
(cost $533,537) 533,606
-----------
TOTAL INVESTMENTS: 97.1%
(cost $30,690,546) 30,539,423
UNREALIZED LOSS IN FORWARD EXCHANGE CONTRACTS:
(0.1)% (17,633)
OTHER ASSETS, LESS LIABILITIES: 3.0% 926,920
-----------
TOTAL NET ASSETS: 100.0% $31,448,710
===========
</TABLE>
*PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market 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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net investment income .03 .05 .03 .02 .03 .05
Dividends from net
investment income (.03) (.05) (.03) (.02) (.03) (.05)
------- ------- ------- ------- ------- -------
Change in net asset
value -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN* 2.44% 5.35% 3.48% 2.41% 3.10% 5.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $14,955 $20,723 $33,090 $16,992 $21,454 $22,046
Ratio of expenses to
average net assets .56%** .63% .71% .75% .69% .70%
Ratio of net investment
income to average net
assets 4.82%** 5.29% 3.56% 2.38% 3.02% 5.28%
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN A YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market Fund
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C> <C>
GOVERNMENT & GOVERNMENT
AGENCIES: 66.2%
Federal Farm Credit Bank:
5.29%, 7/01/96 U.S. $1,000,000 $ 1,000,002
5.27%, 7/15/96 U.S. 200,000 199,532
5.28%, 7/29/96 U.S. 500,000 497,800
5.30%, 10/02/96 U.S. 700,000 700,037
Federal Home Loan Bank:
5.52%, 7/01/96 U.S. 700,000 699,785
5.21%, 7/01/96 U.S. 650,000 649,812
5.22%, 7/15/96 U.S. 355,000 354,176
5.32%, 9/04/96 U.S. 765,000 757,426
Federal Home Loan Mortgage Corp.:
5.25%, 7/03/96 U.S. 700,000 699,592
5.21%, 7/15/96 U.S. 600,000 598,610
5.28%, 7/22/96 U.S. 700,000 697,639
5.28%, 7/31/96 U.S. 700,000 696,715
5.29%, 8/26/96 U.S. 260,000 257,784
Federal National Mortgage Assn.:
5.25%, 7/02/96 U.S. 700,000 699,694
5.25%, 7/09/96 U.S. 700,000 698,979
5.28%, 7/18/96 U.S. 700,000 698,049
-----------
TOTAL GOVERNMENT & GOVERNMENT AGENCIES 9,905,632
-----------
TIME DEPOSIT: 4.3%
Dresdner Bank AG, 5.375%, 7/03/96 U.S. 650,000 650,000
-----------
<CAPTION>
MATURITY
VALUE
----------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS: 29.4%
Bank of America, 5.40%, 7/01/96
Collateralized by $2,270,000
U.S. Treasury Bill, 8/22/96,
Value $2,250,705 U.S. 2,200,990 2,200,000
UBS Securities Inc., 5.37%, 7/01/96
Collateralized by $2,204,000
U.S. Treasury Note, 6.50%, 4/30/97, Value
$2,239,815 U.S. 2,193,981 2,193,000
-----------
TOTAL REPURCHASE AGREEMENTS 4,393,000
-----------
TOTAL INVESTMENTS: 99.9%
(cost $14,948,632) 14,948,632
OTHER ASSETS, LESS LIABILITIES: 0.1% 6,531
-----------
TOTAL NET ASSETS: 100.0% $14,955,163
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
Templeton Variable Products Series Fund
Templeton Stock Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $440,046,390) $568,078,076
Cash 102,707
Receivables:
Fund shares sold 284,657
Dividends and interest 2,523,844
------------
Total assets 570,989,284
------------
Liabilities:
Payables:
Investment securities purchased 37,280
Fund shares redeemed 457,264
Accrued expenses 415,224
------------
Total liabilities 909,768
------------
Net assets, at value $570,079,516
============
Net assets consist of:
Undistributed net investment income $ 8,367,902
Net unrealized appreciation 128,031,686
Accumulated net realized gain 23,675,764
Net capital paid in on shares of beneficial interest 410,004,164
------------
Net assets, at value $570,079,516
============
Shares outstanding 27,592,880
============
Net asset value per share
($570,079,516 / 27,592,880) $ 20.66
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $872,070
foreign taxes withheld)
Dividends $ 8,960,812
Interest 1,200,179
-----------
Total income $10,160,991
Expenses:
Management fees (Note 3) 1,250,180
Administrative fees (Note 3) 301,403
Custodian fees 110,244
Reports to shareholders 15,500
Audit fees 12,000
Legal fees (Note 3) 1,000
Registration and filing fees 530
Trustees' fees and expenses 20,900
Other 3,297
-----------
Total expenses 1,715,054
-----------
Net investment income 8,445,937
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 23,866,291
Foreign currency transactions (38,112)
-----------
23,828,179
Net unrealized appreciation on investments 21,208,769
-----------
Net realized and unrealized gain 45,036,948
-----------
Net increase in net assets resulting from
operations $53,482,885
===========
</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 $ 8,445,937 $ 9,721,522
Net realized gain on investment and foreign
currency transactions 23,828,179 44,465,018
Net unrealized appreciation 21,208,769 44,760,510
------------ ------------
Net increase in net assets resulting from
operations 53,482,885 98,947,050
Distributions to shareholders:
From net investment income (9,701,533) (6,245,065)
