TABLE OF CONTENTS
TEMPLETON VARIABLE PRODUCTS SERIES FUND
ANNUAL REPORT
<TABLE>
<S> <C>
Letter to Contract Owners ......................... 2
Class 1 Portfolio Reports
Templeton Asset Allocation Fund .................. TA-1
Templeton Bond Fund .............................. TB-1
Templeton Developing Markets Fund ................ TD-1
Templeton International Fund ..................... TI-1
Templeton Stock Fund ............................. TS-1
REPORT OF SPECIAL MEETING OF SHAREHOLDERS ......... R-1
</TABLE>
PLEASE NOTE:
Templeton Variable Products Series Fund ("the Fund") currently consists of 10
separate investment portfolios, all of which offer Class 1 and Class 2 shares,
with the exception of Franklin S&P 500 Index Fund, which also offers Class 3
shares. Only the portfolios and classes listed in the above Table of Contents
are currently available under your insurance contract. Please consult
prospectuses for your insurance contract and the Fund for further information.
Please retain this document with your current prospectus for reference.
TIP A99 2/00 PHOENIX TIP
<PAGE>
LETTER TO CONTRACT OWNERS
Dear Contract Owner:
We are pleased to bring you this annual report of Templeton Variable Products
Series Fund for the 12 months ended December 31, 1999. The period was a
challenging one for investors forced to deal with diverse factors, ranging from
currency devaluations to the introduction of the euro, and from rising interest
rates to the enormous impact of the Internet upon global economies.
The U.S. economy barreled along, enjoying strong growth for the ninth
consecutive year. Inflation remained benign, and domestic stock indexes, led by
large-capitalization, blue-chip, technology and Internet-related stocks, hit
record highs. On March 29, 1999, the Dow Jones/R/ Industrial Average broke
through the 10000 barrier for the first time and went on to close at 11484 on
December 31--up 27.18% for the year./1/ The Standard & Poor's/R/ 500 Index,
representing 500 large companies, rose 21.04%./2/ Small cap stocks also
performed well, and the Russell 2000/R/ Index rose 21.26% for the period./3/
Even value stocks, after underperforming growth stocks for two years, appeared
to return to life in April and May. But the big news was made by
Internet-related shares, as the Nasdaq/R/ Composite Index, comprising many
high-technology and Internet companies, posted a return of 85.87% for the fiscal
year./4/
European securities markets produced mixed results during the reporting period.
Although some European economies began to grow due to increasing Asian demand,
the trend did not exert a positive influence on all European securities. The
stock markets of France, Germany, Norway and Sweden each rose significantly
during the period, while those of Belgium, Ireland and Switzerland each fell in
U.S. dollar terms.
1. Source: Standard & Poor's Micropal (Dow Jones). Total return measured by
Wilshire & Associates, Inc.
2. Source: Standard & Poor's Micropal (S&P 500).
3. Source: Standard & Poor's Micropal (Frank Russell).
4. Source: Standard & Poor's Micropal (Nasdaq).
2
<PAGE>
Equity markets in many emerging market countries experienced significant
volatility throughout the period and surged as investors poured money into many
Asian and South American stocks. As measured in U.S. dollars, Hong Kong's,
Indonesia's and South Korea's equity indexes each rose more than 68%, while
Mexico's Bolsa Index climbed 90.39% and Brazil's Bovespa Index appreciated
76.63%./5/
As stock markets in emerging markets rebounded, so did their bond markets, and
the J.P. Morgan Emerging Markets Bond Index Plus, which tracks the performance
of bond markets in developing nations, increased 26.00% during 1999./6/ However,
most other bond markets performed poorly, and the Salomon Brothers World
Government Bond Index, representative of government bonds in developed
countries, posted a one-year total return of only -4.27%./7/ U.S. Treasury
securities, as measured by the 30-year Treasury bond, fell in value, and most
European government bond prices were also down, as measured in local currency
terms.
Of course, it is important to remember that securities markets always have, and
always will, fluctuate. And no one knows when they will drop, or when they will
soar to new heights. But prudent investors realize that good years can be mixed
with bad years, and that long-term results matter more than short-term
volatility. That is why we urge you to focus not on short-term market
movements, but on your long-term investment goals.
As always, we appreciate your participation in Templeton Variable Products
Series Fund and look forward to serving your investment needs in the years to
come.
Sincerely,
/s/ Charles E. Johnson
Charles E. Johnson
President
Templeton Variable Products Series Fund
5. Sources: Mexico Bolsa Index and Brazil Bovespa Index.
6. Source: Standard & Poor's Micropal (J.P. Morgan).
7. Source: Standard & Poor's Micropal (Salomon Bros.).
Total returns measured in U.S. dollars. Indexes are unmanaged and include
reinvested dividends and/or interest. One cannot invest directly in an index,
nor is an index representative of the Funds' portfolios.
3
<PAGE>
TEMPLETON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: 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.
- --------------------------------------------------------------------------------
During the 12 months under review, the U.S. economy continued to experience
solid growth without stirring up inflation. For example, data from the U.S.
Commerce Department shows the economy grew at a robust rate of 5.7% in the
third quarter of 1999, while the Consumer Price Index (CPI), a commonly used
measure of inflation, increased by only 1.7%. However, this did not deter the
Federal Reserve Board (the Fed) from keeping a watchful eye on the pace of
private consumption being boosted by stock market and housing gains.
]This chart shows in pie format the asset allocation of Templeton Asset
Allocation Fund, based on total net assets as of 12/31/99.]
Stocks 87.3%
Fixed-Income Securities 9.6%
Short-Term Investments & Other Net Assets 3.1%
Concerned about the possibility of future inflation, the Fed raised short-term
interest rates three times during the year. By the end of the reporting period,
the 30-year Treasury bond was yielding over 6.4%, its highest level in two
years, resulting in a 19.9% drop in price for such bonds during the year.
Global bond markets also generally performed poorly, with the J.P. Morgan
Global Government Bond Index declining 5.08% in U.S. dollar terms, while the
J.P. Morgan U.S. Government Bond Index fell 2.88%, during the 12 months under
review./1/
For domestic stocks, 1999 turned out to be an astonishing year. The
technology-laden Nasdaq Index rose 85.87%, the Dow Jones Industrial Average
climbed 27.18% and Standard & Poor's 500 Index was up 21.04%. Much of this
strong performance occurred during the final two months of the year and was
concentrated in a relatively small number of technology and telecommunications
companies. Despite the market's high valuations, we did manage to uncover what
we felt were some undervalued U.S. technology companies, including Hewlett-
Packard Co. and Compaq Computer Corp.
1. Source: J.P. Morgan Global Government Bond Index and J.P. Morgan U.S.
Government Bond Index. Return includes reinvested interest. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
TA-1
<PAGE>
[This chart shows in pie format the geographic distribution of the Templeton
Asset Allocation Fund, based on total net assets as of 12/31/99.]
Europe 37.3%
Asia 18.5%
North America 15.3%
Latin America 10.0%
Australia & New Zealand 3.3%
Middle East & Africa 2.9%
Fixed-Income Securities 9.6%
Short-Term Investments & Other Net Assets 3.1%
In Europe, the Bloomberg/R/ European 500 Index, a measure of European
large-company stock performance, rose 36.88% in local currency terms, but only
17.88% in U.S. dollar terms, due to the euro's weakness.2 At the same time, the
single European currency stimulated a massive increase in merger and acquisition
activity to $1.5 trillion. By the end of the reporting period, economic growth
appeared to be accelerating in "Euroland," with polls indicating 3% gross
domestic product growth in 2000, compared with 2% in 1999. This growth could be
spurred even further by exports because a weak euro could help sales. However,
even though such activity could lead to improved corporate profitability, many
European companies may find themselves operating in a more competitive
environment as European markets continue to be deregulated and the euro leads to
price transparency across borders. At the fiscal year ended December 31, 1999,
our largest European position was in the United Kingdom, where we initiated
positions in British Airways PLC, J. Sainsbury PLC and Storehouse. We also
anticipate benefits from restructuring in such Fund holdings as Koninklijke
Philips Electronics NV, Akzo Nobel NV and Aventis SA.
During the reporting period, most Latin American equity markets rebounded
strongly, with the Mexico Bolsa Index and Brazil Bovespa Index up 87.84% and
69.20%, respectively, in U.S. dollar terms.3 Mexico's economy benefited from
increasing oil prices, as well as a robust U.S. economy, while lower interest
rates in Brazil helped its economy and stimulated investments in Brazilian
stocks. Believing that the primary risk for the region is higher U.S. interest
rates, which could hamper liquidity in Latin American equity markets, we seized
the opportunity to take profits on our holdings of Banco Bradesco SA and
Telefonos de Mexico SA (Telmex) during the period.
2. Source: Bloomberg. Return measures price appreciation only and does not
include reinvested dividends.
3. Source: Mexico Bolsa Index and Brazil Bovespa Index. Returns include
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
TA-2
<PAGE>
Finally, in Japan, the Nikkei 225 Index performed strongly in 1999, rising
54.5% in U.S. dollar terms.4 This increase in equities was driven in large part
by restructuring, desperately needed consolidation in Japan's banking sector,
and the perception that Japan's economy had finally bottomed out. The Fund's
best performing securities included such Japanese companies as Sony Corp.,
Nippon Telegraph & Telephone Corp., and Nomura Securities Co. Ltd. However, the
near term effects of corporate downsizing and continuing strength of the yen
could act as a drag on economic recovery and hinder the profitability of
Japanese companies dealing in exports. Therefore, we intend to concentrate on
retailers like Best Denki Co. Ltd. and Laox, as well as companies focused on
the domestic economy, such as Makita and Seino Transport, which we believe have
the brightest outlook for growth.
In Europe, bond yields trended higher and bond prices slumped as deregulation,
restructuring, and economic expansion took hold in much of the region. The EMU
Government Bond Index fell 16.84% in U.S. dollar terms, and the United Kingdom
Government Bond Index dropped following the Bank of England's interest rate
increases in the second half of 1999. Most other European country bond prices
also dropped significantly in U.S. dollar terms during the year.5
Most Asian bonds provided dismal returns in 1999. However, Japanese bonds
bucked the trend, returning 15.72% thanks to investor expectations of an
economic recovery, stable interest rates, and a stronger yen.5 Elsewhere in the
Pacific Rim, the dollar-bloc countries (Australia and New Zealand) experienced
vigorous economic growth and, despite plummeting bond prices in the second half
of the reporting period, remained slightly ahead of the dismal U.S. and
European bond markets.
On the positive side, Latin America provided a different picture. Despite
troubling economic developments in Ecuador and Brazil during the summer, Latin
American bonds, and emerging market debt in general, fared relatively well, and
the J.P. Morgan Emerging Market Bond Index Plus rose 26.00% in 1999.6
4. Source: Nikkei 225 Index.
5. Source: J.P. Morgan Government Bond Monitor. Return includes reinvested
interest.
6. Source: J.P. Morgan Emerging Market Bond Index Plus. Return includes
reinvested interest.
One cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
[This chart lists the top 10 equity holdings, including industry and country,
of Templeton Asset Allocation Fund, based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton Asset Allocation Fund
12/31/99
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
=============================================
<S> <C>
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 3.4%
Nomura Securites Co. Ltd. ,
FINANCIAL SERVICES, JAPAN 2.6%
Aventis SA,
HEALTH & PERSONAL CARE,
FRANCE 2.4%
Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.2%
Nippon Telegraph &
Telephone Corp.,
TELECOMMUNICATIONS,
JAPAN 2.1%
Merita AS,
BANKING, FINLAND 2.1%
Teva Pharmaceutical
Industries Ltd., ADR,
HEALTH & PERSONAL CARE,
ISRAEL 2.0%
AXA SA,
FINANCIAL SERVICES, FRANCE 2.0%
ING Groep NV,
FINANCIAL SERVICES,
NETHERLANDS 1.9%
Medeva PLC,
HEALTH & PERSONAL CARE,
UNITED KINGDOM 1.9%
</TABLE>
For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.
TA-3
<PAGE>
During the reporting period, the majority of the Fund's bond position was in
intermediate- and long-term bonds in developed industrial markets, with the
remaining bond allocation in what we believed were the highest quality and most
liquid bonds available in emerging markets.
Looking forward, we are optimistic about long-term prospects for global equity
and debt markets. However, if inflation re-emerges and U.S. financial markets
reach more extreme valuations, then the Fed may aggressively raise interest
rates. If that happens, Latin American economies could suffer. In our opinion,
Asian economies need to grow further if stock markets there are to maintain
their recent luster, and we would not be surprised to see some setback in the
region in 2000. Finally, in our opinion, the critical issue for global bonds
and interest rates will be the balance between global growth and inflation.
Since we believe the world's economic growth trend is clearly positive and
expect global inflation may pick up slightly in the near term, we will monitor
these conditions as we continue to search the globe for undervalued securities
that may potentially benefit our shareholders.
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 heightened
risks related to their smaller size and lesser liquidity. These risks are
discussed in the prospectus.
TA-4
<PAGE>
We thank you for investing in Templeton Asset Allocation Fund, welcome your
comments or suggestions and look forward to continuing to serve you.
Sincerely,
/s/GARY R. CLEMONS
Gary R. Clemons
Portfolio Manager
Templeton Asset Allocation Fund
/s/THOMAS J. DICKSON
Thomas J. Dickson
Portfolio Manager
Templeton Asset Allocation Fund
This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.
TA-5
<PAGE>
TEMPLETON ASSET
ALLOCATION FUND
- -- CLASS 1
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these charges, including sales
charges.
PERFORMANCE SUMMARY AS OF 12/31/99
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)
The graph below compares the performance of Templeton Asset Allocation Fund --
Class 1 and the unmanaged Morgan Stanley Capital International (MSCI/R/)
World Index and J.P. Morgan Global Government Bond Index, including
reinvested dividends and/or interest, as well as the Consumer Price Index
(CPI). The Fund's total return represents the change in value of an investment
over the period shown and assumes reinvestment of dividends and capital gains
at net asset value. The MSCI World Index measures the performance of
approximately 1,450 securities from 22 countries including the U.S., Europe,
Canada, Australia, New Zealand, and the Far East. The J.P. Morgan Global
Government Bond Index includes only actively traded fixed-rate bonds with a
remaining maturity of one year or longer, is an aggregate of government
securities issued in 13 countries, and includes reinvested interest. The CPI is
a commonly used measure of inflation. The Fund's performance differs from an
index's because an index is not managed, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management expenses. Of course, one cannot invest directly
in an index, nor is an index representative of the Fund's portfolio. The
indexes' sources are J.P. Morgan and Standard & Poor's/R/ Micropal (U.S. Bureau
of Labor Statistics).
[The following line graph compares the performance of the Templeton Asset
Allocation Fund - Class 1 to that of the Morgan Stanley Capital International
World Index, J.P. Morgan Global Government Bond Index, and the Consumer Price
Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]
<TABLE>
<CAPTION>
TEMPLETON
ASSET J.P. MORGAN
ALLOCATION GLOBAL GOVERNMENT
FUND - CLASS I MSCI WORLD BOND INDEX CPI
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,750 $9,535 $9,851 $10,103
02/28/1990 $9,768 $9,127 $9,744 $10,150
03/31/1990 $9,908 $8,578 $9,685 $10,206
04/30/1990 $9,564 $8,456 $9,647 $10,223
05/31/1990 $10,155 $9,348 $9,955 $10,246
06/30/1990 $10,234 $9,283 $10,135 $10,301
07/31/1990 $10,384 $9,369 $10,433 $10,341
08/31/1990 $9,625 $8,493 $10,352 $10,436
09/30/1990 $8,849 $7,599 $10,449 $10,523
10/31/1990 $8,770 $8,310 $10,861 $10,587
11/30/1990 $9,025 $8,175 $11,053 $10,610
12/31/1990 $9,202 $8,348 $11,176 $10,610
01/31/1991 $9,643 $8,655 $11,429 $10,674
02/28/1991 $10,261 $9,458 $11,440 $10,690
03/31/1991 $10,137 $9,181 $11,083 $10,706
04/30/1991 $10,255 $9,254 $11,217 $10,722
05/31/1991 $10,538 $9,465 $11,226 $10,754
06/30/1991 $10,091 $8,882 $11,076 $10,785
07/31/1991 $10,674 $9,303 $11,310 $10,801
08/31/1991 $10,920 $9,275 $11,546 $10,832
09/30/1991 $11,012 $9,520 $11,967 $10,880
10/31/1991 $11,094 $9,676 $12,085 $10,896
11/30/1991 $10,820 $9,256 $12,282 $10,928
12/31/1991 $11,750 $9,932 $12,902 $10,936
01/31/1992 $11,650 $9,750 $12,650 $10,952
02/29/1992 $11,969 $9,583 $12,613 $10,992
03/31/1992 $11,824 $9,133 $12,496 $11,048
04/30/1992 $12,125 $9,262 $12,600 $11,063
05/31/1992 $12,633 $9,632 $12,958 $11,079
06/30/1992 $12,596 $9,311 $13,311 $11,118
07/31/1992 $12,746 $9,336 $13,605 $11,142
08/31/1992 $12,596 $9,565 $13,967 $11,173
09/30/1992 $12,549 $9,479 $13,953 $11,204
10/31/1992 $12,455 $9,225 $13,605 $11,243
11/30/1992 $12,549 $9,391 $13,363 $11,259
12/31/1992 $12,699 $9,469 $13,490 $11,251
01/31/1993 $12,869 $9,502 $13,718 $11,306
02/28/1993 $13,170 $9,729 $13,939 $11,346
03/31/1993 $13,443 $10,295 $14,154 $11,386
04/30/1993 $13,704 $10,774 $14,411 $11,418
05/31/1993 $13,936 $11,024 $14,503 $11,434
06/30/1993 $14,052 $10,933 $14,515 $11,450
07/31/1993 $14,275 $11,160 $14,521 $11,450
08/31/1993 $14,952 $11,674 $14,951 $11,482
09/30/1993 $14,962 $11,460 $15,109 $11,506
10/31/1993 $15,465 $11,777 $15,101 $11,553
11/30/1993 $15,165 $11,113 $14,991 $11,561
12/31/1993 $16,017 $11,659 $15,144 $11,561
01/31/1994 $16,791 $12,430 $15,287 $11,592
02/28/1994 $16,162 $12,271 $15,119 $11,632
03/31/1994 $15,453 $11,744 $15,050 $11,671
04/30/1994 $15,592 $12,109 $15,038 $11,688
05/31/1994 $15,701 $12,142 $14,914 $11,696
06/30/1994 $15,275 $12,111 $15,091 $11,736
07/31/1994 $15,889 $12,343 $15,233 $11,767
08/31/1994 $16,335 $12,717 $15,194 $11,814
09/30/1994 $15,998 $12,385 $15,269 $11,846
10/31/1994 $16,166 $12,739 $15,497 $11,854
11/30/1994 $15,651 $12,190 $15,302 $11,870
12/31/1994 $15,542 $12,310 $15,338 $11,870
01/31/1995 $15,374 $12,127 $15,648 $11,917
02/28/1995 $15,720 $12,307 $16,051 $11,965
03/31/1995 $15,964 $12,902 $16,868 $12,005
04/30/1995 $16,483 $13,354 $17,137 $12,044
05/31/1995 $17,093 $13,471 $17,615 $12,068
06/30/1995 $17,398 $13,469 $17,725 $12,092
07/31/1995 $18,049 $14,146 $17,809 $12,092
08/31/1995 $17,896 $13,833 $17,314 $12,124
09/30/1995 $18,486 $14,239 $17,704 $12,148
10/31/1995 $18,120 $14,018 $17,877 $12,188
11/30/1995 $18,679 $14,507 $18,076 $12,180
12/31/1995 $19,045 $14,934 $18,300 $12,171
01/31/1996 $19,534 $15,206 $18,112 $12,243
02/29/1996 $19,696 $15,301 $18,007 $12,282
03/31/1996 $19,879 $15,559 $17,979 $12,346
04/30/1996 $20,362 $15,928 $17,913 $12,394
05/31/1996 $20,641 $15,944 $17,931 $12,418
06/30/1996 $20,609 $16,028 $18,088 $12,425
07/31/1996 $20,072 $15,465 $18,420 $12,449
08/31/1996 $20,566 $15,646 $18,497 $12,472
09/30/1996 $20,974 $16,261 $18,599 $12,512
10/31/1996 $21,232 $16,377 $18,968 $12,552
11/30/1996 $22,488 $17,298 $19,239 $12,576
12/31/1996 $22,639 $17,024 $19,105 $12,576
01/31/1997 $23,498 $17,231 $18,627 $12,616
02/28/1997 $23,731 $17,433 $18,498 $12,655
03/31/1997 $23,485 $17,091 $18,358 $12,687
04/30/1997 $23,742 $17,653 $18,254 $12,702
05/31/1997 $25,088 $18,746 $18,685 $12,695
06/30/1997 $26,106 $19,683 $18,897 $12,710
07/31/1997 $27,639 $20,593 $18,828 $12,725
08/31/1997 $26,340 $19,219 $18,805 $12,749
09/30/1997 $28,166 $20,265 $19,222 $12,781
10/31/1997 $26,048 $19,202 $19,630 $12,813
11/30/1997 $26,129 $19,545 $19,394 $12,806
12/31/1997 $26,153 $19,786 $19,373 $12,790
01/31/1998 $26,001 $20,341 $19,568 $12,814
02/28/1998 $27,557 $21,720 $19,713 $12,839
03/31/1998 $29,205 $22,640 $19,564 $12,863
04/30/1998 $29,750 $22,865 $19,865 $12,886
05/31/1998 $28,895 $22,582 $19,951 $12,910
06/30/1998 $28,548 $23,121 $20,006 $12,925
07/31/1998 $29,031 $23,087 $20,061 $12,941
08/31/1998 $23,790 $20,012 $20,615 $12,956
09/30/1998 $23,331 $20,369 $21,691 $12,972
10/31/1998 $26,033 $22,214 $22,177 $13,003
11/30/1998 $27,557 $23,539 $21,927 $13,003
12/31/1998 $27,829 $24,693 $22,340 $12,995
01/31/1999 $28,486 $25,237 $22,156 $13,026
02/28/1999 $27,073 $24,568 $21,416 $13,042
03/31/1999 $28,514 $25,595 $21,469 $13,081
04/30/1999 $30,914 $26,608 $21,463 $13,176
05/31/1999 $29,714 $25,639 $21,086 $13,176
06/30/1999 $30,884 $26,838 $20,733 $13,176
07/31/1999 $31,148 $26,762 $21,188 $13,216
08/31/1999 $31,192 $26,718 $21,243 $13,248
09/30/1999 $30,680 $26,463 $21,549 $13,311
10/31/1999 $30,680 $27,842 $21,522 $13,335
11/30/1999 $31,909 $28,628 $21,266 $13,343
12/31/1999 $34,191 $30,950 $21,205 $13,343
</TABLE>
The historical performance figures shown pertain only to the Fund's Class 1
shares.
