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Previous: PEOPLES HERITAGE FINANCIAL GROUP INC, S-3, 1997-09-04 |
Next: TEMPLETON VARIABLE PRODUCTS SERIES FUND, N-30D, 1997-09-04 |
SEMI ANNUAL REPORT
JUNE 30, 1997
TEMPLETON
VARIABLE PRODUCTS
SERIES FUND
[FRANKLIN TEMPLETON LOGO]
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Letter to Contract Owners ............ 2
Fund Reports
Templeton Stock Fund ............... 4
Templeton International Fund ....... 7
Templeton Developing Markets Fund .. 11
Templeton Asset Allocation Fund .... 15
A Word About Risk .................... 19
</TABLE>
PLEASE NOTE:
Templeton Variable Products Series Fund ("the Trust") currently consists of nine
separate investment portfolios, eight of which offer Class 1 and Class 2 shares.
Only Class 2 shares of the portfolios listed in the above Table of Contents are
currently available under your insurance contract. Please consult prospectuses
for your insurance contract and the Trust for further information.
97TVPSFSEMIREPT-PHOENIX EDGE
<PAGE>
LETTER TO CONTRACT OWNERS [FRANKLIN TEMPLETON LOGO]
Dear Contract Owner:
We are pleased to bring you the semi-annual report of the Templeton Variable
Products Series Fund for the six months ended June 30, 1997.
In the U.S., moderate economic growth, benign inflation, and rising corporate
earnings supported a strong but volatile equity market. From December 31, 1996
through June 30, 1997, the Dow Jones(R) Industrial Average rose 20.1% and the
Standard & Poor's(R) 500 Stock Index rose 20.6%.* Many European stocks also
appreciated in value, as companies there generated healthy profits due to
privatization, restructuring, and cost-reduction programs. Switzerland, Spain,
Finland, and the Netherlands were among the region's best-performing markets.
Emerging market equities generally experienced substantial gains during the
reporting period, with Latin America in particular delivering stellar returns.
For example, as measured in U.S. dollars, Brazil's Bovespa Index soared 79.5%
and Mexico's Bolsa Index surged 32.9%.* Asian developing markets, however,
provided mixed results. The Hong Kong and Indonesian markets advanced, while
those in Thailand, Singapore, and the Philippines declined.
With regard to debt securities, U.S. bond prices fell slightly and European
fixed-income markets (as measured in local currency terms) rose. Due to improved
economic fundamentals and increased investor interest, bond markets in
developing countries significantly outperformed those in developed nations. The
J.P. Morgan Emerging Markets Bond Index Plus, which tracks the performance of
bond markets in 13 developing nations, produced a total return of 10.27% during
the six months under review, while the Salomon Brothers World Government Bond
Index, representative of government bonds in 17 developed countries, reported a
total return of -1.23% for the same period.*
*Indices are unmanaged, and price appreciation or depreciation includes
reinvested dividends or interest. One cannot invest directly in an index. Dow
Jones Industrial Average's total return is calculated by Wilshire Associates,
Inc.
2
<PAGE>
It is important to remember, of course, that securities markets always have been
- -- and always will be -- subject to volatility. No one can predict exactly how
they will perform in the near future. For this reason, we urge you to exercise
patience and focus not on short-term market movements, but on long-term
investment goals.
We appreciate your participation in the Templeton Variable Products Series 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
3
<PAGE>
TEMPLETON STOCK FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<S> <C>
Europe 46.4%
North America 19.2%
Asia 9.4%
Latin America 9.0%
Australia/New Zealand 8.0%
Middle East/Africa
and Short-Term Obligations
& Other Net Assets 8.0%
</TABLE>
TEMPLETON STOCK FUND
INVESTMENT OBJECTIVE: 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's Class 2 shares delivered a total return
of 10.55% for the six months ended June 30, 1997, as discussed in the
Performance Summary on page 6. However, Fund performance does not reflect
expenses associated with the variable contract; had those expenses been
included, performance would have been lower.
Spurred by a favorable interest rate environment and strong corporate earnings,
global stock markets generally performed well in the first half of 1997. Most
European equity markets rose, and the U.S. market reached all-time highs. Latin
American markets also strengthened as improved economic fundamentals appeared to
boost investor confidence in the region. However, Asian equity markets turned in
mixed performances. Hong Kong's market, buoyed by investor optimism concerning
the colony's handover to China, advanced 14.7% during the reporting period, but,
due to a slowing economy and a weakening currency, many Thai shares declined in
value.(1) In Japan, stocks rallied as exports rose and the country's economy
started to recover.
During the reporting period, the share price of the Fund's second-largest
holding, Telebras-Telecomunicacoes Brasileiras SA, pfd., rose more than 96%. Our
positions in Telefonica de Espana SA, Telefonos de Mexico SA, L, ADR and
Telefonica de Argentina SA, B, ADR contributed to the Fund's performance, as did
the appreciable gain in share prices of Volvo AB, B (Sweden), Alcatel Alsthom SA
(France), and Newbridge Networks Corp. (Canada). During the six months under
review, we initiated a position in Axa SA, a French financial services company
operating in Europe, Asia,
1. Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.
2. Price appreciation is measured in U.S. dollars.
4
<PAGE>
and North America. We also purchased shares of Yamato Kogyo Co. Ltd., a major
Japanese steelmaker, and BTR PLC, a diversified industrial products company
based in the United Kingdom. In our opinion, these companies offer exciting
prospects for growth.
Although we are concerned about current stock valuations, we are optimistic
about the long-term potential of international equity markets. Our analysts
continue to scour the globe looking for out-of-favor securities trading at
depressed levels relative to their long-term "normalized" earnings. To us,
normalized represents what a company could earn in the middle of a typical
economic cycle and requires us to estimate earnings and cash flow for the next
five years. We believe that such an approach should produce superior returns
over the long term.
It is important to remember that investments in foreign securities involve
special risks including changes in currency values, market price swings, and
economic, social, and political developments in the countries where the
portfolios are invested. Developing markets involve similar but higher risks
related to the smaller size and lesser liquidity of those markets. These risks
are discussed in the prospectus.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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.
We thank you for investing in the Templeton Stock Fund, and welcome any comments
or suggestions you may have.
Sincerely,
/s/ Mark R. Beveridge
Mark R. Beveridge, CFA, CIC
Portfolio Manager
Templeton Stock Fund
TEMPLETON STOCK FUND
Top 10 Holdings on 6/30/97
<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
Alcatel Alsthom SA
Electrical & Electronics,
France 2.1%
Telebras-Telecomunicacoes Brasileiras SA, pfd.
Telecommunications, Brazil 2.0%
Federal National Mortgage
Association
Financial Services, U.S. 2.0%
HSBC Holdings PLC
Banking, Hong Kong 1.8%
STET (Sta Finanziaria
Telefonica Torino) SpA
Telecommunications, Italy 1.6%
Kuoni Reisen Holdings AG, B
Leisure & Tourism,
Switzerland 1.6%
Intel Corp.
Electronic Components &
Instruments, U.S. 1.6%
Telefonica de Espana SA
Telecommunications, Spain 1.6%
Rhone-Poulenc SA, A
Chemicals, France 1.6%
Telecom Italia SpA
Telecommunications, Italy 1.5%
</TABLE>
For a complete list of portfolio holdings, please see page 22 of this report.
5
<PAGE>
PERFORMANCE SUMMARY
CLASS 2
Templeton Stock Fund - Class 2 delivered an aggregate total return of 10.55%
from inception on May 1, 1997 through June 30, 1997. Total return of Class 2
shares represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. For periods of less than one year,
aggregate total return figures are shown. Past expense reductions by the manager
increased returns. Performance data is historical and cannot predict or
guarantee future results.
NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY FEES, EXPENSES, OR SALES CHARGES IMPOSED BY THE VARIABLE INSURANCE
CONTRACT FOR WHICH THE FUND IS AN INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED,
PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS, PARTICULARLY FOR
VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON CONTRACT VALUES AND
INSURANCE BENEFITS. FOR A COMPLETE DESCRIPTION OF EXPENSES, INCLUDING ANY
APPLICABLE SALES CHARGES, PLEASE REFER TO THE CONTRACT PROSPECTUS PROVIDED BY
THE INSURANCE COMPANY.
<TABLE>
<CAPTION>
TEMPLETON STOCK FUND - CLASS 2
Periods ended 6/30/97 SINCE SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR 5-YEAR (8/24/88) (5/1/97)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return 27.06% 18.43% 14.44% --
Cumulative Total Return 27.06% 132.98% 229.78% --
Value of $10,000 Investment $12,706 $23,298 $32,978 --
Aggregate Total Return -- -- -- 10.55%
</TABLE>
<TABLE>
<CAPTION>
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return* 13.95% 15.27% 15.07% 21.32% 27.06%
</TABLE>
*Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represents the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.
Investment return and the value of your principal will go up and down with
market conditions, currencies and the economic, social, and political climates
of the countries where investments are made. Emerging markets involve similar
but higher risks related to the smaller size and lesser liquidity of those
markets. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
6
<PAGE>
TEMPLETON INTERNATIONAL FUND
Investment Objective: 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's Class 2 shares produced a total return
of 9.58% for the six months ended June 30, 1997, as discussed in the Performance
Summary on page 10, outperforming the unmanaged Morgan Stanley Capital
International(R) Europe, Australasia, Far East (MSCI EAFE) Index, which posted a
total return of 11.36% for the same period.(1) The Fund's strong performance was
in part the result of our relative overweighting in markets that performed
exceptionally well. Compared with the MSCI EAFE Index, the Fund was overweighted
in the Netherlands, Finland, and Spain -- three countries whose equity markets
increased more than 15% in U.S. dollar terms during the reporting period.(2)
However, Fund performance does not reflect expenses associated with the variable
contract; had those expenses been included, performance would have been lower.
On June 30, 1997, Europe represented our largest geographic exposure (57.6% of
the Fund's total net assets). During the six months under review, most European
stock markets rose as many companies there reduced costs, invested in new plants
and equipment, and implemented programs designed to enhance shareholder value.
Among the Fund's ten largest holdings, the share price of Volkswagen AG advanced
85.1%, Philips Electronics NV appreciated 79.7%, and Volvo AB, B climbed
21.3%.(3) During the reporting period, we initiated a position in Axa SA, a
French financial services company operating in Europe, Asia, and North America.
We also purchased shares of Zuerich Versicherung, an international insurance
company, and Courtaulds PLC, a chemicals conglomerate based in the United
Kingdom. In our
1. The MSCI EAFE Index includes approximately 1,000 companies representing the
stock markets of 20 countries including Germany, France, Australia, New Zealand,
and Japan. Total return includes reinvested dividends. One cannot invest
directly in an index.
2. Price appreciation includes reinvested dividends.
3. Price appreciation is measured in U.S. dollars.
TEMPLETON INTERNATIONAL FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
<TABLE>
<S> <C>
Europe 57.6%
Latin America 11.0%
Asia 10.5%
Australia/New Zealand 5.5%
North America 4.3%
Middle East/Africa 2.3%
Short-Term Obligations &
Other Net Assets 8.8%
</TABLE>
<PAGE>
TEMPLETON
INTERNATIONAL FUND
Top 10 Holdings on 6/30/97
<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ---------------------------------------------
<S> <C>
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR
Telecommunications, Brazil 2.1%
Philips Electronics NV
Electrical & Electronics,
Netherlands 1.8%
Nokia AB, A
Telecommunications,
Finland 1.7%
Zuerich Versicherung, new
Insurance, Switzerland 1.7%
Bank Austria AG, new,
pfd., 144A
Banking, Austria 1.6%
Axa SA
Financial Services, France 1.5%
Volvo AB, B
Automobiles, Sweden 1.4%
Volkswagen AG
Automobiles, Germany 1.3%
Skandia Foersaekrings AB,
free
Insurance, Sweden 1.3%
Rhone-Poulenc SA, A
Chemicals, France 1.3%
</TABLE>
For a complete list of portfolio holdings, please see page 28 of this report.
opinion, the potential earnings growth of these companies was not reflected in
their stock prices.
Throughout the reporting period, strong economic fundamentals, healthy corporate
profits, and renewed interest from foreign investors contributed to the rise of
Latin American equity markets. The telecommunications industry performed
particularly well, increasing the value of our holdings of
Telebras-Telecomunicacoes Brasileiras SA, Cpt-Telefonica del Peru SA, and
Telefonica de Argentina SA. We believe that demand for their services will
continue to increase, and that deregulation of Brazil's telephone industry could
provide Telebras with strong growth potential.
In Asia, equity markets turned in mixed performances. Hong Kong's market, buoyed
by investor optimism concerning the colony's handover to China, rose 14.7%, but,
due to a slowing economy and a weakening currency, many Thai shares declined in
value.(4) In Japan, stocks rallied as the country's economy recovered, exports
rose, and fears about an April tax increase subsided.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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.
Although we are concerned about current stock valuations, we are optimistic
about the long-term potential of international equity markets. Our analysts
continue to scour the globe looking for out-of-favor securities trading at
depressed levels relative to their long-term "normalized" earnings. To us,
normalized represents what a company could earn in the middle of a typical
economic cycle and requires us to estimate earnings and cash flow for the next
five years. We believe that such an approach should produce superior returns
over the long term.
It is important to remember that investments in foreign securities involve
special risks including changes in currency values, market price swings, and
economic, social, and
4. Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.
8
<PAGE>
political developments in the countries where the portfolios are invested.
Developing markets involve similar but higher risks related to the smaller size
and lesser liquidity of those markets. Small company securities may have greater
price swings than mid-sized or large company securities. These risks are
discussed in the prospectus.
We thank you for investing in the Templeton International Fund, and welcome any
comments or suggestions you may have.
Sincerely,
/s/ Peter A. Nori
Peter A. Nori
Portfolio Manager
Templeton International Fund
9
<PAGE>
PERFORMANCE SUMMARY
CLASS 2
Templeton International Fund - Class 2 delivered a total return of 9.58% from
inception on May 1, 1997 through June 30, 1997. Total return of Class 2 shares
represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. For periods of less than one year,
aggregate total return figures are shown. Past expense reductions by the manager
increased returns. Performance data is historical and cannot predict or
guarantee future results.
NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY FEES, EXPENSES, OR SALES CHARGES IMPOSED BY THE VARIABLE INSURANCE
CONTRACT FOR WHICH THE FUND IS AN INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED,
PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS, PARTICULARLY FOR
VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON CONTRACT VALUES AND
INSURANCE BENEFITS. FOR A COMPLETE DESCRIPTION OF EXPENSES, INCLUDING ANY
APPLICABLE SALES CHARGES, PLEASE REFER TO THE CONTRACT PROSPECTUS PROVIDED BY
THE INSURANCE COMPANY.
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL FUND - CLASS 2
Periods ended 6/30/97 SINCE SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR* 5-YEAR* (5/1/92)* (5/1/97)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return 27.97% 17.98% 16.72% --
Cumulative Total Return 27.97% 128.58% 122.18% --
Value of $10,000 Investment $12,797 $22,858 $22,218 --
Aggregate Total Return -- -- -- 9.58%
</TABLE>
<TABLE>
<CAPTION>
6/30/95 6/30/96 6/30/97
--------------------------------------------------------------------------------
<S> <C> <C> <C>
One-Year Total Return* 11.42% 18.83% 27.97%
</TABLE>
* Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represents the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.
Investment return and the value of your principal will go up and down with
market conditions, currencies and the economic, social, and political climates
of the countries where investments are made. Emerging markets involve similar
but higher risks related to the smaller size and lesser liquidity of those
markets. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
10
<PAGE>
TEMPLETON DEVELOPING MARKETS FUND
Investment Objective: The Templeton Developing Markets Fund seeks long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of issuers in countries having developing
markets.
During the six months ended June 30, 1997, emerging market countries generally
experienced strong economic growth accompanied by moderate inflation, prompting
many investors to deposit large amounts of capital into emerging market
equities. Within this environment, the Fund's Class 2 shares produced a
six-month total return of 0.61%, as discussed in the Performance Summary on page
14. However, Fund performance does not reflect expenses associated with the
variable contract; had those expenses been included, performance would have been
lower.
