<PAGE>
- --------------------------------------------------------------------------------
TEMPLETON
VARIABLE
PRODUCTS
SERIES FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
Developing Markets Fund
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<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 Developing Markets Fund, which covers the period from the Fund's
inception on March 4, 1996 through June 30, 1996.
In 1995, the shock of Mexico's December 1994 currency devaluation caused net
private capital inflows into emerging markets to fall considerably.
Consequently, equities in these markets declined despite positive economic
developments and a boom in developed world equity markets. In 1996, however,
outside investment in virtually all of the emerging markets increased, and many
of these markets staged strong rallies between January and April before
consolidating in May and June.
Most Latin American equities performed well as investors re-focused their
attention on this area and injected much-needed capital into these markets.
Mexico's stock market delivered strong returns during the reporting period,
providing evidence that the government's austerity program had successfully
restored investor confidence in the country. Brazil's market also strengthened
after its economy improved as a result of declining inflation and the relative
stability of its currency. In Asia, 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.
Looking forward, we will continue with our proven "bottom-up" investment style,
choosing stocks that are selling at prices below our estimate of their true
value. Although emerging markets were disappointing in 1995, and we cannot
predict what any particular stock will do in the short term, we believe that
over the long term, these markets should continue to grow. We appreciate your
participation in the Templeton Variable Products Series Developing Markets
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
2
<PAGE>
TEMPLETON DEVELOPING MARKETS FUND
The Templeton Developing Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers in countries having
developing markets.
On June 30, 1996, 75.4% of the Fund's total net assets were invested in
equities, with the remaining 24.6% held in cash and other liquid instruments.
Our equity investments were diversified across 16 markets, with no single market
accounting for more than 8.9%.
In Latin America, investors focused on improvements in the area's economic
fundamentals, and market indices moved sharply higher. For example, when
measured in U.S. dollars, the Mexican Bolsa Index increased 13% during this
four-month reporting period. Seeking to participate in this rally, we found
several attractive investment opportunities in Latin America. Although we
focused mainly on the most highly liquid markets, such as Mexico and Argentina,
we intend to diversify toward other Latin American markets in the future.
Stock prices in Asian markets advanced during the first two months of the
period, as undervalued currencies in several countries attracted foreign
capital. However, during May and June, these large inflows of capital caused
many economies to overheat. This raised the possibility of an exchange rate
crisis and the amount of capital inflows to the region declined. During the
reporting period, we found investment opportunities in the markets of Indonesia,
Malaysia, Turkey, and the Philippines.
In Europe, the Fund's investments in Portugal, Greece, and the Czech Republic
performed well. Although we did not have any exposure to Spain during the
period, we anticipate adding some Spanish stocks to our portfolio as
opportunities arise.
- ----------------------------------
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
MARKETS FUND
Geographic Distribution on 6/30/96
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<S> <C>
Asia 47.5%
Latin America 17.1%
Europe 7.2%
Mid-East/Africa 3.6%
Short-Term
Obligations & Other
Net Assets 24.6%
</TABLE>
Spain's new coalition government has boosted market confidence and appears
committed to taking measures necessary to meet the conditions specified in the
Maastricht Treaty for a single European currency.
The Fund's portfolio spans not only many countries, but also various sectors,
and on June 30, 1996, our assets were diversified across 25 different
industries. Approximately 6% of the Fund's assets were invested in the banking
sector because we believe that these holdings will allow us to benefit from new
banking technology and the wide profit margins available on loans in emerging
market countries. We also favor the telecommunications sector because the
privatization of government monopolies has the potential to increase profit
margins, and most people in emerging markets have not yet been able to purchase
telephones or other telecommunication products.
This discussion reflects the strategies we employed for the Fund during the
reporting period, and includes our opinions as
3
<PAGE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
MARKETS FUND
Top 10 Holdings on 6/30/96
Based on Total Net Assets
<S> <C>
% of Total
Company, Industry, Country Net Assets
Saha Pathanapibul Public Co. Ltd.
Food & Household Products, Thailand 3.3%
Cemex SA, B
Building Materials & Components, Mexico 3.2%
YPF Sociedad Anonima, ADR
Energy Sources, Argentina 3.1%
Turk Demir Dokum, br.
Appliances & Household Durables, Turkey 2.6%
Shanghai Petrochemical Co. Ltd., H
Chemicals, China 2.1%
CEZ, GDR
Utilities -- Electrical & Gas, Czech Republic 2.0%
Hong Kong Electric Holdings Ltd.