Past performance does not guarantee future results.
TA-6
<PAGE>
PERFORMANCE
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.
<TABLE>
<CAPTION>
Templeton Asset Allocation Fund -- Class 1
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 22.86% 119.99% 241.91% 298.06%
Average Annual Total Return 22.86% 17.08% 13.08% 12.94%
Value of $10,000 Investment $ 12,286 $ 21,999 $ 34,191 $ 39,806
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- --------------------------------------------------------------------------------------------------------
One-Year Total Return 22.48% 18.93% 15.52% 6.41% 22.86%
</TABLE>
TEMPLETON ASSET
ALLOCATION FUND
- -- CLASS 1
Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility and the
social, economic and political climates of countries where the Fund
invests. Emerging markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size
and lesser liquidity. Changes in issuers' financial strength may affect
debt securities' values and, thus, impact the value of Fund shares. You may
have a gain or loss when you sell your shares.
Past performance does not guarantee future results.
TA-7
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year $ 22.46 $ 22.35 $ 21.08 $ 18.72 $ 15.69
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .44 .69 .67 .63 .57
Net realized and unrealized gains .......... 3.78 .75 2.44 2.76 2.87
-------------------------------------------------------------------------
Total from investment operations ............ 4.22 1.44 3.11 3.39 3.44
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... ( .50) ( .66) ( .63) ( .58) ( .41)
Net realized gains ......................... ( 2.81) ( .67) ( 1.21) ( .45) --
-------------------------------------------------------------------------
Total distributions ......................... ( 3.31) ( 1.33) ( 1.84) ( 1.03) ( .41)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 23.37 $ 22.46 $ 22.35 $ 21.08 $ 18.72
=========================================================================
Total Return* ............................... 22.86% 6.41% 15.52% 18.93% 22.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $671,549 $692,163 $735,568 $556,027 $406,123
Ratios to average net assets:
Expenses ................................... .74% .78% .74% .64% .66%
Net investment income ...................... 2.06% 2.88% 3.32% 3.56% 3.73%
Portfolio turnover rate ..................... 45.34% 43.18% 45.27% 57.50% 43.02%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
TA-8
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
---------------------- ----------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 22.38 $ 22.32 $ 20.40
----------------------------------------------------
Income from investment operations:
Net investment income ...................... .36 .63 .16
Net realized and unrealized gains .......... 3.80 .74 1.76
----------------------------------------------------
Total from investment operations ............ 4.16 1.37 1.92
----------------------------------------------------
Less distributions from:
Net investment income ...................... ( .46) ( .64) --
Net realized gains ......................... ( 2.81) ( .67) --
----------------------------------------------------
Total distributions ......................... ( 3.27) ( 1.31) --
----------------------------------------------------
Net asset value, end of year ................ $ 23.27 $ 22.38 $ 22.32
====================================================
Total Return* ............................... 22.54% 6.10% 9.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $20,962 $15,763 $9,665
Ratios to average net assets:
Expenses ................................... .99% 1.03% 1.03%**
Net investment income ...................... 1.71% 2.61% 1.97%**
Portfolio turnover rate ..................... 45.34% 43.18% 45.27%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
See Notes to Financial Statements.
TA-9
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 81.5%
AEROSPACE & MILITARY TECHNOLOGY 1.3%
Rolls-Royce PLC ............................. United Kingdom 2,535,300 $ 8,747,783
------------
APPLIANCES & HOUSEHOLD DURABLES 3.4%
Sony Corp. .................................. Japan 80,200 23,780,985
------------
AUTOMOBILES 4.6%
Autoliv Inc. ................................ Sweden 246,900 7,221,825
Autoliv Inc., SDR ........................... Sweden 129,000 3,776,720
Fiat SpA .................................... Italy 236,170 6,740,581
Ford Motor Co. .............................. United States 84,000 4,488,750
General Motors Corp. ........................ United States 40,000 2,907,500
Volvo AB, B ................................. Sweden 260,000 6,725,456
------------
31,860,832
------------
BANKING 4.2%
Canadian Imperial Bank of Commerce .......... Canada 140,000 3,340,480
DNB Holding ASA ............................. Norway 2,178,900 8,947,864
Foreningssparbanken AB, A ................... Sweden 170,700 2,508,818
*Merita AS ................................... Finland 2,453,000 14,422,148
------------
29,219,310
------------
BUILDING MATERIALS & COMPONENTS .4%
Pioneer International Ltd. .................. Australia 969,005 2,919,935
------------
BUSINESS & PUBLIC SERVICES 1.4%
Kurita Water Industries Ltd. ................ Japan 432,000 6,865,665
Laidlaw Inc. ................................ Canada 549,130 2,882,933
------------
9,748,598
------------
CHEMICALS 1.6%
Akzo Nobel NV ............................... Netherlands 160,600 8,051,827
*Celanese AG ................................. Germany 11,820 218,955
DSM NV, Br. ................................. Netherlands 75,000 3,005,134
------------
11,275,916
------------
DATA PROCESSING & REPRODUCTION 1.5%
Compaq Computer Corp. ....................... United States 386,600 10,462,363
------------
ELECTRICAL & ELECTRONICS 4.3%
Alcatel SA .................................. France 65,119 14,947,279
Koninklijke Philips Electronics NV .......... Netherlands 56,856 7,727,333
Motorola Inc. ............................... United States 47,000 6,920,750
------------
29,595,362
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.0%
Hewlett-Packard Co. ......................... United States 63,750 7,263,516
Intel Corp. ................................. United States 83,500 6,873,094
------------
14,136,610
------------
ENERGY SOURCES 4.0%
Consol Energy ............................... United States 584,000 5,913,000
*Ranger Oil Ltd. ............................. Canada 1,153,490 3,604,656
*Renaissance Energy Ltd. ..................... Canada 549,350 5,509,077
Shell Transport & Trading Co. PLC ........... United Kingdom 1,525,600 12,679,021
------------
27,705,754
------------
FINANCIAL SERVICES 6.5%
AXA SA ...................................... France 97,600 13,598,953
ING Groep NV ................................ Netherlands 222,100 13,402,471
Nomura Securities Co. Ltd. .................. Japan 1,000,600 18,066,321
------------
45,067,745
------------
</TABLE>
TA-10
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER .8%
*Asia Pulp & Paper Co. Ltd., ADR ................... Indonesia 454,800 $ 3,581,550
Assidoman AB ...................................... Sweden 90,000 1,465,608
Assidoman AB, 144A ................................ Sweden 27,000 439,683
-----------
5,486,841
-----------
HEALTH & PERSONAL CARE 7.5%
Aetna Inc. ........................................ United States 16,700 932,069
Aventis SA ........................................ France 290,472 16,873,295
Medeva PLC ........................................ United Kingdom 4,572,675 13,006,300
Ono Pharmaceutical Co. Ltd. ....................... Japan 247,000 6,623,086
Teva Pharmaceutical Industries Ltd., ADR .......... Israel 197,200 14,136,775
-----------
51,571,525
-----------
INDUSTRIAL COMPONENTS .3%
Madeco Manufacturera de Cobre SA, ADR ............. Chile 162,500 1,807,813
-----------
INSURANCE 3.7%
Allstate Corp. .................................... United States 80,000 1,920,000
Torchmark Corp. ................................... United States 90,000 2,615,625
XL Capital Ltd., A ................................ Bermuda 179,400 9,306,375
Zurich Allied AG .................................. Switzerland 20,400 11,631,523
-----------
25,473,523
-----------
MERCHANDISING 3.6%
Best Denki Co. Ltd. ............................... Japan 557,000 5,232,862
Dairy Farm International Holdings Ltd. ............ Hong Kong 900,000 810,000
J. Sainsbury PLC .................................. United Kingdom 1,670,700 9,396,118
Marks & Spencer PLC ............................... United Kingdom 1,232,600 5,861,508
Sears, Roebuck & Co. .............................. United States 42,000 1,278,375
Storehouse ........................................ United Kingdom 3,079,116 2,226,844
-----------
24,805,707
-----------
METALS & MINING 3.8%
Anglogold Ltd., ADR ............................... South Africa 229,700 5,900,419
Barrick Gold Corp. ................................ Canada 375,400 6,685,490
Corus Group PLC ................................... United Kingdom 3,943,000 10,291,296
*Kinross Gold Corp. ................................ Canada 1,727,800 3,202,506
-----------
26,079,711
-----------
MISC MATERIALS & COMMODITIES .2%
Agrium Inc. ....................................... Canada 217,000 1,708,875
-----------
MULTI-INDUSTRY 4.8%
*Alfa SA de CV, A .................................. Mexico 1,150,000 5,401,055
Cheung Kong Holdings Ltd. ......................... Hong Kong 600,000 7,622,049
Swire Pacific Ltd., A ............................. Hong Kong 2,200,000 12,990,288
Williams PLC ...................................... United Kingdom 1,581,900 7,234,961
-----------
33,248,353
-----------
REAL ESTATE .1%
New World Development Co. Ltd. .................... Hong Kong 303,543 683,348
-----------
RECREATION & OTHER CONSUMER GOODS .7%
Mattel Inc. ....................................... United States 377,100 4,949,438
-----------
TELECOMMUNICATIONS 12.1%
AT&T Corp. ........................................ United States 181,500 9,211,125
Korea Telecom Corp., ADR .......................... South Korea 86,800 6,488,300
Nippon Telegraph & Telephone Corp. ................ Japan 860 14,728,189
Portugal Telecom SA ............................... Portugal 380,500 4,171,595
PT Indosat TBK, ADR ............................... Indonesia 370,800 8,018,550
Telecom Corp. of New Zealand Ltd. ................. New Zealand 1,772,000 8,332,811
</TABLE>
TA-11
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
Telecom Italia SpA, di Risp ............................. Italy 1,200,000 $ 7,313,802
Telecomunicacoes de Sao Paulo SA ........................ Brazil 27,228,000 376,957
Telefonica de Argentina SA, B, ADR ...................... Argentina 337,500 10,420,313
Telefonica del Peru SA, B, ADR .......................... Peru 225,400 3,014,725
Telefonos de Mexico SA (Telmex), L, ADR ................. Mexico 101,800 11,452,500
Telesp Celular Participacoes SA ......................... Brazil 22,228,000 210,406
------------
83,739,273
------------
TEXTILES & APPAREL
*Fruit of the Loom Ltd. .................................. United States 160,000 230,000
------------
TRANSPORTATION 4.3%
British Airways PLC ..................................... United Kingdom 1,808,900 11,781,222
*Fritz Cos. Inc. ......................................... United States 350,000 3,675,000
Great Eastern Shipping Co. Ltd. ......................... India 5,225 2,372
Mayne Nickless Ltd., A .................................. Australia 1,730,400 4,464,508
Peninsular & Oriental Steam Navigation Co. .............. United Kingdom 580,000 9,635,891
------------
29,558,993
------------
UTILITIES ELECTRICAL & GAS 4.4%
Endesa SA, ADR .......................................... Spain 88,000 1,776,500
Endesa SA, Br. .......................................... Spain 122,000 2,420,840
Gener SA, ADR ........................................... Chile 287,050 4,449,275
Hong Kong Electric Holdings Ltd. ........................ Hong Kong 2,001,500 6,256,699
Iberdrola SA, Br. ....................................... Spain 85,000 1,177,489
Korea Electric Power Corp. .............................. South Korea 196,000 6,075,914
Veba AG ................................................. Germany 173,800 8,486,157
------------
30,642,874
------------
TOTAL COMMON STOCKS (COST $446,446,036).................. 564,507,467
------------
PREFERRED STOCKS 5.8%
Banco Bradesco SA, pfd. ................................. Brazil 767,000,000 6,016,269
*Banco Bradesco SA, pfd., rts., 2/09/00 .................. Brazil 49,804,449 197,674
Cia Vale do Rio Doce, A, ADR, pfd. ...................... Brazil 371,400 10,279,546
Embratel Participacoes SA, ADR, pfd. .................... Brazil 77,300 2,106,425
Moebel Walther AG, pfd. ................................. Germany 40,092 314,827
News Corp. Ltd., pfd. ................................... Australia 850,000 7,282,223
Petroleo Brasileiro SA (Petrobras), pfd. ................ Brazil 36,000,000 9,166,897
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............. Brazil 110,000 2,688,125
Telecomunicacoes de Sao Paulo SA, pfd. .................. Brazil 40,981,336 993,624
Telesp Celular Participacoes SA, pfd. ................... Brazil 40,981,336 725,936
------------
TOTAL PREFERRED STOCKS (COST $32,117,807)................ 39,771,546
------------
PRINCIPAL
AMOUNT**
------------
BONDS 9.6%
Bonos Y Oblig del Estado, 3.25%, 1/31/05 ................ Spain 1,626,000 EUR 1,500,608
Buoni Poliennali del Tesoro, 7.75%, 11/01/06 ............ Italy 5,685,153 EUR 6,484,726
/dagger/ Essar Steel Ltd., Reg. S, FRN, 7.635%, 7/20/99 .......... India 445,000 269,225
Federal Republic of Germany:
3.25%, 2/17/04 ......................................... Germany 2,331,000 EUR 2,217,888
4.50%, 7/04/09 ......................................... Germany 4,160,000 EUR 3,928,400
Government of Canada:
8.75%, 12/01/05 ........................................ Canada 504,000 CAD 390,909
7.00%, 12/01/06 ........................................ Canada 597,000 CAD 429,725
6.00%, 6/01/08 ......................................... Canada 2,812,000 CAD 1,913,401
Government of France, 3.50%, 7/12/04 .................... France 7,620,000 EUR 7,255,992
Government of Spain, 7.35%, 3/31/07 ..................... Spain 3,201,000 EUR 3,580,621
Government of Netherlands, 5.75%, 2/15/07 ............... Netherlands 3,484,000 EUR 3,606,061
</TABLE>
TA-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS (CONT.)
Government of New Zealand, 7.00%, 7/15/09 ..................... New Zealand 3,614,000 NZD $ 1,847,604
International Bank for Recon/Dev., 5.25%, 3/20/02 ............. Japan 323,900,000 JPY 3,525,228
Kingdom of Belgium, 7.75%, 10/15/04 ........................... Belgium 2,374,000 EUR 2,661,160
Kingdom of Denmark, 7.00%, 12/15/04 ........................... Denmark 18,025,000 DKK 2,615,750
Kingdom of Sweden, 6.00%, 2/09/05 ............................. Sweden 22,400,000 SEK 2,695,190
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 .......... Australia 1,800,000 AUD 1,180,083
Queensland Treasury Corp., 6.50%, 6/14/05 ..................... Australia 725,000 AUD 465,729
Republic of Panama, 8.875%, 9/30/27 ........................... Panama 960,000 808,800
Republic of Peru, FRN, 4.50%, 3/07/17 ......................... Peru 1,560,000 1,080,300
Republic of Turkey, 12.375%, 6/15/09 .......................... Turkey 1,130,000 1,214,750
Republic of Venezuela, 144A, 9.125%, 6/18/07 .................. Venezuela 1,540,000 1,208,900
U.S. Treasury Bond, 5.25%, 11/15/28 ........................... United States 2,660,000 2,192,838
United Kingdom, 7.50%, 12/07/06 ............................... United Kingdom 3,685,000 GBP 6,494,731
United Mexican States:
9.75%, 2/06/01 ............................................... Mexico 2,895,000 2,989,088
6.25%, 12/31/19 .............................................. Mexico 5,050,000 3,980,031
------------
TOTAL BONDS (COST $71,077,244)................................. 66,537,738
------------
SHORT TERM INVESTMENT (COST $13,862,000) 2.0%
Chase Securities Inc., 5.00%, 1/03/00, Time Deposit ........... United States 13,862,000 13,862,000
------------
TOTAL INVESTMENTS (COST $563,503,087) 98.9%.................... 684,678,751
NET EQUITY IN FORWARD CONTRACTS ............................... (138,404)
OTHER ASSETS, LESS LIABILITIES 1.1% ........................... 7,970,491
------------
TOTAL NET ASSETS 100.0% ....................................... $692,510,838
============
</TABLE>
CURRENCY ABBREVIATIONS:
AUD-Australian Dollar
CAD-Canadian Dollar
DKK-Danish Krone
EUR-European Unit
GBP-British Pound
JPY-Japanese Yen
NZD-New Zealand Dollar
SEK-Swedish Krone
*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
/dagger/REPRESENTS BOND IN DEFAULT.
See Notes to Financial Statements.
TA-13
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $563,503,087)............................. $ 684,678,751
Cash ............................................................................... 827
Receivables:
Investment securities sold ........................................................ 6,056,177
Fund shares sold .................................................................. 19,507
Dividends and interest ............................................................ 2,902,685
-------------
Total assets ..................................................................... 693,657,947
-------------
Liabilities:
Payables:
Fund shares redeemed .............................................................. 407,501
To affiliates ..................................................................... 407,962
Unrealized loss on forward exchange contracts (Note 6) ............................. 138,404
Accrued expenses ................................................................... 193,242
-------------
Total liabilities ................................................................ 1,147,109
-------------
Net assets, at value ................................................................ $ 692,510,838
=============
Net assets consist of:
Undistributed net investment income ................................................ $ 11,558,951
Net unrealized appreciation ........................................................ 121,012,673
Accumulated net realized gain ...................................................... 90,365,268
Beneficial shares .................................................................. 469,573,946
-------------
Net assets, at value ................................................................ $ 692,510,838
=============
CLASS 1:
Net asset value per share ($671,549,182 /divided by/ 28,735,325 shares outstanding) $ 23.37
=============
CLASS 2:
Net asset value per share ($20,961,656 /divided by/ 900,625 shares outstanding) .... $ 23.27
=============
</TABLE>
See Notes to Financial Statements.
