Semi Annual
Report
JUNE 30, 1997
[TEMPLETON LOGO]
TEMPLETON
INVESTMENT
PLUS
- - TEMPLETON VARIABLE PRODUCTS SERIES FUND
[TEMPLETON LOGO]
FRANKLIN TEMPLETON
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Letter to Contract Owners ...................................... 1
Fund Reports
Templeton Stock Fund ....................... ................. 3
Templeton International Fund ................................. 6
Templeton Developing Markets Fund ............................ 10
Templeton Asset Allocation Fund .............................. 14
Templeton Bond Fund .......................................... 18
Templeton Money Market Fund .................................. 22
A Word About Risk .............................................. 24
</TABLE>
Templeton Investment Plus (TIP) is an individual deferred variable annuity
contract issued by the Phoenix Home Life Mutual Insurance Company. On the
following pages, you will find a report on each of the portfolios available
within TIP.
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 1 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.
<PAGE>
LETTER TO CONTRACT OWNERS [SEAL]
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.
<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/ Chuck Johnson
- -----------------
Charles E. Johnson
President
Templeton Variable Products Series Fund
2
<PAGE>
TEMPLETON STOCK FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
[PIE CHART APPEARS HERE]
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%
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 1 shares delivered a total return
of 14.73% for the six months ended June 30, 1997, as discussed in the
Performance Summary on page 5. 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.
3
<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
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
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%
For a complete list of portfolio holdings, please see page 27 of this report.
4
<PAGE>
PERFORMANCE SUMMARY
CLASS 1
Templeton Stock Fund - Class 1 delivered a total return of 14.73% for the
six-month period ended June 30, 1997. Total return of Class 1 shares represents
the cumulative or average annual change in value, assuming reinvestment of
dividends and capital gains. Average returns smooth out variations in returns,
which can be significant; they are not the same as year-by-year results. 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 1 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 STOCK FUND - CLASS 1
PERIODS ENDED 6/30/97
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (8/24/88)
- --------------------------------------------------------------------------------
<S> <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
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
- --------------------------------------------------------------------------------
One-Year Total Return 13.95% 15.27% 15.07% 21.32% 27.06%
</TABLE>
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.
5
<PAGE>
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>
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 1 shares produced a total return
of 14.41% for the six months ended June 30, 1997, as discussed in the
Performance Summary on page 9, 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.
6
<PAGE>
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
TEMPLETON
INTERNATIONAL FUND
Top 10 Holdings on 6/30/97
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -------------------------------------------------------------------
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%
For a complete list of portfolio holdings, please see page 33 of this report.
(4) Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.
7
<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
8
<PAGE>
PERFORMANCE SUMMARY
CLASS 1
Templeton International Fund - Class 1 delivered a total return of 14.41% for
the six-month period ended June 30, 1997. Total return of Class 1 shares
represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results. 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 1 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 INTERNATIONAL FUND - CLASS 1
Periods ended 6/30/97
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (5/1/92)
- --------------------------------------------------------------------------------
<S> <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
6/30/95 6/30/96 6/30/97
- --------------------------------------------------------------------------------
One-Year Total Return 11.42% 18.83% 27.97%
</TABLE>
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.
9
<PAGE>
TEMPLETON DEVELOPING
MARKETS FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
[PIE CHART APPEARS HERE]
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 1 shares produced a
six-month total return of 5.80%, as discussed in the Performance Summary on page
13. 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
10
<PAGE>
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
TEMPLETON DEVELOPING
MARKETS FUND
Top 10 Holdings on 6/30/97
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
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%
For a complete list of portfolio holdings, please see page 39 of this report.
11
<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/ 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
% OF TOTAL
COUNTRY NET ASSETS
- --------------------------------------------------------------------
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%
*Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1997.
12
<PAGE>
PERFORMANCE SUMMARY
CLASS 1
Templeton Developing Markets Fund - Class 1 delivered a total return of 5.80%
for the six-month period ended June 30, 1997. Total return of Class 1 shares
represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results. 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 1 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 1
PERIODS ENDED 6/30/97
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (3/4/96)
- --------------------------------------------------------------------------------
<S> <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
</TABLE>
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.
13
<PAGE>
TEMPLETON ASSET ALLOCATION FUND
Asset Distribution on 6/30/97
Based on Total Net Assets
<TABLE>
<S> <C>
Stocks 70.7%
Bonds 22.8%
Short-Term Obligations & Other Net Assets 6.5%
</TABLE>
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 1 shares provided a total return
of 15.32% for the six-month period ended June 30, 1997, as discussed in the
Performance Summary on page 17. 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.
14
<PAGE>
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.
TEMPLETON ASSET ALLOCATION FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
<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>
15
<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 50 of this report.
16
<PAGE>
PERFORMANCE SUMMARY
CLASS 1
Templeton Asset Allocation Fund - Class 1 delivered a total return of 15.32% for
the six-month period ended June 30, 1997. Total return of Class 1 shares
represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results. 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 1 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 ASSET ALLOCATION FUND - CLASS 1
PERIODS ENDED 6/30/97
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (8/24/88)
- --------------------------------------------------------------------------------
<S> <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
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
- --------------------------------------------------------------------------------
One-Year Total Return 11.56% 8.70% 13.90% 18.46% 26.67%
</TABLE>
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.
17
<PAGE>
TEMPLETON BOND FUND
Geographic Distribution on 6/30/97
Based on Total Net Assets
[PIE CHART GRAPH APPEARS HERE]
North America 35.1%
Europe 34.3%
Latin America 16.3%
Australia/New Zealand 4.0%
Asia and Short-Term
Obligations &
Other Net Assets 10.3%
TEMPLETON BOND FUND
Investment Objective: The Templeton Bond Fund seeks high current income. The
Fund seeks to achieve its objective through a flexible policy of investing
primarily in debt securities of companies, governments and government agencies
of various nations throughout the world.
During the six months under review, global fixed-income markets were volatile
and not particularly favorable for U.S. dollar-based bond investors. In our
opinion, the origin of this volatility was the rapidly expanding U.S. economy.
As evidenced by strong economic growth in the fourth quarter of 1996, the U.S.
appeared to have entered a short-term boom. With unemployment standing at 5.3%
on December 31, 1996, many investors were concerned about the possibility of
higher wages and rising interest rates, and by the middle of February, they
began to sell bonds. The economy strengthened during the first quarter of 1997,
and on March 25th, the Federal Reserve Board (the Fed) raised the federal funds
rate from 5.25% to 5.50%. By April 14th, the 10-year U.S. Treasury bond, which
had been yielding 6.28% on February 18th, was yielding 6.98%.F
Foreign interest rates are strongly influenced by movements in U.S. rates, and
the 10-year German government bond's yield climbed from 5.47% on February 18th,
to 6.03% on April 3rd. Another effect of higher U.S. rates was a surge in the
value of the U.S. dollar. Nearly every major foreign currency depreciated in
dollar-terms, with the appreciation of the U.S. dollar most pronounced against
European currencies, particularly the German mark.