From net realized gain (44,505,784) (809,545)
Fund share transactions (Note 2) 72,026,819 28,036,136
------------ ------------
Net increase in net assets 71,302,387 119,928,576
Net assets:
Beginning of period 498,777,129 378,848,553
------------ ------------
End of period $570,079,516 $498,777,129
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<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.
33
<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.
34
<PAGE>
Templeton Variable Products Series Fund
Templeton Bond Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $30,690,546) $30,539,423
Cash 735
Receivables:
Investment securities sold 252,166
Fund shares sold 3,120
Interest 760,720
Unrealized gains on forward exchange contracts (Note 5) 663
-----------
Total assets 31,556,827
-----------
Liabilities:
Payables for fund shares redeemed 7,814
Unrealized loss on forward exchange contracts (Note 5) 18,296
Accrued expenses 82,007
-----------
Total liabilities 108,117
-----------
Net assets, at value $31,448,710
===========
Net assets consist of:
Undistributed net investment income $ 10,083
Net unrealized depreciation (171,728)
Accumulated net realized loss (1,331,495)
Net capital paid in on shares of beneficial interest 32,941,850
-----------
Net assets, at value $31,448,710
===========
Shares outstanding 2,918,203
===========
Net asset value per share
($31,448,710 / 2,918,703) $ 10.78
===========
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $8,158
foreign taxes withheld)
Interest income $1,310,309
Expenses:
Management fees (Note 3) $ 79,328
Administrative fees (Note 3) 17,886
Reports to shareholders 1,500
Audit fees 7,400
Legal fees (Note 3) 500
Trustees' fees and expenses 500
Other 13
---------
Total expenses 107,127
----------
Net investment income 1,203,182
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 68,677
Foreign currency transactions (17,488)
---------
51,189
---------
Net unrealized appreciation (depreciation) on:
Investments (797,122)
Foreign currency translation of other assets and
liabilities (26,585)
---------
(823,707)
---------
Net realized and unrealized loss (772,518)
----------
Net increase in net assets resulting from operations $ 430,664
==========
</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 $ 1,203,182 $ 2,229,422
Net realized gain on investment and foreign
currency transactions 51,189 612,266
Net unrealized appreciation (depreciation) (823,707) 1,506,931
----------- -----------
Net increase in net assets resulting from
operations 430,664 4,348,619
Distributions to shareholders from net in-
vestment income (3,413,282) (1,445,139)
Fund share transactions (Note 2) 1,521,376 663,091
----------- -----------
Net increase (decrease) in net assets (1,461,242) 3,566,571
Net assets:
Beginning of period 32,909,952 29,343,381
----------- -----------
End of period $31,448,710 $32,909,952
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
Templeton Variable Products Series Fund
Templeton Money Market Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value and cost $14,948,632
Cash 868
Interest receivable 38,277
-----------
Total assets 14,987,777
-----------
Liabilities:
Accrued expenses 32,614
-----------
Total liabilities 32,614
-----------
Net assets (equivalent to $1.00 per share based on 14,955,163
shares of beneficial interest outstanding) $14,955,163
===========
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Interest income $391,871
Expenses:
Management fees (Note 3) $25,257
Administrative fees (Note 3) 8,508
Reports to shareholders 950
Audit fees 2,900
Legal fees (Note 3) 500
Other 2,949
-------
Total expenses 41,064
--------
Net investment income 350,807
Net realized gain on investments 268
--------
Net increase in net assets resulting from operations $351,075
========
</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 $ 350,807 $ 1,124,377
Net realized gain (loss) from security trans-
actions 268 (2,159)
----------- -----------
Net increase in net assets resulting from
operations 351,075 1,122,218
Distributions to shareholders from net
investment income (351,075) (1,122,218)
Fund share transactions (Note 2) (5,768,251) (12,366,721)
----------- -----------
Net decrease in net assets (5,768,251) (12,366,721)
Net assets:
Beginning of period 20,723,414 33,090,135
----------- -----------
End of period $14,955,163 $20,723,414
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited)
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Stock Fund, Templeton International Fund, Templeton Asset Allocation
Fund, Templeton Bond Fund, and Templeton Money Market Fund are separate series
of Templeton Variable Products Series Fund (the Trust), a Massachusetts busi-
ness trust, and are open-end, diversified management investment company regis-
tered under the Investment Company Act of 1940.