TA-14
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,410,771)
Dividends ............................................................... $13,862,828
Interest ................................................................ 5,001,404
-----------
Total investment income ............................................... $ 18,864,232
Expenses:
Management fees (Note 3) ................................................ 4,072,911
Administrative fees (Note 3) ............................................ 650,654
Distribution fees - Class 2 (Note 3) .................................... 40,932
Custodian fees .......................................................... 186,300
Reports to shareholders ................................................. 49,100
Professional fees ....................................................... 50,300
Trustees' fees and expenses ............................................. 1,900
Other ................................................................... 1,722
-----------
Total expenses ........................................................ 5,053,819
------------
Net investment income ................................................ 13,810,413
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ 89,558,771
Foreign currency transactions .......................................... (768,331)
-----------
Net realized gain ..................................................... 88,790,440
Net unrealized appreciation (depreciation) on:
Investments ............................................................ 36,610,311
Translation of assets and liabilities denominated in foreign currencies (185,188)
-----------
Net unrealized appreciation ........................................... 36,425,123
------------
Net realized and unrealized gain ......................................... 125,215,563
------------
Net increase in net assets resulting from operations ..................... $139,025,976
============
</TABLE>
See Notes to Financial Statements.
TA-15
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 13,810,413 $ 21,455,483
Net realized gain from investments and foreign currency transactions .................. 88,790,440 78,748,336
Net unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies ....................................... 36,425,123 (56,540,967)
-----------------------------------
Net increase in net assets resulting from operations ................................ 139,025,976 43,662,852
Distributions to shareholders from:
Net investment income:
Class 1 .............................................................................. (14,822,362) (21,506,765)
Class 2 .............................................................................. (310,147) (313,012)
Net realized gains:
Class 1 .............................................................................. (82,476,906) (21,669,695)
Class 2 .............................................................................. (1,907,029) (324,175)
Fund share transactions (Note 2):
Class 1 .............................................................................. (58,852,355) (43,165,375)
Class 2 .............................................................................. 3,928,278 6,008,335
-----------------------------------
Net decrease in net assets .......................................................... (15,414,545) (37,307,835)
Net assets:
Beginning of year ...................................................................... 707,925,383 745,233,218
-----------------------------------
End of year ............................................................................ $ 692,510,838 $ 707,925,383
===================================
Undistributed net investment income included in net assets:
End of year ............................................................................ $ 11,558,951 $ 21,118,700
===================================
</TABLE>
See Notes to Financial Statements.
TA-16
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Asset Allocation Fund (the Fund) is a separate, diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The
Fund seeks a high level of total return through a flexible policy of investing
in stocks of companies in any nation, debt obligations of companies and
governments of any nation, and money market instruments. The following
summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does 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, and 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 currency denominated assets and liabilities other than investments
in securities held at the end of the reporting period.
c. 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 Fund. 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.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
d. INDEXED SECURITIES:
The 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
TA-17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. INDEXED SECURITIES: (CONT.)
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.
e. FOREIGN EXCHANGE CONTRACTS:
The Fund 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.
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.
2. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class, and the exchange privilege of each class.
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 240,379 $ 5,144,326 1,101,798 $ 24,979,341
Shares issued on reinvestment of distributions 5,305,304 97,299,268 1,918,954 43,176,460
Shares redeemed ............................... (7,631,687) (161,295,949) (5,108,135) (111,321,176)
-------------------------------------------------------------------
Net decrease .................................. (2,086,004) $ (58,852,355) (2,087,383) $ (43,165,375)
===================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 279,540 $ 5,948,034 359,493 $ 7,948,841
Shares issued on reinvestment of distributions 121,157 2,217,176 28,357 637,187
Shares redeemed ............................... (204,412) (4,236,932) (116,620) (2,577,693)
---------------------------------------------------------
Net increase .................................. 196,285 $ 3,928,278 271,230 $ 6,008,335
=========================================================
</TABLE>
TA-18
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc.(FT
Services), and Franklin/Templeton Distributors, Inc. (Distributors), the Fund's
investment manager, administrative manager, and principal underwriter,
respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------- ----------------------------------------------------
<S> <C>
0.65% First $200 million
0.585% Over $200 million, up to and including $1.3 billion
0.52% Over $1.3 billion
</TABLE>
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------- ----------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 millon, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TICI and FT Services have agreed in advance to limit total expenses of the Fund
to an annual rate of 0.78% and 1.03% of average daily net assets of Class 1 and
Class 2 shares, respectively, through December 31, 2000. For the year ended
December 31, 1999, no reimbursement was necessary under the agreement.
The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.
4. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $563,506,349 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 180,541,743
Unrealized depreciation ............. (59,369,341)
-------------
Net unrealized appreciation ......... $ 121,172,402
=============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $296,644,396 and $433,439,832,
respectively.
6. OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance-sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized in the Statement of
TA-19
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (continued)
6. OFF-BALANCE SHEET RISK (CONT.)
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 Fund's involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
As of December 31, 1999, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
NET
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE LOSS
- ------------------ ------------------------------------------------
<S> <C> <C> <C>
355,578,000 Japanese Yen ......... U.S. $3,383,425 3/14/00 U.S. $(138,404)
----------------
</TABLE>
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including Templeton Asset Allocation Fund,
are participants in a $750 million senior unsecured credit agreement for
temporary borrowing purposes. The termination date of the agreement is March 1,
2000. Interest is calculated on the Fund's borrowings at market rates. At
December 31, 1999, the Fund had not utilized this credit facility.
8. SUBSEQUENT EVENT
On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Asset
Allocation Fund.
TA-20
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Asset Allocation Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian, provides
a reasonable basis for the opinion expressed above. The financial statements
for the year ended December 31, 1998, including the financial highlights for
each of the four years in the period then ended were audited by other
independent accountants whose report dated January 28, 1999 expressed an
unqualified opinion on those financial statements.
/s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000
TA-21
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
TA-22
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $78,840,235 as a capital gain dividend for the fiscal year ended
December 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 5.00% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.
TA-23
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON BOND FUND SEEKS HIGH,
CURRENT INCOME. THE FUND SEEKS TO ACHIEVE ITS GOAL THROUGH A FLEXIBLE POLICY OF
INVESTING PRIMARILY IN DEBT SECURITIES OF COMPANIES, GOVERNMENTS AND GOVERNMENT
AGENCIES OF VARIOUS NATIONS THROUGHOUT THE WORLD.
- --------------------------------------------------------------------------------
During the year under review, a booming U.S. economy, renewed European economic
growth, a strengthening of Asian economies (especially Japan's) and an upswing
in many Latin American economies all contributed to concerns about inflation
and rising interest rates. Global bond markets generally performed dismally,
with the J.P. Morgan Global Government Bond Index declining 5.08% in U.S.
dollar terms.1/
[This chart shows in pie format the geographic distribution of the Templeton
Bond Fund, based on total net assets as of 12/31/99.]
Europe 38.3%
North America 26.2%
Latin America 14.1%
Australia & New Zealand 5.9%
Asia 5.0%
Short-Term Investments & Other Net Assets 10.5%
The overall decline in bond prices was led by the United States, whose economy
expanded for a ninth consecutive year--the longest expansion in the nation's
history. Although the Consumer Price Index (CPI), a commonly used measure of
inflation, wasn't much above the five-year average, the U.S. Federal Reserve
Board (the Fed) raised interest rates on three separate occasions in an effort
to cool the buoyant economy. Despite the Fed's credit tightening, the economy,
as measured by gross domestic product (GDP), continued at a blistering 5.7%
annualized rate through the third quarter, increasing to 5.8% in the fourth.
The 30-year Treasury bond posted a -12.98% total return for the year, and the
J.P. Morgan U.S. Government Bond Index posted a return of -2.88%./1/
European bond markets also fell throughout most of the reporting period as
deregulation, restructuring and economic expansion took hold in much of the
region. In addition, the European Monetary Union's (EMU) new currency, the
euro, plummeted 14% against the U.S. dollar over the course of the reporting
period due to outperformance of U.S. economic growth and equity markets
compared to European countries. As a result of slumping bond prices and the
declining value of the euro, yields generally trended higher. The EMU
Government Bond Index fell 16.89% in U.S. dollar terms, and the UK Bond Index
plunged following the Bank of England's interest rate increases in the second
half of 1999. German, Italian, Spanish, Danish and Swedish bond prices also
fell significantly./1/
1. Source: J.P. Morgan Government Bond Index Monitor. The J.P. Morgan Global
Government Bond Index tracks the performance of government securities in
several countries. The J.P. Morgan U.S. Government Bond Index tracks the
performance of U.S. government securities. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
TB-1
<PAGE>
In Asia, many nations recovered from their economic woes of previous years, and
the Japanese economy bounced back impressively after a decade in the doldrums.
Though most foreign bonds offered dismal returns in 1999, Japan's bucked the
trend, returning 5.01% in local currency terms, mostly as a result of investor
expectations of an economic recovery, stable interest rates, and a stronger
yen. For the year, the yen was up 29% against the euro and 10% against the U.S.
dollar.
However, the Japanese bond market slid toward the end of the reporting period
amid concerns surrounding the larger-than-expected magnitude of the
government's fiscal package for the fourth quarter, coupled with the
possibility that Moody's (an agency that assigns credit ratings to bonds) might
downgrade Japanese government debt. Elsewhere in the Pacific Rim, the
dollar-bloc countries (Australia and New Zealand) realized vigorous economic
growth, and despite plummeting bond prices in the second half of the reporting
period, they remained slightly ahead of abysmal U.S. and European results for
the year.
Despite troubling economic developments in Ecuador and Brazil during the
summer, Latin American economies generally continued to rally during the year.
Thanks to its high level of trade and connections with the U.S., Mexico's
performed best. Latin American bonds and emerging debt in general fared better
than the U.S., and the J.P. Morgan Emerging Market Bond Index Plus rose 26.00%
in 1999./2/
During the 12 months under review, we attempted to maximize the Fund's return
by allocating about 75% of total net assets to intermediate- and long-term
bonds in developed industrial markets, and about 15% to what we believed to be
the highest quality and most liquid bonds available in emerging markets. In our
opinion, this combination offered opportunity for higher long-term returns at
the cost of modestly increased short-term volatility.
2. Source: J.P. Morgan Emerging Markets Bond Index Plus. The J.P. Morgan
Emerging Markets Bond Index Plus tracks the performance of fixed income
securities in several emerging markets. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
TB-2
<PAGE>
On December 31, 1998, 43.4% of the portfolio was dedicated to North American
issues. By the end of the year, we trimmed our position to just over 26%
because we believed there would be better opportunities for total return in
emerging markets and Europe. We also reduced the Fund's stake in the Pacific
Rim dollar-bloc countries (Australia and New Zealand) by about 2.5% and
initiated a 4.4% position in Japan. Our Latin American stake nearly doubled
over the year, from 7.7% to 14.1% of total net assets, most of which was
invested in Mexico. Most Latin bonds in the portfolio were U.S.
dollar-denominated sovereign Eurobonds with fixed coupons, issued by countries
with strong repayment capacity. The Fund's allocation to emerging markets added
positively to its 1999 performance, and we expect this trend to continue into
the first half of 2000. Although we anticipate emerging market bond prices to
experience some volatility, we believe these positions may offer superior
returns during the next two to five years.
Looking forward, the critical issue for global interest rates will continue to
be the balance between global growth and inflation. Although U.S. economic
growth is expected to decrease slightly to around 3.0% to 3.5% in 2000, we
believe the trend in world economic growth is clearly positive, and global
inflation may pick up slightly in the near future. Although this is not
considered an ideal environment for high-quality bonds, the management team
believes a diversified global fixed-income portfolio should still perform
positively over the intermediate term.
TB-3
<PAGE>
It is important to remember that the Fund may invest in lower-rated "junk
bonds," which have higher credit risks. Foreign securities investments involve
special risks including changes in currency values, market price swings, and
economic, social and political developments in the countries where the Fund is
invested. Developing markets involve similar but heightened risks related to
their smaller size and lesser liquidity. These risks are discussed in the
prospectus.
We thank you for investing in the Templeton Bond Fund and welcome your comments
or suggestions.
Sincerely,
Templeton Global Bond Managers
Portfolio Management Team
Templeton Bond Fund
This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
TB-4
<PAGE>
PERFORMANCE SUMMARY AS OF 12/31/99
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)
The graph below compares the performance of Templeton Bond Fund -- Class 1
and the J.P. Morgan Global Government Bond Index, including reinvested
interest, as well as the Consumer Price Index (CPI). The Fund's total return
represents the change in value of an investment over the periods shown and
assumes reinvestment of dividends and capital gains at net asset value. The
J.P. Morgan Global Government Bond Index includes only actively traded,
fixed-rate bonds with a remaining maturity of one year or longer. It is an
aggregate of government securities issued in 13 countries and includes
reinvested interest. The index is unhedged and expressed in terms of U.S.
dollars. The CPI is a commonly used measure of inflation. The Fund's
performance differs from an index's because an index is not managed, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. The index sources are J.P. Morgan and Standard & Poor's
Micropal (U.S. Bureau of Labor Statistics).
[The following line graph compares the performance of the Templeton Bond Fund -
Class 1 to that of the J.P. Morgan Global Government Bond Index and the Consumer
Price Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]
Templeton J.P. Morgan Global
Bond Fund - Government Bond Index CPI
Class I
-----------------------------------------------------------
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,913 $9,851 $10,103
02/28/1990 $9,922 $9,744 $10,150
03/31/1990 $9,932 $9,685 $10,206
04/30/1990 $9,835 $9,647 $10,223
05/31/1990 $10,078 $9,955 $10,246
06/30/1990 $10,214 $10,135 $10,301
07/31/1990 $10,321 $10,433 $10,341
08/31/1990 $10,204 $10,352 $10,436
09/30/1990 $10,262 $10,449 $10,523
10/31/1990 $10,389 $10,861 $10,587
11/30/1990 $10,544 $11,053 $10,610
12/31/1990 $10,633 $11,176 $10,610
01/31/1991 $10,797 $11,429 $10,674
02/28/1991 $10,849 $11,440 $10,690
03/31/1991 $10,910 $11,083 $10,706
04/30/1991 $10,993 $11,217 $10,722
05/31/1991 $11,065 $11,226 $10,754
06/30/1991 $11,003 $11,076 $10,785
07/31/1991 $11,127 $11,310 $10,801
08/31/1991 $11,425 $11,546 $10,832
09/30/1991 $11,682 $11,967 $10,880
10/31/1991 $11,847 $12,085 $10,896
11/30/1991 $11,991 $12,282 $10,928
12/31/1991 $12,320 $12,902 $10,936
01/31/1992 $12,028 $12,650 $10,952
02/29/1992 $12,051 $12,613 $10,992
03/31/1992 $11,939 $12,496 $11,048
04/30/1992 $11,984 $12,600 $11,063
05/31/1992 $12,264 $12,958 $11,079
06/30/1992 $12,555 $13,311 $11,118
07/31/1992 $12,925 $13,605 $11,142
08/31/1992 $13,037 $13,967 $11,173
09/30/1992 $12,992 $13,953 $11,204
10/31/1992 $12,892 $13,605 $11,243
11/30/1992 $12,813 $13,363 $11,259
12/31/1992 $13,002 $13,490 $11,251
01/31/1993 $13,264 $13,718 $11,306
02/28/1993 $13,609 $13,939 $11,346
03/31/1993 $13,621 $14,154 $11,386
04/30/1993 $13,681 $14,411 $11,418
05/31/1993 $13,693 $14,503 $11,434
06/30/1993 $13,907 $14,515 $11,450
07/31/1993 $14,122 $14,521 $11,450
08/31/1993 $14,349 $14,951 $11,482
09/30/1993 $14,289 $15,109 $11,506
10/31/1993 $14,432 $15,101 $11,553
11/30/1993 $14,229 $14,991 $11,561
12/31/1993 $14,492 $15,144 $11,561
01/31/1994 $14,778 $15,287 $11,592
02/28/1994 $14,313 $15,119 $11,632
03/31/1994 $13,835 $15,050 $11,671
04/30/1994 $13,772 $15,038 $11,688
05/31/1994 $13,696 $14,914 $11,696
06/30/1994 $13,619 $15,091 $11,736
07/31/1994 $13,696 $15,233 $11,767
08/31/1994 $13,721 $15,194 $11,814
09/30/1994 $13,721 $15,269 $11,846
10/31/1994 $13,886 $15,497 $11,854
11/30/1994 $13,797 $15,302 $11,870
12/31/1994 $13,784 $15,338 $11,870
01/31/1995 $13,861 $15,648 $11,917
02/28/1995 $14,121 $16,051 $11,965
03/31/1995 $14,361 $16,868 $12,005
04/30/1995 $14,641 $17,137 $12,044
05/31/1995 $15,014 $17,615 $12,068
06/30/1995 $15,068 $17,725 $12,092
07/31/1995 $15,121 $17,809 $12,092
08/31/1995 $15,014 $17,314 $12,124
09/30/1995 $15,254 $17,704 $12,148
10/31/1995 $15,508 $17,877 $12,188
11/30/1995 $15,601 $18,076 $12,180
12/31/1995 $15,841 $18,300 $12,171
01/31/1996 $15,748 $18,112 $12,243
02/29/1996 $15,668 $18,007 $12,282
03/31/1996 $15,713 $17,979 $12,346
04/30/1996 $15,802 $17,913 $12,394
05/31/1996 $15,877 $17,931 $12,418
06/30/1996 $16,070 $18,088 $12,425
07/31/1996 $16,130 $18,420 $12,449
08/31/1996 $16,339 $18,497 $12,472
09/30/1996 $16,548 $18,599 $12,512
10/31/1996 $16,890 $18,968 $12,552
11/30/1996 $17,308 $19,239 $12,576
12/31/1996 $17,338 $19,105 $12,576
01/31/1997 $17,129 $18,627 $12,616
02/28/1997 $17,081 $18,498 $12,655
03/31/1997 $17,001 $18,358 $12,687
04/30/1997 $17,113 $18,254 $12,702
05/31/1997 $17,210 $18,685 $12,695
06/30/1997 $17,403 $18,897 $12,710
07/31/1997 $17,499 $18,828 $12,725
08/31/1997 $17,451 $18,805 $12,749
09/30/1997 $17,772 $19,222 $12,781
10/31/1997 $17,644 $19,630 $12,813
11/30/1997 $17,660 $19,394 $12,806
12/31/1997 $17,772 $19,373 $12,790
01/31/1998 $17,965 $19,568 $12,814
02/28/1998 $18,126 $19,713 $12,839
03/31/1998 $18,204 $19,564 $12,863
04/30/1998 $18,255 $19,865 $12,886
05/31/1998 $18,238 $19,951 $12,910
06/30/1998 $18,238 $20,006 $12,925
07/31/1998 $18,290 $20,061 $12,941
08/31/1998 $17,584 $20,615 $12,956
09/30/1998 $18,393 $21,691 $12,972
10/31/1998 $18,806 $22,177 $13,003
11/30/1998 $18,961 $21,927 $13,003
12/31/1998 $19,047 $22,340 $12,995
01/31/1999 $19,081 $22,156 $13,026
02/28/1999 $18,427 $21,416 $13,042
03/31/1999 $18,539 $21,469 $13,081
04/30/1999 $18,629 $21,463 $13,176
05/31/1999 $18,234 $21,086 $13,176
06/30/1999 $18,019 $20,733 $13,176
07/31/1999 $18,073 $21,188 $13,216
08/31/1999 $17,893 $21,243 $13,248
09/30/1999 $18,037 $21,549 $13,311
10/31/1999 $17,965 $21,522 $13,335
11/30/1999 $17,840 $21,266 $13,343
12/31/1999 $17,929 $21,205 $13,343
The historical performance figures shown pertain only to the Fund's Class 1
shares.