In May and June, reports of decreased consumer spending indicated that the U.S.
economy had slowed down. The Fed left monetary policy unchanged throughout the
remainder of the period, and bond markets began to recover as U.S. and European
interest rates fell.
18
<PAGE>
Responding to these conditions, we attempted to reduce the Fund's sensitivity to
interest rate changes by shortening the average maturity of our holdings. At the
beginning of the reporting period, the average maturity was 5.0 years, and by
June 30, 1997, it was 3.8 years. We also sought to decrease the Fund's exposure
to depreciating currencies by the greater use of foreign currency hedges. As a
result, our net exposure to the U.S. dollar increased from 46.1% of total net
assets on December 31, 1996, to 73.3% by the end of the reporting period.
On June 30, 1997, 90.3% of the Fund's portfolio was invested in bonds and 9.7%
in short-term obligations and other net assets. The portfolio consisted
primarily of investment-grade securities, as rated by one of the nationally
recognized rating services, or of non-rated securities we judged to be
equivalent in quality. At the end of the period, 76.4% of the portfolio's debt
securities were graded AA or higher, 4.2% were A or BBB, 15.2% were below
investment grade, and 4.2% were not rated. The lower-rated bonds represented
obligations of Argentina, Brazil, Mexico, and Venezuela.
Looking forward, we believe that robust worldwide economic activity poses risks
for global bond investors. It is difficult to find a country where economic
growth is not increasing. Although this could result in higher interest rates
during the remainder of 1997, inflation may remain under control, which could
keep these hikes to a minimum.
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.
TEMPLETON BOND FUND
PORTFOLIO BREAKDOWN ON 6/30/97
<TABLE>
<CAPTION>
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
GOVERNMENT BONDS 82.2%
CORPORATE BONDS 8.1%
SHORT-TERM OBLIGATIONS
AND OTHER NET ASSETS 9.7%
</TABLE>
For a complete list of portfolio holdings, please see page 57 of this report.
19
<PAGE>
It is important to remember that the Fund may invest in lower-rated "junk
bonds," which have higher credit risks. 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 Bond Fund, and welcome any comments
or suggestions you may have.
Sincerely,
/s/ Thomas Latta
Thomas Latta
Portfolio Manager
Templeton Bond Fund
20
<PAGE>
PERFORMANCE SUMMARY
Templeton Bond Fund - Class 1 delivered a total return of 0.38% for the
six-month period ended June 30, 1997. Total return represents the cumulative or
average annual change in value, assuming reinvestment of dividends and capital
gains. Average returns smooth out variations in returns which can be
significant; they are not the same as year-by-year results. 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 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 BOND FUND
PERIODS ENDED 6/30/97
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (8/24/88)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Annual Total Return 8.29% 6.75% 7.58%
Cumulative Total Return 8.29% 38.61% 90.90%
</TABLE>
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.
21
<PAGE>
TEMPLETON MONEY MARKET FUND
Investment Objective: The Templeton Money Market Fund seeks current income,
stability of principal, and liquidity by investing in money market instruments
with maturities not exceeding 397 days. The Fund may invest in short-term U.S.
government securities, certificates of deposit, time deposits, bankers'
acceptances, commercial paper and repurchase agreements.*
On June 30, 1997, the Fund's 7-day annualized yield was 4.97%, the 30-day
annualized yield was 5.32%, and the average maturity of the portfolio was 17.27
days. Government agency paper represented 56.9% of the portfolio, 38.6% was
invested in repurchase agreements collateralized by U.S. Treasury notes, and
4.5% was in short-term obligations and other assets.
U.S. money markets experienced some volatility during the six months under
review. Despite the fact that short-term interest rates ended the period close
to where they began, they rose during most of the reporting period. In our view,
the origin of this volatility was the rapidly expanding U.S. economy. Strong
economic growth and relatively low unemployment at the end of 1996 contributed
to investor concerns about the possibility of higher interest rates. In fact,
the economy did strengthen during the first part of 1997, and the Federal
Reserve Board (the Fed) increased the federal funds rate from 5.25% to 5.50% on
March 25th. Shortly thereafter, however, the economy showed signs of slowing,
and since inflation apparently remained in check, the Federal Open Market
Committee left monetary policy unchanged throughout the remainder of the period.
We believe that the Fed may tighten monetary policy to some degree before the
end of 1997 if it perceives evidence of excessive economic growth. Anticipating
future interest-rate hikes, we intend to keep the Fund's portfolio in
diversified and highly liquid investments with a relatively short average
maturity.
*Please remember that an investment in the Fund is neither insured nor
guaranteed by the U.S. Government. The portfolio attempts to maintain a stable
net asset value of $1.00 per share, but there can be no assurance that it will.
22
<PAGE>
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 Money Market Fund, and welcome any
comments or suggestions you may have.
Sincerely,
/s/ Thomas Latta
Thomas Latta
Portfolio Manager
Templeton Money Market Fund
23
<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.
24
<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.
25
<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.
26
<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>
27
<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>
28
<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>
29
<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.
30
<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.
31
<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.
32
<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>
33
<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>
34
<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>
35
<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
Teleras-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.
36
<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.
37
<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.