Templeton Stock Fund seeks capital growth through a policy of investing pri-
marily in common stocks issued by companies, large and small, in various na-
tions throughout the world. Templeton International Fund seeks long-term capi-
tal growth through a flexible policy of investing in stocks and debt obliga-
tions of companies and governments 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. Templeton Bond Fund seeks high cur-
rent income through a flexible policy of investing primarily in the debt secu-
rities of companies, governments and government agencies of various nations
throughout the world. Templeton Market Money Fund seeks current income, sta-
bility of principal, and liquidity by investing in money market instruments
with maturities not exceeding 397 days. 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 exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change 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 Tem-
pleton Money Market Fund are valued using the amortized cost valuation method,
which involves valuing a portfolio security at its cost and thereafter assum-
ing 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 con-
tracts, 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 acqui-
sition 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 and Bond Funds 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
avoiding unwanted risk or change the Fund's exposure to a particular foreign
exchange 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.
37
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
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:
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.
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.
i. Repurchase Agreements:
Templeton Money Market Fund, through its custodian, receives delivery of the
underlying securities, whose market is required to be at least 102% of the re-
sale price at the time of purchase. The Fund's investment advisor, Templeton
Global Bond Managers, a division of Templeton Investment Council, Inc., is re-
sponsible for determining that the value of these underlying securities remain
at least equal to the resale price.
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 STOCK FUND
--------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 2,237,892 $ 45,791,104 4,174,973 $ 78,300,364
Shares issued on
reinvestment of
distributions 2,791,314 54,207,317 416,778 7,056,045
Shares redeemed (1,376,218) (27,971,602) (3,012,672) (57,320,273)
---------- ------------ ---------- ------------
Net increase 3,652,988 $ 72,026,819 1,579,079 $ 28,036,136
========== ============ ========== ============
<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>
38
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON BOND FUND
----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 119,968 $ 1,333,432 468,705 $ 5,243,821
Shares issued on
reinvestment of
distributions 323,534 3,413,282 136,463 1,445,139
Shares redeemed (295,580) (3,225,338) (538,060) (6,025,869)
----------- ------------ ----------- ------------
Net increase 147,922 $ 1,521,376 67,108 $ 663,091
=========== ============ =========== ============
<CAPTION>
TEMPLETON MONEY MARKET FUND
----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 13,114,898 $ 13,114,898 40,985,931 $ 40,985,931
Shares issued on
reinvestment of
distributions 358,646 358,646 1,116,228 1,116,228
Shares redeemed (19,241,795) (19,241,795) (54,468,880) (54,468,880)
----------- ------------ ----------- ------------
Net decrease (5,768,251) $ (5,768,251) (12,366,721) $(12,366,721)
=========== ============ =========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI) and Templeton Funds Annuity Company (TFAC), the
Funds' investment manager and administrative manager, respectively. TICI serves
as investment manager of the Templeton Stock, International, and Asset Alloca-
tion Funds; and Templeton Global Bond Managers, a division of TICI, serves as
investment manager of the Templeton Bond and Money Market Funds.