TEMPLETON BOND FUND
- -- CLASS 1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
12/31/99
<S> <C>
1-Year -5.87%
5-Year 5.40%
10-Year 6.01%
Since Inception
(8/31/88) 6.14%
</TABLE>
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had been
included, performance would be lower. These Contract charges and deductions,
particularly for variable life policies, can have a significant effect on
Contract values and insurance benefits. See the Contract prospectus for a
complete description of these expenses, including sales charges.
Past performance does not guarantee future results.
TB-5
<PAGE>
TEMPLETON BOND FUND
- -- CLASS 1
Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility and the
social, economic and political climates of countries where the Fund
invests. Emerging markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size
and lesser liquidity. Changes in issuers' financial strength may affect
debt securities' values and, thus, impact the value of Fund shares. You may
have a gain or loss when you sell your shares.
PERFORMANCE
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.
<TABLE>
<CAPTION>
Templeton Bond Fund -- Class 1
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return -5.87% 30.07% 79.29% 96.68%
Average Annual Total Return -5.87% 5.40% 6.01% 6.14%
Value of $10,000 Investment $ 9,413 $ 13,007 $ 17,929 $ 19,668
</TABLE>
Past performance does not guarantee future results.
TB-6
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 11.07 $ 11.06 $ 11.63 $ 11.88 $ 10.86
---------------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .59 .79 .80 .85 .80
Net realized and unrealized gains (losses) .......... ( 1.23) ( .03) ( .53) .14 .76
----------------------------------------------------------------------
Total from investment operations ...................... ( .64) .76 .27 .99 1.56
----------------------------------------------------------------------
Less distributions from net investment income ......... ( .44) ( .75) ( .84) ( 1.24) ( .54)
----------------------------------------------------------------------
Net asset value, end of year .......................... $ 9.99 $ 11.07 $ 11.06 $ 11.63 $ 11.88
======================================================================
Total Return* ......................................... ( 5.87)% 7.17% 2.51% 9.45% 14.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $20,492 $30,207 $ 31,826 $ 34,046 $ 32,910
Ratios to average net assets:
Expenses ............................................ .71% .73% .68% .68% .78%
Net investment income ............................... 5.74% 6.83% 6.90% 7.35% 7.14%
Portfolio turnover rate ............................... 65.48% 89.86% 154.23% 141.19% 188.11%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
TB-7
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
--------------------------
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 11.11
--------
Income from investment operations:
Net investment income ............................... .53
Net realized and unrealized loss .................... ( 1.23)
--------
Total from investment operations ...................... ( .70)
--------
Less distributions from net investment income ......... ( .44)
--------
Net asset value, end of year .......................... $ 9.97
========
Total Return* ......................................... ( 6.39)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 520
Ratios to average net assets:
Expenses ............................................ .86%**
Net investment income ............................... 5.54%**
Portfolio turnover rate ............................... 65.48%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD JANUARY 19, 1999 (COMMENCEMENT OF SALES) TO DECEMBER 31,
1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
See Notes to Financial Statements.
TB-8
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 89.5%
ARGENTINA 1.4%
Republic of Argentina, 11.75%, 4/07/09 ........................ $ 290,000 $ 289,637
-----------
AUSTRALIA 3.5%
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 .......... 800,000 AUD 524,481
Queensland Treasury Corp., 6.50%, 6/14/05 ..................... 318,000 204,278
-----------
728,759
-----------
BELGIUM 1.8%
Kingdom of Belgium, 7.75%, 10/15/04 ........................... 331,000 EUR 371,039
-----------
BRAZIL .6%
Republic of Brazil, FRN, 7.00%, 4/15/09 ....................... 170,000 136,956
-----------
BULGARIA 2.3%
Republic of Bulgaria, Series A, FRN, 6.50%, 7/28/24 ........... 605,000 485,894
-----------
CANADA 1.6%
Government of Canada:
8.75%, 12/01/05 .............................................. 210,000 CAD 162,879
7.00%, 12/01/06 .............................................. 249,000 CAD 179,232
-----------
342,111
-----------
COLOMBIA .9%
Republic of Columbia, 9.75%, 4/23/09 .......................... 200,000 191,661
-----------
DENMARK 2.1%
Kingdom of Denmark, 7.00%, 12/15/04 ........................... 3,050,000 DKK 442,610
-----------
GERMANY 12.6%
Federal Republic of Germany:
3.25%, 2/17/04 ............................................... 1,004,000 EUR 955,281
4.50%, 7/04/09 ............................................... 1,792,000 EUR 1,692,234
-----------
2,647,515
-----------
INDIA .1%
/dagger/ Essar Steel Ltd., Reg. S, FRN, 7.635%, 7/20/99 ................ 50,000 30,250
-----------
ITALY 7.8%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00 .............................................. 612,000 EUR 634,058
7.75%, 11/01/06 .............................................. 877,975 EUR 1,001,456
-----------
1,635,514
-----------
JAPAN 4.4%
International Bank for Recon/Dev., 5.25%, 3/20/02 ............. 84,700,000 JPY 921,849
-----------
MEXICO 8.6%
United Mexican States:
9.75%, 4/06/05 ............................................... 650,000 676,812
11.375%, 9/15/16 ............................................. 175,000 198,546
6.25%, 12/31/19 .............................................. 800,000 630,500
11.50%, 5/15/26 .............................................. 250,000 297,812
-----------
1,803,670
-----------
NEW ZEALAND 2.4%
Government of New Zealand, 7.00%, 7/15/09 ..................... 990,000 NZD 506,123
-----------
PANAMA .7%
Republic of Panama, 8.875%, 9/30/27 ........................... 170,000 143,225
-----------
PERU .8%
Republic of Peru, FRN, 4.50%, 3/07/17 ......................... 235,000 162,738
-----------
SPAIN 2.5%
Bonos Y Oblig del Estado, 3.25%, 1/31/05 ...................... 567,000 EUR 523,275
-----------
</TABLE>
TB-9
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
SWEDEN 3.3%
Kingdom of Sweden, 6.00%, 2/09/05 ............................ 5,800,000 SEK $ 697,862
-----------
TURKEY .5%
Republic of Turkey, 12.375%, 6/15/09 ......................... 100,000 107,500
-----------
UNITED KINGDOM 5.9%
United Kingdom:
6.50%, 12/07/03 ............................................. 220,000 GBP 359,064
7.50%, 12/07/06 ............................................. 500,000 GBP 881,239
-----------
1,240,303
-----------
UNITED STATES 24.6%
U.S. Treasury Bonds:
6.125%, 11/15/27 ............................................ 412,000 383,289
5.25%, 11/15/28 ............................................. 2,335,000 1,924,916
U.S. Treasury Notes:
4.50%, 1/31/01 .............................................. 2,100,000 2,065,875
7.25%, 8/15/04 .............................................. 772,000 796,849
-----------
5,170,929
-----------
VENEZUELA 1.1%
Republic of Venezuela, 144A, 9.125%, 6/18/07 ................. 300,000 235,500
-----------
TOTAL LONG TERM SECURITIES (COST $20,020,014)................. 18,814,920
-----------
SHORT TERM INVESTMENTS 9.2%
Chase Securities Inc., 5.00%, 1/03/00, Time Deposit .......... 929,000 929,000
U.S. Treasury Bill, 4.95%, 1/20/00 ........................... 1,000,000 997,634
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,926,250)................ 1,926,634
-----------
TOTAL INVESTMENTS (COST $21,946,264) 98.7%.................... 20,741,554
NET EQUITY IN FORWARD CONTRACTS (.2%) ........................ (36,192)
OTHER ASSETS, LESS LIABILITIES 1.5% .......................... 306,522
-----------
TOTAL NET ASSETS 100.0% ...................................... $21,011,884
===========
</TABLE>
CURRENCY ABBREVIATIONS:
AUD--Australian Dollar
CAD--Canadian Dollar
DKK--Danish Krone
EUR--European Unit
GBP--British Pound
JPY--Japanese Yen
NZD--New Zealand Dollar
SEK--Swedish Krone
*SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
/dagger/REPRESENTS BOND IN DEFAULT.
See Notes to Financial Statements.
TB-10
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $21,946,264)........................... $ 20,741,554
Cash ............................................................................ 50
Interest receivable ............................................................. 356,156
------------
Total assets .................................................................. 21,097,760
------------
Liabilities:
Payables:
Fund shares redeemed ........................................................... 14,739
To affiliates .................................................................. 10,884
Unrealized loss on forward exchange contracts (Note 6) .......................... 36,192
Accrued expenses ................................................................ 24,061
------------
Total liabilities ............................................................. 85,876
------------
Net assets, at value ............................................................. $ 21,011,884
============
Net assets consist of:
Undistributed net investment income ............................................. $ 681,677
Net unrealized depreciation ..................................................... (1,246,084)
Accumulated net realized loss ................................................... (2,715,912)
Beneficial shares ............................................................... 24,292,203
------------
Net assets, at value ............................................................. $ 21,011,884
============
CLASS 1:
Net asset value per share ($20,492,284 /divided by/ 2,052,007 shares outstanding) $ 9.99
============
CLASS 2:
Net asset value per share ($519,600 /divided by/ 52,109 shares outstanding)...... $ 9.97
============
</TABLE>
See Notes to Financial Statements.
TB-11
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Interest Income .......................................................... $ 1,584,597
Expenses:
Management fees (Note 3) ................................................ 122,550
Administrative fees (Note 3) ............................................ 23,758
Distribution fees--Class 2 (Note 3) ..................................... 417
Custodian fees .......................................................... 5,800
Reports to shareholders ................................................. 7,500
Professional fees ....................................................... 14,100
Trustees' fees and expenses ............................................. 700
Other ................................................................... 216
-------
Total expenses ......................................................... 175,041
------------
Net investment income ................................................. 1,409,556
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ (1,224,498)
Foreign currency transactions .......................................... 27,937
----------
Net realized loss ..................................................... (1,196,561)
Net unrealized depreciation on:
Investments ............................................................ (1,757,294)
Translation of assets and liabilities denominated in foreign currencies (46,136)
----------
Net unrealized depreciation ........................................... (1,803,430)
------------
Net realized and unrealized loss ......................................... (2,999,991)
------------
Net decrease in net assets resulting from operations ..................... $ (1,590,435)
============
</TABLE>
See Notes to Financial Statements.
TB-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 1,409,556 $ 2,078,728
Net realized loss from investments and foreign currency transactions ................... (1,196,561) (1,004,448)
Net unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies ........................................ (1,803,430) 1,014,416
---------------------------------
Net increase (decrease) in net assets resulting from operations ....................... (1,590,435) 2,088,696
Distributions to shareholders from:
Net investment income:
Class 1 ................................................................................ (1,132,000) (2,063,703)
Class 2 ................................................................................ (3,631) --
Fund share transactions (Note 2):
Class 1 ................................................................................ (7,003,085) (1,644,280)
Class 2 ................................................................................ 534,148 --
---------------------------------
Net decrease in net assets ............................................................ (9,195,003) (1,619,287)
Net assets:
Beginning of year ....................................................................... 30,206,887 31,826,174
---------------------------------
End of year ............................................................................. $ 21,011,884 $ 30,206,887
=================================
Undistributed net investment income included in net assets:
End of year ............................................................................. $ 681,677 $ 1,116,147
=================================
</TABLE>
See Notes to Financial Statements.
TB-13
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Bond Fund (the Fund) is a separate, non-diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The
Fund seeks high current income through a flexible policy of investing primarily
in debt securities of companies, governments and government agencies of various
nations throughout the world. The following summarizes the Fund's significant
accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does 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, and 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 currency denominated assets and liabilities other than investments
in securities held at the end of the reporting period.
c. 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 Fund. Interest income and estimated expenses
are accrued daily. 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.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
d. INDEXED SECURITIES:
The 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
TB-14
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. INDEXED SECURITIES: (CONT.)
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.
e. FOREIGN EXCHANGE CONTRACTS:
The Fund 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.
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.
2. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class, and the exchange privilege of each class.
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 128,190 $ 1,330,175 371,187 $ 3,983,652
Shares issued on reinvestment of distributions 110,872 1,132,000 195,983 2,063,703
Shares redeemed ............................... (915,796) (9,465,260) (716,054) (7,691,635)
---------------------------------------------------------------
Net decrease .................................. (676,734) $ (7,003,085) (148,884) $ (1,644,280)
===============================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999*
--------------------------
SHARES AMOUNT
CLASS 2 SHARES: --------------------------
<S> <C> <C>
Shares sold ................................... 65,282 $ 669,680
Shares issued on reinvestment of distributions 355 3,631
Shares redeemed ............................... (13,528) (139,163)
------------------------
Net increase .................................. 52,109 $ 534,148
========================
</TABLE>
*Commencement of sales of Class 2 shares was January 19, 1999.
TB-15
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services) and Franklin/Templeton Distributors, Inc. (Distributors), the Fund's
investment manager, administrative manager, and principal underwriter,
respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.50% First $200 million
0.45% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion
</TABLE>
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.15% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.
4. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At December 31, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 233,705
Unrealized depreciation ............. (1,438,415)
-------------
Net unrealized depreciation ......... $ (1,204,710)
=============
</TABLE>
At December 31, 1999, the Fund had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
<TABLE>
<S> <C>
2002 ......... $1,294,963
2003 ......... 570,056
2007 ......... 502,340
----------
$2,367,359
==========
</TABLE>
At December 31, 1999 the Fund has deferred capital and currency losses
occurring subsequent to October 31, 1999 of $385,000. For tax purposes, such
losses will be reflected in the year ending December 31, 2000.
TB-16
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $15,191,484 and $21,068,203,
respectively.
6. OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance-sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized in the Statement 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 Fund's involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
As of December 31, 1999, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
NET
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE LOSS
- ------------------ ---------------------------------------------
<S> <C> <C> <C>
92,984,000 Japanese Yen ......... U.S. $884,770 3/14/00 U.S. $(36,192)
---------------
</TABLE>
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including Templeton Bond Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.
8. SUBSEQUENT EVENT
On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Income
Securities Fund.
TB-17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Bond Fund, series of
Templeton Variable Products Series Fund at December 31, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian, provides
a reasonable basis for the opinion expressed above. The financial statements
for the year ended December 31, 1998, including the financial highlights for
each of the four years in the period then ended were audited by other
independent accountants whose report dated January 28,1999 expressed an
unqualified opinion on those financial statements.
/s/PRICEWATERHOUSECOOPERS LLP
Ft.Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000.
TB-18
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
TB-19
<PAGE>
TEMPLETON DEVELOPING MARKETS FUND
- --------------------------------------------------------------------------------
Investment Goal and Principal Investments: 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.
- --------------------------------------------------------------------------------
This annual report of Templeton Developing Markets Fund covers the 12 months
ended December 31, 1999. During this period, many emerging markets recovered
substantially in 1999 despite the war in Kosovo, tensions between China and
Taiwan, military conflicts between India and Pakistan, the near collapse of one
of South Korea's largest conglomerates, the floating of Brazil's currency and
earthquakes in Turkey, Greece and Taiwan. Political change was also widespread
throughout emerging markets as citizens of Indonesia, South Africa and
Argentina elected new leadership, while a military coup put a new government in
charge of Pakistan. The stability of the Polish and Czech governments appeared
to be in question for most of the year, and questions about Boris Yeltsin were
not laid to rest until December 31, 1999, when he resigned and handed over
control of Russia to Vladimir Putin.
Asia led the economic recovery, as many Asian nations shifted to economies led
by domestic consumption rather than by trade. The recovery strengthened
throughout the year as domestic consumption began showing signs of improvement
and import growth outpaced that of exports.
In Latin America, most economies were relatively weak, but improved commodity
prices led many investors to believe that these economies were bottoming out.
Brazil's currency devaluation had only moderately adverse effects on inflation
and economic growth. Although the election of a new president in Argentina
combined with concerns about the currency peg and the level of national debt
appeared to affect the equity market there, the government is expected to
reduce the fiscal deficit in the near future. And continued reform in Brazil,
coupled with Venezuela's restructuring and a new government in Chile, led many
to conclude that these economies could return to growth in 2000.
[This chart shows in pie format the geographic distribution of the Templeton
Developing Markets Fund, based on total net assets as of 12/31/99.]
Asia 36.5%
Latin America 35.6%
Middle East & Africa 15.0%
Europe 9.4%
Short-Term Investments & Other Net Assets 3.5%
TD-1
<PAGE>
[This chart lists the top 10 countries represented in the Templeton Developing
Markets Fund, based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton Developing Markets Fund
12/31/99
% OF TOTAL
COUNTRY NET ASSETS
==================================
<S> <C>
Brazil 16.5%
South Africa 14.0%
Mexico 9.8%
Singapore 6.6%
Thailand 6.3%
Indonesia 5.9%
South Korea 5.4%
Argentina 5.1%
Hong Kong 4.5%
Turkey 3.4%
</TABLE>
Convergence with European Union admission standards proved beneficial for
eastern and southern European economies during the year. Although natural
disasters in Turkey and Greece coupled with stalled privatization attempts in
other eastern European countries hampered economic growth in the region, the
long-term outlook for emerging Europe seems bright as European Union membership
prompts these countries to reform their economies.
In South Africa, the strengthening of gold prices during the year in addition
to greater demand for diamonds and other natural resources helped propel the
nation's economy forward. The ongoing streamlining of large South African
corporations and increased international demand for their products further
fueled economic strength.
During the fiscal year, strong growth in the South African stock market
resulted in an increase in the portfolio's exposure to Africa, which made up
14.0% of total net assets on December 31, 1999. Because we felt we could find
better value elsewhere, we sold holdings in Ghana, Zimbabwe, Croatia,
Kazakhstan, Shenzhen (China), Sri Lanka, Ecuador and Jordan. Our Asian exposure
also decreased slightly, principally because we sold a number of Indian and
Malaysian companies.
TD-2
<PAGE>
Varying individual performances led to a substantial change in the Fund's top
ten holdings during the reporting period. Tele Centro Sul Participacoes SA,
pfd. (Brazil), Tele Norte Leste Participacoes SA, pfd. (Brazil), Anglo American
PLC (South Africa), Grupo Financiero Banamex Accival SA de CV (Mexico),
Telecomunicacoes de Sao Paulo SA, ADR, pfd. (Brazil), PT Telekomunikasi
Indonesia (Persero), B (Indonesia), Akbank (Turkey), and Centrais Electricas
Brasileiras SA (Eletrobras) (Brazil) replaced Hana Bank (South Korea),
Telecomunicacoes Brasileiras SA (Telebras) (Brazil), Thai Farmers Bank Public
Co. Ltd. (Thailand), Investimentos Itau SA (Brazil), Public Bank Bhd.
(Malaysia), Korea Electric Power Corp. (South Korea), Compania de
Telecomunicaciones de Chile SA (Chile), and Belle Corp. (Philippines) among the
Fund's top 10 positions.
Looking forward, we believe that the recovery in emerging market economies has
just begun. Interest rates have fallen in many of these countries, but many
markets' indexes and valuations are still below their all-time highs. The major
Asian countries have increased their foreign exchange reserves, and some
emerging market currencies are still undervalued, which should increase the
competitiveness of their exports. Furthermore, elections in Chile, India,
Russia, Mexico, Malaysia, Argentina and Indonesia reduced some of the political
risk, making rapid economic and social reform more likely going forward.
Finally, many emerging markets countries continue to overhaul their financial
systems. We see many banks recapitalizing their balance sheets and companies
making efforts to rectify the problem of excessive borrowings as well as
streamlining their work forces in response to the changing economic
environment. In our opinion, rising domestic and international demand should
continue to spur economic growth, and we are excited about the potential
emerging markets can offer to the Fund's shareholders.
[This chart lists the top 10 equity holdings, including industry and country, of
the Templeton Developing Markets Fund, based on total net assets as of
12/31/99.]