38
<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>
39
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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
SPT Telecom AS............................. 5,610 588,195
------------
2,388,795
------------
GHANA 1.1%
Ashanti Goldfields Co. Ltd., GDR........... 150,378 1,757,543
------------
GREECE 1.2%
Delta Dairy SA............................. 22,700 280,951
Elais Oleaginous Co........................ 2,800 81,439
Ergo Bank SA............................... 5,533 332,330
Hellas Can - Container Manufacturers....... 14,000 258,636
Hellenic Telecommunications
Organizations.............................. 16,700 392,104
Hellenic Telecommunications Organizations,
144A....................................... 15,000 352,190
* Hellenic Telecommunications Organizations,
rts........................................ 31,700 3,895
* National Bank of Greece SA................. 1,100 134,542
Titan Cement Co., reg...................... 2,000 98,649
------------
1,934,736
------------
HONG KONG 3.5%
Cross Harbour Tunnel Co. Ltd............... 115,000 245,666
Dairy Farm International Holdings Ltd...... 212,167 159,125
Golden Resources Development International
Ltd........................................ 1,004,000 112,746
Hang Lung Development Co. Ltd.............. 720,000 1,319,686
HongKong Electric Holdings Ltd............. 237,000 954,449
Hongkong & Shanghai Hotels Ltd............. 225,500 359,470
Hopewell Holdings Ltd...................... 396,000 250,461
IMC Holdings Ltd........................... 32,000 14,663
Jardine Matheson Holdings Ltd.............. 10,251 72,782
Joyce Boutique Holdings Ltd................ 1,080,000 168,678
Lai Sun Garment International Ltd.......... 66,000 80,931
Laws International Holdings Ltd............ 686,000 175,323
Orient Overseas International Ltd.......... 165,000 117,138
Semi-Tech (Global) Co. Ltd................. 57,069 93,184
Swire Pacific Ltd., A...................... 47,000 423,147
Swire Pacific Ltd., B...................... 585,000 887,245
Tingyi (Cayman Islands) Holding Corp....... 334,000 83,206
Wheelock & Co. Ltd......................... 83,000 204,090
------------
5,721,990
------------
HUNGARY 0.7%
* Borsodchem RT.............................. 2,089 83,609
* Borsodchem RT, GDR, 144A................... 4,000 157,500
Mol Magyar Olay - Es Gazipari RT........... 3,242 71,846
Tiszai Vegyi Kombinat RT................... 23,564 411,472
Tiszai Vegyi Kombinat RT, GDR, S........... 8,000 138,600
Tiszai Vegyi Kombinat RT, GDR, 144A........ 21,000 363,825
------------
1,226,852
------------
INDIA 1.8%
* Arvind Mills Ltd........................... 79,850 289,958
* Bombay Dyeing & Manufacturing Co. Ltd...... 21,900 59,032
Cochin Refineries Ltd...................... 18,150 77,568
Grasim Industries Ltd. Ord. INR10.......... 5,000 52,165
Great Eastern Shipping Co. Ltd............. 90,900 124,416
Gujarat Ambuja Cements Ltd................. 21,300 206,158
* Gujarat Industries Power Ltd............... 9,100 7,244
Gujarat Narmanda Valley Fertilizers Co.
Ltd., ADR.................................. 9,000 22,500
Hindustan Organic Chemicals Ltd............ 3,000 2,095
</TABLE>
40
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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
India Cements Ltd., GDR.................... 109,590 328,770
Indian Aluminium Co. Ltd................... 22,500 83,747
Indian Petrochemicals Corp. Ltd............ 61,000 247,067
Indian Rayon & Industries Ltd., GDR........ 19,113 239,390
Indian Rayon and Industries Ltd............ 750 7,751
Indo Gulf Fertilisers & Chemicals Corp.
Ltd........................................ 1,800 1,735
Indo Gulf Fertilisers & Chemicals, GDR..... 7,150 7,686
Industrial Credit & Inv. Corp. of India
(ICICI).................................... 36,600 79,999
* Industrial Development Bank of India....... 38,900 111,104
Larsen and Toubro Ltd...................... 40,000 272,626
Madras Cements............................. 90 20,300
* National Aluminium Co. Ltd................. 102,900 130,781
* Oriental Bank of Commerce.................. 79,100 154,002
Steel Authority of India Ltd............... 78,700 45,066
* Tata Chemicals Ltd......................... 41,200 208,302
Tata Engineering & Locomotive Co. Telco.... 7,500 94,693
* Tata Iron & Steel Co. Ltd.................. 6,800 36,327
Thermax Ltd................................ 9,200 89,944
------------
3,036,024
------------
INDONESIA 5.6%
* Asia Pulp & Paper Co. Ltd., ADR............ 29,900 452,238
PT Bank Dagang Nasional Indonesia, fgn..... 437,500 310,316
* PT Bank Dagang Nasional Indonesia, wts..... 31,250 12,850
PT Barito Pacific Timber, fgn.............. 219,000 186,852
PT BDNI Capital Corporation, fgn........... 4,500 3,562
* PT Charoen Pokphand Indonesia, fgn......... 740,000 334,704
PT Ciputra Development..................... 889,000 886,441
PT Gadjah Tunggal, fgn..................... 917,500 452,714
PT Indah Kiat Pulp & Paper Corp., fgn...... 917,500 537,598
* PT Indah Kiat Pulp & Paper Corp., rts...... 825,750 144,303
PT Indocement Tunggal Prakarsa, fgn........ 1,141,000 1,771,083
PT Indosat, fgn............................ 191,500 572,846
* PT Jakarta International Hotel &
Development, fgn........................... 186,000 212,233
PT Kalbe Farma, fgn........................ 245,000 327,405
PT Modern Photo Film Co., fgn.............. 28,000 99,013
PT Pabrik Kertas Tjiwi Kimia, fgn.......... 318,590 370,073
PT Semen Cibinong, fgn..................... 57,500 150,725
PT Semen Gresik, fgn....................... 161,500 361,914
PT Sinar Mas Agro Resources & Technology
Corp., fgn................................. 247,800 224,161
* PT Sumalindo Lestari Jaya, fgn............. 146,000 132,072
PT Tambang Timah (Persero), fgn............ 851,500 1,321,716
* PT Tempo Scan Pacific, fgn................. 13,500 30,253
PT Ultra Jaya Milk, fgn.................... 189,500 103,243
PT United Tractors, fgn.................... 76,000 281,250
------------
9,279,565
------------
JORDAN 0.0%
* Jordan Cement Factories Ltd................ 5,000 28,773
------------
KENYA 0.2%
Kenya Airways Ltd.......................... 2,418,381 363,866
------------
MALAYSIA 2.5%
Berjaya Singer Bhd., fgn................... 81,000 156,609
Boustead Holdings Bhd., fgn................ 67,000 145,998
Hong Leong Industries Bhd.................. 169,800 538,193
* Hong Leong Industries Bhd., wts., fgn...... 19,500 16,070
</TABLE>
41
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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
Leader Universal Holdings Bhd.............. 796,000 1,431,791
MBF Capital Bhd............................ 323,000 593,788
Renong Bhd................................. 772,000 1,009,350
------------
4,167,789
------------
MEXICO 5.3%
Cementos Mexicanos SA de CV (Cemex), B..... 699,000 3,406,107
Cifra SA de CV, A.......................... 6,482 11,981
Cifra SA, C................................ 53,000 84,752
Coca Cola Femsa SA de CV, ADR.............. 12,000 619,500
Cydea SA de CV............................. 66,000 176,177
DESC SA, C................................. 34,340 247,756
Fomento Economico Mexicano SA de CV, B..... 106,000 630,635
* 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
Transportacion Maritima Mexicana SA de CV,
L, ADR..................................... 1,500 9,281
* 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
Engro Chemical............................. 78,580 278,008
National Development Leasing Corp.......... 3,462,500 770,977
* Pakistan Electron Ltd...................... 563,000 143,468
* Pakistan International Airlines Corp....... 1,959,600 370,884
Pakistan Telecom Corp. PTC................. 73,000 55,536
Pakistan Telecommunications Corp., PTC,
A.......................................... 1,084,500 825,057
* Pakland Cement Co. Ltd..................... 1,989,800 475,057