As of June 30, 1997, the Fund owned investments in 32 countries. Our largest
regional holdings were Asia, followed by Europe, Latin America/Caribbean, and
the Middle East/Africa. During the reporting period, Latin American securities
markets, especially Brazil's, delivered stellar performances as increased
exports produced strong growth in equity prices in most countries throughout the
region.
Most emerging markets in Europe also performed well. Following Boris Yeltsin's
re-election and recuperation, increased government stability in Russia lured
large investments from foreign money managers, and the Russian stock market rose
significantly. The Greek stock market advanced as declining inflation and
interest rates in Greece attracted foreign capital, and many Hungarian equities
also appreciated in value.
Asia, however, presented a different picture. For the first time in over a
decade, Asian export growth failed to keep pace with the increase in world
trade. Since exports account for a very large proportion of gross domestic
product (GDP) in most of these
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
<S> <C>
Asia 46.6%
Europe 11.8%
Latin America/Caribbean 11.0%
Middle East/Africa 10.1%
Short-Term Obligations & Other Net Assets 20.5%
</TABLE>
11
<PAGE>
TEMPLETON DEVELOPING
MARKETS FUND
Top 10 Holdings on 6/30/97
<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -----------------------------------------------
<S> <C>
Cementos Mexicanos SA
de CV (Cemex), B
Building Materials
& Components,
Mexico 2.0%
Kolon International
Corporation, Wholesale &
International Trade,
South Korea 1.7%
Bangkok Bank Public Co.
Ltd., Banking, Thailand 1.7%
Hae In Corp. Ltd.
Merchandising, South Korea 1.4%
Thai Farmers Bank Public
Co. Ltd., Banking, Thailand 1.2%
Turk Demir Dokum, br
Appliances & Household
Durables, Turkey 1.1%
Companhia Siderurgica
Nacional, Metals & Mining,
Brazil 1.1%
PT Indocement Tunggal
Prakarsa, fgn., Building
Materials & Components,
Indonesia 1.1%
Ashanti Goldfields Co. Ltd.,
GDR, Metals &
Mining, Ghana 1.1%
Siam Commercial Bank Ltd.
Banking, Thailand 1.0%
</TABLE>
For a complete list of portfolio holdings, please see page 34 of this report.
countries, several smaller Asian securities markets declined in early 1997. For
example, the share price of many Thai and Malaysian equities fell. On the other
hand, Hong Kong's market strengthened as foreigners anticipated that investments
from the mainland would increase after Hong Kong's takeover by China.
As you know, China regained sovereignty over Hong Kong on July 1, 1997. Although
some people believe this could mean an end to economic and personal freedoms
there, we think that is unlikely. In our opinion, China's leaders want to
enhance the population's living standards, and, since this requires an
economically successful Hong Kong, we believe the handover could be a positive,
rather than a negative, factor. The territory could attract large capital
inflows from the mainland, possibly driving the Hong Kong market to new highs.
Although problems are likely to arise, we are hopeful that they will be
overcome.
Looking forward, we are optimistic about the potential for developing markets.
Asian exports may increase, the Hungarian economy could benefit from foreign
investment, and Russia may finally experience growth in GDP during 1998. The
outlook for Latin American economies is the best that we have seen in many
years, and this could boost stock markets in that region during the balance of
the year.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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.
It is important to remember that the portfolio is subject to special and higher
risks related to foreign developing markets, including changes in currency
values, market price swings, and economic, social, and political developments in
the countries where the portfolios are invested and the relatively small size
and lesser liquidity of these markets. These special risks and other
considerations are discussed in the Fund's
12
<PAGE>
prospectus. While short-term volatility can be disconcerting, declines of as
much as 40% to 50% are not unusual in emerging markets. Hong Kong's equity
market has increased 1,089% in the last 15 years, but has suffered five
quarterly declines of more than 20% during that time.*
We thank you for investing in the Templeton Developing Markets Fund, and welcome
any comments or suggestions you may have.
Sincerely,
/s/ Dr. J. Mark Mobius
Dr. J. Mark Mobius
Portfolio Manager
Templeton Developing Markets Fund
TEMPLETON DEVELOPING
MARKETS FUND
Top 10 Countries Represented in the Fund on 6/30/97
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
- --------------------------------
<S> <C>
Thailand 12.3%
South Africa 7.5%
South Korea 6.1%
Indonesia 5.6%
Mexico 5.3%
Russia 4.8%
Singapore 4.5%
Turkey 4.4%
Hong Kong 3.5%
Brazil 3.1%
</TABLE>
*Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1997.
13
<PAGE>
PERFORMANCE SUMMARY
CLASS 2
Templeton Developing Markets Fund - Class 2 delivered an aggregate total return
of 0.61% from inception on May 1, 1997 through June 30, 1997. Total return of
Class 2 shares represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains. For periods of less than
one year, aggregate total return figures are shown. Past expense reductions by
the manager increased returns. Performance data is historical and cannot predict
or guarantee future results.
NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY FEES, EXPENSES, OR SALES CHARGES IMPOSED BY THE VARIABLE INSURANCE
CONTRACT FOR WHICH THE FUND IS AN INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED,
PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS, PARTICULARLY FOR
VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON CONTRACT VALUES AND
INSURANCE BENEFITS. FOR A COMPLETE DESCRIPTION OF EXPENSES, INCLUDING ANY
APPLICABLE SALES CHARGES, PLEASE REFER TO THE CONTRACT PROSPECTUS PROVIDED BY
THE INSURANCE COMPANY.
TEMPLETON DEVELOPING MARKETS FUND - CLASS 2
Periods ended 6/30/97
<TABLE>
<CAPTION>
SINCE SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR* (3/4/96)* (5/1/97)
--------------------------------------------------------------------------
<S> <C> <C> <C>
Average Annual Total Return 1.91% -0.10% --
Cumulative Total Return 1.91% -0.13% --
Value of $10,000 Investment $10,191 $9,987 --
Aggregate Total Return -- -- 0.61%
</TABLE>
* Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represents the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.
Investment return and the value of your principal will go up and down with
market conditions, currencies and the economic, social, and political climates
of the countries where investments are made. Emerging markets involve similar
but higher risks related to the smaller size and lesser liquidity of those
markets. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
14
<PAGE>
TEMPLETON ASSET ALLOCATION FUND
INVESTMENT OBJECTIVE: 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 AMONG THESE THREE MARKET SEGMENTS DEPENDING UPON WORLDWIDE MARKET
AND ECONOMIC CONDITIONS.
We are pleased to report that the Fund's Class 2 shares provided a total return
of 9.91% for the six-month period ended June 30, 1997, as discussed in the
Performance Summary on page 18. You should keep in mind that Fund performance
does not reflect expenses associated with the variable contract; had those
expenses been included, performance would have been lower.
Stock markets around the world generally performed well during the first six
months of 1997. The U.S. market reached record highs, and most European equity
markets rose. Latin American markets also strengthened, largely as a result of
strong economic fundamentals and renewed interest from foreign investors.
However, Asian equity markets turned in mixed performances. Hong Kong's market
advanced 14.7% during the six-month period, but, due to a slowing economy and a
weakening currency, many Thai shares declined in value.(1)
As in all reporting periods, some of our positions helped and others hindered
the Fund's performance. The share price of Telebras-Telecomunicacoes Brasileiras
SA, pfd., ADR appreciated more than 98% during the six months under review.(2)
The Fund also benefited from the significant gain in share prices of Volvo AB, B
(Sweden) and Newbridge Networks Corp. (Canada). Equity holdings that did not
meet our expectations included U.S. underwear manufacturer Fruit of the Loom
Inc., and BICC, a U.K. engineering company.
1. Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.
2. Price appreciation is measured in U.S. dollars.
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 6/30/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<S> <C>
Stocks 70.7%
Bonds 22.8%
Short-Term Obligations
& Other Net Assets 6.5%
</TABLE>
15
<PAGE>
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Europe 39.7%
North America 29.8%
Latin America 12.8%
Australia/New Zealand 5.8%
Asia 5.4%
Short-Term Obligations &
Other Net Assets 6.5%
</TABLE>
With regard to fixed-income securities, global bond markets provided mixed
results. Domestic bond prices declined during the reporting period as many
investors became concerned about accelerating U.S. economic growth and the
possibility of rising interest rates. On the other hand, interest rates in
Europe fell and European bond prices (as measured in local currency terms) rose.
Currency movements also played an important role in bond markets as the U.S.
dollar's appreciation eroded the value of many debt securities denominated in
foreign currencies.
Responding to these conditions, we made two significant changes to the Fund's
fixed-income asset allocation. First, we increased our U.S. position in an
effort to reduce our exposure to depreciating currencies. Secondly, we decreased
the portfolio's average maturity in an attempt to preserve capital in the midst
of a volatile interest-rate environment.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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.
16
<PAGE>
It is important to remember that investments in foreign securities involve
special risks including changes in currency values, market price swings, and
economic, social, and political developments in the countries where the
portfolios are invested. Developing markets involve similar but higher risks
related to the smaller size and lesser liquidity of those markets. These risks
are discussed in the prospectus.
We thank you for investing in the Templeton Asset Allocation Fund, and welcome
any comments or suggestions you may have.
Sincerely,
/s/ Gary R. Clemons
Gary R. Clemons
Portfolio Manager
Templeton Asset Allocation Fund
/s/ Thomas Latta
Thomas Latta
Portfolio Manager
Templeton Asset Allocation Fund
TEMPLETON ASSET
ALLOCATION FUND
Top 10 Holdings on 6/30/97
Based on Total Net Assets
<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ---------------------------------------------
<S> <C>
U.S. Treasury Note,
6.25%, 8/31/2000
Government Bond, U.S. 3.1%
Philips Electronics NV
Electrical & Electronics,
Netherlands 3.0%
U.S. Treasury Note,
6.125%, 7/31/2000
Government Bond, U.S. 2.4%
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR
Telecommunications, Brazil 1.9%
Kvaerner Industrier AS, B
Transportation, Norway 1.7%
Zuerich Versicherung, new
Insurance, Switzerland 1.7%
British Gas PLC
Utilities Electrical & Gas,
United Kingdom 1.7%
Alcatel Alsthom SA
Electrical & Electronics,
France 1.7%
U.S. Treasury Bond,
6.375%, 8/15/02
Government Bond, U.S. 1.6%
Telefonica de Argentina SA,
B, ADR, Telecommunications,
Argentina 1.6%
</TABLE>
For a complete list of portfolio holdings, please see page 45 of this report.
17
<PAGE>
PERFORMANCE SUMMARY
CLASS 2
Templeton Asset Allocation Fund - Class 2 delivered an aggregate total return of
9.91% from inception on May 1, 1997 through June 30, 1997. Total return of Class
2 shares represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. For periods of less than one year,
aggregate total return figures are shown. Past expense reductions by the manager
increased returns. Performance data is historical and cannot predict or
guarantee future results.
NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY FEES, EXPENSES, OR SALES CHARGES IMPOSED BY THE VARIABLE INSURANCE
CONTRACT FOR WHICH THE FUND IS AN INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED,
PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS, PARTICULARLY FOR
VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON CONTRACT VALUES AND
INSURANCE BENEFITS. FOR A COMPLETE DESCRIPTION OF EXPENSES, INCLUDING ANY
APPLICABLE SALES CHARGES, PLEASE REFER TO THE CONTRACT PROSPECTUS PROVIDED BY
THE INSURANCE COMPANY.
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND - CLASS 2
Periods ended 6/30/97 SINCE SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR* 5-YEAR* (8/24/88)* (5/1/97)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return 26.67% 15.69% 13.39% --
Cumulative Total Return 26.67% 107.26% 203.94% --
Value of $10,000 Investment $12,667 $20,726 $30,394 --
Aggregate Total Return -- -- -- 9.91%
</TABLE>
<TABLE>
<CAPTION>
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return* 11.56% 8.70% 13.90% 18.46% 26.67%
</TABLE>
* Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represents the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.
Investment return and the value of your principal will go up and down with
market conditions, currencies and the economic, social, and political climates
of the countries where investments are made. Emerging markets involve similar
but higher risks related to the smaller size and lesser liquidity of those
markets. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
18
<PAGE>
A WORD ABOUT RISK:
All of the portfolios are subject to certain risks. Generally, investments
offering the potential for higher returns are accompanied by a higher degree of
risk. Stocks, and other equities representing an ownership interest in a
corporation, have historically outperformed other asset classes over the long
term but tend to fluctuate more dramatically over the shorter term. Bonds, and
other debt obligations, are affected by changes in interest rates and the
creditworthiness of their issuers. High yield, lower-rated ("junk") bonds
generally have greater price swings and higher default risks. Foreign investing,
especially in developing countries, has additional risks such as changes in
currency values and market price swings and political or social instability.
These, and other risks to which particular portfolios may be subject, such as
specialized industry sectors or use of complex securities, are discussed in the
Fund's prospectus. Your investment representative can help you determine which
portfolios may be right for you.
19
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $22.88 $20.83 $16.94 $17.53 $13.33 $12.72
-------- ----- --- ----- --- ----- --- ----- --- ----- ---
Income from investment operations:
Net investment income.................. .36 .41 .40 .26 .23 .25
Net realized and unrealized gain
(loss)............................... 2.81 3.88 3.80 (.64) 4.23 .64
-------- ----- --- ----- --- ----- --- ----- --- ----- ---
Total from investment operations........... 3.17 4.29 4.20 (.38) 4.46 .89
-------- ----- --- ----- --- ----- --- ----- --- ----- ---
Distributions:
Dividends from net investment income... (.40) (.40) (.27) (.21) (.25) (.28)
Distributions from net realized
gains................................ (1.87) (1.84) (.04) -- (.01) --
-------- ----- --- ----- --- ----- --- ----- --- ----- ---
Total distributions........................ (2.27) (2.24) (.31) (.21) (.26) (.28)
-------- ----- --- ----- --- ----- --- ----- --- ----- ---
Change in net asset value.................. .90 2.05 3.89 (.59) 4.20 .61
-------- ----- --- ----- --- ----- --- ----- --- ----- ---
Net asset value, end of period............. $23.78 $22.88 $20.83 $16.94 $17.53 $13.33
======== ======== ======== ======== ======== ========
TOTAL RETURN*.............................. 14.73% 22.48% 25.24% (2.20)% 34.00% 7.12%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000)............ $767,571 $644,366 $498,777 $378,849 $298,392 $166,219
Ratio of expenses to average net assets.... .73%** .65% .66% .73% .73% .75%
Ratio of net investment income to average
net assets............................... 3.40%** 2.06% 2.18% 1.81% 1.88% 2.36%
Portfolio turnover rate.................... 15.43% 23.40% 33.93% 5.10% 4.88% 8.10%
Average commission rate paid (per share)... $.0084 $.0090
</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.
Not annualized for periods of less than one year.
**Annualized.
20
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights (continued)
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1997+
THROUGH
JUNE 30, 1997
(UNAUDITED)
--------------
<S> <C>
Net asset value, beginning of period........................ $21.51
---------
Income from investment operations:
Net investment income................................... .07
Net realized and unrealized gain........................ 2.20
---------
Total from investment operations............................ 2.27
---------
Net asset value, end of period.............................. $23.78
=========
TOTAL RETURN*............................................... 10.55%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000)............................. $3,511
Ratio of expenses to average net assets..................... 1.16%**
Ratio of net investment income to average net assets........ 3.91%**
Portfolio turnover rate..................................... 15.43%
Average commission rate paid (per share).................... $.0084
</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.
Not annualized for periods of less than one year.
**Annualized.
+Commencement of offering of sales.
See Notes to Financial Statements.
