<PAGE>
----------------------------------------------------------
TEMPLETON
VARIABLE
PRODUCTS
SERIES FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
.Stock Fund
.Asset Allocation Fund
.Bond Fund
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
On the following pages, you will find a letter from the President and a report
on each of the funds you have chosen for your Templeton Variable Products Series
Fund investments:
LETTER FROM THE PRESIDENT......................................................2
TEMPLETON STOCK FUND...........................................................5
TEMPLETON ASSET ALLOCATION FUND................................................8
TEMPLETON BOND FUND...........................................................11
<PAGE>
LETTER FROM
THE PRESIDENT
August 15, 1996
Dear Contract Owner:
We are pleased to bring you this semi-annual report of the Templeton Variable
Products Series Stock, Asset Allocation and Bond Funds for the six months ended
June 30, 1996.
During this period, global economic activity was marked by slow growth outside
the U.S. and unexpectedly strong domestic growth. Emergence of this stronger
growth disrupted a seemingly long-term trend toward subdued growth and declining
interest rates in the U.S.
At the end of 1995, many economists were predicting that high inventory levels
would inhibit manufacturing production in the U.S. and that consumers would be
burdened by excessive personal debt. These expectations were reinforced by
severe winter weather in many parts of the country and the prolonged budget
stalemate in Washington, D.C. In March 1996, however, the Labor Department
surprised Wall Street when it announced that the economy had added 509,000 jobs
in February, the strongest monthly employment report in more than a decade. As a
result, long-term interest rates rose significantly and investors became
increasingly concerned about inflation and the possibility that the Federal
Reserve Board would raise short-term rates.
Within this environment, U.S. stock markets performed exceptionally well as
record amounts of money poured into equity mutual funds. News of all-time market
highs appeared nearly every week, which further encouraged new investments and
pushed stock prices and market multiples even higher. However, as slower
corporate earnings growth and rising interest rates emerged in the second
quarter of the year, stock prices in a variety of industries began to decline.
European equity markets turned in mixed performances during the period. The
markets in Sweden, Norway, and the Netherlands performed well, with large gains
in the chemical, pharmaceutical, and banking sectors. However, the stock markets
of core countries such as the United Kingdom and Germany posted relatively
lackluster returns due primarily to their uncertain economic prospects and low
levels of consumer spending. Although record-low inflation resulted in lower
interest rates in these countries, economic growth was depressed in part by
restrictions on government
<PAGE>
spending required for membership in the European Monetary Union. This occurred
when growth was already faltering and unemployment was rising.
Emerging market equities performed strongly during the period as investors re-
focused their attention on these securities and injected much-needed liquidity
into many markets. Latin American equity markets continued to recover from the
"Tequila Effect," which had depressed stock prices following Mexico's currency
devaluation. Although Mexico has not recovered entirely from this crisis, its
stock market delivered strong returns during the period, providing evidence that
the government's austerity program has successfully restored investor
confidence. Brazil's market also strengthened after the country's economy
improved significantly as a result of declining inflation and the relative
stability of its currency. The stock markets of Malaysia, Thailand and Indonesia
delivered impressive gains, mainly because these countries attracted large
amounts of foreign capital due to their undervalued currencies.
With regard to fixed-income securities, many markets struggled amid concerns
about stronger economic growth and rising interest rates. In the developed
markets, the unexpected emergence of stronger U.S. growth proved particularly
troublesome as yields rose and bond prices declined. Rising U.S. bond yields
also caused yields to rise in Japan and Germany, but because economic growth was
lower in these countries, their bond markets were not as dramatically affected.
Stronger U.S. growth also increased the value of the dollar relative to most
other major currencies, which negatively affected fixed-income investments
denominated in foreign currencies. During this reporting period, the dollar
appreciated 5.7% versus the German mark, and 5.6% versus the Japanese yen. Much
of this appreciation resulted from expectations that the U.S. Federal Reserve
Board would raise interest rates to help restrain economic growth.