* Union Bank Ltd............................. 1,416,000 350,326
------------
4,173,580
------------
PERU 0.1%
Cpt-Telefonica del Peru SA, B, ADR......... 7,000 183,313
------------
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
Philippine Commercial International Bank
Inc........................................ 12,000 116,015
* Philippine National Bank................... 23,331 158,335
RFM Corp................................... 889,000 215,711
* 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
Bank Inicjatyw Gospodarczch SA, G.......... 258,000 310,087
Bank Przemyslowo-Handlowy SA............... 1,000 49,140
* 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>
42
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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
Przedsiebiorstwo Cukiernicze Jutrzenka
SA......................................... 25,000 502,054
* Przedsiebiorstwo Handlu Zagranicznego
Universal SA............................... 495,000 1,551,346
Rolimpex SA................................ 42,415 167,776
Warta SA................................... 13,400 193,671
Wielkopolski Bank Kredytowy SA............. 15,568 89,055
Zaklady Cementowo Wapiennicze Gorazdze
Chorula.................................... 1,772 60,657
Zaklady Piwowarskie W Zywcu SA............. 1,000 63,898
------------
5,053,111
------------
PORTUGAL 0.1%
Banco Totta & Acores SA.................... 6,600 110,294
Espirito Santo Financial Holding SA, ADR... 5,500 109,313
------------
219,607
------------
RUSSIA 4.8%
* Aeroflot................................... 5,800 812,000
GUM Trade House............................ 1,000 40,500
Irkutskenergo.............................. 2,058,000 699,720
* Kamaz...................................... 160,386 344,830
Krasnoyarsk Aluminum Plant................. 5,748 57,480
* 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
Rao Gazprom, ADR, 144A..................... 26,400 450,780
* Red October Ord............................ 3,000 70,650
Rostelekom................................. 153,000 593,640
* Rostelekom, pfd............................ 257,300 638,104
* Saint Petersburg City Telephone Net,
pfd........................................ 65,000 57,330
Tsum Trade House........................... 536,000 420,760
* Unified Energy System...................... 3,000,000 1,085,700
* Uralmash Zavody............................ 11,000 90,475
------------
8,012,967
------------
SINGAPORE 4.5%
Acer Computer International Ltd............ 188,000 345,920
* Acer Computer International Ltd., wts...... 6,400 3,680
First Capital Corp. Ltd.................... 95,000 247,185
First Capital Corp. Ltd., fgn.............. 269,000 699,923
Hai Sun Hup Group Ltd...................... 592,000 426,495
* Hai Sun Hup Group Ltd., wts................ 84,600 22,486
Hour Glass Ltd............................. 1,159,000 907,939
Inchcape Bhd., fgn......................... 98,000 353,011
Isetan Ltd., fgn........................... 49,000 111,044
Jurong Shipyard, fgn....................... 219,000 949,710
MCL Land Ltd............................... 281,000 426,502
Natsteel Ltd............................... 78,000 198,587
Natsteel Ltd., fgn......................... 86,000 218,955
* Osprey Maritime Ltd........................ 129,000 168,728
</TABLE>
43
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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
Overseas Union Enterprise Ltd.............. 2,000 9,233
Robinson & Co. Ltd......................... 16,000 83,374
Sembawang Corp. Ltd........................ 351,000 1,595,789
United Industrial Corp..................... 144,000 108,778
United Industrial Corporation Ltd., fgn.... 625,000 472,127
WBL Corp. Ltd.............................. 27,000 81,584
------------
7,468,946
------------
SLOVAK REPUBLIC 0.3%
* Nafta Gbely AS............................. 8,195 268,121
Slovnaft AS................................ 10,000 246,870
Vychodoslovenske Zeleziarne AS............. 1,900 35,603
------------
550,594
------------
SLOVENIA 0.2%
* Blagovno Trgovinski Center, GDR, 144A...... 50,000 406,384
------------
SOUTH AFRICA 7.5%
Aeci Ltd................................... 14,000 83,315
Alpha Ltd.................................. 15,700 270,779
Anglo American Industrial Corp. Ltd........ 37,593 1,648,888
Anglovaal Industried Ltd................... 102,640 375,540
BTR Dunlop Ltd............................. 226,200 224,355
CG Smith Ltd............................... 132,000 736,081
Del Monte Royal Foods Ltd.................. 1,248,200 646,522
Edgars Stores.............................. 12,000 313,423
Engen Ltd.................................. 54,800 273,577
First National Bank Holdings Ltd........... 68,000 584,527
Foodcorp Ltd............................... 8,478 64,468
* Irvin & Johnson Ltd........................ 134,700 90,552
Kersaf Investments Ltd..................... 169,700 1,180,083
Malbak Ltd................................. 22,100 35,072
McCarthy Retail Ltd........................ 305,200 874,499
McCarthy Retail Ltd., zero, conv.,
9/30/03.................................... 24,000 69,032
Palabora Mining Co. Ltd.................... 8,500 157,373
* Rainbow Chicken Ltd........................ 4,810,500 964,857
Reunert Ltd................................ 28,700 98,366
Sappi Ltd.................................. 95,673 864,579
Sentrachem Ltd............................. 267,800 472,206
South African Breweries Ltd................ 27,000 828,686
South African Iron & Steel Industrial Corp.
Ltd........................................ 1,566,034 1,035,508
Sun International Ltd...................... 977,200 551,385
Toyota South Africa Limited................ 400 2,530
Voltex Holdings Ltd........................ 151,000 85,202
------------
12,531,405
------------
SOUTH KOREA 6.1%
Asia Cement Co. Ltd........................ 11,890 388,300
Boram Bank Co. Ltd......................... 41,800 275,372
BYC Co. Ltd................................ 490 50,490
Cho Hung Bank Co. Ltd., GDR................ 27,600 198,030
Cho Hung Bank, GDR, 144A................... 90,000 645,750
* Daegu Bank Co. Ltd......................... 35,600 305,154
Daegu Bank Co. Ltd., rts................... 8,916 14,174
Dongkuk Steel Mill Co. Ltd................. 5,000 114,302
Hae In Corp. Ltd........................... 43,000 2,372,748
Hana Bank, GDR............................. 30,868 446,043
* Kolon International Corporation............ 358,000 2,862,065
</TABLE>
44
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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
Korea Kumho Petrochemical.................. 12,400 86,018
Kukdong Oil & Chemical Co. Ltd............. 18,710 653,164
Kyong Nam Bank............................. 25,100 270,175
Kyung Dong Boiler Co. Ltd.................. 14,600 483,378
Moon Bae Steel Co. Ltd..................... 860 27,505
Samsung Display Devices (L) Ltd............ 3,030 167,132
* Samsung Heavy Industries Co. Ltd........... 10,000 105,405
Ssangyong Oil Refining Co. Ltd............. 5,990 121,419
Tong Yang Merchant Bank.................... 10,048 104,101
------------
10,206,642
------------
SRI LANKA 0.4%
National Development Bank of Sri Lanka..... 60,000 266,712
Sampath Bank Limited....................... 362,800 468,309
------------
735,021
------------
THAILAND 12.3%
Asia Credit Public Co. Ltd................. 59,000 124,127
Ayudhya Insurance Public Co. Ltd., fgn..... 3,900 30,110
Bangkok Bank Public Co. Ltd................ 533,300 2,655,692
Bangkok Bank Public Co. Ltd., fgn.......... 27,000 185,524
Bangkok Insurance.......................... 7,900 101,857
Bangkok Insurance, fgn..................... 4,900 85,592
Bangkok Land Public Co. Ltd., fgn.......... 7,300 5,213
Bank of Ayudhya Public Co. Ltd., fgn....... 459,700 718,697
Chareon Pokphand Feedmill Public Co. Ltd.,
fgn........................................ 89,500 221,116
Charoen Pokphand Feedmill Public Co.