21
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 89.6%
APPLIANCES & HOUSEHOLD DURABLES 1.1%
Sony Corp. .................................. 94,000 $ 8,193,526
------------
AUTOMOBILES 3.3%
Ciadea SA.................................... 1,296,500 5,575,786
Fiat SpA..................................... 2,058,000 7,399,306
Ford Motor Co. .............................. 130,000 4,907,500
Volvo AB, B.................................. 290,500 7,773,706
------------
25,656,298
------------
BANKING 8.7%
Banco Bilbao Vizcaya......................... 73,200 5,946,413
Banco Bradesco SA BBD, ADR................... 659,800 6,649,789
Banque Nationale de Paris.................... 181,204 7,468,070
Banque Nationale de Paris, ADR, 144A......... 10,600 436,864
CS Holdings, br. ............................ 40,000 5,135,228
Deutsche Bank AG............................. 128,000 7,516,027
HSBC Holdings PLC............................ 466,562 14,031,849
National Australia Bank Ltd. ................ 332,376 4,760,705
* Philippine National Bank..................... 815,925 5,537,253
PT Bank Bali, fgn. .......................... 850,500 2,273,129
Unidanmark AS, A............................. 125,900 7,072,501
------------
66,827,828
------------
BROADCASTING & PUBLISHING 0.7%
News Corp. Ltd. ............................. 96,667 463,475
News Corp. Ltd., ADR......................... 260,000 5,005,000
------------
5,468,475
------------
BUILDING MATERIALS & COMPONENTS 2.1%
Cie de Saint Gobain.......................... 52,600 7,670,666
Pioneer International Ltd. .................. 2,273,600 8,789,381
------------
16,460,047
------------
BUSINESS & PUBLIC SERVICES 2.4%
Lex Service PLC.............................. 1,250,000 7,837,349
Waste Management Inc. ....................... 150,000 4,818,750
Wheelabrator Technologies Inc. .............. 370,000 5,711,875
------------
18,367,974
------------
CHEMICALS 2.7%
Akzo Nobel NV................................ 65,000 8,907,739
Rhone-Poulenc SA, A.......................... 292,716 11,954,301
------------
20,862,040
------------
DATA PROCESSING & REPRODUCTION 2.2%
* Bay Networks Inc............................. 217,000 5,764,063
* Newbridge Networks Corp. .................... 260,000 11,310,000
------------
17,074,063
------------
ELECTRICAL & ELECTRONICS 5.2%
Alcatel Alsthom SA........................... 129,835 16,260,582
* DSC Communications Corp. .................... 338,600 7,533,850
Hitachi Ltd. ................................ 274,000 3,060,117
Motorola Inc. ............................... 123,700 9,401,200
Scitex Corp. Ltd. ........................... 461,400 4,066,088
------------
40,321,837
------------
</TABLE>
22
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 2.1%
BICC......................................... 1,400,000 $ 4,114,973
Intel Corp. ................................. 87,300 12,380,231
------------
16,495,204
------------
ENERGY SOURCES 2.7%
Societe Elf Aquitane SA...................... 92,520 9,981,398
Total SA, B.................................. 97,135 9,818,128
Transportadora de Gas del Sur SA, ADR, B..... 77,700 971,250
------------
20,770,776
------------
FINANCIAL SERVICES 2.9%
Axa SA....................................... 110,830 6,893,046
Federal National Mortgage Association ....... 353,600 15,425,800
------------
22,318,846
------------
FOOD & HOUSEHOLD PRODUCTS 1.7%
Burns Philp & Co. Ltd. ...................... 3,177,503 5,901,948
Oshawa Group Ltd. ........................... 454,900 6,951,870
------------
12,853,818
------------
FOREST PRODUCTS & PAPER 3.4%
* Asia Pacific Resources International, A...... 680,000 3,315,000
Assidomaen AB................................ 150,000 4,266,046
Carter Holt Harvey Ltd. ..................... 1,239,126 3,206,791
Enso Gutzeit OY, R........................... 463,300 4,282,586
Fletcher Challenge Ltd. Forestry Division.... 5,226,124 7,596,678
Stora Kopparbergs Bergslags AB, B............ 225,000 3,664,921
------------
26,332,022
------------
HEALTH & PERSONAL CARE 4.0%
Astra AB, A.................................. 266,664 4,964,077
Astra AB, B.................................. 338,664 5,976,037
Novartis A.G................................. 6,933 11,079,508
Nycomed ASA, A............................... 616,200 9,080,063
------------
31,099,685
------------
INDUSTRIAL COMPONENTS 4.0%
BTR PLC...................................... 1,721,500 5,891,326
Exide Corp................................... 349,100 7,658,381
Goodyear Tire & Rubber Co. .................. 110,000 6,964,375
* Graenges AB.................................. 138,000 1,828,582
Madeco Manufacturera de Cobre SA, ADR........ 263,500 6,455,750
Yamato Kogyo Co. Ltd. ....................... 214,000 2,109,938
------------
30,908,352
------------
INSURANCE 7.5%
GIO Australia Holdings Ltd. ................. 3,041,605 9,415,881
HIH Winterthur International Holdings
Ltd. ........................................ 1,659,296 4,009,111
Ing Groep NV................................. 228,461 10,533,252
Partnerre Ltd. .............................. 209,000 7,968,125
Reliastar Financial Corp. ................... 144,000 10,530,000
Torchmark Corp. ............................. 60,000 4,275,000
Zuerich Versicherung, new.................... 28,400 11,297,775
------------
58,029,144
------------
LEISURE & TOURISM 1.7%
Kuoni Reisen Holding AG, B................... 3,700 12,666,895
------------
</TABLE>
23
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING 2.3%
David Jones Ltd. ............................ 104,000 $ 145,271
Home Depot Inc. ............................. 110,000 7,583,125
House of Fraser PLC.......................... 1,901,700 5,003,724
Macintosh NV................................. 143,523 2,858,907
Storehouse PLC............................... 548,000 1,720,228
------------
17,311,255
------------
METALS & MINING 2.4%
Boehler Uddeholm AG.......................... 86,000 6,669,059
Eramet SA.................................... 127,200 5,865,741
Usinas Siderugicas de Minas Gerais, Sponsored
ADR.......................................... 516,500 5,681,500
------------
18,216,300
------------
MULTI-INDUSTRY 4.5%
DESC SA, B................................... 1,009,000 7,368,673
DESC SA, C................................... 10,090 72,797
Hutchison Whampoa Ltd........................ 865,600 7,485,860
Inchcape PLC................................. 1,619,100 7,630,523
Jardine Matheson Holdings Ltd................ 525,369 3,730,120
Jardine Strategic Holdings Ltd............... 350,048 1,323,181
* Jardine Strategic Holdings Ltd., wts......... 38,894 15,363
La Cemento Nacional CA, GDR.................. 400 83,200
La Cemento Nacional CA, GDR, 144A............ 4,600 956,800
Metro Pacific Corp. MDI...................... 23,184,000 5,010,191
Swire Pacific Ltd., B........................ 353,000 535,380
------------
34,212,088
------------
REAL ESTATE 1.9%
National Health Investors Inc................ 203,500 7,987,375
Summit Properties Inc., REIT................. 337,000 6,950,625
------------
14,938,000
------------
TELECOMMUNICATIONS 9.6%
Jasmine International Public Co. Ltd.,
fgn.......................................... 4,133,000 3,669,523
Nokia AB, A.................................. 102,100 7,707,515
SPT Telecom AS............................... 52,600 5,514,987
STET (Sta Finanziaria Telefonica Torino)
SpA.......................................... 2,180,000 12,701,059
Telecom Italia SpA........................... 3,610,800 11,590,511
Telefonica de Argentina SA, B, ADR........... 291,000 10,075,875
Telefonica de Espana SA...................... 421,500 12,185,884
Telefonos de Mexico SA, L, ADR............... 221,800 10,590,950
------------
74,036,304
------------
TEXTILES & APPAREL 1.0%
Dawson International PLC..................... 3,450,000 4,107,895
* Fruit of the Loom Inc., A.................... 125,000 3,875,000
------------
7,982,895
------------
TRANSPORTATION 3.2%
Air New Zealand Ltd., B...................... 2,955,000 9,032,339
Helikopter Services Group ASA................ 585,000 7,502,865
Koninklijke Nedlloyd NV...................... 291,500 8,420,220
------------
24,955,424
------------
</TABLE>
24
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 6.3%
* CEZ.......................................... 100,000 $ 2,759,961
Compania Sevillana de Electricidad........... 275,921 2,846,284
Endesa-Empresa Nacional de Electricidad SA... 115,000 9,654,225
Evn Energie-Versorgung Niederoesterreich
AG........................................... 63,600 8,194,072
Hong Kong Electric Holdings Ltd.............. 1,974,500 7,951,725
Iberdrola SA................................. 706,000 8,911,843
VEBA AG...................................... 140,000 7,907,564
------------
48,225,674
------------
WHOLESALE & INTERNATIONAL TRADE 0.0%
Inchcape Bhd., fgn........................... 86,000 309,785
------------
TOTAL COMMON STOCKS (COST
$506,283,645)........................ 690,894,555
------------
PREFERRED STOCKS 2.9%
Jardine Strategic Holdings Ltd., 7.50%,
conv......................................... 2,831,000 3,496,285
News Corp. Ltd., pfd......................... 250,067 985,601
News Corp. Ltd., pfd., ADR................... 130,000 2,031,250
Telebras-Telecomunicacoes Brasileiras SA,
pfd.......................................... 102,000,000 15,529,765
------------
TOTAL PREFERRED STOCKS (COST $7,665,172)..... 22,042,901
------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY
--------------
<S> <C> <C> <C> <C>
SHORT TERM OBLIGATIONS (COST
$71,156,098) 9.2%
U.S. Treasury Bills, 4.68% to 5.14% with
maturities to 9/18/97...................... U.S. 71,563,000 71,159,767
------------
TOTAL INVESTMENTS (COST
$585,104,915) 101.7%........................ 784,097,223
OTHER ASSETS, LESS LIABILITIES (1.7%)....... (13,014,691)
------------
TOTAL NET ASSETS 100.0%..................... $771,082,532
============
</TABLE>
*Non-income producing.
See Notes to Financial Statements.
25
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS MAY 1, 1992
ENDED YEAR ENDED DECEMBER 31 (COMMENCEMENT
JUNE 30, 1997 ---------------------------------------- OF OPERATIONS) TO
(UNAUDITED) 1996 1995 1994 1993 DECEMBER 31, 1992
---------------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $18.40 $15.13 $13.22 $13.83 $9.39 $10.00
-------- ----- --- ----- --- ----- --- ----- --- ---- --
Income from investment operations:
Net investment income............... .37 .43 .23 .12 .10 .06
Net realized and unrealized gain
(loss)............................ 2.21 3.15 1.83 (.42) 4.34 (.67)
-------- ----- --- ----- --- ----- --- ----- --- ---- --
Total from investment operations........ 2.58 3.58 2.06 (.30) 4.44 (.61)
-------- ----- --- ----- --- ----- --- ----- --- ---- --
Distributions:
Dividends from net investment
income............................ (.51) (.24) (.10) (.08) -- --
Distributions from net realized
gains............................. (.21) (.07) (.05) (.23) -- --
-------- ----- --- ----- --- ----- --- ----- --- ---- --
Total distributions..................... (.72) (.31) (.15) (.31) -- --
-------- ----- --- ----- --- ----- --- ----- --- ---- --
Change in net asset value............... 1.86 3.27 1.91 (.61) 4.44 (.61)
-------- ----- --- ----- --- ----- --- ----- --- ---- --
Net asset value, end of period.......... $20.26 $18.40 $15.13 $13.22 $13.83 $9.39
======== ======== ======== ======== ======== ======
TOTAL RETURN*........................... 14.41% 24.04% 15.78% (2.22)% 47.28% (6.10)%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000)......... $887,113 $682,984 $353,141 $150,090 $43,877 $7,050
Ratio of expenses to average net
assets................................ .73%** .65% .71% .83% .95% 1.40%**
Ratio of expenses, net of reimbursement,
to average net assets................. .73%** .65% .71% .83% .95% 1.00%**
Ratio of net investment income to
average net assets.................... 4.36%** 3.23% 2.36% 1.89% 1.62% 1.76%**
Portfolio turnover rate................. 12.65% 9.46% 5.19% 6.32% 15.65% 4.50%
Average commission rate paid (per
share)................................ $.0009 $.0035
</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.
Not annualized for periods of less than one year.
**Annualized.
26
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights (continued)
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1997+
THROUGH
JUNE 30, 1997
(UNAUDITED)
----------
<S> <C>
Net asset value, beginning of period.......................................................................... $18.48
--------------
Income from investment operations:
Net investment income..................................................................................... .06
Net realized and unrealized gain.......................................................................... 1.71
--------------
Total from investment operations.............................................................................. 1.77
--------------
Net asset value, end of period................................................................................ $20.25
==============
TOTAL RETURN*................................................................................................. 9.58%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000)............................................................................... $2,668
Ratio of expenses to average net assets....................................................................... 1.14%**
Ratio of net investment income to average net assets.......................................................... 3.86%**
Portfolio turnover rate....................................................................................... 12.65%
Average commission rate paid (per share)...................................................................... $.0009
</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.
Not annualized for periods of less than one year.
**Annualized.
+Commencement of offering of sales.
See Notes to Financial Statements.
27
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 86.0%
AEROSPACE & MILITARY TECHNICAL SYSTEMS 0.2%
Hong Kong Aircraft Engineering Co. Ltd....... 469,200 $ 1,707,878
------------
APPLIANCES & HOUSEHOLD DURABLES 0.4%
Email Ltd.................................... 441,466 1,579,974
Sony Corp.................................... 21,000 1,830,469
------------
3,410,443
------------
AUTOMOBILES 4.7%
Fiat SpA..................................... 2,775,000 9,977,198
* Regie Nationale des Usines Renault SA........ 296,000 7,489,782
Volkswagen AG................................ 15,600 11,825,907
Volvo AB, B.................................. 455,000 12,175,684
------------
41,468,571
------------
BANKING 11.7%
Argentaria Corporacion Bancaria de Espana
SA........................................... 135,600 7,592,128
Banco Popular Espanol SA..................... 16,000 3,919,919
Bangkok Bank Public Co. Ltd., fgn............ 373,800 2,568,477
Banque Nationale de Paris.................... 185,000 7,624,517
Banque Nationale de Paris, ADR, 144A......... 11,800 486,321
Canadian Imperial Bank of Commerce........... 320,000 8,064,014
Credicorp, Ltd............................... 213,600 4,699,200
Credit Suisse Group, reg..................... 10,000 1,283,807
Daegu Bank Co. Ltd........................... 42,000 360,013
* Daegu Bank Co. Ltd., rts..................... 14,628 23,255
Den Norske Bank.............................. 1,880,000 7,361,786
Foreningssparbanken AB, A, 144A.............. 152,000 3,379,743
HSBC Holdings PLC............................ 35,800 10,766,848
Merita Ltd., A............................... 3,400,000 11,130,904
National Bank of Canada...................... 440,000 5,512,147
National Westminster Bank PLC................ 777,299 10,452,613
PT Bank Pan Indonesia........................ 500,000 328,947
* PT Bank Pan Indonesia, rts................... 250,000 41,118
PT Bank Bali, fgn............................ 1,550,500 4,144,017
Shinhan Bank Co. Ltd......................... 30,600 450,601
Svenska Handelsbanken, A..................... 48,000 1,526,469
* Unibanco Uniao de Bancos Brasileiros SA,
GDR.......................................... 99,500 3,693,930
Unidanmark AS, A............................. 150,000 8,426,332
------------
103,837,106
------------
BROADCASTING & PUBLISHING 0.3%
News Corp. Ltd., ADR......................... 125,200 2,410,100
------------
BUILDING MATERIALS & COMPONENTS 0.3%
Cie de Saint Gobain.......................... 18,517 2,700,337
------------
CHEMICALS 4.4%
Akzo Nobel NV................................ 29,000 3,974,222
Courtaulds PLC............................... 1,880,000 10,582,025
European Vinyls Corp. (EVC) International
NV........................................... 45,000 1,139,386
Kemira OY, 144A.............................. 563,632 5,318,563
Rhone-Poulenc SA, A.......................... 279,800 11,426,821
Sentrachem Ltd............................... 3,760,000 6,629,932
------------
39,070,949
------------
DATA PROCESSING & REPRODUCTION 0.9%
* Newbridge Networks Corp...................... 180,000 7,830,000
------------
ELECTRICAL & ELECTRONICS 3.7%
ABB AG, br................................... 4,000 6,052,722
Alcatel Alsthom SA........................... 36,000 4,508,653
</TABLE>
28
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRICAL & ELECTRONICS (CONT.)