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton Developing Markets Fund
12/31/99
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------- ------------
<S> <C>
Cemex SA,
BUILDING MATERIALS &
COMPONENTS, MEXICO 3.6%
Tele Centro Sul
Participacoes SA, pfd.,
TELECOMMUNICATIONS,
BRAZIL 2.8%
Tele Norte Leste
Participacoes SA, pfd.,
TELECOMMUNICATIONS,
BRAZIL 2.6%
Anglo American PLC,
METALS & MINING, SOUTH
AFRICA 2.5%
Grupo Financiero
Banamex Accival SA de
CV, BANKING, MEXICO 2.4%
Telecomunicacoes de Sao
Paulo SA, ADR, pfd.,
TELECOMMUNICATIONS,
BRAZIL 2.0%
PT Telekomunikasi
Indonesia (Persero), B,
TELECOMMUNICATIONS,
INDONESIA 2.0%
Akbank, BANKING, TURKEY 1.9%
Telefonos de Mexico
(Telmex), L, ADR,
TELECOMMUNICATIONS,
MEXICO 1.8%
Centrais Electricas
Brasileiras SA
(Electrobras), B, pfd.,
UTILITIES ELECTRICAL & GAS,
BRAZIL 1.7%
</TABLE>
For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.
TD-3
<PAGE>
Of course, investing in any emerging market securities involves special
considerations, which may include risks related to market and currency
volatility, adverse social, economic and political developments and the
relatively small size and lesser liquidity of these markets. Investing in any
emerging market means accepting a certain amount of volatility and, in some
cases, severe market corrections. While short-term volatility can be
disconcerting, declines in excess of 50% are not unusual in emerging markets. In
fact, the Taiwan equity market has increased 1,164% in the last 15 years, but
has suffered six declines of more than 20% during that time./1/ These special
risks and other considerations are discussed in the Fund's prospectus.
Thank you for investing in the Templeton Developing Markets Fund. We appreciate
your confidence and welcome your comments.
Sincerely,
/s/J. MARK MOBIUS
J. Mark Mobius, Ph.D.
President
Templeton Developing Markets Fund
This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.
1. Source: Taiwan Weighted Index. Based on quarterly percentage price change
over 15 years ended December 31, 1999. Market return is measured in U.S. dollar
terms and does not include reinvested dividends.
TD-4
<PAGE>
PERFORMANCE SUMMARY AS OF 12/31/99
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (3/4/96 -- 12/31/99)
The graph below compares the performance of Templeton Developing Markets Fund --
Class 1 and the Morgan Stanley Capital International (MSCI/R/) Emerging Markets
Free Index and International Finance Corporation's (IFC) Investable Composite
Index, including reinvested dividends, as well as the Consumer Price Index
(CPI). Although we use MSCI Emerging Markets Free Index as the portfolio's
benchmark, we retained the MSCI World Index in the graph to show how global
developed markets have performed. The Fund's total return represents the change
in value of an investment over the periods shown and assumes reinvestment of
dividends and capital gains at net asset value. The MSCI Emerging Markets Free
Index covers 27 emerging markets and takes into account local market
restrictions on share ownership by foreigners. The IFC Investable Composite
Index was designed to reflect the performance of emerging market investments and
includes approximately 2,000 companies that foreigners can buy in 30 countries.
The CPI is a commonly used measure of inflation. The Fund's performance differs
from an index's because an index is not managed, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management expenses. Of course, one cannot invest directly
in an index, nor is an index representative of the Fund's portfolio. The
indexes' sources are MSCI, International Finance Corporation, and Standard &
Poor's/R/ Micropal (U.S. Bureau of Labor Statistics).
[The following line graph compares the performance of the Templeton Developing
Markets Fund - Class 1 to that of the Morgan Stanley Capital International
Emerging Markets Free Index, the Morgan Stanley Capital International World
Index, the International Finance Corporation's Investable Composite Index, and
the Consumer Price Index, based on a $10,000 investment from 3/4/96 - 12/31/99.]
<TABLE>
<CAPTION>
TEMPLETON MSCI IFC
DEVELOPING EMERGING MSCI INVESTABLE
MARKETS FUND - MARKETS FREE WORLD COMPOSITE
CLASS I INDEX INDEX INDEX CPI
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/04/1996 $10,000 $10,000 $10,000 $10,000 $10,000
03/31/1996 $10,020 $9,974 $10,169 $10,144 $10,045
04/30/1996 $9,980 $10,373 $10,409 $10,550 $10,084
05/31/1996 $10,010 $10,326 $10,420 $10,461 $10,104
06/30/1996 $9,800 $10,391 $10,475 $10,584 $10,110
07/31/1996 $9,250 $9,681 $10,107 $9,889 $10,129
08/31/1996 $9,250 $9,928 $10,225 $10,195 $10,148
09/30/1996 $9,370 $10,014 $10,627 $10,346 $10,181
10/31/1996 $9,140 $9,747 $10,703 $10,123 $10,213
11/30/1996 $9,460 $9,911 $11,305 $10,273 $10,233
12/31/1996 $9,430 $9,955 $11,126 $10,318 $10,233
01/31/1997 $10,110 $10,635 $11,261 $11,047 $10,265
02/28/1997 $10,349 $11,090 $11,393 $11,587 $10,297
03/31/1997 $10,138 $10,799 $11,170 $11,302 $10,323
04/30/1997 $9,896 $10,818 $11,537 $11,109 $10,335
05/31/1997 $9,816 $11,127 $12,251 $11,487 $10,329
06/30/1997 $9,987 $11,723 $12,864 $11,983 $10,341
07/31/1997 $10,369 $11,898 $13,458 $12,104 $10,354
08/31/1997 $9,373 $10,384 $12,560 $10,558 $10,374
09/30/1997 $9,614 $10,672 $13,244 $10,893 $10,400
10/31/1997 $7,873 $8,920 $12,549 $9,110 $10,426
11/30/1997 $7,077 $8,595 $12,773 $8,674 $10,419
12/31/1997 $6,675 $8,802 $12,931 $8,797 $10,407
01/31/1998 $6,262 $8,112 $13,293 $8,218 $10,427
02/28/1998 $6,977 $8,958 $14,195 $9,056 $10,446
03/31/1998 $7,139 $9,347 $14,796 $9,411 $10,466
04/30/1998 $6,902 $9,245 $14,943 $9,436 $10,485
05/31/1998 $5,822 $7,978 $14,758 $8,259 $10,504
06/30/1998 $5,113 $7,141 $15,110 $7,417 $10,516
07/31/1998 $5,143 $7,368 $15,088 $7,710 $10,529
08/31/1998 $3,950 $5,238 $13,078 $5,543 $10,542
09/30/1998 $4,166 $5,570 $13,312 $5,806 $10,554
10/31/1998 $4,763 $6,156 $14,518 $6,478 $10,580
11/30/1998 $5,370 $6,668 $15,383 $6,965 $10,580
12/31/1998 $5,277 $6,572 $16,137 $6,859 $10,573
01/31/1999 $5,082 $6,466 $16,493 $6,693 $10,599
02/28/1999 $4,999 $6,529 $16,056 $6,814 $10,611
03/31/1999 $5,705 $7,389 $16,727 $7,601 $10,643
04/30/1999 $6,948 $8,303 $17,389 $8,646 $10,721
05/31/1999 $6,760 $8,255 $16,756 $8,489 $10,721
06/30/1999 $7,554 $9,192 $17,540 $9,417 $10,721
07/31/1999 $7,042 $8,942 $17,490 $9,280 $10,753
08/31/1999 $6,781 $9,023 $17,461 $9,382 $10,779
09/30/1999 $6,436 $8,718 $17,294 $9,122 $10,831
10/31/1999 $6,614 $8,904 $18,196 $9,280 $10,850
11/30/1999 $7,042 $9,702 $18,709 $10,111 $10,857
12/31/1999 $8,118 $10,936 $20,227 $11,466 $10,857
</TABLE>
The historical performance figures shown pertain only to the Fund's Class 1
shares.
TEMPLETON DEVELOPING
MARKETS FUND -- CLASS 1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
12/31/99
<S> <C>
1-Year 53.84%
3-Year -4.87%
Since Inception (3/4/96) -5.30%
</TABLE>
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but
does NOT include any Contract fees, expenses, or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges.
Past performance does not guarantee future results.
TD-5
<PAGE>
TEMPLETON DEVELOPING
MARKETS FUND -- CLASS 1
Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility and the
social, economic and political climates of countries where the Fund
invests. Emerging markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size
and lesser liquidity. You may have a gain or loss when you sell your
shares.
PERFORMANCE
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.
<TABLE>
<CAPTION>
Templeton Developing Markets Fund -- Class 1
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 3-YEAR (3/4/96)
------------- ------------- --------------
<S> <C> <C> <C>
Cumulative Total Return 53.84% -13.91% -18.82%
Average Annual Total Return 53.84% -4.87% -5.30%
Value of $10,000 Investment $ 15,384 $ 8,609 $ 8,118
12/31/97 12/31/98 12/31/99
- ------------------------------ ---------- ---------- -----------
One-Year Total Return -29.22% -20.94% 53.84%
</TABLE>
Past performance does not guarantee future results.
TD-6
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999/dagger//dagger/ 1998 1997 1996/dagger/
----------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 5.13 $ 6.63 $ 9.43 $ 10.00
----------------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .05 .07 .09 .05
Net realized and unrealized gains (losses) ................... 2.67 ( 1.42) ( 2.82) ( .62)
----------------------------------------------------------------
Total from investment operations ............................... 2.72 ( 1.35) ( 2.73) ( .57)
----------------------------------------------------------------
Less distributions from:
Net investment income ........................................ ( .08) ( .09) ( .04) --
Net realized gains ........................................... -- ( .06) ( .03) --
----------------------------------------------------------------
Total distributions ............................................ ( .08) ( .15) ( .07) --
----------------------------------------------------------------
Net asset value, end of year ................................... $ 7.77 $ 5.13 $ 6.63 $ 9.43
================================================================
Total Return* .................................................. 53.84% (20.94)% (29.22)% ( 5.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $297,605 $180,684 $163,459 $ 72,245
Ratios to average net assets:
Expenses ..................................................... 1.50% 1.66% 1.58% 1.70%*
Expenses, excluding waiver and payments by affiliate ......... 1.50% 1.66% 1.58% 1.78%*
Net investment income ........................................ .82% 1.67% 1.63% 1.52%*
Portfolio turnover rate ........................................ 60.27% 23.22% 23.82% 9.95%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD MARCH 4, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1996.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
TD-7
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
---------------------- ------------- ---------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 5.12 $ 6.62 $ 9.85
--------------------------------------------------------
Income from investment operations:
Net investment income .............................. .03 .07 .04
Net realized and unrealized gains (losses) ......... 2.66 ( 1.42) ( 3.27)
--------------------------------------------------------
Total from investment operations ..................... 2.69 ( 1.35) ( 3.23)
--------------------------------------------------------
Less distributions from:
Net investment income .............................. ( .07) ( .09) --
Net realized gains ................................. -- ( .06) --
--------------------------------------------------------
Total distributions .................................. ( .07) ( .15) --
--------------------------------------------------------
Net asset value, end of year ......................... $ 7.74 $ 5.12 $ 6.62
--------------------------------------------------------
Total Return* ........................................ 53.27% (21.03)% (32.79)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $49,654 $17,287 $ 9,569
Ratios to average net assets:
Expenses ........................................... 1.75% 1.91% 1.77%**
Net investment income .............................. .52% 1.44% 1.48%**
Portfolio turnover rate .............................. 60.27% 23.22% 23.82%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
See Notes to Financial Statements.
TD-8
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES 96.5%
ARGENTINA 5.1%
Banco de Galicia y Buenos Aires SA de CV, B .................... Banking 128,883 $ 640,639
Banco Frances SA ............................................... Banking 60,460 477,701
*Capex SA, A .................................................... Utilities Electrical & Gas 22,486 127,064
Central Costanera SA, B ........................................ Utilities Electrical & Gas 8,360 18,980
*Molinos Rio de la Plata SA, B .................................. Food & Household Products 85,684 210,812
Perez Companc SA, B ............................................ Energy Sources 629,970 3,225,898
Quilmes Industrial SA, ADR, pfd. ............................... Beverages & Tobacco 159,600 1,905,225
Telecom Argentina Stet-France SA (Teco), B, ADR ................ Telecommunications 168,387 5,767,255
Telefonica De Argentina SA, B, ADR ............................. Telecommunications 156,430 4,829,776
Transportadora de Gas del Sur SA, B, ADR, Reg S ................ Utilities Electrical & Gas 71,700 658,744
------------
17,862,094
------------
AUSTRIA 1.6%
Austria Tabak AG ............................................... Beverages & Tobacco 22,870 1,105,165
Bank Austria AG ................................................ Banking 42,000 2,367,865
OMV AG ......................................................... Energy Sources 22,200 2,156,750
------------
5,629,780
------------
BRAZIL 16.5%
Aracruz Celulose SA, ADR ....................................... Forest Products & Paper 177,300 4,654,125
Banco Bradesco SA, pfd. ........................................ Banking 104,980,889 823,459
*Banco Bradesco SA, pfd., rts., 2/09/00 ......................... Banking 6,816,838 27,056
Banco do Brasil SA ............................................. Banking 32,398,000 150,647
Brasmotor SA, pfd. ............................................. Multi-Industry 1,306,000 183,122
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. ....... Utilities Electrical & Gas 249,454,000 5,951,546
Cia Cervejaria Brahma, pfd. .................................... Beverages & Tobacco 787,000 575,057
Cia Energetica de Minas Gerais (Cemig), Br., pfd. .............. Utilities Electrical & Gas 81,221,000 1,820,897
Cia Vale do Rio Doce, A, pfd. .................................. Metals & Mining 199,700 5,527,263
Copene-Petroquimica do Nordeste SA, A, pfd. .................... Chemicals 903,000 298,917
Duratex SA, pfd. ............................................... Forest Products & Paper 11,645,000 364,208
Embratel Participacoes SA, pfd. ................................ Telecommunications 61,116,000 1,573,149
Investimentos Itau SA, pfd. .................................... Multi-Industry 4,615,000 4,777,221
Investimentos Itau SA, pfd., new ............................... Multi-Industry 212,359 211,595
*Mannesmann SA .................................................. Machinery & Engineering 1,052,000 72,793
Petroleo Brasileiro SA (Petrobras), pfd. ....................... Energy Sources 85,000 21,644
Tele Centro Sul Participacoes SA, pfd. ......................... Telecommunications 530,844,000 9,694,184
Tele Norte Leste Participacoes SA, pfd. ........................ Telecommunications 337,535,000 9,061,969
Tele Sudeste Celular Participacoes SA, pfd. .................... Telecommunications 400,626,000 2,960,618
Telecomunicacoes de Sao Paulo SA, ADR, pfd. .................... Telecommunications 290,700 7,103,981
Telesp Celular Participacoes SA, pfd. .......................... Telecommunications 51,816,000 917,859
Unibanco Uniao de Bancos Brasileiros SA, GDR ................... Banking 18,822 567,013
------------
57,338,323
------------
CHILE 1.9%
Cia de Telecomunicaciones de Chile SA, ADR ..................... Telecommunications 202,014 3,686,756
Empresa Nacional de Electricidad SA, ADR ....................... Electrical & Electronics 110,715 1,570,769
Enersis SA, ADR ................................................ Utilities Electrical & Gas 48,753 1,145,696
Madeco Manufacturera de Cobre SA, ADR .......................... Industrial Components 4,000 44,500
------------
6,447,721
------------
CHINA .3%
Beijing Datang Power Generation Co. Ltd., H .................... Multi-Industry 169,000 27,828
China Resources Enterprises Ltd. ............................... Multi-Industry 160,000 256,255
*China Telecom HK Ltd. .......................................... Telecommunications 112,000 700,225
Guangshen Railway Co. Ltd., H .................................. Transportation 1,144,000 128,035
Shandong Huaneng Power Development Co. Ltd., ADR ............... Utilities Electrical & Gas 22,500 97,031
------------
1,209,374
------------
</TABLE>
TD-9
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CZECH REPUBLIC 1.3%
*Cesky Telecom AS .......................................... Telecommunications 107,740 $ 1,739,246
*CEZ AS .................................................... Utilities Electrical & Gas 1,149,475 2,841,182
Tabak AS .................................................. Beverages & Tobacco 260 52,443
------------
4,632,871
------------
EGYPT .3%
Commercial International Bank Ltd. ........................ Banking 60,700 886,700
Suez Cement Co. ........................................... Building Materials & Components 14,000 233,282
------------
1,119,982
------------
HONG KONG 4.5%
CDL Hotel International Ltd. .............................. Leisure & Tourism 6,160 2,457
Cheung Kong Holdings Ltd. ................................. Multi-Industry 268,000 3,404,515
Cheung Kong Infrastructure Holdings Ltd. .................. Multi-Industry 256,000 493,986
*China Overseas Land & Investment Ltd. ..................... Real Estate 441,000 63,539
Citic Pacific Ltd. ........................................ Multi-Industry 407,000 1,531,453
Cross Harbour Tunnel Co. Ltd. ............................. Transportation 18,000 12,851
Dairy Farm International Holdings Ltd. .................... Merchandising 1,522,233 1,370,010
Hang Lung Development Co. Ltd. ............................ Real Estate 771,000 872,811
Hong Kong & Shanghai Hotels Ltd. .......................... Leisure & Tourism 858,000 568,431
Hong Kong Land Holdings Ltd. .............................. Real Estate 279,000 412,920
HSBC Holdings PLC ......................................... Banking 98,585 1,382,359
Hutchison Whampoa Ltd. .................................... Multi-Industry 184,000 2,674,728
Jardine Matheson Holdings Ltd. ............................ Multi-Industry 411,604 1,621,720
Jardine Strategic Holdings Ltd. ........................... Multi-Industry 91,500 182,085
New World Development Co. Ltd. ............................ Real Estate 407,322 916,979
Shangri-La Asia Ltd. ...................................... Leisure & Tourism 6,222 7,124
------------
15,517,968
------------
HUNGARY 2.7%
Borsodchem RT ............................................. Chemicals 52,469 2,147,308
Egis RT ................................................... Multi-Industry 6,048 239,146
*Fotex First Hungarian American Photo Service Co. .......... Multi-Industry 45,385 16,510
Gedeon Richter Ltd. ....................................... Health & Personal Care 30,210 1,985,331
Mol Magyar Olay-Es Gazipari RT ............................ Energy Sources 108,560 2,253,618
OTP Bank .................................................. Banking 16,510 965,858
Tiszai Vegyi Kombinat RT .................................. Chemicals 86,612 1,650,731
------------
9,258,502
------------
INDIA 1.1%
Bajaj Auto Ltd. ........................................... Automobiles 150 1,134
Grasim Industries Ltd. .................................... Multi-Industry 19,377 181,743
ICICI Ltd. ................................................ Financial Services 200 423
*ICICI Ltd., ADR ........................................... Financial Services 4,400 61,050
*Mahanagar Telephone Nigam Ltd. ............................ Telecommunications 316,500 1,404,241
*NIIT Ltd. ................................................. Data Processing & Reproduction 2,890 220,274
Reliance Industries Ltd. .................................. Chemicals 346,000 1,858,855
------------
3,727,720
------------
</TABLE>
TD-10
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
INDONESIA 5.9%
*Asia Pulp & Paper Co. Ltd., ADR ......................... Forest Products & Paper 190,970 $ 1,503,889
*Asia Pulp & Paper Co. Ltd., ADR, wts., 7/27/00 .......... Forest Products & Paper 14,640 13,725
*PT Barito Pacific Timber TBK ............................ Forest Products & Paper 1,774,000 158,676
PT Gudang Garamm ........................................ Beverages & Tobacco 496,500 1,335,843
*PT Indah Kiat Pulp & Paper Corp. ........................ Forest Products & Paper 4,296,750 1,691,029
*PT Indocement Tunggal Prakarsa .......................... Building Materials & Components 1,746,000 774,612
*PT Indofoods Sukses Makmurr ............................. Food & Household Products 1,661,685 2,080,822
PT Indosat .............................................. Telecommunications 1,137,000 2,538,419
*PT Semen Cibinong ....................................... Building Materials & Components 4,240,500 303,435
PT Semen Gresik (Persero) ............................... Building Materials & Components 1,156,001 1,832,231
*PT Sinar Mas Agro Resources & Technology Corp. .......... Food & Household Products 417,800 236,180
PT Tambang Timah ........................................ Metals & Mining 1,109,500 774,070
PT Telekomunikasi Indonesia (Persero), B ................ Telecommunications 12,442,140 7,077,997
*PT Tjiwi Kimia .......................................... Forest Products & Paper 909,454 296,101
------------
20,617,029
------------
ISRAEL .7%
Bank Hapoalim BM ........................................ Financial Services 69,039 215,020
Discount Investment Corp. ............................... Financial Services 800 40,628
*Formula Systems Ltd. .................................... Data Processing & Reproduction 16,250 685,232
Koor Industries Ltd. .................................... Multi-Industry 2,416 241,321
Teva Pharmaceutical Industries Ltd., ADR ................ Health & Personal Care 15,050 1,078,897
------------
2,261,098
------------
MALAYSIA .1%
Resorts World Bhd. ...................................... Leisure & Tourism 129,000 370,026
------------
MEXICO 9.8%
Cemex SA ................................................ Building Materials & Components 2,213,997 12,384,363
*Cifra SA de CV, V ....................................... Merchandising 626,333 1,255,971
*DESC SA de CV DESC, B ................................... Multi-Industry 509,000 419,018
Fomento Economico Mexicano SA de CV Femsa, ADR .......... Beverages & Tobacco 24,000 1,068,000
*Grupo Carso SA de CV .................................... Multi-Industry 256,000 1,275,272