Ltd........................................ 40,000 78,749
First Bangkok City Bank Public Co. Ltd.,
fgn........................................ 272,000 217,868
Hana Microelectronics Co. Ltd., fgn........ 34,000 182,436
Industrial Finance Corp. of Thailand,
fgn........................................ 650,000 828,025
Jasmine International Public Co. Ltd.,
fgn........................................ 468,000 415,518
* Land and House Public Co. Ltd.............. 168,600 267,737
Land and House Public Co. Ltd., fgn........ 129,400 269,739
* Land and House Public Co. Ltd., rts........ 100,000 117,581
Phatra Thanakit Public Co. Ltd............. 420,000 429,647
Phatra Thanakit Public Co. Ltd., fgn....... 320,800 396,279
Regional Container Lines Public Co. Ltd.,
fgn........................................ 77,100 458,344
Saha Pathanapibul Public Co. Ltd., fgn..... 400,500 711,175
Saha Union Public Co. Ltd.................. 439,800 275,883
Sanyo Universal Electric Public Co. Ltd.... 13,300 11,552
Sanyo Universal Electric Public Co. Ltd.,
fgn........................................ 81,300 70,614
Serm Suk Public Co. Ltd.................... 24,000 296,468
Siam Cement Co. Ltd.(The), fgn............. 94,600 1,636,008
Siam City Bank Public Co. Ltd., fgn........ 1,818,200 1,070,355
Siam Commercial Bank Ltd................... 225,830 845,609
Siam Commercial Bank Ltd., fgn............. 217,170 888,632
* Sino-Thai Engineering & Construction Public
Co., fgn................................... 426,300 1,184,852
* Thai Airways International Public Co.
Ltd........................................ 268,500 393,862
Thai Airways International Public Co. Ltd.,
fgn........................................ 259,500 310,539
Thai Farmers Bank Public Co. Ltd........... 616,000 1,890,446
Thai Farmers Bank Public Co. Ltd., fgn..... 30,000 127,389
Thai Investments and Securities Ltd........ 247,100 505,551
Thai Military Bank Ltd., fgn............... 234,800 262,853
Thai Petrochemical Industry Public Co.
Ltd., fgn.................................. 339,120 212,727
Thai Rayon Public Co. Ltd., fgn............ 100 215
* Thai Telephone & Telecommunication
Public Co. Ltd., fgn....................... 50,000 20,749
</TABLE>
45
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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
Tipco Asphalt Public Co. Ltd............... 6,000 31,268
Tipco Asphalt Public Co. Ltd., fgn......... 65,000 338,738
Total Access Communication Public Co.
Ltd........................................ 45,000 208,800
United Communications Industries, fgn...... 81,400 342,505
United Communications Industry Public Co.
Ltd........................................ 139,600 576,615
------------
20,425,491
------------
TURKEY 4.4%
Akbank..................................... 2,058,711 176,728
* Alarko Gayrimenkul Yatirim Ortakigi AS..... 1,380,000 58,536
Alcatel Teletas Endustri Tic AS............ 1,176,000 217,741
* Anadolu Anonim Turk Sigorta Sirketi........ 17,000 458
Bagfas..................................... 23,000 5,497
Borusan AS................................. 25,976,000 1,574,038
Cimentas Izmir Cimento Fabrikasi Turk AS... 431,000 57,312
Cimsa Cimento Sanayi ve Ticaret AS......... 164,000 22,084
Erciyas Biracilik.......................... 3,500,000 418,280
Eregli Demir ve Celik Fabrikalari AS....... 4,148,000 691,217
Izocam Ticaret ve Sanayii AS, br........... 33,681,000 1,156,527
* Netas Northern Electric Telekomunic Asyon
AS......................................... 250,000 69,012
Petkim Petrokimya Holding AS............... 677,000 232,466
Sasa Suni Ve Sentetik Elyaf Sanayi AS...... 1,400,000 64,097
Tat Konserve Sanayii AS.................... 1,384,997 102,575
Tofas Turk Otomobil Fabrikasi AS........... 8,143,500 394,770
Turk Demir Dokum, br....................... 37,415,000 1,889,328
Turkiye Garanti Bankasi AS................. 3,788,886 142,856
Vakif Finansal Kiralama AS................. 1,151,000 18,018
------------
7,291,540
------------
VENEZUELA 0.1%
Ceramica Carabobo CA, A, ADR............... 66,955 72,896
------------
ZIMBABWE 0.8%
Delta Corp................................. 42,258 64,841
Ta Holdings................................ 3,946,000 743,875
Zimbabwe Sun Ltd........................... 1,271,400 473,779
------------
1,282,495
------------
TOTAL LONG TERM SECURITIES
(COST $130,588,636)........................ 132,316,122
------------
<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>
46
<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.
See Notes to Financial Statements.
47
<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.
48
<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.
49
<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>
50
<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>
51
<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>
52
<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 of 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>
53
<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.