Hitachi Ltd.................................. 500,000 $ 5,584,155
Philips Electronics NV....................... 218,000 15,615,059
Tadiran Ltd., ADR............................ 28,240 808,370
------------
32,568,959
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 0.8%
BICC......................................... 2,280,000 6,701,527
------------
ENERGY SOURCES 2.6%
Societe Elf Aquitane SA...................... 87,200 9,407,457
Total SA, B.................................. 70,000 7,075,399
YPF Sociedad Anonima, ADR.................... 228,600 7,029,450
------------
23,512,306
------------
FINANCIAL SERVICES 3.1%
Axa SA....................................... 208,300 12,955,170
Julius Baer Holdings AG...................... 5,100 7,804,519
Korea Fund Inc............................... 47,229 696,628
Leichtenstein Global Trust AG................ 6,500 3,983,225
London Pacific Group Ltd..................... 23,600 81,943
Peregrine Investments Holdings Ltd........... 1,151,000 2,369,658
------------
27,891,143
------------
FOOD & HOUSEHOLD PRODUCTS 0.8%
Northern Foods PLC........................... 2,183,100 7,234,707
------------
FOREST PRODUCTS & PAPER 5.9%
* Asia Pulp & Paper Co. Ltd., ADR.............. 369,600 5,590,200
Assidomaen AB................................ 135,100 3,842,286
Cartiere Burgo SpA........................... 571,600 3,176,527
Enso OY, R................................... 400,000 3,697,463
Fletcher Challenge Ltd. Forestry Division.... 6,166,000 8,962,879
Metsa Serla OY, B............................ 402,250 3,276,718
Munksjo AB................................... 70,000 719,411
Norske Skogindustrier AS, A.................. 176,400 6,077,198
Sappi Ltd.................................... 422,354 3,816,732
Stora Kopparbergs Bergslags AB, B............ 300,000 4,886,562
UPM-Kymmene Corp............................. 351,000 8,246,498
------------
52,292,474
------------
HEALTH & PERSONAL CARE 2.2%
Astra AB, A.................................. 80,000 1,489,238
Astra AB, B.................................. 138,667 2,446,901
Novartis AG.................................. 4,267 6,817,421
Nycomed ASA, A............................... 66,700 982,863
Nycomed ASA, B............................... 265,000 3,778,380
Pharmacia & Upjohn........................... 119,800 4,163,050
------------
19,677,853
------------
INDUSTRIAL COMPONENTS 1.7%
BTR PLC...................................... 2,510,000 8,589,735
SKF AB, B.................................... 193,900 5,013,251
Yamato Kogyo Co. Ltd......................... 135,000 1,331,036
------------
14,934,022
------------
INSURANCE 7.9%
* Baloise-Holding.............................. 1,600 3,812,393
GIO Australia Holdings Ltd................... 3,280,000 10,153,879
INA-Istituto Nazionale Delle Assicurazioni
SpA.......................................... 5,350,000 8,103,389
Ing Groep NV................................. 112,500 5,186,841
</TABLE>
29
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
London Insurance Group Inc................... 100,000 $ 1,926,210
Partnerre Ltd................................ 269,000 10,255,625
Scor......................................... 116,174 4,677,245
Skandia Foersaekrings AB, free............... 318,300 11,727,167
Zuerich Versicherung, new.................... 37,000 14,718,932
------------
70,561,681
------------
MERCHANDISING 3.2%
Cifra SA, B.................................. 2,470,000 4,602,871
Cifra SA de CV, A............................ 302,100 558,402
Dairy Farm International Holdings Ltd........ 839,000 629,250
David Jones Ltd.............................. 2,225,500 3,108,663
Koninklijke Bijenkorf Beheer NV (KBB)........ 80,300 5,616,786
Safeway PLC.................................. 1,200,000 6,944,329
Storehouse PLC............................... 2,225,000 6,984,504
------------
28,444,805
------------
METALS & MINING 4.4%
Boehler Uddeholm AG.......................... 27,210 2,110,059
Boehler Uddeholm AG, 144A.................... 33,800 2,621,095
British Steel PLC............................ 1,624,000 4,029,642
Companhia Siderurgica Nacional............... 12,700,000 418,792
Maanshan Iron & Steel Co. Ltd., H............ 1,000,000 209,105
Pechiney SA, A............................... 134,145 5,284,355
Pohang Iron & Steel Co. Ltd.................. 44,080 4,494,894
Rustenburg Platinum Holdings Ltd Ord. ZAR
10........................................... 518,809 9,491,106
Usinas Siderugicas de Minas Gerais, Sponsored
ADR.......................................... 288,800 3,176,800
Vale do Rio Doce, ADR........................ 335,000 7,409,177
------------
39,245,025
------------
MULTI-INDUSTRY 4.2%
Alfa SA de CV, A............................. 1,400,000 9,554,268
Cheung Kong Holdings Ltd..................... 850,000 8,393,247
Harrisons & Crosfield PLC.................... 3,250,000 6,007,594
Hutchison Whampoa Ltd........................ 600,000 5,188,905
Jardine Matheson Holdings Ltd................ 566,800 4,024,280
Jardine Strategic Holdings Ltd............... 225,000 850,500
Swire Pacific Ltd., A........................ 400,000 3,601,255
------------
37,620,049
------------
REAL ESTATE 0.7%
Fastighets AB Tornet, A...................... 15,200 178,812
Hang Lung Development Co. Ltd................ 87,000 159,462
New Asia Realty and Trust Co. Ltd., A........ 1,592,000 6,288,023
------------
6,626,297
------------
RECREATION & OTHER CONSUMER GOODS 0.1%
SMH AG, br................................... 1,800 1,027,867
------------
TELECOMMUNICATIONS 10.2%
British Telecommunications PLC............... 980,000 7,278,722
Cpt-Telefonica del Peru SA, B................ 3,000,000 7,883,129
Cpt-Telefonica del Peru SA, ADR, B........... 29,000 759,438
Hong Kong Telecommunications Ltd............. 2,154,631 5,145,105
Koninklijke PTT Nederland.................... 259,420 10,176,443
Nokia AB, A.................................. 197,300 14,894,150
STET (Sta Finanziaria Telefonica Torino) SpA,
di Risp...................................... 950,000 3,290,397
Tele Danmark AS, B........................... 123,750 6,429,878
Telecom Italia SpA, di Risp.................. 4,850,000 9,703,425
Telefonica de Argentina SA, B, ADR........... 299,800 10,380,575
</TABLE>
30
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
Telefonica de Espana SA, ADR................. 70,000 $ 6,037,500
Telefonos de Mexico SA, L, ADR............... 191,300 9,134,575
------------
91,113,337
------------
TRANSPORTATION 1.3%
Koninklijke Nedlloyd NV...................... 216,300 6,248,006
Qantas Airways Ltd., ADR, 144A............... 231,900 5,271,087
------------
11,519,093
------------
UTILITIES ELECTRICAL & GAS 9.4%
Australian Gas & Light Company............... 1,000,000 5,889,370
British Gas PLC.............................. 2,715,000 9,992,090
* Centrica PLC................................. 1,870,000 2,281,095
* CEZ.......................................... 19,000 524,393
Compania Sevillana de Electricidad........... 323,029 3,332,230
Electricas Reunidas de Zaragoza.............. 41,250 1,730,064
Endesa-Empresa Nacional de Electricidad SA,
ADR.......................................... 60,000 5,103,750
Evn Energie-Versorgung Niederoesterreich
AG........................................... 48,600 6,261,508
HongKong Electric Holdings Ltd............... 2,431,000 9,790,146
Iberdrola SA................................. 626,500 7,908,314
Korea Electric Power Corp.................... 216,000 6,445,946
National Grid Holdings PLC................... 1,122,100 4,101,666
National Power PLC........................... 516,000 4,485,537
Shandong Huaneng Power....................... 100,000 1,075,000
Thames Water Group PLC....................... 815,315 9,415,993
VEBA AG...................................... 98,000 5,535,294
------------
83,872,396
------------
WHOLESALE & INTERNATIONAL TRADE 0.9%
Brierley Investments Ltd..................... 8,410,000 8,226,000
------------
TOTAL COMMON STOCKS (COST
$606,904,941)................................ 765,504,925
------------
PREFERRED STOCKS 5.2%
Banco Bradesco SA, pfd....................... 570,800,000 5,752,802
* Bank Austria AG, new, pfd., 144A............. 460,000 14,105,516
* Lojas Americanas SA, pfd..................... 312,058,451 4,232,087
News Corp. Ltd., pfd., ADR................... 221,100 3,454,688
Telebras-Telecomunicacoes Brasileiras SA,
pfd.......................................... 4,866,533 738,196
Telebras-Telecomunicacoes Brasileiras SA,
pfd., ADR.................................... 116,100 17,618,175
------------
TOTAL PREFERRED STOCKS (COST
$19,331,604)................................. 45,901,464
------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY
--------------
<S> <C> <C> <C> <C>
SHORT TERM OBLIGATIONS (COST
$75,846,083) 8.5%
U.S. Treasury Bills, 4.81% to 5.12% with
maturities to 9/25/97...................... U.S. 76,516,000 75,844,128
------------
TOTAL INVESTMENT
(COST $702,082,628) 99.7%................... 887,250,517
OTHER ASSETS, LESS LIABILITIES 0.3%......... 2,530,809
------------
TOTAL NET ASSETS 100.0%..................... $889,781,326
============
</TABLE>
*Non-income producing.
See Notes to Financial Statements.
31
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS MARCH 4, 1996
ENDED (COMMENCEMENT
JUNE 30, 1997 OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Net asset value, beginning of period..................................................... $9.43 $10.00
--------- ---------
Income from investment operations:
Net investment income................................................................ .05 .05
Net realized and unrealized gain (loss).............................................. .50 (.62)
--------- ---------
Total from investment operations......................................................... .55 (.57)
--------- ---------
Distributions:
Dividends from net investment income................................................. (.04) --
Distributions from net realized gains................................................ (.03) --
--------- ---------
Total distributions...................................................................... (.07) --
--------- ---------
Change in net asset value................................................................ .48 (.57)
--------- ---------
Net asset value, end of period........................................................... $9.91 $9.43
========= =========
TOTAL RETURN*............................................................................ 5.80% (5.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000).......................................................... $163,375 $72,245
Ratio of expenses to average net assets.................................................. 1.69%** 1.78%**
Ratio of expenses, net of reimbursement, to average net assets........................... 1.69%** 1.70%**
Ratio of net investment income to average net assets..................................... 1.63%** 1.52%**
Portfolio turnover rate.................................................................. 4.78% 9.95%
Average commission rate paid (per share)................................................. $.0026 $.0020
</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.
Not annualized for periods of less than one year.
**Annualized.
32
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights (continued)
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1997+
THROUGH
JUNE 30, 1997
(UNAUDITED)
--------------
<S> <C>
Net asset value, beginning of period.......................................................................... $9.85
---------
Income from investment operations:
Net investment income..................................................................................... .01
Net realized and unrealized gain.......................................................................... .05
---------
Total from investment operations.............................................................................. .06
---------
Net asset value, end of period................................................................................ $9.91
=========
TOTAL RETURN*................................................................................................. .61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............................................................................... $3,090
Ratio of expenses to average net assets....................................................................... 1.95%**
Ratio of net investment income to average net assets.......................................................... 1.34%**
Portfolio turnover rate....................................................................................... 4.78%
Average commission rate paid (per share)...................................................................... $.0026
</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.
Not annualized for periods of less than one year.
**Annualized.
+Commencement of offering of sales.
See Notes to Financial Statements.
33
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES 79.5%
ARGENTINA 2.4%
Astra Cia Argentina de Petroleo SA......... 36,380 $ 77,137
Atanor Cia Nacional Para la Industria
Quimica SA, D.............................. 161,169 259,521
* Buenos Aires Embotelladora SA, ADR......... 29,000 290
Molinos Rio de Plata SA, B................. 54,886 214,636
Nobleza Piccardo Sdad Industrial Comercial
y Financial................................ 48,691 321,409
Perez Companc SA, B........................ 34,833 279,748
Quilmes Industrial SA...................... 139,000 1,615,875
Siderar, A................................. 16,595 68,216
* Sociedad Comercial del Plata Cadelplata
Come....................................... 26,000 84,773
YPF Sociedad Anonima, ADR.................. 35,000 1,076,250
------------
3,997,855
------------
BOTSWANA 0.5%
Metsef Ltd................................. 25,000 47,600
Sechaba Investment Trust Ltd............... 406,000 488,824
Sefalana Holding Co. Ltd................... 41,100 58,691
Standard Chartered Bank Botswana Ltd....... 122,000 215,208
------------
810,323
------------
BRAZIL 3.1%
Aracruz Celulose SA, ADR................... 49,300 1,004,488
* Banco do Brasil SA......................... 41,610,000 436,759
* Banco do Brazil SA, pfd.................... 19,153,000 229,505
Companhia Siderurgica Nacional............. 56,450,000 1,861,479
Copene-Petroquimica do Nordeste SA, A,
pfd........................................ 344,000 127,496
Duratex SA, pfd............................ 3,715,000 196,663
Itausa-Investimentos Itau SA, pfd.......... 1,305,000 1,200,084
* Mannesmann SA.............................. 600,000 69,110
------------
5,125,584
------------
CHINA 1.3%
* Beijing Yanhua Petrochemical Company Ltd.,
ADR........................................ 4,000 46,000
China Southern Glass Co. Ltd., B........... 236,600 123,686
* Chiwan Wharf Holdings Ltd., B.............. 174,000 106,458
Guangzhou Shipyard International Co. Ltd.,
H.......................................... 449,000 84,036
* Luoyang Glass Co. Ltd., H.................. 1,288,000 224,439
Maanshan Iron & Steel Co. Ltd., H.......... 209,000 43,703
Northeast Electric Transmission &
Transformation............................. 804,000 133,874
* Phoenix Co. Ltd., B........................ 624,710 91,208
Shandong Huaneng Power..................... 500 5,375
* Shanghai Dazhong Taxi Shareholding Co.
Ltd., B.................................... 257,200 228,394
* Shanghai Jin Jiang Tower Co. Ltd., B....... 235,200 74,323
Shanghai New Asia Group Co. Ltd., B........ 50,000 27,300
Shanghai Petrochemical Co. Ltd., H......... 1,548,000 371,649
* Shanghai Shangling Electric Appliance, B... 406,750 83,791
* Shanghai Steel Tube Co. Ltd., B............ 400,000 52,800
Shanghai Tyre & Rubber Co. Ltd., B......... 336,000 164,640
* Shanghai Vacuum Electron Devices Co. Ltd.,
B.......................................... 400,000 80,000
* Shanghai Yaohua Pilkington Glass, B........ 142,000 51,404
* Shenzhen China Bicycles Co. (Holdings)
Ltd., B.................................... 700 276
* Tsingtao Brewery Co., H.................... 222,000 85,965
------------
2,079,321
------------
CZECH REPUBLIC 1.5%
* CEZ........................................ 58,500 1,614,577
Chemopetrol Group AS....................... 1,442 50,916
Komercni Banka AS.......................... 1,000 51,807
</TABLE>
34
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CZECH REPUBLIC (CONT.)
* Komercni Banka AS, GDR..................... 4,000 $ 83,300
5,610 588,195
SPT Telecom AS.............................