Utilities -- Electrical & Gas, Hong Kong 1.9%
Keppel Philippine Holdings Inc., B
Machinery & Engineering, Philippines 1.8%
DG Khan Cement Co.
Building Materials & Components, Pakistan 1.8%
Quilmes Industrial SA, ADR, pfd.
Beverages & Tobacco, Argentina 1.7%
</TABLE>
For a complete list of portfolio holdings, please see page 7 of this report.
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 DEVELOPING
MARKETS FUND
Top 10 Countries Represented in the Fund
on 6/30/96
Based on Total Net Assets
% of Total
Country Net Assets
<S> <C>
Mexico 8.9%
Argentina 8.2%
Indonesia 7.5%
Thailand 6.2%
Pakistan 6.0%
Turkey 6.0%
Singapore 6.0%
Hong Kong 6.0%
China 4.5%
Greece 3.9%
</TABLE>
Of course, investing in emerging markets involves special considerations which
may include risks related to market and currency volatility, adverse social and
political developments, and the relatively small size and lesser liquidity of
these markets. These special risks and other considerations are discussed in the
Fund's prospectus. While short-term volatility can be disconcerting, declines of
as much as 40% to 50% are not unusual in emerging markets. For example, the Hong
Kong market has increased 535% in the last 15 years, but has suffered six
declines of more than 20% during that time.*
*Source: Bloomberg. Based on quarterly percentage
change over 15 years ended June 30, 1996.
4
<PAGE>
PERFORMANCE SUMMARY
The Templeton Developing Markets Fund provided a total return of -2.00% for the
four-month period ended June 30, 1996. Total return represents the percent
change in the Fund's share price, as measured by net asset value. All
performance figures shown reflect 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.
No dividends or capital gains were distributed during the reporting period.
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
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
MARKETS FUND
Period ended 6/30/96
<S> <C>
Since
Inception
(3/4/96)
Cumulative
Total Return1 -2.00%
Value of $10,000
Investment2 $9,800
1. Cumulative total return represents the change in the Fund's net asset value
over the indicated period.
2. This figure represents the value of a hypothetical $10,000 investment in the
Fund over the specified
period.
The Fund's Investment Manager and Business Manager have agreed in advance to
waive a portion of their respective fees, which increases total return to
contract owners. If the managers had not taken this action, the Fund's total
return would have been lower. The fee waiver may be discontinued at any time
after May 1, 1997, upon notice to the Fund's Board of Trustees.
</TABLE>
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.
5
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
MARCH 4, 1996
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1996
(UNAUDITED)
----------------
<S> <C>
Net asset value, beginning of period $ 10.00
-------
Income from investment operations:
Net investment income .07
Net realized and unrealized loss (.27)
-------
Total from investment operations (.20)
-------
Net asset value, end of period $ 9.80
=======
TOTAL RETURN* (2.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $21,059
Ratio of expenses to average net assets 1.84%**
Ratio of expenses, net of expense waiver, to average net as-
sets 1.70%**
Ratio of net investment income to average net assets 5.15%**
Portfolio turnover rate 3.06%
Average commission rate paid (per share) $ .0032
</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.
6
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Investment Portfolio, June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES: 75.4%
- -------------------------------------------------------------------------------
Argentina: 8.2%
Astra Cia Argentina de
Petroleo SA 31,000 $ 73,497
*Atanor Cia Nacional Para la
Industria Quimica SA, D 114,000 302,212
Buenos Aires Embotelladora
SA, ADR 5,000 66,250
Perez Companc SA, B 26,000 170,623
*Quilmes Industrial SA, ADR,
pfd. 35,000 358,750
*Siderar, A 10,815 27,913
*Sociedad Comercial del Plata
Cadelplata Come 26,000 80,370
YPF Sociedad Anonima, ADR 29,000 652,500
-----------
1,732,115
- -------------------------------------------------------------------------------
China: 4.5%
China Southern Glass Co.
Ltd., B 182,000 106,979
Guangzhou Shipyard
International Co. Ltd., H 445,000 108,077
Qing Ling Motors Co. Ltd., H 124,000 41,650
Shanghai Petrochemical Co.
Ltd., H 1,548,000 439,957
*Shanghai Shangling Electric
Appliance, B 150,000 79,200
*Shanghai Tyre & Rubber Co.