54
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND 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............... $11.63 $11.88 $10.86 $12.15 $10.91 $10.99
-------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income.......................... .37 .85 .80 .71 .60 .58
Net realized and unrealized gain (loss)........ (.34) .14 .76 (1.28) .65 .03
-------- --------- --------- --------- --------- ---------
Total from investment operations................... .03 .99 1.56 (.57) 1.25 .61
-------- --------- --------- --------- --------- ---------
Distributions:
Dividends from net investment income........... (.83) (1.24) (.54) (.55) (.005) (.57)
Distributions from net realized gains.......... -- -- -- (.17) (.005) (.12)
-------- --------- --------- --------- --------- ---------
Total distributions................................ (.83) (1.24) (.54) (.72) (.01) (.69)
-------- --------- --------- --------- --------- ---------
Change in net asset value.......................... (.80) (.25) 1.02 (1.29) 1.24 (.08)
-------- --------- --------- --------- --------- ---------
Net asset value, end of period..................... $10.83 $11.63 $11.88 $10.86 $12.15 $10.91
================== ========== ========== ========== ========== ==========
TOTAL RETURN*...................................... .38% 9.45% 14.92% (4.88)% 11.46% 5.53%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000).................... $33,170 $34,046 $32,910 $29,343 $29,347 $15,674
Ratio of expenses to average net assets............ .73%** .68% .78% .90% .83% 1.00%
Ratio of net investment income to average net
assets........................................... 6.69% 7.35% 7.14% 6.80% 6.50% 6.93%
Portfolio turnover rate............................ 120.41% 141.19% 188.11% 203.91% 170.33% 147.77%
</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.
See Notes to Financial Statements.
55
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
ISSUE AMOUNT* VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS-CORPORATE 8.1%
Abril SA, 12.00%, 10/25/03, 144A................. U.S. 475,000 $ 528,438
Essar Gujarat Ltd., 8.337%, FRN, 7/15/99, 144A... U.S. 218,000 212,550
Ford Motor Credit Corp., 8.21%, 03/16/99......... U.S. 1,300,000 1,339,299
Statkraft SF, 7.50% 11/10/99..................... Ger. 1,000,000 618,441
-----------
TOTAL BONDS-CORPORATE (COST $2,838,561).......... 2,698,728
-----------
BONDS-GOVERNMENT & GOVERNMENT AGENCIES 82.2%
Brazil C-Bond, 8.00%, 4/15/14.................... Br. 280,163 227,423
Brazil Govt.:
8.875%, 11/05/01................................. Br. 615,000 635,750
6.562%, 4/15/09.................................. Br. 430,000 377,863
Buoni Poliennali Del Tes:
12.00%, 1/17/99.................................. Itl. 1,385,000,000 878,482
10.00%, 8/1/03................................... Itl. 1,395,000,000 957,965
7.75%, 11/1/06................................... Itl. 520,000,000 324,503
Canada Government:
10.50%, 07/01/00................................. Can. 745,000 615,990
10.00%, 5/1/02................................... Can. 1,545,000 1,315,214
Federal Republic of Germany, Unity, 8.75%,
8/20/01.......................................... Ger. 500,000 333,219
Government of Australia, 10.00%, 10/15/02........ Aus. 1,507,000 1,313,644
Government of Brazil, 10.125%, 5/15/27........... Br. 150,000 144,563
Government of Canada, 10.50%, 3/1/01............. Can. 744,000 626,443
Government of Denmark, 8.00%, 5/15/03............ Den. 2,570,000 438,068
Government of Germany, 5.25%, 2/21/01............ Ger. 3,355,000 1,992,145
Government of Italy, 10.50%, 4/15/98............. Itl. 1,010,000,000 609,720
Government of Spain, 12.25%, 3/25/00............. Sp. 152,090,000 1,215,069
Kingdom of Denmark, 9.00%, 11/15/00.............. Den. 4,880,000 836,448
Kingdom of Sweden, 10.25%, 5/5/03................ Swe. 3,900,000 607,917
Republic of Argentina:
10.95%, 11/01/99................................. U.S. 350,000 380,188
8.75%, 5/9/02.................................... U.S. 825,000 825,413
8.375%, 12/20/03................................. U.S. 125,000 126,719
Republic of Venezuela:
9.125%, 6/18/07, 144A............................ U.S. 300,000 301,125
6.75%, 3/31/20, A................................ Ven. 350,000 275,625
Spain Govt., 10.10%, 2/28/01..................... Sp. 81,300,000 638,537
Sweden Kingdom:
13.00%, 6/15/01.................................. Swe. 1,800,000 293,375
8.00%, 8/15/07................................... Swe. 2,200,000 312,506
NHA, Bank Nova Scotia, 6.375%, 11/01/97.......... Can. 290,817 212,235
U.S. Treasury Bond, 6.375%, 8/15/02.............. U.S. 4,090,000 4,088,724
U.S. Treasury Notes:
6.25%, 8/31/00................................... U.S. 1,719,000 1,718,464
7.25%, 8/15/04................................... U.S. 1,632,000 1,701,871
United Kingdom, stk., 10.0%, 2/26/01............. U.K. 750,000 1,358,266
United Mexican States:
9.75%, 2/6/01.................................... U.S. 465,000 491,854
11.375%, 9/15/16................................. U.S. 175,000 196,875
6.25%, 12/31/19, A............................... U.S. 1,150,000 889,813
-----------
TOTAL BONDS-GOVERNMENT & GOVERNMENT
AGENCIES (COST $27,388,275)............ 27,262,016
-----------
</TABLE>
56
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
PRINCIPAL
ISSUE AMOUNT* VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM OBLIGATIONS 6.3%
Federal Home Loan Mortgage Corp., 5.42%,
7/15/97.......................................... U.S. 420,000 $ 419,120
Federal National Mortgage Assn., 5.43%,
7/23/97.......................................... U.S. 260,000 259,144
U.S. Treasury Bills, 4.50% to 5.20% with
maturities to 8/21/97.......................... U.S. 1,402,000 1,397,937
-----------
TOTAL SHORT TERM OBLIGATIONS
(COST $2,076,023)................................ 2,076,201
-----------
TOTAL INVESTMENTS (COST $32,302,859) 96.6%...... 32,036,945
NET EQUITY IN FORWARD CONTRACTS 0.4%............ 127,939
OTHER ASSETS, LESS LIABILITIES 3.0%............. 1,005,498
-----------
TOTAL NET ASSETS 100.0%......................... $33,170,382
===========
</TABLE>
*Principal amount in currency of country indicated.
See Notes to Financial Statements.
57
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------- --------- --------- --------- --------- ---------
Net investment income................... .02 .05 .05 .03 .02 .03
Dividends from net investment income.... (.02) (.05) (.05) (.03) (.02) (.03)
---------------- --------- --------- --------- --------- ---------
Change in net asset value............... -- -- -- -- -- --
---------------- --------- --------- --------- --------- ---------
Net asset value, end of period.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
================== ========== ========== ========== ========== ==========
TOTAL RETURN*........................... 2.44% 4.99% 5.35% 3.48% 2.41% 3.10%
RATIOS /SUPPLEMENTAL DATA
Net assets, end of period (000)......... $11,519 $14,086 $20,723 $33,090 $16,992 $21,454
Ratio of expenses to average net
assets................................ .53%** .55% .63% .71% .75% .69%
Ratio of net investment income to
average net assets.................... 4.89%** 4.86% 5.29% 3.56% 2.38% 3.02%
</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.