*Grupo Financiero Banamex Accival SA de CV ............... Banking 2,120,568 8,504,653
*Grupo Financiero Bancomer SA de CV ...................... Banking 3,531,000 1,475,753
*Grupo Televisa SA de CV, CPO ............................ Broadcasting & Publishing 17,800 601,161
Kimberly Clark de Mexico SA de CV, A .................... Forest Products & Paper 26,040 101,687
Panamerican Beverages Inc., A ........................... Food & Household Products 10,400 213,850
Telefonos de Mexico SA (Telmex), L, ADR ................. Telecommunications 54,500 6,131,250
Tubos de Acero de Mexico SA (Tamasa) .................... Machinery & Engineering 200 2,636
Vitro SA de CV, A ....................................... Food & Household Products 282,000 532,749
------------
33,966,363
------------
NEW ZEALAND
*Brierley Investments Ltd. ............................... Multi-Industry 713,000 149,017
------------
PAKISTAN .1%
Pakistan Telecommunications Corp., A .................... Telecommunications 886,500 371,264
------------
PERU .4%
Telefonica del Peru SA, B, ADR .......................... Telecommunications 106,300 1,421,763
------------
</TABLE>
TD-11
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
PHILIPPINES 2.2%
*A Soriano Corp. ...................................... Multi-Industry 1,496,500 $ 22,280
*Belle Corp. .......................................... Real Estate 18,655,000 879,516
*Filinvest Development Corp. .......................... Real Estate 2,356,000 152,000
Philippine Long Distance Telephone Co., ADR .......... Telecommunications 59,720 1,545,255
*Philippine National Bank ............................. Banking 1,403,861 3,309,350
RFM Corp. ............................................ Food & Household Products 1,251,715 130,452
San Miguel Corp., B .................................. Food & Household Products 1,214,200 1,717,355
------------
7,756,208
------------
POLAND 1.6%
Bank Rozwoju Eksportu SA ............................. Banking 15,750 498,972
Bank Slaski SA W Katowicach .......................... Banking 24,720 1,679,884
Impexmetal SA ........................................ Metals & Mining 93,892 458,674
Prokom Software SA. .................................. Data Processing & Reproduction 5,991 185,453
Telekomunikacja Polska SA ............................ Telecommunications 335,000 2,195,526
Warta SA ............................................. Insurance 14,709 423,306
------------
5,441,815
------------
RUSSIA 2.1%
Aeroflot - Russia International Airlines ............. Transportation 1,654,800 239,532
GAZ Auto Works ....................................... Automobiles 1,270 44,450
Irkutskenergo ........................................ Utilities Electrical & Gas 950,120 95,012
Lukoil Holdings, ADR ................................. Energy Sources 30,340 1,577,680
Mosenergo, ADR ....................................... Utilities Electrical & Gas 38,930 171,292
*Mosenergo, GDR ....................................... Utilities Electrical & Gas 57,600 148,741
Novorosissk Sea Shipping ............................. Transportation 28,000 2,870
Novorosissk Sea Shipping, pfd. ....................... Transportation 224,000 8,960
*Red October .......................................... Food & Household Products 3,000 14,325
*Rostelecom, ADR ...................................... Telecommunications 149,260 2,518,762
*Rostelecom, pfd. ..................................... Telecommunications 257,300 213,559
Tsum Trade House ..................................... Merchandising 131,500 22,355
Unified Energy Systems ............................... Utilities Electrical & Gas 3,400,000 408,000
Unified Energy Systems, ADR .......................... Utilities Electrical & Gas 9,900 111,524
Unified Energy Systems, pfd. ......................... Utilities Electrical & Gas 38,000 1,900
*Vimpel Communications, ADR ........................... Telecommunications 40,360 1,801,065
------------
7,380,027
------------
SINGAPORE 6.6%
City Developments Ltd. ............................... Real Estate 155,500 910,312
Creative Technology Ltd. ............................. Electrical & Electronics 6,900 125,116
Cycle & Carriage Ltd. ................................ Automobiles 66,000 204,083
DBS Group Holdings Ltd. .............................. Banking 67,630 1,108,555
First Capital Corp. Ltd. ............................. Real Estate 544,000 725,116
Fraser and Neave Ltd. ................................ Beverages & Tobacco 618,000 2,282,017
*Golden Agri-Resources Ltd. ........................... Misc Materials & Commodities 2,004,000 782,107
Jurong Shipyard Ltd. ................................. Machinery & Engineering 193,000 967,607
Keppel Corp., Ltd. ................................... Transportation 995,000 2,604,743
MCL Land Ltd. ........................................ Real Estate 436,000 403,146
Natsteel Ltd. ........................................ Metals & Mining 1,254,000 2,499,718
Overseas Chinese Banking Corp. Ltd. .................. Banking 240,450 2,208,877
Overseas Union Enterprise Ltd. ....................... Leisure & Tourism 106,400 357,754
Sembcorp Industries Ltd. ............................. Multi-Industry 1,136,925 1,549,577
Singapore Telecommunications Ltd. .................... Telecommunications 360,000 743,560
United Industrial Corporation Ltd. ................... Multi-Industry 1,604,000 905,290
United Overseas Bank Ltd. ............................ Banking 491,040 4,334,007
United Overseas Land Ltd. ............................ Real Estate 99,000 92,729
------------
22,804,314
------------
</TABLE>
TD-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SLOVAK REPUBLIC .1%
Nafta Gbely AS ..................................... Utilities Electrical & Gas 6,695 $ 57,505
*Slovnaft AS ........................................ Chemicals 11,000 156,600
*Vychodoslovenske Zeleziarne AS ..................... Metals & Mining 22,857 78,096
------------
292,201
------------
SOUTH AFRICA 14.0%
AECI Ltd. .......................................... Chemicals 90,300 184,121
Anglo American Platinum Corp. Ltd. ................. Metals & Mining 12,240 371,873
Anglo American PLC ................................. Metals & Mining 132,878 8,570,685
Barlow Ltd. ........................................ Multi-Industry 548,000 3,944,175
BOE Ltd. ........................................... Financial Services 1,578,000 1,538,262
CG Smith Ltd. ...................................... Multi-Industry 811,100 3,261,531
Comparex Holdings Ltd. ............................. Data Processing & Reproduction 74,000 518,180
De Beers/Centenary AG Linked Units ................. Misc Materials & Commodities 61,900 1,800,179
Del Monte Royal Foods Ltd. ......................... Food & Household Products 1,396,300 1,111,595
Edgars Consolidated Stores Ltd. .................... Textiles & Apparel 16,563 211,511
Fedsure Holdings Ltd. .............................. Insurance 9,000 73,111
Firstrand Ltd. ..................................... Insurance 1,169,000 1,671,357
Iscor Ltd. ......................................... Metals & Mining 759,989 2,876,969
Johnnies Industrial Corporation Ltd. ............... Multi-Industry 104,300 1,220,081
Kersaf Investments Ltd. ............................ Leisure & Tourism 266,867 1,062,267
Liberty Life Association of Africa Ltd. ............ Insurance 284,392 3,280,558
Palabora Mining Co. Ltd. ........................... Metals & Mining 22,900 166,495
Rembrandt Group Ltd. ............................... Multi-Industry 191,600 1,824,169
Sappi Ltd. ......................................... Forest Products & Paper 184,573 1,823,239
Sasol Ltd. ......................................... Energy Sources 585,600 4,861,764
South African Breweries PLC ........................ Beverages & Tobacco 542,380 5,516,326
Standard Bank Investment Corp. Ltd. ................ Financial Services 199,645 828,748
Tongaat-Hulett Group Ltd. .......................... Multi-Industry 211,952 1,790,659
------------
48,507,855
------------
SOUTH KOREA 5.4%
Hana Bank .......................................... Banking 434,544 3,386,803
Korea Electric Power Corp. ......................... Utilities Electrical & Gas 187,770 5,820,787
LG Electronics Inc. ................................ Electrical & Electronics 7,826 323,930
Samsung Electronics Co. Ltd. ....................... Electrical & Electronics 25,295 5,925,557
*Samsung Heavy Industries Co. Ltd. .................. Machinery & Engineering 309,215 1,495,016
Samsung SDI Co. Ltd. ............................... Electrical & Electronics 42,937 1,784,789
------------
18,736,882
------------
TAIWAN .6%
China Steel Corp. .................................. Metals & Mining 450,000 332,643
Mitac International Corp. .......................... Data Processing & Reproduction 294,000 450,578
*Silicon Integrated Systems Co. Ltd. ................ Electrical & Electronics 22,000 74,303
*Siliconware Precision Industries Co. Ltd. .......... Electronic Components & Instruments 328,000 836,068
*Sunplus Technology Company Ltd. .................... Electrical & Electronics 20,000 95,587
UNI-President Enterprises Corp. .................... Food & Household Products 519,000 410,107
------------
2,199,286
------------
</TABLE>
TD-13
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND 6.3%
Advanced Info Service Public Co. Ltd., fgn. ............... Telecommunications 29,000 $ 488,356
Ayudhya Insurance Public Co. Ltd., fgn. ................... Insurance 1,500 3,957
*Bangkok Bank Public Co. Ltd. .............................. Banking 423,687 688,647
*Bangkok Bank Public Co. Ltd., fgn. ........................ Banking 18,900 47,842
*Bangkok Insurance Public Co. Ltd. ......................... Insurance 22,000 72,689
BEC World Public Co Ltd., fgn. ............................ Telecommunications 81,000 574,101
*Charoen Pokphand Feedmill Public Co. Ltd., fgn. ........... Food & Household Products 587,080 1,720,725
*Hana Microelectronics Co. Ltd., fgn. ...................... Electrical & Electronics 78,900 382,622
Italian-Thai Development Public Co. Ltd., fgn. ............ Construction & Housing 50,300 56,291
*Jasmine International Public Co. Ltd., fgn. ............... Telecommunications 675,700 468,111
*Land and House Public Co. Ltd., fgn. ...................... Real Estate 484,933 461,933
*PTT Exploration & Production Public Co. Ltd., fgn. ........ Energy Sources 25,600 158,252
Saha Pathanapibul Public Co. Ltd., fgn. ................... Food & Household Products 153,800 177,241
Saha Union Public Co. Ltd., fgn. .......................... Multi-Industry 391,394 130,360
*Serm Suk Public Co. Ltd. .................................. Food & Household Products 31,100 112,699
Serm Suk Public Co. Ltd., fgn. ............................ Food & Household Products 4,900 24,742
*Shin Corporations Public Company Ltd., fgn. ............... Electrical & Electronics 236,000 2,238,636
*Siam Cement Public Co. Ltd. ............................... Building Materials & Components 19,850 391,394
Siam Cement Public Co. Ltd., fgn. ......................... Building Materials & Components 101,650 3,391,042
*Siam Commercial Bank, 144A, 5.25%, cvt. pfd., fgn. ........ Banking 1,388,000 1,701,252
*Siam Commercial Bank, fgn., wts., 6/22/04 ................. Banking 162,926 67,289
Siam Makro Public Company Ltd., fgn. ...................... Merchandising 298,000 420,837
*Telecomasia Corp. Public Co. Ltd., fgn. ................... Telecommunications 442,300 577,477
*Thai Airways International Public Co. Ltd., fgn. .......... Transportation 402,000 610,552
*Thai Farmers Bank Public Co. Ltd. ......................... Banking 1,893,016 2,168,923
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Banking 1,122,050 1,883,537
*Thai Telephone & Telecommunication Public Co. Ltd.,fgn. ... Telecommunications 23,500 9,236
Thai Wacoal Public Co. Ltd., fgn. ......................... Textiles & Apparel 23,700 53,046
*Total Access Communication Public Co. Ltd. ................ Telecommunications 607,200 2,392,368
*United Communications Industries, fgn. .................... Telecommunications 281,500 281,275
------------
21,755,432
------------
TURKEY 3.4%
Akbank .................................................... Banking 229,529,552 6,770,783
Arcelik AS, Br. ........................................... Appliances & Household Durables 20,972,200 1,372,627
*Dogan Sirketler Grubu Holding AS .......................... Multi-Industry 64,405,000 1,899,853
*Ford Otomotiv Sanayi AS ................................... Automobiles 1,490,000 65,929
Haci Omer Sabanci Holding AS .............................. Multi-Industry 12,396,000 719,900
Koc Holding AS ............................................ Multi-Industry 4,650,000 857,301
*Yapi Ve Kredi Bankasi AS .................................. Banking 1,820,000 56,204
------------
11,742,597
------------
VENEZUELA 1.9%
Compania Anonima Nacional Telefonos de Venezuela, ADR ..... Telecommunications 128,600 3,166,775
Electricidad de Caracas Saica Saca, ADR ................... Utilities Electrical & Gas 201,871 3,189,484
Mavesa SA, ADR ............................................ Food & Household Products 48,100 147,306
------------
6,503,565
------------
TOTAL LONG TERM SECURITIES (COST $270,196,332)............. 335,021,077
------------
</TABLE>
TD-14
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS (COST $11,738,728) 3.4%
U.S. Treasury Bills, 4.990% to 5.405%, with maturities to 3/30/00 $11,800,000 11,743,725
------------
TOTAL INVESTMENTS (COST $281,935,060) 99.9%....................... 346,764,802
OTHER ASSETS, LESS LIABILITIES .1% ............................... 493,804
------------
TOTAL NET ASSETS 100.0% .......................................... $347,258,606
============
</TABLE>
*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.
See Notes to Financial Statements.
TD-15
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $281,935,060)............................ $ 346,764,802
Receivables:
Investment securities sold ....................................................... 1,261,321
Fund shares sold ................................................................. 23,232
Dividends and interest ........................................................... 671,146
-------------
Total assets .................................................................... 348,720,501
-------------
Liabilities:
Payables:
Investment securities purchased .................................................. 185,978
Fund shares redeemed ............................................................. 82,694
To affiliates .................................................................... 388,417
Funds advanced by custodian ....................................................... 576,057
Accrued expenses .................................................................. 228,749
-------------
Total liabilities ............................................................... 1,461,895
-------------
Net assets, at value ............................................................... $ 347,258,606
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 1,649,089
Net unrealized appreciation ....................................................... 64,829,742
Accumulated net realized loss ..................................................... (72,122,123)
Beneficial shares ................................................................. 352,901,898
-------------
Net assets, at value ............................................................... $ 347,258,606
=============
CLASS 1:
Net asset value per share ($297,604,586 /divided by/ 38,298,961 shares outstanding) $ $7.77
=============
CLASS 2:
Net asset value per share ($49,654,020 /divided by/ 6,416,075 shares outstanding).. $ 7.74
=============
</TABLE>
See Notes to Financial Statements.
TD-16
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $576,126)...........................
Dividends ................................................... $ 5,801,893
Interest .................................................... 291,952
-------------
Total investment income ................................... $ 6,093,845
Expenses:
Management fees (Note 3) .................................... 3,292,465
Administrative fees (Note 3) ................................ 254,273
Distribution fees - Class 2 (Note 3) ........................ 76,418
Custodian fees .............................................. 331,100
Reports to shareholders ..................................... 23,800
Professional fees ........................................... 49,100
Trustees' fees and expenses ................................. 2,600
Other ....................................................... 5,266
-------------
Total expenses ............................................ 4,035,022
-------------
Net investment income ................................... 2,058,823
-------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments (net of foreign taxes of $280,564).............. (41,624,843)
Foreign currency transactions .............................. (302,440)
-------------
Net realized loss ......................................... (41,927,283)
Net unrealized appreciation on investments ................ 153,871,630
-------------
Net realized and unrealized gain ............................. 111,944,347
-------------
Net increase in net assets resulting from operations ......... $ 114,003,170
=============
</TABLE>
See Notes to Financial Statements.
TD-17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................... $ 2,058,823 $ 2,988,307
Net realized loss from investments and foreign currency transactions ..... (41,927,283) (24,805,823)
Net unrealized appreciation (depreciation) on investments ................ 153,871,630 (20,073,422)
-----------------------------------
Net increase (decrease) in net assets resulting from operations ........ 114,003,170 (41,890,938)
Distributions to shareholders from:
Net investment income:
Class 1 ................................................................. (2,683,606) (2,577,815)
Class 2 ................................................................. (248,619) (175,034)
Net realized gains:
Class 1 ................................................................. -- (1,492,419)
Class 2 ................................................................. -- (107,443)
Fund share transactions (Note 2):
Class 1 ................................................................. 18,804,002 60,604,424
Class 2 ................................................................. 19,412,917 10,581,714
-----------------------------------
Net increase in net assets ............................................. 149,287,864 24,942,489
Net assets:
Beginning of year ......................................................... 197,970,742 173,028,253
-----------------------------------
End of year ............................................................... $ 347,258,606 $ 197,970,742
===================================
Undistributed net investment income included in net assets:
End of year ............................................................... $ 1,649,089 $ 2,509,738
===================================
</TABLE>
See Notes to Financial Statements.
TD-18
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Developing Markets Fund (the Fund) is a separate, diversified series
of Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The
Fund seeks long-term capital appreciation by investing primarily in equity
securities of issuers in countries having developing markets. The following
summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does 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, and 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 currency denominated assets and liabilities other than investments
in securities held at the end of the reporting period.
Certain countries in which the Fund invests have imposed restrictions on the
repatriation of their currencies. Other countries have previously instituted
currency exchange controls in the past during periods of serious imbalance in
their balance of payments or upon the occurrence of other destabilizing events.
Exchange control regulations may restrict the Fund's ability to convert
investment income, capital, or the proceeds of securities into U.S. dollars. As
of December 31, 1999, the Fund has investments with a value of approximately $1
million in countries with restrictions on the repatriation of their currencies
or formal exchange controls currently in place.
c. 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 Fund. 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.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
TD-19
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class, and the exchange privilege of each class.
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 5,134,763 $ 32,419,782 11,021,993 $ 62,483,672
Shares issued on reinvestment of distributions 562,601 2,683,606 591,604 4,070,234
Shares redeemed ............................... (2,600,039) (16,299,386) (1,052,335) (5,949,482)
---------------------------------------------------------------
Net increase .................................. 3,097,325 $ 18,804,002 10,561,262 $ 60,604,424
===============================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 9,564,512 $ 65,272,741 4,365,526 $ 23,618,013
Shares issued on reinvestment of distributions 52,231 248,619 41,058 282,477
Shares redeemed ............................... (6,579,693) (46,108,443) (2,472,343) (13,318,776)
-----------------------------------------------------------------
Net increase .................................. 3,037,050 $ 19,412,917 1,934,241 $ 10,581,714
=================================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton Asset
Management Ltd. (TAML), Franklin Templeton Services, Inc. (FT Services), and
Franklin/Templeton Distributors, Inc. (Distributors), the Fund's investment
manager, administrative manager, and principal underwriter, respectively.
The Fund pays an investment management fee to TAML of 1.25% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FT Services based on the Trust's aggregate average daily
net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TD-20
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.
4. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $286,689,349 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 81,973,739
Unrealized depreciation ............. (21,898,286)
-------------
Net unrealized appreciation ......... $ 60,075,453
=============
</TABLE>
Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of passive foreign
investment companies, wash sales, and losses realized subsequent to October 31
on sales of securities and foreign currencies.
At December 31, 1999, the Fund had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
<TABLE>
<S> <C>
2006 ......... $22,575,577
2007 ......... 41,793,231
-----------
$64,368,808
===========
</TABLE>
At December 31, 1999, the Fund had deferred capital and currency losses
occurring subsequent to October 31, 1999 of $3,500,000. For tax purposes, such
losses will be reflected in the year ending December 31, 2000.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $182,868,345 and $153,443,658,
respectively.
6. CREDIT FACILITY
Certain Franklin Templeton Funds, including Templeton Developing Markets Fund,
are participants in a $750 million senior unsecured credit agreement for
temporary borrowing purposes. The termination date of the agreement is March 1,
2000. Interest is calculated on the Fund's borrowings at market rates. At
December 31, 1999, the Fund had not utilized this credit facility.
7. SUBSEQUENT EVENT
On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Developing
Markets Equity Fund.
TD-21
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Developing Markets Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended December 31, 1998, including the
financial highlights for each of the periods prior to December 31, 1999 were
audited by other independent accountants whose report dated January 28, 1999
expressed an unqualified opinion on those financial statements.
/s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000
TD-22
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
TD-23
<PAGE>
TEMPLETON INTERNATIONAL FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON INTERNATIONAL FUND SEEKS
LONG-TERM CAPITAL GROWTH. THE FUND INVESTS PRIMARILY IN THE EQUITY SECURITIES
OF COMPANIES LOCATED OUTSIDE THE UNITED STATES, INCLUDING EMERGING MARKETS.
- --------------------------------------------------------------------------------
During the year under review, global investors had to contend with the
uncertainties related to introduction of the euro, currency devaluation in
Brazil, and Y2K fears. On the plus side, many Asian economies improved
markedly, inflation appeared to be under control, and the Internet was
revolutionizing many global economies. As we exited the year, unbridled
optimism appeared to reign, as money flowed into most equity markets. However,
this money pushed growth sectors such as telecommunications and technology to
unprecedented levels, while bypassing (except for a brief second quarter
flurry) value investors like us.
EUROPE
The introduction of the euro on January 1, 1999, proved disappointing,
apparently due to investor concerns that European governments might interfere
in the free market by bailing out struggling companies there. The euro's
weakness benefited the operations of export-oriented companies, and the Fund's
performance was helped by its holdings in European oil, metals, and paper
companies. If economic indicators pick up across the continent, such cyclical
shares could continue to perform well in the first half of 2000. The most
significant hurdle for value investors during the year was "Internet fever" and
the willingness of investors to pay increasingly higher prices for shares of
telecommunications and technology companies. Fund holdings included such
companies at the beginning of the reporting period, but we sold many of them in
early 1999, missing out on much of the technology rally during the latter part
of the year. On December 31, 1999, the Fund's European exposure was 53.0%,
compared with 58.6% 12 months earlier.
[This chart shows in pie format the geographic distribution of the Templeton
International Fund, based on total net assets as of 12/31/99.]
Europe 53.0%
Asia 18.6%
Latin America 11.2%
Australia 5.7%
North America 3.9%
Middle East & Africa 2.5%
Short-Term Investments & Other Net Assets 5.1%
TI-1
<PAGE>
[This chart lists the top 10 countries represented in the Templeton
International Fund, based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton International Fund
12/31/99
% OF TOTAL
COUNTRY NET ASSETS
- --------------------------------
<S> <C>
United Kingdom 14.7%
Japan 10.5%
France 8.5%
Netherlands 7.0%
Australia 5.7%
Hong Kong 5.1%
Brazil 4.9%
Finland 4.1%
Germany 4.1%
Switzerland 3.3%
</TABLE>
ASIA
In Asia, many equity markets turned in strong performances, as the region
continued to rebound from 1997-98 economic crises. Helped by robust exports to
developed countries, many Asian firms appeared to successfully restructure
operations and improve their balance sheets. During the period, we initiated
positions in a handful of Japanese companies which, combined with share price
appreciation in many of our other Asian holdings, increased our weighting in
Asia from 12.5% to 18.6%.
LATIN AMERICA
Although most Latin American stock markets were extremely volatile during 1999,
the key markets of Mexico and Brazil turned in relatively strong performances.
Aided by its proximity to the booming U.S. economy, Mexico was the
best-performing market in the region. After months of currency-induced turmoil,
Brazilian interest rates stabilized, and its stock market recovered during the
latter part of the year. Driven by increasing market value, our holdings in
Latin America increased from 9.2% to 11.2% during 1999.
FUND SPECIFICS
During the reporting period, performance of the Templeton International Fund was
similar to that of the Morgan Stanley Capital International/R/ Europe,
Australasia, Far East Index. Strong showings by our technology and
telecommunication stocks (Koninklijke Philips Electronics NV, Sony Corp.,
Hutchison Whampoa Ltd., British Telecommunications PLC, and Alcatel SA) and
emerging market holdings (Telefonos de Mexico SA (Telmex), L, ADR, Pohang Iron
and Steel Co. Ltd., and Anglo American Platinum Corp. Ltd.) were offset by poor
performance in our interest rate sensitive holdings (Scor SA, XL Capital Ltd.,
A, Zurich Allied AG, Thames Water Group PLC, and Ace Ltd.). However, we believe
that concerns about potentially rising interest rates were overstated and that
some sectors, notably insurance, offer attractive value.
TI-2
<PAGE>
Attempting to take advantage of what we believed were unsustainably high
valuations during the period, we took profits in several positions -- most
notably British Telecommunications PLC, BG PLC, Cable and Wireless Optus Ltd.,
Hutchison Whampoa Ltd., and Koninklijke Philips Electronic NV. We used the
proceeds from such sales to purchase a number of stocks, including Hitachi
Ltd., Nippon Telegraph & Telephone Corp., Nintendo Co. Ltd., Nomura Securities
Co. Ltd., Australia and New Zealand Banking Group Ltd., Portugal Telecom SA,
CLP Holdings Ltd., Akzo Nobel NV, Repsol SA, Br., and BASF AG.
LOOKING FORWARD
Despite concerns about short-term valuations, we are optimistic about long-term
prospects for international equity markets. Although we acknowledge the
tremendous growth offered by the Internet, we believe many "old economy" shares
are undervalued, and we intend to maintain the Fund's diversification, reduce
its volatility, and position it for strong long-term performance by continuing
to purchase out-of-favor securities trading at low valuations.
It is important to remember that investments in foreign securities involve
special risks including change 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 heightened
risks related to their smaller size and lesser liquidity. Small-company
securities may have greater price swings than mid- or large-company securities.
These risks are discussed in the prospectus.
We thank you for investing in Templeton International Fund and welcome your
comments or suggestions.
Sincerely,
/s/PETER A. NORI
Peter A. Nori
Portfolio Manager
Templeton International Fund
This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.
[This chart lists the top 10 equity holdings, including industry and country, of
the Templeton International Fund, based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton International Fund
12/31/99
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------------------------------------
<S> <C>
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 3.8%
Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.7%
Koninklijke Philips
Electronics NV,
ELECTRICAL & ELECTRONICS,
NETHERLANDS 2.5%
Nomura Securities
Co. Ltd.,
FINANCIAL SERVICES, JAPAN 1.9%
Telefonos de Mexico SA
(Telmex), L, ADR,
TELECOMMUNICATIONS,
MEXICO 1.9%
Nippon Telegraph &
Telephone Corp.,
TELECOMMUNICATIONS,
JAPAN 1.8%
Total Fina SA, B,
ENERGY SOURCES, FRANCE 1.8%
Telecomunicacoes
Brasileiras SA (Telebras),
ADR, pfd.,
TELECOMMUNICATIONS,
BRAZIL 1.7%
Merita AS,
BANKING, FINLAND 1.7%
Cheung Kong
Holdings Ltd.,
MULTI-INDUSTRY, HONG
KONG 1.7%
</TABLE>
For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.
TI-3
<PAGE>
TEMPLETON INTERNATIONAL FUND -- CLASS 1
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges.
PERFORMANCE SUMMARY AS OF 12/31/99
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (5/1/92 -- 12/31/99)
The graph below compares the performance of Templeton International Fund --
Class 1 and the Morgan Stanley Capital International Europe, Australasia, Far
East (MSCI/R/ EAFE/R/) Index, as well as the Consumer Price Index (CPI). The
Fund's total return represents the change in value of an investment over the
period shown and assumes reinvestment of dividends and capital gains at net
asset value. The MSCI EAFE Index includes approximately 1,000 companies
representing the stock markets of 21 countries, and includes reinvested
dividends. The CPI is a commonly used measure of inflation. The Fund's
performance differs from an index's because an index is not managed, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. The indexes' sources are MSCI and Standard & Poor's/R/
Micropal (U.S. Bureau of Labor Statistics).
[The following line graph compares the performance of the Templeton
International Fund - Class 1 to that of the Morgan Stanley Capital International
Europe, Australasia, Far East Index and the Consumer Price Index, based on a
$10,000 investment from 5/1/92 - 12/31/99.]
<TABLE>
<CAPTION>
TEMPLETON MSCI
INTERNATIONAL EAFE
FUND- CLASS I INDEX CPI
----------------------------------------------------------------
<S> <C> <C> <C>
05/01/1992 $10,000 $10,000 $10,000
05/31/1992 $9,960 $10,650 $10,014
06/30/1992 $9,720 $10,148 $10,050
07/31/1992 $9,570 $9,891 $10,071
08/31/1992 $9,470 $10,515 $10,099
09/30/1992 $9,270 $10,311 $10,128
10/31/1992 $9,170 $9,773 $10,163
11/30/1992 $9,250 $9,868 $10,177
12/31/1992 $9,390 $9,922 $10,170
01/31/1993 $9,440 $9,924 $10,220
02/28/1993 $9,740 $10,227 $10,256
03/31/1993 $10,040 $11,121 $10,292
04/30/1993 $10,370 $12,179 $10,320
05/31/1993 $10,640 $12,440 $10,335
06/30/1993 $10,580 $12,249 $10,349
07/31/1993 $10,770 $12,680 $10,349
08/31/1993 $11,610 $13,367 $10,378
09/30/1993 $11,570 $13,069 $10,400
10/31/1993 $12,460 $13,475 $10,443
11/30/1993 $12,510 $12,300 $10,450
12/31/1993 $13,830 $13,191 $10,450
01/31/1994 $14,610 $14,309 $10,478
02/28/1994 $14,040 $14,273 $10,514
03/31/1994 $13,328 $13,661 $10,550
04/30/1994 $13,461 $14,243 $10,565
05/31/1994 $13,543 $14,165 $10,572
06/30/1994 $13,113 $14,368 $10,608
07/31/1994 $13,880 $14,510 $10,636
08/31/1994 $14,402 $14,856 $10,679
09/30/1994 $14,105 $14,391 $10,708
10/31/1994 $14,290 $14,874 $10,715
11/30/1994 $13,666 $14,163 $10,729
12/31/1994 $13,522 $14,254 $10,729
01/31/1995 $13,164 $13,710 $10,772
02/28/1995 $13,338 $13,675 $10,815
03/31/1995 $13,338 $14,531 $10,851
04/30/1995 $13,990 $15,082 $10,887
05/31/1995 $14,425 $14,906 $10,909
06/30/1995 $14,611 $14,648 $10,930
07/31/1995 $15,335 $15,564 $10,930
08/31/1995 $14,953 $14,974 $10,959
09/30/1995 $15,335 $15,270 $10,981
10/31/1995 $14,963 $14,864 $11,017
11/30/1995 $15,232 $15,281 $11,009
12/31/1995 $15,656 $15,901 $11,002
01/31/1996 $16,122 $15,970 $11,066
02/29/1996 $16,349 $16,028 $11,102
03/31/1996 $16,391 $16,372 $11,160
04/30/1996 $16,993 $16,853 $11,203
05/31/1996 $17,225 $16,547 $11,224
06/30/1996 $17,362 $16,644 $11,231
07/31/1996 $16,740 $16,161 $11,252
08/31/1996 $17,331 $16,201 $11,274
09/30/1996 $17,668 $16,635 $11,310
10/31/1996 $18,017 $16,469 $11,346
11/30/1996 $18,967 $17,129 $11,368
12/31/1996 $19,421 $16,912 $11,368
01/31/1997 $19,684 $16,325 $11,404
02/28/1997 $19,926 $16,595 $11,439
03/31/1997 $20,080 $16,659 $11,468
04/30/1997 $20,080 $16,752 $11,482
05/31/1997 $20,968 $17,846 $11,475
06/30/1997 $22,218 $18,835 $11,489
07/31/1997 $23,183 $19,143 $11,502
08/31/1997 $22,076 $17,717 $11,524
09/30/1997 $23,896 $18,714 $11,553
10/31/1997 $21,999 $17,280 $11,582
11/30/1997 $21,889 $17,107 $11,575
12/31/1997 $22,131 $17,261 $11,561
01/31/1998 $22,295 $18,054 $11,583
02/28/1998 $23,995 $19,216 $11,605
03/31/1998 $25,610 $19,813 $11,627
04/30/1998 $25,961 $19,974 $11,648
05/31/1998 $25,622 $19,882 $11,669
06/30/1998 $25,318 $20,036 $11,683
07/31/1998 $25,540 $20,244 $11,697
08/31/1998 $21,845 $17,740 $11,711
09/30/1998 $21,131 $17,201 $11,725
10/31/1998 $22,815 $18,999 $11,753
11/30/1998 $24,113 $19,977 $11,753
12/31/1998 $24,195 $20,770 $11,746
01/31/1999 $23,903 $20,714 $11,774
02/28/1999 $23,225 $20,224 $11,789
03/31/1999 $24,411 $21,074 $11,824
04/30/1999 $26,414 $21,932 $11,910
05/31/1999 $25,392 $20,808 $11,910
06/30/1999 $26,683 $21,624 $11,910
07/31/1999 $26,844 $22,272 $11,946
08/31/1999 $26,817 $22,357 $11,975
09/30/1999 $26,333 $22,588 $12,032
10/31/1999 $26,441 $23,439 $12,054
11/30/1999 $27,476 $24,258 $12,061
12/31/1999 $29,909 $26,440 $12,061
</TABLE>
The historical performance figures shown pertain only to the Fund's Class 1
shares.
Past performance does not guarantee future results.
TI-4
<PAGE>
PERFORMANCE
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.
<TABLE>
<CAPTION>
Templeton International Fund -- Class 1
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR (5/1/92)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 23.61% 121.18% 199.09%
Average Annual Total Return 23.61% 17.21% 15.36%
Value of $10,000 Investment $ 12,361 $ 22,118 $ 29,909
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- --------------------------------------------------------------------------------------------------------
One-Year Total Return 15.78% 24.04% 13.95% 9.33% 23.61%
</TABLE>
TEMPLETON INTERNATIONAL FUND -- CLASS 1
Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility and the
social, economic and political climates of countries where the Fund
invests. Emerging markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size
and lesser liquidity. You may have a gain or loss when you sell your
shares.
Past performance does not guarantee future results.
TI-5
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 20.69 $ 20.18 $ 18.40 $ 15.13 $ 13.22
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ..................... .33 .60 .49 .43 .23
Net realized and unrealized gains ......... 3.78 1.29 2.01 3.15 1.83
-------------------------------------------------------------------------
Total from investment operations ............ 4.11 1.89 2.50 3.58 2.06
-------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... ( .57) ( .49) ( .51) ( .24) ( .10)
Net realized gains ........................ ( 1.98) ( .89) ( .21) ( .07) ( .05)
-------------------------------------------------------------------------
Total distributions ......................... ( 2.55) ( 1.38) ( .72) ( .31) ( .15)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 22.25 $ 20.69 $ 20.18 $ 18.40 $ 15.13
=========================================================================
Total Return* ............................... 23.61% 9.33% 13.95% 24.04% 15.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $1,056,798 $980,470 $938,410 $682,984 $353,141
Ratios to average net assets:
Expenses .................................. .85% .86% .81% .65% .71%
Net investment income ..................... 1.69% 2.81% 2.70% 3.23% 2.36%
Portfolio turnover rate ..................... 30.04% 29.56% 16.63% 9.46% 5.19%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
TI-6
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 20.61 $ 20.14 $ 18.40
----------------------------------------------------
Income from investment operations:
Net investment income ..................... .25 .59 .07
Net realized and unrealized gains ......... 3.78 1.25 1.67
----------------------------------------------------
Total from investment operations ............ 4.03 1.84 1.74
----------------------------------------------------
Less distributions from:
Net investment income ..................... ( .53) ( .48) --
Net realized gains ........................ ( 1.98) ( .89) --
----------------------------------------------------
Total distributions ......................... ( 2.51) ( 1.37) --
----------------------------------------------------
Net asset value, end of year ................ $ 22.13 $ 20.61 $ 20.14
====================================================
Total Return* ............................... 23.23% 9.08% 9.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $101,365 $39,886 $17,606
Ratios to average net assets:
Expenses .................................. 1.10% 1.11% 1.13%**
Net investment income ..................... 1.26% 2.69% 1.14%**
Portfolio turnover rate ..................... 30.04% 29.56% 16.63%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
See Notes to Financial Statements.