Ltd., B 336,000 84,000
Zhuhai Sez Lizhu
Pharmaceutical Group Inc., B 268,000 90,710
-----------
950,573
- -------------------------------------------------------------------------------
Czech Republic: 2.7%
*CEZ, GDR 10,000 418,750
*Chemopetrol Group AS 1,600 76,182
Komercni Banka AS 1,000 81,598
-----------
576,530
- -------------------------------------------------------------------------------
Greece: 3.9%
Delta Dairy SA 16,700 204,107
Ergo Bank SA 3,000 165,246
Hellas Can 3,700 79,214
Hellenic Telecommunications
Organizations 19,000 315,153
National Bank of Greece SA 1,000 49,179
-----------
812,899
- -------------------------------------------------------------------------------
Hong Kong: 6.0%
CNT Group Ltd. 662,000 40,195
Cross Harbour Tunnel Co. Ltd. 81,000 160,624
Hang Lung Development Co.
Ltd. 41,000 77,066
Hongkong Electric Holdings
Ltd. 134,000 408,539
IMC Holdings Ltd. 7,000 3,934
Jardine Matheson Holdings
Ltd. 10,000 73,500
Lai Sun Development Co. Ltd. 376,000 76,747
*Laws International Holdings
Ltd. 280,000 31,832
Min Xin Holdings 510,000 86,309
NG Fund Hong Ltd. 300,000 138,552
Northeast Electric
Transmission & Transformation 744,000 132,638
Orient Overseas International
Ltd. 34,000 25,036
-----------
1,254,972
- -------------------------------------------------------------------------------
Indonesia: 7.5%
*Asia Pulp & Paper Co. Ltd.,
ADR 6,000 73,500
PT Astra International, fgn. 210,000 304,511
PT Barito Pacific Timber,
fgn. 93,000 60,934
PT Charoen Pokphand
Indonesia, fgn. 80,000 154,672
PT Gadjah Tunggal, fgn. 295,000 145,757
PT Pabrik Kertas Tjiwi Kimia,
fgn. 179,000 182,653
PT Sinar Mas Agro Resources &
Technology Corp., fgn. 99,000 72,309
PT Sumalindo Lestari Jaya,
fgn. 18,000 21,654
PT Tambang Timah (Persero),
fgn. 171,500 316,842
</TABLE>
7
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -------------------------------------------------------------------------------
Indonesia (cont.)
PT Ultra Jaya Milk, fgn. 143,000 $ 81,407
PT United Tractors, fgn. 106,000 167,368
-----------
1,581,607
- -------------------------------------------------------------------------------
Malaysia: 3.4%
Aokam Perdana Bhd. 20,000 33,514
Berjaya Singer Bhd., fgn. 25,000 25,857
Hong Leong Industries Bhd. 30,000 145,520
Island & Peninsula Bhd, fgn. 26,000 73,482
MBF Capital Bhd. 110,000 151,694
Renong Bhd. 179,000 285,596
-----------
715,663
- -------------------------------------------------------------------------------
Mexico: 8.9%
Cemex SA, B 170,000 671,259
*Cifra SA, C 53,000 75,604
Cydea SA de CV 79,000 196,641
Fomento Economico Mexicano SA
de CV, B 80,000 229,927
*Grupo Financiero Banamex
Accival SA, L 77,000 146,183
*Grupo Financiero Bancomer SA
de CV, B 500,000 217,535
*Grupo Financiero Serfin SA,
B 248,000 151,710
Vitro SA 75,000 174,028
-----------
1,862,887
- -------------------------------------------------------------------------------
Pakistan: 6.0%
*Bank of Punjab 208,500 117,637
*DG Khan Cement Co. 945,000 375,246
*National Development Leasing
Corp. 762,000 321,083
*Pakistan Electron Ltd. 262,000 246,993
*Pakistan International
Airlines Corp. 70,000 17,897
*Pakland Cement Co. Ltd. 134,500 65,319
*Union Bank Ltd. 312,500 119,179
-----------
1,263,354
- -------------------------------------------------------------------------------
Philippines: 1.9%
*Keppel Philippine Holdings
Inc., B 1,522,000 377,595
*Philex Minning Corp., B 88,000 11,252
-----------
388,847
- -------------------------------------------------------------------------------
Portugal: 0.4%
Espirito Santo Financial
Holding SA, ADR 7,000 89,250
- -------------------------------------------------------------------------------
Russia: 0.2%
*Chernogorneft 1,000 9,800
*GUM Trade House 1,000 20,500
*Lukoil-Holdings 1,000 10,600
-----------
40,900
- -------------------------------------------------------------------------------
Singapore: 6.0%
*Acer Computer International
Ltd. 32,000 62,080
First Capital Corp. Ltd. 40,000 99,220
First Capital Corp. Ltd.,
fgn. 30,000 74,415
Inchcape Bhd., fgn. 22,000 70,163
Jurong Shipyard, fgn. 60,000 304,040
Natsteel Ltd. 78,000 154,784
Natsteel Ltd., fgn. 86,000 170,659
Sembawang Corp. Ltd. 65,000 322,466
-----------
1,257,827