------------
2,388,795
------------
GHANA 1.1%
150,378 1,757,543
Ashanti Goldfields Co. Ltd., GDR...........
------------
GREECE 1.2%
22,700 280,951
Delta Dairy SA.............................
2,800 81,439
Elais Oleaginous Co........................
5,533 332,330
Ergo Bank SA...............................
14,000 258,636
Hellas Can - Container Manufacturers.......
16,700 392,104
Hellenic Telecommunications
Organizations..............................
15,000 352,190
Hellenic Telecommunications Organizations,
144A.......................................
* Hellenic Telecommunications Organizations, 31,700 3,895
rts........................................
* National Bank of Greece SA................. 1,100 134,542
2,000 98,649
Titan Cement Co., reg......................
------------
1,934,736
------------
HONG KONG 3.5%
115,000 245,666
Cross Harbour Tunnel Co. Ltd...............
212,167 159,125
Dairy Farm International Holdings Ltd......
1,004,000 112,746
Golden Resources Development International
Ltd........................................
720,000 1,319,686
Hang Lung Development Co. Ltd..............
237,000 954,449
HongKong Electric Holdings Ltd.............
225,500 359,470
Hongkong & Shanghai Hotels Ltd.............
396,000 250,461
Hopewell Holdings Ltd......................
32,000 14,663
IMC Holdings Ltd...........................
10,251 72,782
Jardine Matheson Holdings Ltd..............
1,080,000 168,678
Joyce Boutique Holdings Ltd................
66,000 80,931
Lai Sun Garment International Ltd..........
686,000 175,323
Laws International Holdings Ltd............
165,000 117,138
Orient Overseas International Ltd..........
57,069 93,184
Semi-Tech (Global) Co. Ltd.................
47,000 423,147
Swire Pacific Ltd., A......................
585,000 887,245
Swire Pacific Ltd., B......................
334,000 83,206
Tingyi (Cayman Islands) Holding Corp.......
83,000 204,090
Wheelock & Co. Ltd.........................
------------
5,721,990
------------
HUNGARY 0.7%
* Borsodchem RT.............................. 2,089 83,609
* Borsodchem RT, GDR, 144A................... 4,000 157,500
3,242 71,846
Mol Magyar Olay - Es Gazipari RT...........
23,564 411,472
Tiszai Vegyi Kombinat RT...................
8,000 138,600
Tiszai Vegyi Kombinat RT, GDR, S...........
21,000 363,825
Tiszai Vegyi Kombinat RT, GDR, 144A........
------------
1,226,852
------------
INDIA 1.8%
* Arvind Mills Ltd........................... 79,850 289,958
* Bombay Dyeing & Manufacturing Co. Ltd...... 21,900 59,032
18,150 77,568
Cochin Refineries Ltd......................
5,000 52,165
Grasim Industries Ltd. Ord. INR10..........
90,900 124,416
Great Eastern Shipping Co. Ltd.............
21,300 206,158
Gujarat Ambuja Cements Ltd.................
* Gujarat Industries Power Ltd............... 9,100 7,244
9,000 22,500
Gujarat Narmanda Valley Fertilizers Co.
Ltd., ADR..................................
3,000 2,095
Hindustan Organic Chemicals Ltd............
</TABLE>
35
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
INDIA (CONT.)
* India Cements Ltd.......................... 11,800 $ 35,598
109,590 328,770
India Cements Ltd., GDR....................
22,500 83,747
Indian Aluminium Co. Ltd...................
61,000 247,067
Indian Petrochemicals Corp. Ltd............
19,113 239,390
Indian Rayon & Industries Ltd., GDR........
750 7,751
Indian Rayon and Industries Ltd............
1,800 1,735
Indo Gulf Fertilisers & Chemicals Corp.
Ltd........................................
7,150 7,686
Indo Gulf Fertilisers & Chemicals, GDR.....
36,600 79,999
Industrial Credit & Inv. Corp. of India
(ICICI)....................................
* Industrial Development Bank of India....... 38,900 111,104
40,000 272,626
Larsen and Toubro Ltd......................
90 20,300
Madras Cements.............................
* National Aluminium Co. Ltd................. 102,900 130,781
* Oriental Bank of Commerce.................. 79,100 154,002
78,700 45,066
Steel Authority of India Ltd...............
* Tata Chemicals Ltd......................... 41,200 208,302
7,500 94,693
Tata Engineering & Locomotive Co. Telco....
* Tata Iron & Steel Co. Ltd.................. 6,800 36,327
9,200 89,944
Thermax Ltd................................
------------
3,036,024
------------
INDONESIA 5.6%
* Asia Pulp & Paper Co. Ltd., ADR............ 29,900 452,238
437,500 310,316
PT Bank Dagang Nasional Indonesia, fgn.....
* PT Bank Dagang Nasional Indonesia, wts..... 31,250 12,850
219,000 186,852
PT Barito Pacific Timber, fgn..............
4,500 3,562
PT BDNI Capital Corporation, fgn...........
* PT Charoen Pokphand Indonesia, fgn......... 740,000 334,704
889,000 886,441
PT Ciputra Development.....................
917,500 452,714
PT Gadjah Tunggal, fgn.....................
917,500 537,598
PT Indah Kiat Pulp & Paper Corp., fgn......
* PT Indah Kiat Pulp & Paper Corp., rts...... 825,750 144,303
1,141,000 1,771,083
PT Indocement Tunggal Prakarsa, fgn........
191,500 572,846
PT Indosat, fgn............................
* PT Jakarta International Hotel & 186,000 212,233
Development, fgn...........................
245,000 327,405
PT Kalbe Farma, fgn........................
28,000 99,013
PT Modern Photo Film Co., fgn..............
318,590 370,073
PT Pabrik Kertas Tjiwi Kimia, fgn..........
57,500 150,725
PT Semen Cibinong, fgn.....................
161,500 361,914
PT Semen Gresik, fgn.......................
247,800 224,161
PT Sinar Mas Agro Resources & Technology
Corp., fgn.................................
* PT Sumalindo Lestari Jaya, fgn............. 146,000 132,072
851,500 1,321,716
PT Tambang Timah (Persero), fgn............
* PT Tempo Scan Pacific, fgn................. 13,500 30,253
189,500 103,243
PT Ultra Jaya Milk, fgn....................
76,000 281,250
PT United Tractors, fgn....................
------------
9,279,565
------------
JORDAN 0.0%
* Jordan Cement Factories Ltd................ 5,000 28,773
------------
KENYA 0.2%
2,418,381 363,866
Kenya Airways Ltd..........................
------------
MALAYSIA 2.5%
81,000 156,609
Berjaya Singer Bhd., fgn...................
67,000 145,998
Boustead Holdings Bhd., fgn................
169,800 538,193
Hong Leong Industries Bhd..................
* Hong Leong Industries Bhd., wts., fgn...... 19,500 16,070
</TABLE>
36
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
MALAYSIA (CONT.)
Island & Peninsula Bhd., fgn............... 86,000 $ 275,990
796,000 1,431,791
Leader Universal Holdings Bhd..............
323,000 593,788
MBF Capital Bhd............................
772,000 1,009,350
Renong Bhd.................................
------------
4,167,789
------------
MEXICO 5.3%
699,000 3,406,107
Cementos Mexicanos SA de CV (Cemex), B.....
6,482 11,981
Cifra SA de CV, A..........................
53,000 84,752
Cifra SA, C................................
12,000 619,500
Coca Cola Femsa SA de CV, ADR..............
66,000 176,177
Cydea SA de CV.............................
34,340 247,756
DESC SA, C.................................
106,000 630,635
Fomento Economico Mexicano SA de CV, B.....
* Grupo Financiero Banamex Accival SA, L..... 616,000 1,458,172
* Grupo Financiero Bancomer SA de CV, B...... 500,000 240,494
* Grupo Financiero Bancomer SA de CV, L...... 2,941,000 1,055,383
* Grupo Financiero Serfin SA, B.............. 1,734,000 554,566
1,500 9,281
Transportacion Maritima Mexicana SA de CV,
L, ADR.....................................
* Vitro SA................................... 108,000 399,119
------------
8,893,923
------------
PAKISTAN 2.5%
* Bank of Punjab............................. 221,275 123,723
* DG Khan Cement Co.......................... 2,586,000 780,544
78,580 278,008
Engro Chemical.............................
3,462,500 770,977
National Development Leasing Corp..........
* Pakistan Electron Ltd...................... 563,000 143,468
* Pakistan International Airlines Corp....... 1,959,600 370,884
73,000 55,536
Pakistan Telecom Corp. PTC.................
1,084,500 825,057
Pakistan Telecommunications Corp., PTC,
A..........................................
* Pakland Cement Co. Ltd..................... 1,989,800 475,057
* Union Bank Ltd............................. 1,416,000 350,326
------------
4,173,580
------------
PERU 0.1%
7,000 183,313
Cpt-Telefonica del Peru SA, B, ADR.........
------------
PHILIPPINES 1.7%
* A Soriano Corp............................. 818,000 85,286
* Filinvest Development Corp................. 299,000 71,417
* Keppel Philippine Holdings Inc., B......... 14,042,400 1,703,658
* Philex Mining Corp., B..................... 6,115,500 510,089
12,000 116,015
Philippine Commercial International Bank
Inc........................................
* Philippine National Bank................... 23,331 158,335
889,000 215,711
RFM Corp...................................
* RFM Corporation, 10.00%, conv., pfd........ 161,636 28,680
------------
2,889,191
------------
POLAND 3.0%
* Bank Gdanski SA............................ 13,955 161,354
* Bank Gdanski SA, GDR....................... 41,000 481,750
* Bank Handlowy W Warszawie.................. 25,000 266,241
258,000 310,087
Bank Inicjatyw Gospodarczch SA, G..........
1,000 49,140
Bank Przemyslowo-Handlowy SA...............
* Farm Food SA............................... 2,400 32,862
* Farm Food SA, new.......................... 2,411 32,756
* Huta Olawa SA.............................. 49,959 191,536
* Impexmetal, A.............................. 49,481 511,898
</TABLE>
37
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
POLAND (CONT.)
* Impexmetal, B.............................. 37,411 $ 387,030
25,000 502,054
Przedsiebiorstwo Cukiernicze Jutrzenka
SA.........................................
* Przedsiebiorstwo Handlu Zagranicznego 495,000 1,551,346
Universal SA...............................
42,415 167,776
Rolimpex SA................................
13,400 193,671
Warta SA...................................
15,568 89,055
Wielkopolski Bank Kredytowy SA.............
1,772 60,657
Zaklady Cementowo Wapiennicze Gorazdze
Chorula....................................
1,000 63,898
Zaklady Piwowarskie W Zywcu SA.............
------------
5,053,111
------------
PORTUGAL 0.1%
6,600 110,294
Banco Totta & Acores SA....................
5,500 109,313
Espirito Santo Financial Holding SA, ADR...
------------
219,607
------------
RUSSIA 4.8%
* Aeroflot................................... 5,800 812,000
1,000 40,500
GUM Trade House............................
2,058,000 699,720
Irkutskenergo..............................
* Kamaz...................................... 160,386 344,830
5,748 57,480
Krasnoyarsk Aluminum Plant.................
* Lukoil-Holdings............................ 9,000 176,670
* Lukoil-Holdings, pfd....................... 26,000 327,600
* Megionneftegaz............................. 44,500 319,065
* Mosenergo.................................. 478,000 669,678
* Murmansk Sea Shipping...................... 3,000 70,500
* Norilsk Nickel............................. 49,600 468,720
* Norilsk Nickel, pfd........................ 10,000 55,500
* Novolipetsk Mettallurgy.................... 2,000 150,000
* Novorosissk Sea Shipping................... 30,000 8,100
* Novorosissk Sea Shipping., pfd............. 224,000 31,360
* Primorsk Sea Shipping...................... 36,050 147,805
* Purneftegaz................................ 40,000 226,000
26,400 450,780
Rao Gazprom, ADR, 144A.....................
* Red October Ord............................ 3,000 70,650
153,000 593,640
Rostelekom.................................
* Rostelekom, pfd............................ 257,300 638,104
* Saint Petersburg City Telephone Net, 65,000 57,330
pfd........................................
536,000 420,760
Tsum Trade House...........................
* Unified Energy System...................... 3,000,000 1,085,700
* Uralmash Zavody............................ 11,000 90,475
------------
8,012,967
------------
SINGAPORE 4.5%
188,000 345,920
Acer Computer International Ltd............
* Acer Computer International Ltd., wts...... 6,400 3,680
95,000 247,185
First Capital Corp. Ltd....................
269,000 699,923
First Capital Corp. Ltd., fgn..............
592,000 426,495
Hai Sun Hup Group Ltd......................
* Hai Sun Hup Group Ltd., wts................ 84,600 22,486
1,159,000 907,939
Hour Glass Ltd.............................
98,000 353,011
Inchcape Bhd., fgn.........................
49,000 111,044
Isetan Ltd., fgn...........................
219,000 949,710
Jurong Shipyard, fgn.......................
281,000 426,502
MCL Land Ltd...............................
78,000 198,587
Natsteel Ltd...............................
86,000 218,955
Natsteel Ltd., fgn.........................
* Osprey Maritime Ltd........................ 129,000 168,728
</TABLE>
38
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SINGAPORE (CONT.)
* Osprey Maritime Ltd., rts.................. 129,000 $ 37,896
2,000 9,233
Overseas Union Enterprise Ltd..............
16,000 83,374
Robinson & Co. Ltd.........................
351,000 1,595,789
Sembawang Corp. Ltd........................
144,000 108,778
United Industrial Corp.....................
625,000 472,127
United Industrial Corporation Ltd., fgn....
27,000 81,584
WBL Corp. Ltd..............................
------------
7,468,946
------------
SLOVAK REPUBLIC 0.3%
* Nafta Gbely AS............................. 8,195 268,121
10,000 246,870
Slovnaft AS................................
1,900 35,603
Vychodoslovenske Zeleziarne AS.............
------------
550,594
------------
SLOVENIA 0.2%
* Blagovno Trgovinski Center, GDR, 144A...... 50,000 406,384
------------
SOUTH AFRICA 7.5%
14,000 83,315
Aeci Ltd...................................
15,700 270,779
Alpha Ltd..................................
37,593 1,648,888
Anglo American Industrial Corp. Ltd........
102,640 375,540
Anglovaal Industried Ltd...................
226,200 224,355
BTR Dunlop Ltd.............................
132,000 736,081
CG Smith Ltd...............................
1,248,200 646,522
Del Monte Royal Foods Ltd..................
12,000 313,423
Edgars Stores..............................
54,800 273,577
Engen Ltd..................................
68,000 584,527
First National Bank Holdings Ltd...........
8,478 64,468
Foodcorp Ltd...............................
* Irvin & Johnson Ltd........................ 134,700 90,552
169,700 1,180,083
Kersaf Investments Ltd.....................
22,100 35,072
Malbak Ltd.................................
305,200 874,499
McCarthy Retail Ltd........................
24,000 69,032
McCarthy Retail Ltd., zero, conv.,
9/30/03....................................
8,500 157,373
Palabora Mining Co. Ltd....................
* Rainbow Chicken Ltd........................ 4,810,500 964,857
28,700 98,366
Reunert Ltd................................
95,673 864,579
Sappi Ltd..................................
267,800 472,206
Sentrachem Ltd.............................
27,000 828,686
South African Breweries Ltd................
1,566,034 1,035,508
South African Iron & Steel Industrial Corp.
Ltd........................................
977,200 551,385
Sun International Ltd......................
400 2,530
Toyota South Africa Limited................
151,000 85,202
Voltex Holdings Ltd........................
------------
12,531,405
------------
SOUTH KOREA 6.1%
11,890 388,300
Asia Cement Co. Ltd........................
41,800 275,372
Boram Bank Co. Ltd.........................
490 50,490
BYC Co. Ltd................................
27,600 198,030
Cho Hung Bank Co. Ltd., GDR................