See Notes to Financial Statements.
58
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON MONEY MARKET FUND
INVESTMENT PORTFOLIO, JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
ISSUE AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT & GOVERNMENT AGENCIES 56.9%
Federal Farm Credit Bank:
5.43%, 9/8/97........................................ U.S. 600,000 $ 592,670
5.80%, 7/1/97........................................ U.S. 1,000,000 1,000,000
Federal Home Loan Bank:
5.41%, 7/17/97....................................... U.S. 1,010,000 1,007,572
5.40%, 7/2/97........................................ U.S. 375,000 374,944
Federal Home Loan Mortgage Corp.:
5.41%, 7/22/97....................................... U.S. 1,005,000 1,001,828
5.43%, 9/17/97....................................... U.S. 595,000 588,000
Federal National Mortgage Assn.:
5.41%, 8/7/97........................................ U.S. 1,000,000 994,440
5.45%, 7/23/97....................................... U.S. 1,000,000 996,669
-----------
TOTAL GOVERNMENT & GOVERNMENT AGENCIES............... 6,556,123
-----------
SHORT TERM OBLIGATION 5.0%
Dresdner Bank AG, 5.562%, 7/7/97..................... 580,000 580,000
-----------
</TABLE>
<TABLE>
<CAPTION>
MATURITY
VALUE
----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS 38.6%
Swiss Bank Corp., 5.90%, Collateralized by
$2,119,000 U.S. Treasury Note, 11/30/99, Value
$2,198,463.......................................... U.S. $2,144,351 2,144,000
UBS Securities Inc., 5.87% Collateralized by
$2,303,000 U.S. Treasury Note, 8/15/99, Value
$2,349,060.......................................... U.S. 2,300,375 2,300,000
-----------
TOTAL REPURCHASE AGREEMENTS......................... 4,444,000
-----------
TOTAL INVESTMENTS (COST $11,580,123) 100.5%........ 11,580,123
OTHER ASSETS, LESS LIABILITIES (0.5%).............. (60,657)
-----------
TOTAL NET ASSETS 100.0%............................ $11,519,466
===========
</TABLE>
See Notes to Financial Statements.
59
<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.
60
<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.
61
<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.
62
<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.
63
<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.
64
<PAGE>
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.
65
<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 / 31,065,978) $ 22.31
============
Class 2
Shares outstanding 100,541
============
Net asset value per share
($2,241,950 / 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.
66
<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.
67
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $32,302,859) $32,036,945
Cash 365,237
Receivables:
Investment securities sold 2,229,299
Fund shares sold 52,214
Dividends and interest 752,740
Unrealized gains on forward exchange
contracts (Note 5) 701,438
--------------
Total assets 36,137,873
--------------
Liabilities:
Payables:
Investment securities purchased 2,335,556
Unrealized losses on forward exchange
contracts (Note 5) 573,499
Accrued expenses 58,436
--------------
Total liabilities 2,967,491
--------------
Net assets, at value $33,170,382
==============
Net assets consists of:
Undistributed net investment income $ 1,069,214
Net unrealized depreciation (145,766)
Accumulated net realized loss (2,177,907)
Net capital paid in on shares of
beneficial interest 34,424,841
--------------
Net assets, at value $33,170,382
==============
Class 1
Shares outstanding 3,062,445
==============
Net asset value per share
($33,170,382 / 3,062,445) $ 10.83
==============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of $16,683 foreign taxes
withheld)
Interest $ 1,220,881
Dividends 1,288
------------
Total Income $1,222,169
Expenses:
Management fees (Note 3) 82,831
Administrative fees (Note 3) 17,111
Custodian fees
Reports to shareholders 10,300
Audit fees 5,700
Legal fees (Note 3) 1,200
Registration and filing fees 2,200
Trustees' fees and expenses 575
Other 471
------------
Total expenses 120,388
------------
Net investment income 1,101,781
Realized and unrealized gain
(loss):
Net realized gain (loss) on:
Investments (286,453)
Foreign currency transactions 495,225
------------
208,772
Net unrealized appreciation
(depreciation) on:
Investments (1,203,283)
Foreign currency translation of
other assets and liabilities 13,210
------------
(1,190,073)
Net realized and unrealized loss (981,301)
------------
Net increase in net assets
resulting from operations $ 120,480
============
</TABLE>
See Notes to Financial Statements.
68
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND 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........................................................ $ 1,101,781 $ 2,393,660
Net realized gain on investment and foreign currency transactions............ 208,772 178,647
Net unrealized appreciation (depreciation)................................... (1,190,073) 392,328
----------- -----------
Net increase in net assets resulting from operations...................... 120,480 2,964,635
----------- -----------
Distributions to shareholders:
From undistributed net investment income
Class 1..................................................................... (2,415,770) (3,413,282)
Fund share transactions (Note 2)
Class 1..................................................................... 1,419,791 1,584,576
----------- -----------
Net increase (decrease) in net assets..................................... (875,499) 1,135,929
----------- -----------
Net assets:
Beginning of period........................................................... 34,045,881 32,909,952
----------- -----------
End of period................................................................. $ 33,170,382 $34,045,881
=========== ===========
</TABLE>
See Notes to Financial Statements.
69
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON MONEY MARKET FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value and
cost $11,580,123
Cash 686
Receivables:
Interest 17,876
--------------
Total assets 11,598,685
--------------
Liabilities:
Dividend payables 53,349
Accrued expenses 25,870
--------------
Total liabilities 79,219
--------------
Net assets (equivalent to $1.00 per
share based on 11,519,466 shares of
beneficial interest outstanding) $11,519,466
==============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Interest income $374,313
Expenses:
Management fees (Note 3) $24,016
Administrative fees (Note 3) 7,314
Reports to shareholders 1,000
Audit fees 3,260
Legal fees (Note 3) 1,000
Other 200
----------
Total expenses 36,790
------------
Net investment income 337,523
Net realized gain on investments 48
------------
Net increase in net assets resulting
from operations $337,571
============
</TABLE>
See Notes to Financial Statements.
70
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON MONEY MARKET 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........................................................ $ 337,523 $ 765,458
Net realized gain from security transactions................................. 48 269
---------------- -----------------
Net increase in net assets resulting from operations...................... 337,571 765,727
---------------- -----------------
Distributions to shareholders from net investment income...................... (337,571) (765,727)
Fund share transactions (Note 2).............................................. (2,566,395) (6,637,553)
---------------- -----------------
Net decrease in net assets................................................ (2,566,395) (6,637,553)
---------------- -----------------
Net assets:
Beginning of period........................................................... 14,085,861 20,723,414
---------------- -----------------
End of period................................................................. $ 11,519,466 $14,085,861
============== ===============
</TABLE>
See Notes to Financial Statements.