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Investment Portfolio, June 30, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -------------------------------------------------------------------------------
South Africa: 3.6%
Anglo American Industrial
Corp. Ltd. 3,500 $ 140,549
Anglovaal Industried Ltd. 13,000 63,005
BTR Dunlop Ltd. 26,200 35,373
Del Monte Royal Foods Ltd. 68,000 81,606
Malbak Ltd. 12,100 60,039
South African Iron & Steel
Industrial Corp. Ltd. 224,000 175,250
Sun International Ltd. 189,300 203,149
-----------
758,971
- -------------------------------------------------------------------------------
Thailand: 6.2%
Bangkok Land Public Co. Ltd.,
fgn. 16,000 20,167
Charoen Pokphand Feedmill
Public Co. Ltd. 7,500 30,723
Saha Pathanapibul Public Co.
Ltd. 227,000 554,356
Saha Pathanapibul Public Co.
Ltd., fgn. 50,500 130,785
Saha Union Public Co. Ltd. 104,200 143,651
Sanyo Universal Electric
Public Co. Ltd. 25,400 88,042
Sino-Thai Engineering &
Construction Public Co. 76,100 347,708
-----------
1,315,432
- -------------------------------------------------------------------------------
Turkey: 6.0%
Bagfas 70,000 18,966
Borusan AS 2,220,000 183,829
Cimsa Cimento Sanayi ve
Ticaret AS 9,000 5,151
Eregli Demir ve Celik
Fabrikalari AS 2,500,000 277,034
Tat Konserve Sanayii AS 234,608 54,995
*Tat Konserve Sanayii AS,
rts. 176,000 26,089
Tofas Turk Otomobil Fabrikasi
AS 2,834,000 136,316
Turk Demir Dokum, br. 9,133,000 556,076
-----------
1,258,456
-----------
TOTAL LONG TERM SECURITIES (cost $16,351,484) 15,860,283
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 21.7%
Dresdner Bank AG,
5.375%, 7/03/96 U.S. 250,000 250,000
Federal Farm Credit
Bank, 5.25% to 5.29%
with
maturities to 7/25/96 U.S. 610,000 608,476
Federal Home Loan Bank,
5.25% to 5.32% with
maturities to 8/06/96 U.S. 1,305,000 1,300,771
Federal Home Loan
Mortgage Corp., 5.22%
to 5.28% with
maturities to 7/15/96 U.S. 1,050,000 1,048,763
Federal National
Mortgage Assn., 5.25%
to 5.30% with
maturities to 8/23/96 U.S. 880,000 875,654
U.S. Treasury Bills,
5.05 to 5.10%, 9/19/96 U.S. 500,000 494,386
-----------
TOTAL SHORT TERM OBLIGATIONS (cost $4,577,522) 4,578,050
- --------------------------------------------------------------------------------
<CAPTION>
MATURITY
VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS: 1.8% (cost $384,000)
Bank of America, 5.40%,
7/01/96
Collateralized by
$400,000
U.S. Treasury Bill,
9/26/96, Value
$394,600 U.S. 384,173 384,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS: 98.9% (cost $21,313,006) 20,822,333
OTHER ASSETS, LESS LIABILITIES: 1.1% 236,501
-----------
TOTAL NET ASSETS: 100.0% $21,058,834
===========
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $21,313,006) $20,822,333
Cash 14,903
Receivables:
Investment securities sold 28,569
Fund shares sold 309,303
Dividends and interest 71,819
Administrative fee waiver 3,903
-----------
Total assets 21,250,830
-----------
Liabilities:
Payables for investment securities purchased 142,019
Accrued expenses 49,977
-----------
Total liabilities 191,996
-----------
Net assets, at value $21,058,834
===========
Net assets consist of:
Undistributed net investment income $ 143,031
Net unrealized depreciation (490,673)
Accumulated net realized loss (5,537)
Net capital paid in on shares of beneficial interest 21,412,013
-----------
Net assets, at value $21,058,834
===========
Shares outstanding 2,149,272
===========
Net asset value per share ($21,058,834 / 2,149,272) $ 9.80
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the period March 4, 1996 (commencement of operations) to June 30, 1996
(unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $6,024 foreign taxes withheld)
Dividends $ 125,929
Interest 64,329
---------
Total income $ 190,258
Expenses:
Management fees (Note 3) 34,467
Administrative fees (Note 3) 1,788
Custodian fees 8,000
Reports to shareholders 1,400
Audit fees 4,000
Legal fees (Note 3) 400
Registration and filing fees 220
Trustees' fees and expenses 500
Other 355
---------
Total expenses 51,130
Less expenses reimbursed (Note 3) (3,903)
---------
Total expenses less reimbursement 47,227
---------
Net investment income 143,031
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 19,085
Foreign currency transactions (24,622)
---------
(5,537)
Net unrealized depreciation on investments (490,673)