Templeton Stock, International, Asset Allocation and Bond Funds each pay a
monthly 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 Trust, 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.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $5,500 for the six months ended June
30, 1996.
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 $471,060,791. 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 six months ended June
30, 1996, 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 $187,457,647 $ 76,221,905 $ 77,947,364 $ 451,636
Unrealized depreciation (59,425,961) (12,186,038) (10,081,618) (602,759)
------------ ------------ ------------ -----------
Net unrealized
appreciation
(depreciation) $128,031,686 $ 64,035,867 $ 67,865,746 $ (151,123)
============ ============ ============ ===========
Purchases $112,703,326 $140,463,380 $222,855,224 $25,205,351
============ ============ ============ ===========
Sales $ 59,960,232 $ 23,319,743 $176,633,447 $24,639,551
============ ============ ============ ===========
</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.
39
<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 and Bond
Funds have been parties to financial instruments with off-
balance sheet risks, primarily forward exchange contracts and future con-
tracts, in order to minimize the risk to the Funds with respect to their port-
folio transactions from adverse changes in the relationship between the U.S.
dollar and foreign currencies and interest rates. These instruments involve
market risks in excess of the amount recognized on the Statements of Assets
and Liabilities; some of these risks have been minimized by offsetting con-
tracts. Risks arise from the possible inability 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 indi-
cate 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 and Bond Funds had outstanding forward
exchange contracts for the purchase and sale of currencies as set out below.
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:
126,675,000 Japanese yen for 1,161,378 U.S. dollars,
July 15, 1996 $ 997
177,770,000 Japanese 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,
August 1, 1996 (6,543)
--------
(42,017)
--------
Net unrealized loss in forward exchange contracts $(40,025)
========
TEMPLETON BOND FUND
Contracts to sell:
51,000,000 Japanese yen for 467,577 U.S. dollars, July
15, 1996 $ 401
46,800,000 Japanese yen for 428,964 U.S. dollars, July
15, 1996 262
--------
663
--------
Contracts to sell:
1,000,000,000 Italian lira for 645,911 U.S. dollars,
July 8, 1996 (6,277)
1,507,000 Deutschemarks for 987,549 U.S. dollars, July
19, 1996 (4,899)
3,027,000 Deutschemarks for 1,988,680 U.S. dollars, July
23, 1996 ( 5,249)
3,014,000 Deutschemarks for 1,984,592 U.S. dollars,
August 1, 1996 (1,871)
--------
(18,296)
--------
Net unrealized loss in forward exchange contracts $(17,633)
========
</TABLE>
40
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Stock Sub-Account
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Assets:
Investments in Templeton Stock Fund
(identified cost $192,556,011) $311,674,576
------------
Liabilities:
Accrued expenses due related parties 327,967
------------
Net assets $311,346,609
============
Accumulation units outstanding 137,805,530
============
Net asset value per unit $ 2.259319
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months endedJune 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 5,615,980
Expenses:
Mortality and expense risk and administrative
charges 2,071,340
-----------
Net investment income 3,544,640
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from share transactions $ 546,571
Net realized gain distribution from Fund 25,763,307
Net change in unrealized
appreciation (depreciation) (1,613,104)
-----------
Net realized and unrealized gain (loss) 24,696,774
-----------
Net increase (decrease) in net assets from
operations $28,241,414
===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ 3,544,640 $ 241,153
Net realized gain (loss) 26,309,878 2,684,934
Net change in unrealized appreciation
(depreciation) (1,613,104) 54,558,056
------------ ------------
Net increase (decrease) in net assets from
operations 28,241,414 57,484,143
Accumulation unit transactions:
Participant deposits 9,033,286 13,155,785
Participant transfers 333,511 10,498,003
Participant withdrawals (18,914,246) (29,718,626)
------------ ------------
Net increase (decrease) from participant
transactions (9,547,449) (6,064,838)
------------ ------------
Total increase (decrease) in net assets 18,693,965 51,419,305
Net assets:
Beginning of period 292,652,644 241,233,339
------------ ------------
End of period $311,346,609 $292,652,644
============ ============
Participant accumulation unit transactions
(in units):
Participant deposits 4,262,700 7,097,806
Participant transfers 33,619 6,158,732
Participant withdrawals (8,724,390) (15,894,569)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton International Sub-Account