Bond markets in developing countries fared much better than their developed-
market counterparts due primarily to improved economic fundamentals and
increased investor interest. The J.P. Morgan Emerging Markets Bond Index, which
tracks the performance of bond markets in nine developing countries, delivered a
total return of 13.19% for the six months ended June 30, 1996, while the Salomon
Brothers World Government Bond
<PAGE>
Index, representative of government bonds in 14 developed countries, reported a
total return of -1.47% for the same period.*
Looking forward, we believe the most important influences on global stock and
bond markets are likely to be the sustainability of U.S. economic growth, the
direction of the dollar, and the prospects for a rebound in the core European
economies. Although we do not expect global economic growth to increase
substantially, we believe that the U.S. economy may be in the midst of renewed
growth that could last through the end of the summer. We shall monitor these and
other events as we continue to search the world for the best possible investment
opportunities.
We appreciate your participation in the Templeton Variable Products Series
Stock, Asset Allocation and Bond Funds 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
STOCK FUND
The Templeton Stock Fund seeks capital growth through a policy of investing
primarily in common stocks issued by companies, large and small, in various
nations throughout the world.
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
- --------------------------------------------------------------------------------
TEMPLETON STOCK FUND
Geographic Distribution on 6/30/96 Based on Total Net Assets
[PIE CHART APPEARS HERE]
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 sixmonth 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
*Index is unmanaged and includes reinvested dividends.
<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 14 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
- -----------------------------------------------------------
<S> <C> <C> <C>
Since
Inception
1-Year 5-Year (8/24/88)
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
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.
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 6/30/96
Based on Total Net Assets
[GRAPH OF PIE CHART APPEARS HERE]
European equity markets delivered mixed performances during the period. Markets
in Sweden, Norway, and the Netherlands strengthened, while those in core
countries such as Germany and the United Kingdom lagged considerably. Spain's
stock market flourished, with large gains in the banking, electric utility, and
telecommunications industries. Rising stock prices of Spanish companies such as
Telefonica de Espana SA, Endesa-Empressa Nacional de Electricidad SA, and
Iberdrola SA provided substantial gains for the Fund.
During the reporting period, Latin American stock markets rebounded in response
to improved economic fundamentals and renewed interest by foreign investors. The
telecommunications and electric utility industries performed well
<PAGE>
as demand for their services continued to grow throughout many countries. This
led to significant appreciation for the Fund's holdings of Telefonica de
Argentina SA (Argentina) and Telebras-Telecomunicacoes Brasileiras SA (Brazil).
We believe that Latin American utilities markets should continue to grow rapidly
because of impending regulatory changes. For example, Brazil is expected to
deregulate its telephone industry within the next few years, which should
provide Telebras with significant growth potential.
With regard to fixed-income securities, many global markets declined during the
reporting period due to rising interest rates and a stronger U.S. dollar. Rising
interest rates in several developed countries caused bond prices to decline, and
the appreciation of the dollar eroded the
- --------------------------------------------------------------------------------
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
[PIE CHART APPEARS HERE]
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 Govern-ment 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-
- --------------------------------------------------------------------------------
TEMPLETON BOND FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
[PIE CHART APPEARS HERE]
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 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.
13
<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>
14
<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>
SEE NOTES TO FINANCIAL STATEMENTS.
<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.
15
<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.
16
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <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>
17
<PAGE>
Templeton Variable Products Series Fund
Templeton Asset Allocation Fund
Investment Portfolio June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <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>
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>
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>
18
<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>
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>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
MATURITY VALUE VALUE
-------------- ------------
<S> <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.
19
<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.
20
<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>
SEE NOTES TO FINANCIAL STATEMENTS.
<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.
21
<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.
22
<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.
23
<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.
24
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Stock Fund, Templeton Asset Allocation Fund, and Templeton Bond Fund
(the Funds) are a separate series of Templeton Variable Products Series Fund
(the Trust), a Massachusetts business trust, which is an open-end, diversified
management investment company registered under the Investment Company Act of
1940.
Templeton Stock Fund seeks capital growth through a policy of investing primar-
ily in common stocks issued by companies, large and small, in various nations
throughout the world. Templeton Asset Allocation Fund seeks a high level of to-
tal return through a flexible policy of investing in stocks and debt obliga-
tions of companies and governments of any nation, and money market instruments.
Templeton Bond Fund seeks high current income through a flexible policy of in-
vesting primarily in the debt securities of companies, governments and govern-
ment agencies of various nations throughout the world. The following summarizes
the Trust's significant accounting policies.
a. Securities Valuations:
Securities held by the 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 exchange on which the securities are traded. Over-the-counter se-
curities 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.
b. Foreign Exchange Contracts:
Templeton Asset Allocation and Bond Funds may enter into forward exchange con-
tracts and currency option contracts in order to hedge against foreign exchange
risks.