---------
Net realized and unrealized loss (496,210)
---------
Net decrease in net assets resulting from operations $(353,179)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MARCH 4, 1996
(COMMENCEMENT
OF OPERATIONS) TO
JUNE 30, 1996
(UNAUDITED)
-----------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 143,031
Net realized loss on investment and foreign currency
transactions (5,537)
Net unrealized depreciation (490,673)
-----------
Net decrease in net assets resulting from operations (353,179)
Fund share transactions (Note 2) 21,412,013
-----------
Net increase in net assets 21,058,834
Net assets:
Beginning of period --
-----------
End of period $21,058,834
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Developing Markets Fund (the Fund) is 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 un-
der the Investment Company Act of 1940. The Fund seeks long-term capital appre-
ciation by investing primarily in equity securities of issuers in countries
having developing markets. The following summarizes the Trust's significant ac-
counting policies.
a. Securities Valuations:
Securities held by the Fund 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 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.
c. 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.
d. 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.
e. Distributions to Shareholders:
The Fund normally pays annual dividends representing substantially all of its
net investment income and distributes 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.
f. 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
are recorded as soon as information is available to the Fund. Interest income
and estimated expenses are accrued daily.
g. Repurchase Agreements:
The Fund, through its custodian, receives delivery of the underlying securi-
ties, whose market is required to be at least 102% of the resale price at the
time of purchase. The Fund's investment advisor, Templeton Global Bond Manag-
ers, a division of Templeton Investment Council, Inc., is responsible for de-
termining that the value of these underlying securities remain at least equal
to the resale price.
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At June 30, 1996, there were an unlimited number of shares of beneficial inter-
est authorized ($0.01 par value). During the period March 4, 1996 through June
30, 1996, 2,149,272 shares were sold for $21,412,013.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also directors or officers of Templeton Asset
Management Ltd. (TAML), and Templeton Funds Annuity Company (TFAC), the Funds'
investment manager and administrative manager, respectively.
The Fund pays a monthly investment manager fee, equal on an annual basis to
1.25% of its average daily net assets during the year. 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 as-
sets 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. TAML and TFAC have voluntarily
agreed to reduce their respective fees to the extent necessary to limit total
expenses to an annual rate of 1.70% of the average net assets through May 1,
1997.
13
<PAGE>
Templeton Variable Products Series Fund
Templeton Developing Markets Fund
Notes to Financial Statements (unaudited) (cont.)
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An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $400 for the period ended June 30,
1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the pe-
riod ended June 30, 1996 aggregated $16,557,321 and $224,929, respectively. The
cost of securities for federal income tax purposes is the same as that shown in
the Investment Portfolio. Realized gains and losses are reported on an identi-
fied 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>
<S> <C>
Unrealized appreciation $ 321,389
Unrealized depreciation (812,062)
---------
Net unrealized depreciation $(490,673)
=========
</TABLE>
14
<PAGE>
Notes
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<PAGE>
Notes
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<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.
- --------------------------------------------------------------------------------
<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.
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