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Assets:
Investments in Templeton International Fund (identified cost
$78,612,390) $104,004,775
------------
Liabilities:
Accrued expenses due related parties 108,390
------------
Net assets $103,896,385
============
Accumulation units outstanding 63,362,238
============
Net asset value per unit $ 1.639721
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
Investment income:
Dividends $1,489,608
Expenses:
Mortality and expense risk and administrative charges 674,034
----------
Net investment income (loss) 815,574
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from share transactions $ 42,545
Net realized gain distribution from Fund 434,469
Net change in unrealized appreciation (depreciation) 8,136,005
----------
Net realized and unrealized
gain (loss) 8,613,019
----------
Net increase (decrease) in net assets from operations $9,428,593
==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ 815,574 $ (537,933)
Net realized gain (loss) 477,014 419,177
Net change in unrealized appreciation
(depreciation) 8,136,005 11,150,673
------------ -----------
Net increase (decrease) in net assets from
operations 9,428,593 11,031,917
Accumulation unit transactions:
Participant deposits 2,477,293 5,709,743
Participant transfers 5,583,498 257,059
Participant withdrawals (2,291,160) (4,184,076)
------------ -----------
Net increase (decrease) from participant
transactions 5,769,631 1,782,726
------------ -----------
Total increase (decrease) in net assets 15,198,224 12,814,643
Net assets:
Beginning of period 88,698,161 75,883,518
------------ -----------
End of period $103,896,385 $88,698,161
============ ===========
Participant accumulation unit transactions
(in units):
Participant deposits 1,589,467 4,160,659
Participant transfers 3,631,908 190,011
Participant withdrawals (1,446,508) (2,977,608)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Asset Allocation Sub-Account
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Assets:
Investment in Templeton Asset Allocation Fund (identified cost
$102,053,974) $148,158,746
------------
Liabilities:
Accrued expenses due related parties 156,006
------------
Net assets $148,002,740
============
Accumulation units outstanding 70,049,042
============
Net asset value per unit $ 2.112845
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 4,389,083
Expenses:
Mortality and expense risk and administrative charges 1,003,821
-----------
Net investment income 3,385,262
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from share transactions $ 460,768
Net realized gain distribution from fund 3,443,160
Net change in unrealized appreciation (depreciation) 3,294,502
----------
Net realized and unrealized gain (loss) 7,198,430
-----------
Net increase (decrease) in net assets from operations $10,583,692
===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,385,262 $ 1,357,636
Net realized gain (loss) 3,903,928 701,083
Net change in unrealized appreciation
(depreciation) 3,294,502 23,331,096
------------ ------------
Net increase (decrease) in net assets
resulting from operations 10,583,692 25,389,815
Accumulation unit transactions:
Participant deposits 2,129,674 6,249,518
Participant transfers (2,036,290) 649,951
Participant withdrawals (6,143,195) (10,605,951)
------------ ------------
Net increase (decrease) from participant
transactions (6,049,811) (3,706,482)
------------ ------------
Total increase (decrease) in net assets 4,533,881 21,683,333
Net assets:
Beginning of period 143,468,859 121,785,526
------------ ------------
End of period $148,002,740 $143,468,859
============ ============
Participant accumulation unit transactions
(in units):
Participant deposits 1,041,200 3,513,751
Participant transfers (975,781) 396,067
Participant withdrawals (3,001,268) (5,825,984)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Bond Sub-Account
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Assets:
Investments in Templeton Bond Fund (identified cost $19,312,786) $18,565,452
-----------
Liabilities:
Accrued expenses due related parties 19,371
-----------
Net assets $18,546,081
===========
Accumulation units outstanding 11,881,201
===========
Net asset value per unit $ 1.560960
===========
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended June 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 2,034,456
Expenses:
Mortality and expense risk and administrative
charges 128,966
-----------
Net investment income 1,905,490
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) from share transactions $ 5,335
Net change in unrealized appreciation
(depreciation) (1,781,068)
-----------
Net realized and unrealized gain (loss) (1,775,733)
-----------
Net increase in net assets resulting from
operations $ 129,757
===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,905,490 $ 629,024
Net realized gain (loss) 5,335 35,668
Net change in unrealized appreciation
(depreciation) (1,781,068) 1,695,419