71
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Variable Products Series Fund (the Trust) is registered under the
Investment Company Act of 1940 as an open-end diversified investment company
consisting of six series (the Funds). The Funds and their investment policies
are as follows:
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. Templeton Bond Fund seeks high current income through a flexible
policy of investing primarily in the debt securities of companies, governments
and government agencies of various nations throughout the world. Templeton Money
Market Fund seeks current income, stability of principal, and liquidity by
investing in money market instruments with maturities not exceeding 397 days.
The 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. Securities
held by Templeton Money Market Fund are valued at amortized cost which
approximates value.
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.
72
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited) (continued)
e. REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements, which are accounted for as a
loan by the Fund to the seller, collateralized by securities which are delivered
to the Funds' custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Funds, with the value of the underlying securities marked-to-
market daily to maintain coverage of at least 100%. At June 30, 1997, all
outstanding repurchase agreements held by the Fund had been entered into on that
date.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
g. INDEXED SECURITIES:
The Asset Allocation Fund and Bond 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, Templeton Stock Fund, Templeton International Fund,
Templeton Developing Markets Fund, Templeton Asset Allocation Fund and Templeton
Bond Fund 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 of beneficial
interest 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>
Shares sold........................................................ 149,133 $3,409,140
Shares redeemed.................................................... (1,461) (33,047)
---------- ------------
Net increase....................................................... 147,672 $3,376,093
========== ============
</TABLE>
73
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited) (continued)
<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>
<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>
74
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited) (continued)
<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>
<TABLE>
<CAPTION>
TEMPLETON BOND FUND - CLASS 1
---------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 221,237 $ 2,440,743 412,304 $ 4,557,713
Shares issued on reinvestment of distributions................... 225,352 2,415,770 323,533 3,413,281
Shares redeemed.................................................. (311,895) (3,436,722) (578,367) (6,386,418)
---------- ------------ ---------- ------------
Net increase..................................................... 134,694 $ 1,419,791 157,470 $ 1,584,576
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON MONEY MARKET FUND
---------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold...................................................... 17,267,228 $ 17,267,228 35,278,602 $ 35,278,602
Shares issued on reinvestment of distributions................... 348,951 348,951 708,580 708,580
Shares redeemed.................................................. (20,182,574) (20,182,574) (42,624,735) (42,624,735)
---------- ------------ ---------- ------------
Net decrease..................................................... (2,566,395) $ (2,566,395) (6,637,553) $ (6,637,553)
========== ============ ========== ============
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton
Investment Councel, 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 Trust 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
75
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited) (continued)
basis, to 0.50% of their 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 Bond Fund pays a monthly investment
management fee, equal on an annual basis, to 0.50% of its average daily net
assets up to $200 million, 0.45% of such net 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. Templeton
Money Market Fund pays a monthly investment management fee equal on an annual
basis to 0.35% of its average daily net assets up to $200 million, 0.30% of such
net assets from $200 million up to $1.3 billion, and 0.25% of such net assets in
excess of $1.3 billion. Each Fund pays 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 $14,400 were paid to a law
firm in which an officer of the Trust is a partner.
Templeton Stock, International, Asset Allocation and Developing Markets Funds
reimburse FTD up to 0.25% and Bond Fund reimburses FTD up to 0.15% 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 TEMPLETON
STOCK FUND FUND FUND FUND BOND FUND
------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Purchases..................................... $ 108,745,087 $ 200,944,769 $ 73,346,167 $ 228,014,566 $ 35,458,494
============ ============ =========== ============ ===========
Sales......................................... $ 99,871,220 $ 86,648,432 $ 4,515,265 $ 162,230,786 $ 35,951,319
============ ============ =========== ============ ===========
</TABLE>
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Templeton International, Asset Allocation, and Bond 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 Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
76
<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>
As of June 30, 1997, Templeton Bond 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>
2,815,000 German mark.................................................... U.S. $ 1,681,249 7/14/97 U.S. $ 65,287
7,500,000 German mark.................................................... 4,394,462 9/15/97 69,194
----------- -----------
U.S. 6,075,711 134,481
===========
Net unrealized gain on offsetting forward exchange contracts... 566,957
-----------
Unrealized gain on forward exchange contracts.................. 701,438
-----------
CONTRACTS TO SELL:
234,000 Great British pound............................................ U.S. $ 377,096 8/12/97 (13,070)
435,000 Australian dollar.............................................. 327,872 9/29/97 (930)
----------- -----------
U.S. 704,968 (14,000)
=========== -----------
Net unrealized loss on offsetting forward exchange contracts... (559,499)
Unrealized loss on forward exchange contracts.................. (573,499)
-----------
Net unrealized gain on forward exchange contracts.............. U.S. $ 127,939
===========
</TABLE>
77
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Notes to Financial Statements (unaudited) (continued)
6. INCOME TAXES
At December 31, 1996, Templeton Bond Fund had tax basis capital losses of
$2,039,250 which may be carried over to offset future capital gains. Such losses
expire in 2002.
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
(depreciation) based on the cost of investments for income tax purposes was as
follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
TEMPLETON DEVELOPING ASSET
TEMPLETON INTERNATIONAL MARKETS ALLOCATION TEMPLETON
STOCK FUND FUND FUND FUND BOND FUND
------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Unrealized appreciation....................... 220,739,001 199,971,382 15,459,249 174,227,722 206,826
Unrealized depreciation....................... (21,746,693) (14,803,493) (13,730,118) (13,374,844) (472,740)
------------ ------------ ----------- ------------ -----------
Net unrealized appreciation (depreciation).... $ 198,992,308 $ 185,167,889 $ 1,729,131 $ 160,852,878 $(265,914)
============ ============ =========== ============ ===========
</TABLE>
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[LOGO] Bulk Rate
FRANKLIN TEMPLETON U.S. Postage
700 Central Avenue PAID
St. Petersburg, Florida 33701-3628 Springfield, MA
Permit No. 444
---------------
INSURANCE ISSUER
Phoenix Home Life Mutual Insurance Co.
INVESTMENT MANAGERS
Templeton Investment Counsel, Inc. ("TICI")
Templeton Asset Management Ltd., Singapore
DISTRIBUTOR
WS Griffith and Co., Inc.
SERVICE CENTER
Phoenix's Variable Products Operations
1-800/243-4810
This report must be preceded or accompanied by the current prospectus for
Templeton Investment Plus (TIP), which includes the Phoenix Home Life Variable
Accumulation Account and the Templeton Variable Products Series Fund
prospectuses, which contain more detailed information, including sales charges,
risks and advantages of an investment in TIP. 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.
TIP S97 08/97 [LOGO] Printed on recycled paper
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