(i) Forward Exchange Contracts: These contracts are valued daily and each
Fund's equity therein, representing unrealized gain or loss on the contracts,
is included in the Statement of Assets and Liabilities. Realized and
unrealized gains and losses are included in the Statement of Operations.
(ii) Currency Option Contracts: Options purchased are recorded as investments;
options written (sold) are accounted for as liabilities. When an option ex-
pires, the premium (original option value) is realized as a gain if the op-
tion was written or realized as a loss if the option was purchased. When the
exercise of an option results in a cash settlement, the difference between
the premium and the settlement proceeds is realized as a gain or loss. When
securities are acquired or delivered upon exercise of an option, the acquisi-
tion cost or sale proceeds are adjusted by the amount of the premium. When an
option is closed, the difference between the premium and the cost to close
the position is realized as a gain or loss.
c. Indexed Securities:
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 investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rate.
e. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
f. 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.
25
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
g. Distributions to Shareholders:
The Funds normally pay annual dividends representing substantially all of their
net investment income and distribute annually any net realized capital gains.
Distributions to shareholders, which are determined in accordance with income
tax regulations, are recorded on the ex-dividend date.
h. Security Transactions, Investment Income, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividends on foreign securities is
recorded as soon as information is available to the Fund. Interest income and
estimated expenses are accrued daily.
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 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
========== ============ ========== ============
<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
========== ============ ========== ============
</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 and Asset Allocation Funds; and
Templeton Global Bond Managers, a division of TICI, serves as investment man-
ager of the Templeton Bond Fund.
The Funds each pay a monthly investment management fee, equal on an annual ba-
sis, to 0.50% of its average daily net assets up to $200 million, 0.45% of such
net assets from $200 million up to $1.3 billion, and 0.40% of such net assets
in excess of $1.3 billion. Each Fund pays TFAC its allocable share of a monthly
fee equivalent on an annual basis to 0.15% of the combined average daily net
assets of the Trust, reduced to 0.135% of such assets in excess of $200 mil-
lion, 0.10% of such assets in excess of $700 million, 0.075% of such assets in
excess of $1.2 billion.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $3,500 for the six months ended June
30, 1996.
26
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
- -------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
The cost of securities for federal income tax purposes is the same as that
shown in the investment portfolios. Realized gains and losses are reported on
an identified cost basis.
The aggregate gross unrealized appreciation and depreciation of portfolio se-
curities, 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 ASSET TEMPLETON
STOCK FUND ALLOCATION FUND BOND FUND
------------ --------------- -----------
<S> <C> <C> <C>
Unrealized appreciation $187,457,647 $ 77,947,364 $ 451,636
Unrealized depreciation (59,425,961) (10,081,618) (602,759)
------------ ------------ -----------
Net unrealized appreciation
(depreciation) $128,031,686 $ 67,865,746 $ (151,123)
============ ============ ===========
Purchases $112,703,326 $222,855,224 $25,205,351
============ ============ ===========
Sales $ 59,960,232 $176,633,447 $24,639,551
============ ============ ===========
</TABLE>
At December 31, 1995, Bond Fund had tax basis capital losses of $1,000,000
which may be carried over to offset future capital gains. Such losses expire
December 31, 2002.
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 contracts, in order to mini-
mize the risk to the Funds with respect to their portfolio transactions from
adverse changes in the relationship between the U.S. dollar and foreign cur-
rencies and interest rates. These instruments involve market risks in excess
of the amount recognized on the Statements of Assets and Liabilities; some of
these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts, fu-
ture movement in currency value and interest rates and contract positions that
are not exact offsets. The contract amounts indicate the extent of the Funds'
involvement in such contracts.
FORWARDS: A forward exchange contract is an agreement between two parties to
exchange different currencies at a specified rate at an agreed upon future
date.
At 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>
27
<PAGE>
Notes
-----
<PAGE>
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
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[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701
This report must be preceded or accompanied
by the Templeton Variable Products Series
Fund prospectus which sets forth the costs,
risks and advantages of an investment in
the funds. These reports and prospectuses
do not constitute an offering in any
jurisdiction in which such offering may not
lawfully be made.
[LOGO APPEARS HERE]