----------- -----------
Net increase (decrease) in net assets from
operations 129,757 2,360,111
Accumulation unit transactions:
Participant deposits 283,869 981,131
Participant transfers (689,408) (228,814)
Participant withdrawals (749,159) (1,456,958)
----------- -----------
Net increase (decrease) from participant
transactions (1,154,698) (704,641)
----------- -----------
Total increase (decrease) in net assets (1,024,941) 1,655,470
Net assets:
Beginning of period 19,571,022 17,915,552
----------- -----------
End of period $18,546,081 $19,571,022
=========== ===========
Participant accumulation unit transactions
(in units):
Participant deposits 184,473 665,160
Participant transfers (450,602) (153,130)
Participant withdrawals (485,923) (989,280)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Money Market Sub-Account
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Assets:
Investments in Templeton Money Market Fund (identified cost
$14,904,409) $14,904,409
Dividends receivable 48,966
-----------
Total assets 14,953,375
-----------
Liabilities:
Accrued expenses due related parties 14,150
-----------
Net assets $14,939,225
===========
Accumulation units outstanding 11,401,003
===========
Net asset value per unit $ 1.310343
===========
</TABLE>
STATEMENT OF OPERATIONS
for the six months endedJune 30, 1996 (Unaudited)
<TABLE>
<S> <C>
Investment income:
Dividends $356,791
Expenses:
Mortality and expense risk and administrative charges 100,362
--------
Net investment income $256,429
========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 256,429 $ 827,420
----------- ------------
Accumulation unit transactions:
Participant deposits 2,692,829 5,338,600
Participant transfers (2,135,122) (12,987,410)
Participant withdrawals (6,578,108) (5,376,150)
----------- ------------
Net increase (decrease) from participant
transactions (6,020,401) (13,024,960)
----------- ------------
Total increase (decrease) in net assets (5,763,972) (12,197,540)
Net assets:
Beginning of period 20,703,197 32,900,737
----------- ------------
End of period $14,939,225 $ 20,703,197
=========== ============
Participant accumulation unit transactions
(in units):
Participant deposits 2,065,916 4,238,896
Participant transfers (1,649,629) (10,471,911)
Participant withdrawals (5,092,053) (4,255,761)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Stock Sub-Account
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
PER UNIT OPERATING PERFORMANCE
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------
JUNE 30, 1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Unit value, beginning of period $2.057549 $ 1.665152 $ 1.726593
--------- ----------- -----------
Income from investment operations:
Net investment income (loss) .025325 .001646 (.003061)
Net realized and unrealized gain (loss) .176445 .390751 (.058380)
--------- ----------- -----------
Change in unit value for the period .201770 .392397 (.061441)
--------- ----------- -----------
Unit value, end of period $2.259319 $ 2.057549 $ 1.665152
========= =========== ===========
Total Return 9.81% 23.57% (3.56)%
Net assets at end of year (000) $ 311,347 $ 292,653 $ 241,233
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton International Sub-Account
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
PER UNIT OPERATING PERFORMANCE
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
JUNE 30, 1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Unit value, beginning of
period $1.488540 $ 1.303520 $ 1.351997
--------- ----------- -----------
Income from investment
operations:
Net investment income
(loss) .013077 (.009022) (.010434)
Net realized and
unrealized gain (loss) .138104 .194042 (.038043)
--------- ----------- -----------
Change in unit value for
the period .151181 .185020 (.048477)
--------- ----------- -----------
Unit value, end of
period $1.639721 $ 1.488540 $ 1.303520
========= =========== ===========
Total Return 10.16% 14.19% (3.59)%
Net assets at end of
year (000) $ 103,896 $ 88,698 $ 75,884
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Asset Allocation Sub-Account
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
PER UNIT OPERATING PERFORMANCE
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------
JUNE 30, 1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Unit value, beginning of period $1.965734 $ 1.625952 $ 1.699180
--------- ----------- -----------
Income from investment operations:
Net investment income .047054 .018169 .007591
Net realized and unrealized gain (loss) .100057 .321613 (.080819)
--------- ----------- -----------
Change in unit value for the period .147111 .339782 (.073228)
--------- ----------- -----------
Unit value, end of period $2.112845 $ 1.965734 $ 1.625952
========= =========== ===========
Total Return 7.48% 20.90% (4.31)%
Net assets at end of period (000) $ 148,003 $ 143,469 $ 121,786
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Bond Sub-Account
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