90,000 645,750
Cho Hung Bank, GDR, 144A...................
* Daegu Bank Co. Ltd......................... 35,600 305,154
8,916 14,174
Daegu Bank Co. Ltd., rts...................
5,000 114,302
Dongkuk Steel Mill Co. Ltd.................
43,000 2,372,748
Hae In Corp. Ltd...........................
30,868 446,043
Hana Bank, GDR.............................
* Kolon International Corporation............ 358,000 2,862,065
</TABLE>
39
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SOUTH KOREA (CONT.)
Korea First Bank........................... 123,820 $ 515,917
12,400 86,018
Korea Kumho Petrochemical..................
18,710 653,164
Kukdong Oil & Chemical Co. Ltd.............
25,100 270,175
Kyong Nam Bank.............................
14,600 483,378
Kyung Dong Boiler Co. Ltd..................
860 27,505
Moon Bae Steel Co. Ltd.....................
3,030 167,132
Samsung Display Devices (L) Ltd............
* Samsung Heavy Industries Co. Ltd........... 10,000 105,405
5,990 121,419
Ssangyong Oil Refining Co. Ltd.............
10,048 104,101
Tong Yang Merchant Bank....................
------------
10,206,642
------------
SRI LANKA 0.4%
60,000 266,712
National Development Bank of Sri Lanka.....
362,800 468,309
Sampath Bank Limited.......................
------------
735,021
------------
THAILAND 12.3%
59,000 124,127
Asia Credit Public Co. Ltd.................
3,900 30,110
Ayudhya Insurance Public Co. Ltd., fgn.....
533,300 2,655,692
Bangkok Bank Public Co. Ltd................
27,000 185,524
Bangkok Bank Public Co. Ltd., fgn..........
7,900 101,857
Bangkok Insurance..........................
4,900 85,592
Bangkok Insurance, fgn.....................
7,300 5,213
Bangkok Land Public Co. Ltd., fgn..........
459,700 718,697
Bank of Ayudhya Public Co. Ltd., fgn.......
89,500 221,116
Chareon Pokphand Feedmill Public Co. Ltd.,
fgn........................................
40,000 78,749
Charoen Pokphand Feedmill Public Co.
Ltd........................................
272,000 217,868
First Bangkok City Bank Public Co. Ltd.,
fgn........................................
34,000 182,436
Hana Microelectronics Co. Ltd., fgn........
650,000 828,025
Industrial Finance Corp. of Thailand,
fgn........................................
468,000 415,518
Jasmine International Public Co. Ltd.,
fgn........................................
* Land and House Public Co. Ltd.............. 168,600 267,737
129,400 269,739
Land and House Public Co. Ltd., fgn........
* Land and House Public Co. Ltd., rts........ 100,000 117,581
420,000 429,647
Phatra Thanakit Public Co. Ltd.............
320,800 396,279
Phatra Thanakit Public Co. Ltd., fgn.......
77,100 458,344
Regional Container Lines Public Co. Ltd.,
fgn........................................
400,500 711,175
Saha Pathanapibul Public Co. Ltd., fgn.....
439,800 275,883
Saha Union Public Co. Ltd..................
13,300 11,552
Sanyo Universal Electric Public Co. Ltd....
81,300 70,614
Sanyo Universal Electric Public Co. Ltd.,
fgn........................................
24,000 296,468
Serm Suk Public Co. Ltd....................
94,600 1,636,008
Siam Cement Co. Ltd.(The), fgn.............
1,818,200 1,070,355
Siam City Bank Public Co. Ltd., fgn........
225,830 845,609
Siam Commercial Bank Ltd...................
217,170 888,632
Siam Commercial Bank Ltd., fgn.............
* Sino-Thai Engineering & Construction Public 426,300 1,184,852
Co., fgn...................................
* Thai Airways International Public Co. 268,500 393,862
Ltd........................................
259,500 310,539
Thai Airways International Public Co. Ltd.,
fgn........................................
616,000 1,890,446
Thai Farmers Bank Public Co. Ltd...........
30,000 127,389
Thai Farmers Bank Public Co. Ltd., fgn.....
247,100 505,551
Thai Investments and Securities Ltd........
234,800 262,853
Thai Military Bank Ltd., fgn...............
339,120 212,727
Thai Petrochemical Industry Public Co.
Ltd., fgn..................................
100 215
Thai Rayon Public Co. Ltd., fgn............
* Thai Telephone & Telecommunication 50,000 20,749
Public Co. Ltd., fgn.......................
</TABLE>
40
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY ISSUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND (CONT.)
Thai Wah Public Co. Ltd., fgn.............. 1,093,800 $ 422,235
6,000 31,268
Tipco Asphalt Public Co. Ltd...............
65,000 338,738
Tipco Asphalt Public Co. Ltd., fgn.........
45,000 208,800
Total Access Communication Public Co.
Ltd........................................
81,400 342,505
United Communications Industries, fgn......
139,600 576,615
United Communications Industry Public Co.
Ltd........................................
------------
20,425,491
------------
TURKEY 4.4%
2,058,711 176,728
Akbank.....................................
* Alarko Gayrimenkul Yatirim Ortakigi AS..... 1,380,000 58,536
1,176,000 217,741
Alcatel Teletas Endustri Tic AS............
* Anadolu Anonim Turk Sigorta Sirketi........ 17,000 458
23,000 5,497
Bagfas.....................................
25,976,000 1,574,038
Borusan AS.................................
431,000 57,312
Cimentas Izmir Cimento Fabrikasi Turk AS...
164,000 22,084
Cimsa Cimento Sanayi ve Ticaret AS.........
3,500,000 418,280
Erciyas Biracilik..........................
4,148,000 691,217
Eregli Demir ve Celik Fabrikalari AS.......
33,681,000 1,156,527
Izocam Ticaret ve Sanayii AS, br...........
* Netas Northern Electric Telekomunic Asyon 250,000 69,012
AS.........................................
677,000 232,466
Petkim Petrokimya Holding AS...............
1,400,000 64,097
Sasa Suni Ve Sentetik Elyaf Sanayi AS......
1,384,997 102,575
Tat Konserve Sanayii AS....................
8,143,500 394,770
Tofas Turk Otomobil Fabrikasi AS...........
37,415,000 1,889,328
Turk Demir Dokum, br.......................
3,788,886 142,856
Turkiye Garanti Bankasi AS.................
1,151,000 18,018
Vakif Finansal Kiralama AS.................
------------
7,291,540
------------
VENEZUELA 0.1%
66,955 72,896
Ceramica Carabobo CA, A, ADR...............
------------
ZIMBABWE 0.8%
42,258 64,841
Delta Corp.................................
3,946,000 743,875
Ta Holdings................................
1,271,400 473,779
Zimbabwe Sun Ltd...........................
------------
1,282,495
------------
132,316,122
TOTAL LONG TERM SECURITIES
(COST $130,588,636)........................
------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
----------------
<S> <C> <C> <C> <C>
SHORT TERM OBLIGATIONS 13.6%
Deutsche Bank AG, 6.00%, 7/1/97........... U.S. 6,300,000 6,300,000
Dresdner Bank AG, 5.5625%, 7/7/97......... U.S. 6,475,000 6,475,000
Federal Farm Credit Banks, 5.46% to 5.55%
, with maturities to 7/25/97............ U.S. 3,000,000 2,992,814
Federal Home Loan Bank, 5.41%, 7/17/97.... U.S. 985,000 982,640
Federal Home Loan Mortgage Corp., 5.40% to
5.46%, with maturities to 8/22/97....... U.S. 4,550,000 4,528,856
Federal National Mortgage Association,
5.41%, 8/7/97........................... U.S. 1,300,000 1,292,798
--------------
TOTAL SHORT TERM OBLIGATIONS (COST
$22,570,463)............................ 22,572,108
--------------
</TABLE>
41
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
MATURITY
ISSUE VALUE VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
+ REPURCHASE AGREEMENTS 8.1%
Swiss Bank Corp., 5.90%, Collateralized by
$6,877,000 U.S. Treasury Note, 9/30/01,
Value $6,980,155........................... U.S. $ 6,844,121 $ 6,843,000
UBS Securities Inc., 5.87% Collateralized by
$6,723,000 U.S. Treasury Note, 8/15/99,
Value $6,857,460........................... U.S. 6,724,096 6,723,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $13,566,000)................... 13,566,000
------------
TOTAL INVESTMENTS
(COST $166,725,099) 101.2%........ 168,454,230
OTHER ASSETS, LESS LIABILITIES (1.2%)....... (1,988,717)
------------
TOTAL NET ASSETS 100.0%..................... $166,465,513
============
</TABLE>
*Non-income producing.
**Principal amount in currency of country indicated.
+At June 30, 1997, all repurchase agreements held by the Fund had been entered
into on that date.
See Notes to Financial Statements.
42
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $21.08 $18.72 $15.69 $16.55 $13.49 $12.85
--------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Income from investment operations:
Net investment income................. .46 .63 .57 .44 .42 .39
Net realized and unrealized gain
(loss).............................. 2.61 2.76 2.87 (.92) 3.03 .66
--------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total from investment operations.......... 3.07 3.39 3.44 (.48) 3.45 1.05
--------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Distributions:
Dividends from net investment
income.............................. (.63) (.58) (.41) (.31) (.35) (.41)
Distributions from net realized
gains............................... (1.21) (.45) -- (.07) (.04) --
--------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total distributions....................... (1.84) (1.03) (.41) (.38) (.39) (.41)
--------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Change in net asset value................. 1.23 2.36 3.03 (.86) 3.06 .64
--------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Net asset value, end of period............ $22.31 $21.08 $18.72 $15.69 $16.55 $13.49
========= ========= ========= ========= ========= =========
TOTAL RETURN*............................. 15.32% 18.93% 22.48% (2.96)% 26.12% 8.42%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000)........... $692,979 $556,027 $406,123 $288,172 $183,360 $79,242
Ratio of expenses to average net assets... .68%** .64% .66% .75% .77% .80%
Ratio of net investment income to average
net assets.............................. 4.81%** 3.56% 3.73% 4.02% 4.16% 4.47%
Portfolio turnover rate................... 28.19% 57.50% 43.02% 51.36% 81.50% 120.53%
Average commission rate paid (per
share).................................. $.0130 $.0008
</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. Not annualized for periods of less than one year.
**Annualized.
43
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights (continued)
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1997+
THROUGH
JUNE 30, 1997
(UNAUDITED)
-------------
<S> <C>
Net asset value, beginning of period.......................... $20.29
---------
Income from investment operations:
Net investment income..................................... .07
Net realized and unrealized gain.......................... 1.94
---------
Total from investment operations.............................. 2.01
---------
Net asset value, end of period................................ $22.30
=========
TOTAL RETURN*................................................. 9.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............................... $2,242
Ratio of expenses to average net assets....................... 1.01%**
Ratio of net investment income to average net assets.......... 4.23%**
Portfolio turnover rate....................................... 28.19%
Average commission rate paid (per share)...................... $.0130
</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.
Not annualized for periods less than one year.
**Annualized.
+ Commencement of offering of sales.
See Notes to Financial Statements.
44
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 66.6%
APPLIANCES & HOUSEHOLD DURABLES 0.5%
Sony Corp. ............................... 42,000 $ 3,660,937
------------
AUTOMOBILES 2.9%
Fiat SpA.................................. 2,147,000 7,719,295
Ford Motor Co............................. 84,000 3,171,000
General Motors Corp....................... 40,000 2,227,500
Volvo AB, B............................... 260,000 6,957,533
------------
20,075,328
------------
BANKING 8.2%
Bangkok Bank Public Co. Ltd., fgn. ....... 157,800 1,084,285
Bankinter SA.............................. 39,625 6,991,856
Banque Nationale de Paris................. 130,000 5,357,769
Banque Nationale de Paris, ADR, 144A...... 5,400 222,553
Canadian Imperial Bank of Commerce........ 140,000 3,528,006
Citicorp.................................. 30,000 3,616,875
CS Holdings, br. ......................... 15,250 1,957,806
Den Norske Bank........................... 2,178,900 8,532,231
Foreningssparbanken AB, A, 144A........... 113,800 2,530,360
HSBC Holdings PLC......................... 282,200 8,487,163
Komercni Banka AS, GDR, 144A.............. 45,000 937,125
Merita Ltd., A............................ 2,250,000 7,366,039
National Australia Cap Sec PLC............ 159,874 4,466,480
NationsBank Corp. ........................ 30,000 1,935,000
------------
57,013,548
------------
BROADCASTING & PUBLISHING 0.4%
News Corp. Ltd., ADR...................... 160,000 3,080,000
------------
BUSINESS & PUBLIC SERVICES 0.5%
Waste Management Inc...................... 100,000 3,212,500
------------
CHEMICALS 2.8%
Akzo Nobel NV............................. 48,700 6,673,952
DSM NV.................................... 25,000 2,487,391
Rhone-Poulenc SA, A....................... 201,800 8,241,360
Solvay SA................................. 4,000 2,356,210
------------
19,758,913
------------
DATA PROCESSING & REPRODUCTION 2.2%
*Bay Networks Inc. ....................... 150,000 3,984,375
*NCR Corp. ............................... 7,562 224,970
*Newbridge Networks Corp. ................ 180,000 7,830,000
*Optical Data Systems Networks Inc. ...... 300,000 3,562,500
------------
15,601,845
------------
ELECTRICAL & ELECTRONICS 6.5%
Alcatel Alsthom SA........................ 92,119 11,537,016
*DSC Communications Corp. ................ 227,900 5,070,775
Hitachi Ltd. ............................. 80,000 893,465
Motorola Inc. ............................ 94,000 7,144,000
Philips Electronics NV.................... 287,100 20,564,603
------------
45,209,859
------------
</TABLE>
45
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 1.0%
BICC...................................... 570,000 $ 1,675,382
Intel Corp. .............................. 36,000 5,105,250
------------
6,780,632
------------
ENERGY SOURCES 0.6%
Total SA, B............................... 39,000 3,942,008
------------
FINANCIAL SERVICES 2.9%
American Express Co. ..................... 129,000 9,610,500
Federal National Mortgage Assn. .......... 80,000 3,490,000
Morgan Stanley Dean Witter Discover &
Co. ...................................... 149,366 6,432,073
Peregrine Investments Holdings Ltd. ...... 350,000 720,574
*Peregrine Investments Holdings Ltd.,
wts. ..................................... 35,000 15,360
------------
20,268,507
------------
FOOD & HOUSEHOLD PRODUCTS 0.6%
Burns Philp & Co. Ltd..................... 1,603,300 2,977,996
Unilever NV............................... 3,400 715,717
Unilever PLC.............................. 12,300 352,620
------------
4,046,333
------------
FOREST PRODUCTS & PAPER 1.6%
Assidomaen AB............................. 90,000 2,559,628
Carter Holt Harvey Ltd. .................. 293,020 758,320
Enso OY, R................................ 225,000 2,079,823
International Paper Co. .................. 50,000 2,428,125
Stora Kopparbergs Bergslags AB, B......... 225,000 3,664,921
------------
11,490,817
------------
HEALTH & PERSONAL CARE 0.4%
Aetna Inc................................. 16,700 1,709,663
Medeva PLC................................ 272,675 1,164,734
------------
2,874,397
------------
INDUSTRIAL COMPONENTS 1.6%
Goodyear Tire & Rubber Co................. 60,000 3,798,750
Madeco Manufacturera de Cobre SA, ADR..... 162,500 3,981,250
SKF AB, B................................. 117,500 3,037,942
------------
10,817,942
------------
INSURANCE 4.7%
Allstate Corp. ........................... 40,000 2,920,000
ING Groep NV.............................. 125,000 5,763,157
Skandia Foersaekrings AB, free............ 245,000 9,026,566
Torchmark Corp. .......................... 45,000 3,206,250
Zuerich Versicherung, new................. 29,900 11,894,488
------------
32,810,461
------------
MACHINERY & ENGINEERING 0.7%
*Gradall Industries Inc. ................. 314,000 5,024,000
------------
MERCHANDISING 2.4%
Dairy Farm International Holdings Ltd. ... 1,000,000 750,000
David Jones Ltd. ......................... 1,473,400 2,058,101
*Federated Department Stores Inc. ........ 200,000 6,950,000
Home Depot Inc. .......................... 65,000 4,480,938
Sears Roebuck & Co. ...................... 42,000 2,257,500
------------
16,496,539
------------
</TABLE>
46
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING 2.5%
British Steel PLC, ADR.................... 359,600 $ 9,079,900
