<PAGE>
----------------------------------------------------------
TEMPLETON
VARIABLE
PRODUCTS
SERIES FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
International Fund
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
TABLE OF
CONTENTS
LETTER FROM THE PRESIDENT....................2
TEMPLETON INTERNATIONAL FUND REPORT..........5
PERFORMANCE SUMMARY..........................7
INVESTMENT PORTFOLIO.........................9
FINANCIAL STATEMENTS........................12
NOTES TO FINANCIAL STATEMENTS...............13
<PAGE>
LETTER FROM August 15, 1996
THE PRESIDENT Dear Contract Owner:
We are pleased to bring you this semi-annual report of the
Templeton Variable Products Series International Fund 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
2
<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
3
<PAGE>
Index, representative of government bonds in 14 developed
countries, reported a total return of -1.47% for the same
period.*
Looking forward, we believe the most important influences on
global stock and bond markets are likely to be the
sustainability of U.S. economic growth, the direction of the
dollar, and the prospects for a rebound in the core European
economies. Although we do not expect global economic growth to
increase substantially, we believe that the U.S. economy may be
in the midst of renewed growth that could last through the end
of the summer. We shall monitor these and other events as we
continue to search the world for the best possible investment
opportunities.
We appreciate your participation in the Templeton Variable
Products Series International Fund and look forward to serving
your investment needs in the years to come.
Sincerely,
/s/ Charles E. Johnson
Charles E. Johnson
President
Templeton Variable Products Series Fund
*Indices are unmanaged and include price appreciation and
reinvested interest.
4
<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 7. It outperformed its benchmark, the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index, which posted a total return of 4.67%
for the same period.* The Fund's strong performance was primarily the result of
our bottom-up, value style of investing and our relative overweighting in
markets that performed exceptionally well during the period.
European holdings continued to comprise our largest geographic exposure,
representing 59.1% of the Fund's total net assets, up from 56.9% on December 31,
1995. Compared to the EAFE Index, the Fund was overweighted in Sweden, Norway,
and the Netherlands -- three countries whose markets posted double-digit returns
during the period. These overweightings helped offset the relatively lackluster
returns of core European countries such as Germany and the United Kingdom.
Spain's equity market also performed well, with large gains in the banking and
telecommunications industries. The share price of Telefonica de Espana SA, one
of Spain's largest telephone companies and the Fund's fifth largest holding,
appreciated 33% during the period. Although Switzerland's equity market lagged
behind other European markets, our investments in Swiss pharmaceutical company
Ciba-Geigy AG, electricity company ABB AG (formerly BBC Brown Boveri Ltd.), and
food manufacturer
================================================================================
TEMPLETON INTERNATIONAL FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
[PIE CHART OF TEMPLETON INTERNATIONAL FUND APPEARS HERE]
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.
*Index is unmanaged and includes reinvested dividends.
5
<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.
- --------------------------------------------------------------------------------
TEMPLETON
INTERNATIONAL FUND
Top 10 Holdings on 6/30/96
Based on Total Net Assets
<TABLE>
<CAPTION>
% 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 9 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.
6
<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 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.
<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.
- --------------------------------------------------------------------------------
7
<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.
8
<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>
9
<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>
10
<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.
11
<PAGE>
Templeton Variable Products Series Fund
Templeton International Fund
Financial Statements
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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.
12
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited)
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1. SUMMARY OF ACCOUNTING POLICIES
Templeton International Fund (the Fund) is a separate series of Templeton Vari-
able Products Series Fund (the Trust), a Massachusetts business trust, which is
an open-end, diversified management investment company registered under the In-
vestment Company Act of 1940. The 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. The following summarizes the Trust's
significant accounting policies.
A. Securities Valuations:
Securities 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 securities and listed se-
curities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and ap-
proved in good faith by the Board of Trustees.
B. Foreign Exchange Contracts:
The Fund may enter into forward exchange contracts and currency option con-
tracts in order to hedge against foreign exchange risks.
(i) Forward Exchange Contracts: These contracts are valued daily and each
Fund's equity therein, representing unrealized gain or loss on the con-
tracts, is included in the Statement of Assets and Liabilities. Realized
and unrealized gains and losses are included in the Statement of Opera-
tions.
(ii) Currency Option Contracts: Options purchased are recorded as investments;
options written (sold) are accounted for as liabilities. When an option
expires, the premium (original option value) is realized as a gain if the
option was written or realized as a loss if the option was purchased. When
the exercise of an option results in a cash settlement, the difference be-
tween the premium and the settlement proceeds is realized as a gain or
loss. When securities are acquired or delivered upon exercise of an op-
tion, the acquisition cost or sale proceeds are adjusted by the amount of
the premium. When an option is closed, the difference between the premium
and the cost to close the position is realized as a gain or loss.
C. 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.
D. 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.
E. 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.
F. Distributions to Shareholders:
The Fund normally pays an annual dividend representing substantially all of its
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.
G. Security Transactions, Investment Income, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividends on foreign securities is
recorded as soon as information is available to the Fund. Interest income and
estimated expenses are accrued daily.
13
<PAGE>
Templeton Variable Products Series Fund
Notes to Financial Statements (unaudited) (cont.)
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2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At June 30, 1996, there was 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>
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
========= ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI) and Templeton Funds Annuity Company (TFAC), the
Funds' investment manager and administrative manager, respectively.
The Fund pays 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 as-
sets from $200 million up to $1.3 billion, and 0.40% of such net assets in ex-
cess of $1.3 billion. The 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 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 $1,500 for the six months ended June
30, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1996 aggregated $140,463,380 and $23,319,743, respective-
ly. The cost of securities for federal income tax purposes is $471,060,791. Re-
alized gains and losses are reported on an identified cost basis.
At June 30, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 76,221,905
Unrealized depreciation (12,186,038)
------------
Net unrealized appreciation $ 64,035,867
============
</TABLE>
14
<PAGE>
NOTES
<PAGE>
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To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
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<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701
This report must be preceded or accompanied
by the Templeton Variable Products Series
Fund prospectus which sets forth the costs,
risks and advantages of an investment in
the funds. These reports and prospectuses
do not constitute an offering in any
jurisdiction in which such offering may not
lawfully be made.
[LOGO OF RECYCLED PAPER APPEARS HERE]