PER UNIT OPERATING PERFORMANCE
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------
JUNE 30, 1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Unit value, beginning of period $1.549167 $ 1.366504 $ 1.456861
--------- ----------- -----------
Income from investment operations:
Net investment income (loss) .173181 .048684 .047865
Net realized and unrealized gain (loss) (.161388) .133979 (.138222)
--------- ----------- -----------
Change in unit value for the period .011793 .182663 (.090357)
--------- ----------- -----------
Unit value, end of period $1.560960 $ 1.549167 $ 1.366504
========= =========== ===========
Total Return .76% 13.37% (6.20)%
Net assets at end of period (000) $ 18,546 $ 19,571 $ 17,916
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
Phoenix Home Life Variable Accumulation Account
Templeton Money Market Sub-Account
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
PER UNIT OPERATING PERFORMANCE
(for a unit outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------
JUNE 30, 1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Unit value, beginning of period $1.287771 $ 1.238474 $ 1.213373
--------- ----------- -----------
Income from investment operations:
Net investment income .022572 .049297 .025101
--------- ----------- -----------
Unit value, end of period $1.310343 $ 1.287771 $ 1.238474
========= =========== ===========
Total Return 1.75% 3.98% 2.07%
Net assets at end of year (000) $ 14,939 $ 20,703 $ 32,901
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
Phoenix Home Life Variable Accumulation Account
Notes to Financial Statements, June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Phoenix Home Life Variable Accumulation Account (the Account) is a separate in-
vestment account of Phoenix Home Life Mutual Insurance Company (Phoenix Home
Life) registered as a unit investment trust. The Account currently has five
Sub-accounts to which Templeton Investment Plus contract values may be allo-
cated and include the Templeton Stock, Templeton International, Templeton Asset
Allocation, Templeton Bond, and Templeton Money Market which invest solely in a
designated portfolio of Templeton Variable Products Series Fund (the Fund). The
other six sub-accounts are presented in separate financial statements. Each se-
ries of the Fund has distinct investment objectives. Templeton Stock Fund is a
capital growth common stock fund; the Templeton International Fund invests in
stocks and debt obligations of companies and governments outside the United
States; the Templeton Asset Allocation Fund invests in stocks and debt obliga-
tions of companies and governments and money market instruments seeking high
total return; the Templeton Bond Fund seeks high current income through invest-
ing in debt securities, rated and unrated, in any category of companies, gov-
ernment and government agencies, and in debt securities which are convertible
into common stock of such companies; and the Templeton Money Market Fund seeks
current income, stability of principal and liquidity by investing in short-term
money market instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Valuation of Investments:
Investments are made exclusively in the Funds and are valued at the net asset
value per share of the Series.
B. Investment Transactions and Related Income:
Investment transactions are recorded on the trade date. Realized gains and
losses on sales of investments are determined on the last-in, first-out (LIFO)
cost basis of the investment sold. Dividends from the Fund are recorded on the
ex-dividend date.
C. Income Taxes:
The Account is not a separate entity from Phoenix Home Life and under current
federal income tax law, income arising from the Account is not taxed since re-
serves are established equivalent to such income. Therefore, no provision for
related federal or state income taxes is required.
3. PURCHASES AND SALES OF SHARES OF TEMPLETON VARIABLE PRODUCTS SERIES FUND
Purchases and sales of the Fund for the six months ended June 30, 1996 aggre-
gated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Templeton Stock Fund $45,914,435 $26,143,660
Templeton International Fund 15,220,722 8,187,517
Templeton Asset Allocation Fund 9,452,014 8,672,516
Templeton Bond Fund 2,701,151 1,952,177
Templeton Money Market Fund 13,380,966 19,122,796
</TABLE>
4. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Phoenix Home Life provides all administrative services to the Account.
Phoenix Home Life assumes the risk that annuitants as a class may live longer
than expected and that its expenses may be higher than its deductions for such
expenses. In return for the assumption of these mortality and expense risks,
Phoenix Home Life charges each Sub-account the daily equivalent of 0.40% on an
annual basis of the current value of the Sub-account's net assets for mortality
risks assumed and the daily equivalent of 0.85% on an annual basis for expense
risks assumed.