Companhia Siderurgica Nacional............ 16,100,000 530,909
Reynolds Metals Co. ...................... 22,000 1,567,500
Vale do Rio Doce, ADR..................... 278,500 6,159,570
------------
17,337,879
------------
MULTI-INDUSTRY 2.9%
Alfa SA de CV, A.......................... 1,150,000 7,848,149
Cheung Kong Holdings Ltd. ................ 600,000 5,924,645
Hutchison Whampoa Ltd. ................... 444,000 3,839,789
Jardine Matheson Holdings Ltd. ........... 220,800 1,567,680
Jardine Strategic Holdings Ltd. .......... 168,750 637,875
------------
19,818,138
------------
REAL ESTATE 0.3%
New World Development Co. Ltd............. 303,543 1,810,139
------------
TELECOMMUNICATIONS 9.5%
AT&T Corp. ............................... 121,000 4,242,563
Cpt-Telefonica Del Peru SA, B, ADR........ 131,800 3,451,513
Lucent Technologies Inc. ................. 102,214 7,365,796
MCI Communications Corp. ................. 196,000 7,503,125
Nokia AB, A............................... 122,000 9,209,764
*Seat SpA................................. 477,000 152,638
*Seat SpA, di Risp........................ 1,200,000 247,429
STET (Sta Finanziaria Telefonica Torino)
SpA....................................... 477,000 2,779,085
STET (Sta Finanziaria Telefonica Torino)
SpA, di Risp.............................. 1,200,000 4,156,290
Telefonica de Argentina SA, ADR, B........ 315,000 10,906,875
Telefonica de Espana SA................... 260,000 7,516,797
Telefonos de Mexico SA, L, ADR............ 180,900 8,637,975
------------
66,169,850
------------
TEXTILES & APPAREL 1.0%
*Fruit of the Loom Inc., A................ 160,000 4,960,000
Nike Inc., B.............................. 40,000 2,335,000
------------
7,295,000
------------
TRANSPORTATION 5.5%
Air New Zealand Ltd., B................... 2,564,000 7,837,197
*Fritz Companies.......................... 350,000 3,390,625
Koninklijke Nedlloyd NV................... 50,000 1,444,292
Kvaerner Industrier AS, B................. 215,000 12,027,234
Qantas Airways Ltd., ADR, 144A............ 376,000 8,546,480
*Stena Line AB, B......................... 125,100 606,457
Unitor AS................................. 286,000 4,097,309
------------
37,949,594
------------
</TABLE>
47
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE SHARES VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 4.4%
British Gas PLC........................... 3,200,000 $ 11,777,049
*Centrica PLC............................. 3,200,000 3,903,479
*CEZ...................................... 7,580 209,205
Endesa-Empresa Nacional de Electricidad
SA........................................ 30,500 2,560,468
Endesa-Empresa Nacional de Electricidad
SA, ADR................................... 22,000 1,871,375
Iberdrola SA.............................. 85,000 1,072,956
*Kohinoor Energy Ltd. .................... 1,467,000 435,532
Korea Electric Power Corp. ............... 196,000 5,849,099
Pinnacle West Capital Corp. .............. 40,000 1,202,500
VEBA AG................................... 35,000 1,976,891
------------
30,858,554
------------
TOTAL COMMON STOCKS (COST
$315,722,050)............................. 463,403,720
------------
PREFERRED STOCKS 4.1%
Banco Bradesco SA, pfd. .................. 767,000,000 7,730,203
Cemig-Cia Energetica de Minas Gerais,
pfd. ..................................... 12,676,000 653,490
News Corp. Ltd., pfd. .................... 850,000 3,350,146
News Corp. Ltd., pfd., ADR................ 80,000 1,250,000
Santander Finance Ltd., B, pfd............ ....... 91,500 2,264,625
Telebras-Telecomunicacoes Brasileiras SA,
pfd. ..................................... 40,981,336 6,216,388
Telebras-Telecomunicacoes Brasileiras
SA, pfd., ADR............................. 45,600 6,919,800
------------
TOTAL PREFERRED STOCKS (COST
$14,221,267).............................. 28,384,652
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
----------------
<S> <C> <C> <C> <C>
BONDS 22.8%
Brazil C-Bond, 8.0%, 4/15/14.............. Br. 3,765,384 3,056,563
Brazil Govt., 8.875, 11/05/2001........... Br. 2,675,000 2,765,281
Buoni Poliennali Del Tes:
12.00%, 1/17/99........................... Itl. 2,035,000,000 1,290,765
10.00%, 8/1/03............................ Itl. 7,105,000,000 4,879,096
7.75%, 11/1/06............................ Itl. 2,690,000,000 1,678,678
Canada Government:
10.50%, 07/01/00.......................... Can. 3,654,000 3,021,245
10.00%, 5/1/02............................ Can. 8,145,000 6,933,604
Essar Gujarat Ltd., 8.337%, FRN, 7/15/99,
144A...................................... U.S. 2,121,000 2,067,975
Federal Republic Germany, Bundesobl 110,
5.375%, 2/22/99......................... Ger. 990,000 585,292
Federal Republic of Germany, Unity, 8.75%,
8/20/01................................... Ger. 5,235,000 3,488,799
Government of Australia, 10.00%,
10/15/02.................................. Aus. 7,395,000 6,446,183
Government of Brazil, 10.125%, 5/15/27.... Br. 1,820,000 1,754,025
Government of Canada, 10.50%, 3/1/01...... Can. 3,648,000 3,071,592
Government of Denmark, 8.00%, 5/15/03..... Den. 12,850,000 2,190,339
Government of Germany, 5.25%, 2/21/01..... Ger. 13,585,000 8,066,556
Government of Italy:
10.50%, 4/15/98........................... Itl. 4,290,000,000 2,589,803
10.50%, 7/15/00........................... Itl. 5,260,000,000 3,454,873
Government of Spain, 12.25%, 3/25/00...... Sp. 673,410,000 5,379,968
Kingdom of Denmark, 9.00%, 11/15/00....... Den. 24,415,000 4,184,809
Kingdom of Sweden, 10.25%, 5/5/03......... Swe. 10,200,000 1,589,936
</TABLE>
48
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
PRINCIPAL IN
ISSUE LOCAL CURRENCY** VALUE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS (CONT.)
Republic of Argentina:
10.95%, 11/01/99.......................... U.S. 1,025,000 $ 1,113,406
8.75%, 5/9/02............................. U.S. 5,415,000 5,417,708
11.375%, 1/30/17.......................... U.S. 400,000 446,000
5.25%, L, VRN, 3/31/23.................... U.S. 500,000 346,875
Republic of Venezuela:
9.125%, 6/18/07, 144A..................... U.S. 1,540,000 1,545,775
6.75%, A, 3/31/20......................... Ven. 1,800,000 1,417,500
Spain Govt., 10.10%, 2/28/01.............. Sp. 372,000,000 2,917,794
Sweden Kingdom:
13.00%, 6/15/01........................... Swe. 7,000,000 1,140,904
8.00%, 8/15/07............................ Swe. 10,700,000 1,519,917
U.S. Treasury Bond, 6.375%, 8/15/02....... U.S. 10,915,000 10,911,595
U.S. Treasury Note:
6.125%, 7/31/00........................... U.S. 16,760,000 16,712,871
6.25%, 8/31/00............................ U.S. 21,850,000 21,843,183
6.625%, 4/30/02........................... U.S. 1,485,000 1,498,923
7.25%, 8/15/04............................ U.S. 7,156,000 7,462,370
United Kingdom:
10.00%, 2/26/01........................... U.K. 2,870,000 5,197,630
7.00%, 11/06/01........................... U.K. 1,125,000 1,866,444
United Mexican States:
9.75%, 2/6/01............................. U.S. 2,250,000 2,379,938
11.375%, 9/15/16.......................... U.S. 800,000 900,000
6.25%, A, 12/31/19........................ U.S. 6,800,000 5,261,500
------------
TOTAL BONDS (COST $159,389,879)........... 158,395,715
------------
SHORT TERM OBLIGATIONS 6.3%
Deutsche Bank AG, 6.00%, 7/1/97........... U.S. 29,297,000 29,297,000
Federal Home Loan Mortgage Corp., 5.42%
to 5.75% with maturities to 7/15/97....... U.S. 10,541,000 10,526,160
U.S. Treasury Bills, 4.50% to 5.18% with
maturities to 7/24/97................... U.S. 3,711,000 3,709,405
------------
TOTAL SHORT TERM OBLIGATIONS
(COST $43,530,578)........................ 43,532,565
------------
TOTAL INVESTMENTS (COST
$532,863,774) 99.8%...................... 693,716,652
NET EQUITY IN FORWARD
CONTRACTS 0.0%................. 327,492
OTHER ASSETS, LESS
LIABILITIES 0.2%............... 1,176,807
------------
TOTAL NET ASSETS 100.0%.................. $695,220,951
============
</TABLE>
*Non-income producing.
**Principal amount in currency of country indicated.
See Notes to Financial Statements.
49
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $585,104,915) $784,097,223
Receivables:
Fund shares sold 399,259
Dividends and interest 2,893,562
------------
Total assets 787,390,044
------------
Liabilities:
Payables:
Investment securities purchased 15,445,779
Accrued expenses 861,733
------------
Total liabilities 16,307,512
------------
Net assets, at value $771,082,532
============
Net assets consist of:
Undistributed net investment income $ 11,953,763
Net unrealized appreciation 198,992,308
Accumulated net realized gain 43,657,579
Net capital paid in on shares of
beneficial interest 516,478,882
------------
Net assets, at value $771,082,532
============
Class 1
Shares outstanding 32,273,292
============
Net asset value per share
($767,571,347 divided by 32,273,292) $ 23.78
============
Class 2
Shares outstanding 147,672
============
Net asset value per share ($3,511,185
divided by 147,672) $ 23.78
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of $1,247,612 foreign
taxes withheld)
Dividends $13,084,380
Interest 1,165,111
-----------
Total Income $14,249,491
Expenses:
Management fees (Note 3) 1,886,307
Administrative fees (Note 3) 349,499
Distribution fees (Note 3)
Class 2 707
Custodian fees 179,000
Reports to shareholders 59,621
Audit fees 14,200
Legal fees (Note 3) 2,500
Trustees' fees and expenses 12,750
Other 450
-----------
Total expenses 2,505,034
-----------
Net investment income 11,744,457
Realized and unrealized gain
(loss):
Net realized gain (loss) on:
Investments 44,240,073
Foreign currency transactions (302,161)
-----------
43,937,912
Net unrealized appreciation on
investments 41,683,362
-----------
Net realized and unrealized gain 85,621,274
-----------
Net increase in net assets
resulting
from operations $97,365,731
===========
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income........................................................ $ 11,744,457 $ 11,586,443
Net realized gain on investment and foreign currency transactions............ 43,937,912 53,364,032
Net unrealized appreciation.................................................. 41,683,362 50,486,029
---------------- -----------------
Net increase in net assets resulting from operations...................... 97,365,731 115,436,504
---------------- -----------------
Distributions to shareholders:
From net investment income
Class 1..................................................................... (11,299,102) (9,701,533)
From net realized gain
Class 1..................................................................... (53,491,950) (44,505,784)
Fund share transactions (Note 2)
Class 1..................................................................... 90,765,995 84,359,449
Class 2..................................................................... 3,376,093 --
---------------- -----------------
Net increase in net assets................................................ 126,716,767 145,588,636
---------------- -----------------
Net assets:
Beginning of period........................................................... 644,365,765 498,777,129
---------------- -----------------
End of period................................................................. $771,082,532 $ 644,365,765
============== ===============
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $702,082,628) $887,250,517
Receivables:
Investment securities sold 251,762
Fund shares sold 2,403,796
Dividends and interest 5,061,746
------------
Total assets 894,967,821
------------
Liabilities:
Payables:
Investment securities purchased 4,321,282
Fund shares redeemed 49,780
Accrued expenses 815,433
------------
Total liabilities 5,186,495
------------
Net assets, at value $889,781,326
============
Net assets consists of:
Undistributed net investment income $ 13,233,540
Net unrealized appreciation 185,167,889
Accumulated net realized gain 28,596,689
Net capital paid in on shares of
beneficial interest 662,783,208
------------
Net assets, at value $889,781,326
============
Class 1
Shares outstanding 43,789,483
============
Net asset value per share
($887,113,422 divided by 43,789,483) $ 20.26
============
Class 2
Shares outstanding 131,767
============
Net asset value per share
($2,667,904 divided by 131,767) $ 20.25
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment income:
(net of $1,709,148 foreign
taxes withheld)
Dividends $17,270,360
Interest 1,946,826
-----------
Total Income $ 19,217,186
Expenses:
Management fees (Note 3) 2,067,816
Administrative fees (Note 3) 382,429
Distribution fees (Note 3)
Class 2 512
Custodian fees 220,000
Reports to shareholders 37,300
Audit fees 10,700
Registration and filing fees 527
Trustees' fees and expenses 14,500
Other 6,471
-----------
Total expenses 2,740,255
------------
Net investment income 16,476,931
Realized and unrealized gain
(loss):
Net realized gain (loss) on:
Investments 29,105,768
Foreign currency transactions (116,732)
-----------
28,989,036
Net unrealized appreciation on
investments 61,616,947
-----------
Net realized and unrealized
gain 90,605,983
------------
Net increase in net assets
resulting from operations $107,082,914
============
</TABLE>
See Notes to Financial Statements.
52
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income........................................................ $ 16,476,931 $ 16,824,712
Net realized gain on investment and foreign currency transactions............ 28,989,036 7,597,723
Net unrealized appreciation.................................................. 61,616,947 91,776,417
------------ ------------
Net increase in net assets resulting from operations...................... 107,082,914 116,198,852
------------ ------------
Distributions to shareholders:
From net investment income
Class 1..................................................................... (19,635,324) (6,297,332)
From net realized gain
Class 1..................................................................... (7,892,630) (1,836,722)
Fund share transactions (Note 2)
Class 1..................................................................... 124,684,333 221,778,404
Class 2..................................................................... 2,557,657 --
------------ ------------
Net increase in net assets................................................ 206,796,950 329,843,202
------------ ------------
Net assets:
Beginning of period........................................................... 682,984,376 353,141,174
------------ ------------
End of period................................................................. $889,781,326 $ 682,984,376
============ ============
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $166,725,099) $168,454,230
Receivables:
Investment securities sold 148,787
Fund shares sold 931,027
Dividends and interest 206,009
--------------
Total assets 169,740,053
--------------
Liabilities:
Payables:
Funds advanced by custodian 226,605
Investment securities purchased 2,666,799
Fund shares redeemed 15,017
Accrued expenses 366,119
--------------
Total liabilities 3,274,540
--------------
Net assets, at value $166,465,513
==============
Net assets consist of:
Undistributed net investment income $ 911,769
Net unrealized appreciation 1,729,131
Accumulated net realized gain 301,516
Net capital paid in on shares of
beneficial interest 163,523,097
--------------
Net assets, at value $166,465,513
==============
Class 1
Shares outstanding 16,480,207
==============
Net asset value per share
($163,375,408 divided by 16,480,207) $ 9.91
==============
Class 2
Shares outstanding 311,769
==============
Net asset value per share
($3,090,105 divided by 311,769) $ 9.91
==============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment income:
(net of $89,330 foreign taxes
withheld)
Dividends $1,300,314
Interest 589,864
------------
Total income $1,890,178
Expenses:
Management fees (Note 3) 712,110
Administrative fees (Note 3) 57,745
Distribution fees (Note 3)
Class 2 605
Custodian fees 165,153
Reports to shareholders 12,060
Audit fees 7,200
Legal fees (Note 3) 4,200
Registration and filing fees 500
Trustees' fees and expenses 1,500
Other 1,109
------------
Total expenses 962,182
------------
Net investment income 927,996
Realized and unrealized gain:
Net realized gain on:
Investments 185,183
Foreign currency transactions 174,647
------------
359,830
Net unrealized appreciation on
investments 3,120,640
------------
Net realized and unrealized gain 3,480,470
------------
Net increase in net assets
resulting from operations $4,408,466
============
</TABLE>
See Notes to Financial Statements.