The fees charged for mortality and expense risks assumed by Phoenix Home Life
for the Templeton Stock Sub-account, the Templeton International Sub-account,
the Templeton Asset Allocation Sub-account, the Templeton Bond Sub-account, and
the Templeton Money Market Sub-account aggregated $1,883,036, $612,752,
$912,565, $117,242 and $91,238, respectively, for the six months ended June 30,
1996.
As compensation for administrative services provided to the Account, Phoenix
Home Life additionally receives $35 per year from each annuity contract prior
to the contract's date of maturity. This cost-based charge is deducted from the
Sub-account holding the assets of the participant or on a pro-rata basis from
two or more Sub-accounts in relation to their values under the contract. Upon a
full surrender of a contract, the entire annual administrative charge of $35 is
deducted regardless of when the surrender occurs. Phoenix Home Life received
$259,990 for administrative services provided for the six months ended June 30,
1996.
Phoenix Home Life also charges each Sub-account the daily equivalent of 0.125%
on an annual basis of the current value of the Sub-account's net assets to
cover its variable costs of administration, such as printing and distribution
of participant mailings. The variable costs of administrative services provided
by Phoenix Home Life for the Templeton Stock Sub-account, Templeton Interna-
tional Sub-account, Templeton Asset Allocation Sub-account, Templeton Bond Sub-
account and Templeton Money Market Sub-account aggregated $188,304, $61,275,
$91,256, $11,724 and $9,124, respectively, for the six months ended June 30,
1996.
Franklin Templeton Funds Distributors, Inc. is the principal underwriter and
distributor for the Templeton sub-accounts of the Account. Phoenix Home Life
reimburses Franklin Templeton Funds Distributor for expenses incurred as under-
writer. On surrender of a contract, surrender charges, which vary from 0-6% de-
pending upon the duration of each contract deposit, are deducted from the pro-
ceeds and are paid to Phoenix Home Life as reimbursement for services provided.
The surrender charges deducted and paid to Phoenix Home Life were $286,862 for
the six months ended June 30, 1996.
51
<PAGE>
Phoenix Home Life Variable Accumulation Account
Notes to Financial Statements (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Templeton Investment Counsel, Inc. (TICI) serves as investment manager of the
Templeton Stock, International, and Asset Allocation Funds; and Templeton
Global Bond Manager, a division of TICI, serves as investment manager of the
Templeton Bond and Money Market Funds. The investment managers furnish the
Funds with investment research and advice and supervise the investment programs
for the Funds in accordance with each Series' investment objective, policies
and restrictions. Templeton Stock, International, Asset Allocation and Bond
Funds each pay a monthly investment management fee, equal on an annual basis,
to 0.50% of the 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 ex-
cess of $1.3 billion. Templeton Money Market Funds pays a monthly investment
management fee equal on 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 bil-
lion and 0.25% of such net assets in excess of $1.3 billion.
Each Fund pays the business manager, Templeton Fund Annuity Company (TFAC), a
monthly fee equivalent on annual basis to 0.15% of the combined average daily
net assets of the Funds, reduced to 0.135% of such assets in excess of $200
million, 0.10% of such assets in excess of $700 million, and 0.075% of such as-
sets in excess of $1.2 billion. TFAC provides certain administrative facilities
and services for the Funds.
5. DISTRIBUTION OF NET INCOME
The Account does not expect to declare dividends to participants from accumu-
lated net income. The accumulated net income is distributed to participants as
part of withdrawals of amounts in the form of surrenders, death benefits,
transfers or annuity payments in excess of net purchase payments.
6. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (the Code),
a variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity con-
tract for federal tax purposes for any period for which the investments of the
segregated asset account on which the contract is based are not adequately di-
versified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor
test or diversification requirements set forth in regulations issued by the
Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. Phoenix Home Life believes that the Account satisfies the current re-
quirements of the regulations, and it intends that the Account will continue to
meet such requirements.
52
<PAGE>
NOTES
<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
700 CENTRAL AVENUE BULK RATE
ST. PETERSBURG, FL 33701 U.S. POSTAGE
PAID TEMPLE-
TON FUNDS
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.
TIP S96 08/96
[LOGO OF RECYCLED PAPER APPEARS HERE]