54
4
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS MARCH 4, 1996
ENDED (COMMENCEMENT
JUNE 30, 1997 OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................................................ $ 927,996 $ 381,731
Net realized gain on investment and foreign currency transactions............ 359,830 240,154
Net unrealized appreciation (depreciation)................................... 3,120,640 (1,391,509)
------------ -----------
Net increase (decrease) in net assets resulting from operations........... 4,408,466 (769,624)
------------ -----------
Distributions to shareholders:
From net investment income
Class 1..................................................................... (397,958) --
From net realized gain
Class 1..................................................................... (298,468) --
Fund share transactions (Note 2)
Class 1..................................................................... 87,443,841 73,014,790
Class 2..................................................................... 3,064,466 --
------------ -----------
Net increase in net assets................................................ 94,220,347 72,245,166
------------ -----------
Net assets:
Beginning of period........................................................... 72,245,166 --
------------ -----------
End of period................................................................. $166,465,513 $72,245,166
============ ===========
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $532,863,774) $693,716,652
Cash 80,874
Receivables:
Investment securities sold 7,667,337
Fund shares sold 401,678
Dividends and interest 5,979,280
Unrealized gains on forward exchange
contracts (Note 5) 1,637,549
------------
Total assets 709,483,370
------------
Liabilities:
Payables:
Investment securities purchased 12,242,042
Fund shares redeemed 121,090
Unrealized loss on forward exchange
contracts (Note 5) 1,310,057
Accrued expenses 589,230
------------
Total liabilities 14,262,419
------------
Net assets, at value $695,220,951
============
Net assets consists of:
Undistributed net investment income $ 14,526,922
Net unrealized appreciation 161,144,412
Accumulated net realized gain 8,389,539
Net capital paid in on shares of
beneficial interest 511,160,078
------------
Net assets, at value $695,220,951
============
Class 1
Shares outstanding 31,065,978
============
Net asset value per share
($692,979,001 divided by 31,065,978) $ 22.31
============
Class 2
Shares outstanding 100,541
============
Net asset value per share
($2,241,950 divided by 100,541) $ 22.30
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment income:
(net of $866,664 foreign taxes
withheld)
Dividends $10,302,812
Interest 6,407,372
-----------
Total Income $16,710,184
Expenses:
Management fees (Note 3) 1,571,679
Administrative fees (Note 3) 313,368
Distribution fees (Note 3)
Class 2 421
Custodian fees 112,648
Reports to shareholders 49,000
Audit fees 19,500
Legal fees (Note 3) 4,000
Trustees' fees and expenses 11,500
Other 900
-----------
Total expenses 2,083,016
------------
Net investment income 14,627,168
Realized and unrealized gain:
Net realized gain on:
Investments 7,608,970
Foreign currency transactions 1,680,419
-----------
9,289,389
Net unrealized appreciation
(depreciation) on:
Investments 65,142,055
Foreign currency translation
of other assets and
liabilities (41,710)
-----------
65,100,345
Net realized and unrealized gain 74,389,734
------------
Net increase in net assets
resulting from operations $89,016,902
============
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income........................................................ $ 14,627,168 $ 16,999,366
Net realized gain on investment and foreign currency transactions............ 9,289,389 31,832,122
Net unrealized appreciation.................................................. 65,100,345 35,269,338
------------ ------------
Net increase in net assets resulting from operations...................... 89,016,902 84,100,826
------------ ------------
Distributions to shareholders:
From undistributed net investment income
Class 1..................................................................... (17,068,780) (12,811,622)
From net realized gain
Class 1..................................................................... (32,390,362) (10,050,497)
Fund share transactions (Note 2)
Class 1..................................................................... 97,461,868 88,665,489
Class 2..................................................................... 2,174,159 --
------------ ------------
Net increase in net assets................................................ 139,193,787 149,904,196
------------ ------------
Net assets:
Beginning of period........................................................... 556,027,164 406,122,968
------------ ------------
End of period................................................................. $695,220,951 $ 556,027,164
============ ============
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Stock Fund, Templeton International Fund, Templeton Developing Markets
Fund and Templeton Asset Allocation Fund (the Funds) are a separate diversified
series of Templeton Variable Products Series Fund (the Trust) which is an
open-end investment company registered under the Investment Company Act of 1940.
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. 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. Templeton
Developing Markets Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers in countries having developing
markets. 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 following summarizes the Funds' significant accounting
policies.
a. Securities Valuations:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the recorded amounts of
dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. Income Taxes:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute substantially all of its taxable income.
d. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Funds. Interest income and estimated expenses are accrued
daily. Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
58
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited)(continued)
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 expense during the reporting
period. Actual results could differ from those estimates.
f. Indexed Securities:
The Asset Allocation Fund may invest in debt instruments in which the principal
and/or interest is dependent on other factors such as yield curves, currency
exchange rates or commodity prices. The Fund's objective in holding these
securities, commonly called indexed securities or structured notes, is to tailor
the Fund's investments to the specific risk and returns it wishes to assume
while avoiding unwanted risk or change in the Fund's exposure to a particular
foreign exchange rate or the spread between two foreign exchange rates.
2. BENEFICIAL SHARES
Effective May 1, 1997, the Funds offer two classes of shares: Class 1 and Class
2. Outstanding shares before that date were designated as Class 1 shares. The
shares have the same rights except for their initial sales load, distribution
fees, voting rights on matters affecting a single class and the exchange
privilege of each class.
At June 30, 1997, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
TEMPLETON STOCK FUND - CLASS 1
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 2,499,312 $ 56,102,190 4,324,078 $ 89,638,950
Shares issued on reinvestment of distributions..................... 2,970,704 64,791,053 2,791,314 54,207,317
Shares redeemed.................................................... (1,359,232) (30,127,248) (2,892,776) (59,486,818)
---------- ------------ ---------- ------------
Net increase....................................................... 4,110,784 $ 90,765,995 4,222,616 $ 84,359,449
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON STOCK
FUND - CLASS 2
--------------------------
FOR THE PERIOD
MAY 1, 1997 THROUGH
JUNE 30, 1997
--------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 149,133 $3,409,140
Shares redeemed.................................................... (1,461) (33,047)
---------- ------------
Net increase....................................................... 147,672 $3,376,093
========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL FUND - CLASS 1
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 7,201,931 $135,201,804 15,869,480 $256,826,546
Shares issued on reinvestment of distributions..................... 1,502,618 27,527,954 524,440 8,134,054
Shares redeemed.................................................... (2,027,297) (38,045,425) (2,621,355) (43,182,196)
---------- ------------ ---------- ------------
Net increase....................................................... 6,677,252 $124,684,333 13,772,565 $221,778,404
========== ============ ========== ============
</TABLE>
59
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited)(continued)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL
FUND - CLASS 2
--------------------------
FOR THE PERIOD
MAY 1, 1997 THROUGH
JUNE 30, 1997
--------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 131,923 $2,560,678
Shares redeemed.................................................... (156) (3,021)
---------- ------------
Net increase....................................................... 131,767 $2,557,657
========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS FUND - CLASS 1
-------------------------------------------------------------
FOR THE PERIOD
SIX MONTHS ENDED MARCH 4, 1996 THROUGH
JUNE 30, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 8,948,411 $88,700,666 7,686,505 $73,253,158
Shares issued on reinvestment of distributions..................... 66,964 696,425 -- --
Shares redeemed.................................................... (196,031) (1,953,250) (25,642) (238,368)
---------- ------------ ---------- ------------
Net increase....................................................... 8,819,344 $87,443,841 7,660,863 $73,014,790
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
MARKETS FUND - CLASS 2
--------------------------
FOR THE PERIOD
MAY 1, 1997 THROUGH
JUNE 30, 1997
--------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 323,834 $3,182,045
Shares redeemed.................................................... (12,065) (117,579)
---------- ------------
Net increase....................................................... 311,769 $3,064,466
========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION FUND - CLASS 1
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 2,871,422 $60,381,235 5,028,891 $96,250,257
Shares issued on reinvestment of distributions..................... 2,407,943 49,459,143 1,240,484 22,862,120
Shares redeemed.................................................... (591,253) (12,378,510) (1,580,553) (30,446,888)
---------- ------------ ---------- ------------
Net increase....................................................... 4,688,112 $97,461,868 4,688,822 $88,665,489
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET
ALLOCATION FUND - CLASS 2
--------------------------
FOR THE PERIOD MAY 1, 1997
THROUGH
JUNE 30, 1997
--------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C> <C> <C>
Shares sold........................................................ 102,268 $2,211,427
Shares redeemed.................................................... (1,727) (37,268)
---------- ------------
Net increase....................................................... 100,541 $2,174,159
========== ============
</TABLE>
60
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited)(continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Funds are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), the investment manager for all of the funds
except Templeton Developing Markets Fund and Templeton Asset Management Ltd.
(TAML), the investment manager for Templeton Developing Markets Fund. In
addition, certain officers of the Funds are also officers or directors of
Templeton Funds Annuity Company (TFAC) and Franklin Templeton Distributors Inc.
(FTD), the funds' administrative manager and principal underwriter,
respectively.
Effective May 1, 1997, Templeton Stock and International Funds each pay a
monthly investment management fee, equal on an annual basis, to 0.75% of their
average daily net assets up to $200 million, 0.675% of such net assets from $200
million up to $1.3 billion, and 0.60% of such net assets in excess of $1.3
billion and Templeton Asset Allocation Fund pays a monthly investment management
fee, equal on an annual basis, to 0.65% of its average daily net assets up to
$200 million, 0.585% of such net assets from $200 million up to $1.3 billion,
and 0.52% of such net assets in excess of $1.3 billion. Prior to May 1, 1997,
Templeton Stock, International and Asset Allocation Funds each paid a monthly
investment management fee, equal on an annual basis, to 0.50% of its average
daily net assets up to $200 million, 0.45% of such net assets from $200 million
up to $1.3 billion, and 0.40% of such net assets in excess of $1.3 billion.
Templeton Developing Markets Fund pays a monthly investment management fee,
equal on an annual basis to 1.25% of its average daily net assets during the
year. Each Fund pays its allocated share of an administrative fee to TFAC
equivalent on an annual basis to 0.15% of the combined average daily net assets
of the Funds, reduced to 0.135% of such net assets in excess of $200 million,
0.10% of such net assets in excess of $700 million and 0.075% of such net assets
in excess of $1.2 billion.
During the period ended June 30, 1997, legal fees of $12,200 were paid to a law
firm in which an officer of the Funds is a partner.
The Funds reimburse FTD up to 0.25% per year of their average daily net assets
of Class 2 shares, for costs incurred in marketing the Funds' shares.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1997, were as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
TEMPLETON DEVELOPING ASSET
TEMPLETON INTERNATIONAL MARKETS ALLOCATION
STOCK FUND FUND FUND FUND
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Purchases...................................................... $ 108,745,087 $ 200,944,769 $ 73,346,167 $ 228,014,566
============ ============ =========== ============
Sales.......................................................... $ 99,871,220 $ 86,648,432 $ 4,515,265 $ 162,230,786
============ ============ =========== ============
</TABLE>
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Templeton International and Asset Allocation Funds have been parties to
financial instruments with off-balance sheet risks, primarily forward exchange
contracts, in order to minimize the impact on the Funds from adverse changes in
the relationship between the US Dollar and foreign currencies and interest
rates. These instruments involve market risks in excess of the amount recognized
on the Statements of Assets and Liabilities. Some of these risks have been
minimized by offsetting contracts. Risks arise from the possible inability of
counterparties to meet the terms of their contracts, future movement in currency
values and interest rates and contract positions that are not exact offsets. The
contract amount indicates the extent of the Funds' involvement in such
contracts.
The Funds may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statements of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
61
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited)(continued)
As of June 30, 1997, Templeton Asset Allocation Fund had the following forward
foreign exchange contracts outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY: EXCHANGE FOR DATE GAIN/(LOSS)
- ---------------------------------------------------------------------------- ------------ ---------- -----------
<C> <S> <C> <C> <C> <C> <C>
1,251,000 Great British pound............................................ U.S. $ 2,029,757 8/12/97 U.S. $ 51,793
=========== -----------
CONTRACTS TO SELL:
- ----------------------------------------------------------------------------
40,635,000 German mark.................................................... U.S. $24,107,862 7/14/97 936,168
34,300,000 German mark.................................................... 20,105,948 9/15/97 325,056
----------- -----------
U.S. $44,213,810 1,261,224
===========
Net unrealized gain on offsetting forward exchange contracts... 324,532
-----------
Unrealized gain on forward exchange contracts.................. 1,637,549
-----------
CONTRACTS TO BUY:
- ----------------------------------------------------------------------------
34,860,000 German mark.................................................... U.S. $20,506,040 7/14/97 (494,513)
938,700 Great British pound............................................ 1,562,185 8/12/97 (1,022)
----------- -----------
U.S. $22,068,225 (495,535)
=========== -----------
CONTRACTS TO SELL:
- ----------------------------------------------------------------------------
3,129,000 Great British pound............................................ U.S. $ 5,029,555 8/12/97 (174,321)
2,100,000 Australian dollar.............................................. 1,582,831 9/26/97 (4,491)
----------- -----------
U.S. $ 6,612,386 (178,812)
=========== -----------
Net unrealized loss on offsetting forward exchange contracts... (635,710)
Unrealized loss on forward exchange contracts.................. (1,310,057)
-----------
Net unrealized gain on forward exchange contracts.............. U.S. $ 327,492
===========
</TABLE>
6. INCOME TAXES
The cost of securities for federal income tax purposes is the same as that shown
in the investment portfolios. At June 30, 1997, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
TEMPLETON DEVELOPING ASSET
TEMPLETON INTERNATIONAL MARKETS ALLOCATION
STOCK FUND FUND FUND FUND
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Unrealized appreciation...................................... 220,739,001 199,971,382 15,459,249 174,227,722
Unrealized depreciation...................................... (21,746,693) (14,803,493) (13,730,118) (13,374,844)
------------ ------------ ----------- ------------
Net unrealized appreciation.................................. $ 198,992,308 $ 185,167,889 $ 1,729,131 $ 160,852,878
============ ============ =========== ============
</TABLE>
62
<PAGE>
This intentionally left blank.
<PAGE>
This intentionally left blank.
<PAGE>
[FRANKLIN TEMPLETON LOGO]
700 Central Avenue
St. Petersburg, Florida 33701-3628
TEMPLETON VARIABLE PRODUCTS SERIES FUND
INVESTMENT MANAGERS
Templeton Investment Counsel, Inc. ("TICI")
Templeton Asset Management Ltd., Singapore
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
Templeton Variable Products Series Fund Shares are currently sold only to
Insurance Company Separate Accounts ("Separate Accounts") to serve as the
investment vehicles for both Variable Annuity and Variable Life Insurance
contracts (the "Contracts"). This report must be preceded or accompanied by the
current prospectus for the applicable contract, which includes the Separate
Account and the Templeton Variable Product Series Fund prospectuses, which
contain more detailed information, including sales charges, risks and
advantages. Please read the prospectuses carefully before investing or sending
money. These reports and prospectuses do not constitute an offering in any
jurisdiction in which such offering may not lawfully be made.
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.
[RECYCLE LOGO] Printed on recycled paper
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