TI-7
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 90.0%
AEROSPACE & MILITARY TECHNOLOGY .2%
Hong Kong Aircraft Engineering Co. Ltd. ............. Hong Kong 1,160,200 $ 1,925,333
--------------
APPLIANCES & HOUSEHOLD DURABLES 3.8%
Sony Corp. .......................................... Japan 147,030 43,597,485
--------------
AUTOMOBILES 3.4%
Autoliv Inc., SDR ................................... Sweden 358,450 10,494,303
Fiat SpA ............................................ Italy 255,250 7,285,148
Volkswagen AG ....................................... Germany 156,000 8,794,926
Volvo AB, B ......................................... Sweden 475,580 12,301,893
--------------
38,876,270
--------------
BANKING 8.1%
Australia & New Zealand Banking Group Ltd. .......... Australia 1,745,350 12,696,850
Bank Austria AG, 144A ............................... Austria 230,146 12,975,109
Credicorp Ltd. ...................................... Peru 292,160 3,505,920
Foreningssparbanken AB, A ........................... Sweden 228,000 3,350,970
HSBC Holdings PLC, ADR .............................. Hong Kong 180,600 12,890,325
*Merita AS ........................................... Finland 3,400,000 19,989,933
National Bank of Canada ............................. Canada 440,000 5,629,712
National Westminster Bank PLC ....................... United Kingdom 574,342 12,372,899
Unidanmark AS, A .................................... Denmark 150,000 10,550,093
--------------
93,961,811
--------------
BROADCASTING & PUBLISHING 1.0%
Wolters Kluwer NV ................................... Netherlands 345,050 11,671,882
--------------
BUILDING MATERIALS & COMPONENTS .7%
Caradon PLC ......................................... United Kingdom 3,265,240 8,232,097
--------------
CHEMICALS 4.3%
Akzo Nobel NV ....................................... Netherlands 352,800 17,687,949
BASF AG ............................................. Germany 273,530 14,291,963
*Clariant AG ......................................... Switzerland 24,700 11,772,245
Kemira OY ........................................... Finland 1,088,632 6,630,649
--------------
50,382,806
--------------
DATA PROCESSING & REPRODUCTION .8%
*Newbridge Networks Corp. ............................ Canada 418,260 9,436,991
--------------
ELECTRICAL & ELECTRONICS 7.4%
*ABB Ltd. ............................................ Switzerland 64,840 7,929,413
Alcatel SA .......................................... France 134,405 30,851,042
Hitachi Ltd. ........................................ Japan 1,067,000 17,124,627
Koninklijke Philips Electronics NV .................. Netherlands 210,312 28,583,630
*Thomson Multimedia .................................. France 33,800 1,820,497
--------------
86,309,209
--------------
ENERGY SOURCES 5.3%
Perez Companc SA, B ................................. Argentina 1,135,000 5,812,014
Repsol SA, Br. ...................................... Spain 807,000 18,702,446
Shell Transport & Trading Co. PLC ................... United Kingdom 1,913,742 15,904,808
Total Fina SA, B .................................... France 155,135 20,694,038
--------------
61,113,306
--------------
</TABLE>
TI-8
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 5.8%
AXA SA .............................................. France 130,000 $ 18,113,360
ING Groep NV ........................................ Netherlands 214,846 12,964,733
Lend Lease Corp. Ltd. ............................... Australia 1,040,000 14,570,091
Nomura Securities Co. Ltd. .......................... Japan 1,210,000 21,847,140
------------
67,495,324
------------
FOOD & HOUSEHOLD PRODUCTS 2.0%
Northern Foods PLC .................................. United Kingdom 3,278,607 5,219,109
Panamerican Beverages Inc., A ....................... Mexico 290,000 5,963,125
Tate & Lyle PLC ..................................... United Kingdom 1,763,000 11,567,755
------------
22,749,989
------------
FOREST PRODUCTS & PAPER 1.9%
Stora Enso OYJ, R, fgn. ............................. Finland 435,426 7,474,685
UPM-Kymmene Corporation ............................. Finland 351,000 14,134,703
------------
21,609,388
------------
HEALTH & PERSONAL CARE 3.8%
Aventis SA .......................................... France 279,800 16,253,358
Medeva PLC .......................................... United Kingdom 3,190,000 9,073,484
Teva Pharmaceutical Industries Ltd., ADR ............ Israel 253,940 18,204,324
------------
43,531,166
------------
INDUSTRIAL COMPONENTS .4%
Madeco Manufacturera de Cobre SA, ADR ............... Chile 190,000 2,113,750
Yamato Kogyo Co. Ltd. ............................... Japan 446,000 2,012,096
------------
4,125,846
------------
INSURANCE 5.4%
Ace Ltd. ............................................ Bermuda 320,545 5,349,095
Muenchener Rueckversicherungs-Gesellschaft .......... Germany 54,520 13,886,600
Partnerre Ltd. ...................................... Bermuda 169,000 5,481,938
Scor SA ............................................. France 250,000 11,023,860
XL Capital Ltd., A .................................. Bermuda 170,450 8,842,094
Zurich Allied AG .................................... Switzerland 32,300 18,416,578
------------
63,000,165
------------
MACHINERY & ENGINEERING .6%
Invensys PLC ........................................ United Kingdom 1,318,675 7,096,640
------------
MERCHANDISING 2.6%
David Jones Ltd. .................................... Australia 2,225,500 2,016,235
Marks & Spencer PLC ................................. United Kingdom 3,138,000 14,922,451
Safeway PLC ......................................... United Kingdom 3,247,408 11,178,595
Storehouse .......................................... United Kingdom 3,498,781 2,530,350
------------
30,647,631
------------
</TABLE>
TI-9
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING 6.1%
Angang New Steel Company Ltd., H, 144A .............. China 22,414,000 $ 1,787,699
Anglo American Platinum Corp. Ltd. .................. South Africa 349,009 10,603,523
Barrick Gold Corp. .................................. Canada 605,900 10,790,459
Boehler Uddeholm AG ................................. Austria 31,505 1,452,662
Boehler Uddeholm AG, 144A ........................... Austria 33,800 1,558,482
Chongqing Iron & Steel Ltd., H ...................... China 25,564,000 1,233,228
Corus Group PLC ..................................... United Kingdom 4,090,000 10,674,968
Industrias Penoles SA ............................... Mexico 1,893,000 5,454,237
Ispat International NV, A ........................... Netherlands 227,600 3,670,050
Pohang Iron & Steel Co. Ltd. ........................ South Korea 85,000 9,715,769
WMC Ltd. ............................................ Australia 2,399,500 13,232,276
------------
70,173,353
------------
MULTI-INDUSTRY 4.5%
Broken Hill Proprietary Co. Ltd. .................... Australia 1,210,543 15,895,216
Cheung Kong Holdings Ltd. ........................... Hong Kong 1,520,000 19,309,191
Elementis PLC ....................................... United Kingdom 2,092,174 2,721,852
Next PLC ............................................ United Kingdom 775,500 7,444,559
Saab AB, B .......................................... Sweden 726,900 7,008,325
------------
52,379,143
------------
REAL ESTATE .1%
New Asia Realty and Trust Co. Ltd., A ............... Hong Kong 1,373,000 1,704,438
------------
RECREATION & OTHER CONSUMER GOODS 1.0%
Nintendo Co. Ltd. ................................... Japan 67,200 11,067,926
------------
TELECOMMUNICATIONS 8.9%
Cia de Telecomunicaciones de Chile SA, ADR .......... Chile 431,500 7,874,875
Korea Telecom Corp., ADR ............................ South Korea 104,200 7,788,950
Nippon Telegraph & Telephone Corp. .................. Japan 1,210 20,722,219
Portugal Telecom SA ................................. Portugal 1,644,050 18,024,468
Telecom Italia SpA, di Risp ......................... Italy 1,887,750 11,505,526
Telefonica de Argentina SA, B, ADR .................. Argentina 368,800 11,386,700
Telefonica del Peru SA, B ........................... Peru 3,000,000 3,907,653
Telefonica del Peru SA, B, ADR ...................... Peru 29,000 387,875
Telefonos de Mexico SA (Telmex), L, ADR ............. Mexico 191,300 21,521,250
------------
103,119,516
------------
TRANSPORTATION 4.4%
British Airways PLC ................................. United Kingdom 1,400,000 9,118,089
Hitachi Zosen Corp. ................................. Japan 3,342,000 2,518,315
Koninklijke Nedlloyd Groep NV ....................... Netherlands 216,300 6,053,700
Mayne Nickless Ltd., A .............................. Australia 3,227,820 8,327,917
Peninsular & Oriental Steam Navigation Co. .......... United Kingdom 833,414 13,846,011
Seino Transportation Co. Ltd. ....................... Japan 552,000 2,927,866
Singapore Airlines Ltd., fgn. ....................... Singapore 736,500 8,357,760
------------
51,149,658
------------
</TABLE>
TI-10
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 7.5%
CLP Holdings Ltd. ......................................................... Hong Kong 2,282,000 $ 10,509,500
Evn AG .................................................................... Austria 27,225 4,111,296
Gener SA, ADR ............................................................. Chile 303,800 4,708,900
Hong Kong Electric Holdings Ltd. .......................................... Hong Kong 4,062,365 12,698,973
Iberdrola SA, Br. ......................................................... Spain 807,900 11,191,688
Korea Electric Power Corp. ................................................ South Korea 184,000 5,703,919
National Grid Group PLC ................................................... United Kingdom 953,785 7,236,971
National Power PLC ........................................................ United Kingdom 1,972,900 11,350,783
Thames Water Group PLC .................................................... United Kingdom 747,372 9,221,819
Veba AG ................................................................... Germany 221,850 10,832,301
--------------
87,566,150
--------------
TOTAL COMMON STOCKS (COST $806,195,779).................................... 1,042,923,523
--------------
PREFERRED STOCKS 4.9%
Banco Bradesco SA, pfd. ................................................... Brazil 896,769,450 7,034,167
*Banco Bradesco SA, pfd., rts., 2/09/00 .................................... Brazil 58,230,910 231,119
Cia Vale do Rio Doce, A, ADR, pfd. ........................................ Brazil 350,400 9,698,312
Embratel Participacoes SA, ADR, pfd. ...................................... Brazil 420,490 11,458,352
Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..................... Brazil 156,170 20,067,845
*Telecomunicacoes de Minas Gerais Celular Telemig, pfd. .................... Brazil 1,705,000 31,089
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............................... Brazil 334,800 8,181,675
Telecomunicacoes de Sao Paulo SA, pfd. .................................... Brazil 4,866,533 117,993
--------------
TOTAL PREFERRED STOCKS (COST $45,198,099).................................. 56,820,552
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $851,393,878).......... 1,099,744,075
--------------
PRINCIPAL
AMOUNT**
(a)REPURCHASE AGREEMENT (COST $46,236,000) 4.0% -------------
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $46,247,559)
Collaterized by U.S. Treasury Notes and Bonds ............................. United States $ 46,236,000 46,236,000
--------------
TOTAL INVESTMENTS (COST $897,629,878) 98.9%................................ 1,145,980,075
OTHER ASSETS, LESS LIABILITIES 1.1% ....................................... 12,182,392
--------------
TOTAL NET ASSETS 100.0% ................................................... $1,158,162,467
==============
</TABLE>
*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.
(a)AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.
See Notes to Financial Statements.
TI-11
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $851,393,878).............................. $ 1,099,744,075
Repurchase agreement, at value and cost ............................................. 46,236,000
Cash ................................................................................ 1,378,810
Receivables:
Fund shares sold ................................................................... 9,285,773
Dividends and interest ............................................................. 2,904,928
---------------
Total assets ...................................................................... 1,159,549,586
---------------
Liabilities:
Payables:
Fund shares redeemed ............................................................... 276,530
To affiliates ...................................................................... 768,409
Accrued expenses .................................................................... 342,180
---------------
Total liabilities ................................................................. 1,387,119
---------------
Net assets, at value ................................................................. $ 1,158,162,467
---------------
Net assets consist of:
Undistributed net investment income ................................................. $ 16,772,639
Net unrealized appreciation ......................................................... 248,350,197
Accumulated net realized gain ....................................................... 85,993,533
Beneficial shares ................................................................... 807,046,098
---------------
Net assets, at value ................................................................. $ 1,158,162,467
===============
CLASS 1:
Net asset value per share ($1,056,797,780 /divided by/ 47,499,837 shares outstanding) $ 22.25
===============
CLASS 2:
Net asset value per share ($101,364,687 /divided by/ 4,579,718 shares outstanding)... $ 22.13
===============
</TABLE>
See Notes to Financial Statements.
TI-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $2,498,891)
Dividends ................................................... $ 24,736,406
Interest .................................................... 1,596,969
------------
Total investment income ................................... $ 26,333,375
Expenses:
Management fees (Note 3) .................................... 7,168,839
Administrative fees (Note 3) ................................ 1,004,768
Distribution fees - Class 2 (Note 3) ........................ 163,550
Custodian fees .............................................. 379,800
Reports to shareholders ..................................... 239,500
Professional fees ........................................... 51,500
Trustees' fees and expenses ................................. 3,700
Other ....................................................... 840
------------
Total expenses ............................................ 9,012,497
------------
Net investment income .................................... 17,320,878
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 86,278,283
Foreign currency transactions .............................. (1,280,740)
------------
Net realized gain ......................................... 84,997,543
Net unrealized appreciation on investments ................ 128,046,409
------------
Net realized and unrealized gain ............................. 213,043,952
------------
Net increase in net assets resulting from operations ......... $230,364,830
============
</TABLE>
See Notes to Financial Statements.
TI-13
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 17,320,878 $ 28,896,330
Net realized gain from investments and foreign currency transactions 84,997,543 95,878,753
Net unrealized appreciation (depreciation) on investments ........... 128,046,409 (37,191,402)
---------------------------------------
Net increase in net assets resulting from operations .............. 230,364,830 87,583,681
Distributions to shareholders from:
Net investment income:
Class 1 ............................................................ (26,406,410) (22,916,242)
Class 2 ............................................................ (1,047,921) (505,990)
Net realized gains:
Class 1 ............................................................ (91,727,528) (40,971,463)
Class 2 ............................................................ (3,898,692) (929,242)
Fund share transactions (Note 2):
Class 1 ............................................................ (14,797,710) 22,012,097
Class 2 ............................................................ 45,319,734 20,066,468
---------------------------------------
Net increase in net assets ........................................ 137,806,303 64,339,309
Net assets:
Beginning of year .................................................... 1,020,356,164 956,016,855
---------------------------------------
End of year .......................................................... $1,158,162,467 $1,020,356,164
=======================================
Undistributed net investment income included in net assets:
End of year .......................................................... $ 16,772,639 $ 28,186,871
=======================================
</TABLE>
See Notes to Financial Statements.
TI-14
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton International Fund (the Fund) is a separate, diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The
Fund seeks long-term capital growth through a flexible policy of investing in
stocks and debt obligations of companies and governments outside the United
States. The following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does 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, and 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 currency denominated assets and liabilities other than investments
in securities held at the end of the reporting period.
c. 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 Fund. 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.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
d. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
TI-15
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements (continued)
2. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class and the exchange privilege of each class.
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 4,898,075 $ 98,598,572 6,749,923 $ 142,271,216
Shares issued on reinvestment of distributions 6,924,615 118,133,938 3,071,524 63,887,704
Shares redeemed ............................... (11,722,543) (231,530,220) (8,923,288) (184,146,823)
--------------------------------------------------------------------
Net increase (decrease) ....................... 100,147 $ (14,797,710) 898,159 $ 22,012,097
====================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 57,320,488 $ 1,117,974,227 8,195,067 $ 161,830,748
Shares issued on reinvestment of distributions 290,806 4,946,613 69,167 1,435,233
Shares redeemed ............................... (54,967,087) (1,077,601,106) (7,203,053) (143,199,513)
---------------------------------------------------------------------
Net increase .................................. 2,644,207 $ 45,319,734 1,061,181 $ 20,066,468
=====================================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), and Franklin/Templeton Distributors, Inc. (Distributors), the Fund's
investment manager, administrative manager, and principal underwriter,
respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TICI and FT Services have agreed in advance to limit total expenses of the Fund
to an annual rate of 0.86% and 1.11% of average daily net assets of Class 1 and
Class 2 shares, respectively, through December 31, 2000. For the year ended
December 31, 1999, no reimbursement was necessary under the agreement.
TI-16
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.
4. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At December 31, 1999, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 339,116,693
Unrealized depreciation ............. (90,766,496)
-------------
Net unrealized appreciation ......... $ 248,350,197
=============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $298,953,559 and $349,592,711,
respectively.
6. CREDIT FACILITY
Certain Franklin Templeton Funds, including Templeton International Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.
7. SUBSEQUENT EVENT
On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton International
Equity Fund.
TI-17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton International Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian, provides
a reasonable basis for the opinion expressed above. The financial statements
for the year ended December 31, 1998, including the financial highlights for
each of the four years in the period then ended were audited by other
independent accountants whose report dated January 28, 1999 expressed an
unqualified opinion on those financial statements.
/s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000.
TI-18
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
TI-19
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $66,672,660 as a capital gain dividend for the fiscal year ended
December 31, 1999.
TI-20
<PAGE>
TEMPLETON STOCK FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: 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.
- --------------------------------------------------------------------------------
During the 12 months under review, global equity markets provided generally
strong results. The U.S. experienced its ninth consecutive year of growth,
while many European economies improved, a number of Asian nations rebounded
from their recent crises, and most Latin American economies enjoyed an upswing
due to increasing commodity prices.
[This chart shows in pie format the geographic distribution of Templeton Stock
Fund, based on total net assets as of 12/31/99.]
Europe 38.4%
North America 24.8%
Asia 17.8%
Latin America 7.0%
Australia & New Zealand 5.2%
Fixed-Income Securities 0.5%
Short-Term Investments & Other Net Assets 6.3%
NORTH AMERICA
In the U.S., employment and consumer confidence reached new highs, raising
concerns that inflation might reappear. Rising crude oil prices also
contributed to inflation worries during the year and, in an attempt to ward of
potential future inflation, the Federal Reserve Board (the Fed) raised
short-term interest rates three times in 1999.
This, however, did not seem to deter the U.S. equity market, which rose to new
heights by the end of the year. Some of the Fund's holdings, including Motorola,
a communication equipment manufacturer, and retailer Home Depot, rose
significantly during the period, and we took the opportunity to realize
considerable gains by selling our shares of Antec, a telecommunications
equipment provider. Because we believed that U.S. stocks were generally
overvalued, we remained underweighted in such stocks versus the Morgan Stanley
Capital International (MSCI/R/) World Index.
EUROPE
During the reporting period, Europe began to enjoy economic growth as many
European exporters appeared to benefit from improving Asian economies. This
strength was particularly evident in the Scandinavian region and the United
Kingdom. Along with this general economic recovery, many European industries
began to participate in a trend toward consolidation. Scandinavian and German
banks merged; French pharmaceutical company Rhone-Poulenc and Germany's Hoechst
AG combined; and two French giants, Total Fina SA and Societe Elf Aquitaine SA,
agreed to consolidate into the world's fourth largest oil company. During the
fiscal year, we found European equities increasingly attractive, and we
continued to be overweighted in Europe versus the MSCI World Index.
TS-1
<PAGE>
[This chart lists the top 10 countries represented in the Templeton Stock Fund,
based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton Stock Fund
12/31/99
% OF TOTAL
COUNTRY NET ASSETS
===================================
<S> <C>
United States 19.7%
United Kingdom 13.5%
Japan 9.5%
Hong Kong 6.8%
Netherlands 6.7%
France 5.8%
Australia 4.5%
Germany 3.8%
Brazil 3.7%
Canada 3.1%
</TABLE>
ASIA
Asian equity markets, especially Japan's, performed extremely well during the
reporting period. Having found several investment opportunities during the
financial crises in the region in 1997-1998, we became overweighted in Hong
Kong compared to the MSCI World Index. However, the same is not true of Japan,
where we were underweighted because we believed share prices of companies there
were expensive relative to other companies in the world.
In our opinion, Japanese stock prices rose during 1999 because of an improved
outlook for its economy, which has been mired in recession for the past 10
years. However, we believe the obstacle to Japanese recovery is twofold. First,
Japan appears to suffer from chronic overcapacity in many industries, causing
prices to remain depressed, forcing companies to charge lower prices, and
ultimately affecting profitability. Second, Japan is experiencing a lack of
consumer spending, probably as a result of employment concerns for most
Japanese. Nevertheless, during the year under review, our holdings in Japan's
Nippon Telegraph & Telephone and Hong Kong's Hutchison Whampoa Ltd., a large
telecommunications and shipping conglomerate, appreciated significantly in
value, and we took the opportunity to capture profits by liquidating some
shares in our Sony Corp. position.
LATIN AMERICA
During the reporting period, most Latin American economies experienced an
upswing which, along with improved commodity prices, appeared to increase
investors' confidence in the region. Mexico, which exports oil, and Chile,
which exports copper, reaped significant benefits from this pickup in world
demand for raw materials. Mexico also benefited from the growth of the U.S.
economy, which created a strong U.S. demand for Mexican exports. During the
reporting period, the Fund's holdings of Telefonos de Mexico (Telmex)
appreciated dramatically.
TS-2
<PAGE>
LOOKING FORWARD
We remain optimistic about long-term prospects for global equity markets and
Templeton Stock Fund. However, if inflation re-emerges and the financial
markets reach more extreme valuations, then the Fed may aggressively raise
interest rates. If U.S. interest rates increase, Latin American economies would
likely suffer. In Asia, we believe economies need to grow further to maintain
the recent luster in stock markets there. We feel that Hong Kong and South
Korean shares have become expensive and would not be surprised to see some
setback in Asia in 2000. As always, we will continue to monitor these
conditions as we search the globe for undervalued stocks in an effort to
benefit the Fund's shareholders.
It is important to remember that foreign securities investments involve special
risks including changes in currency values, market price swings, and economic,
social, and political developments in the countries where the Fund is invested.
Developing markets involve similar but heightened risks related to their
smaller size and lesser liquidity. These risks are discussed in the prospectus.
We thank you for investing in Templeton Stock Fund and welcome your comments or
suggestions.
Sincerely,
/s/MARK R. BEVERIDGE
Mark R. Beveridge, CFA, CIC
Portfolio Manager
Templeton Stock Fund
This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.
[This chart lists the top 10 holdings, including industry and country, of the
Templeton Stock Fund, based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Templeton Stock Fund
12/31/99
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------------------------------------
<S> <C>
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 4.2%
Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.6%
Nomura Securities
Co. Ltd.,
FINANCIAL SERVICES, JAPAN 2.5%
Koninklijke Philips
Electronics NV,
ELECTRICAL & ELECTRONICS,
NETHERLANDS 2.4%
Australia & New Zealand
Banking Group Ltd.,
BANKING, AUSTRALIA 2.0%
Hutchison Whampoa Ltd.,
MULTI-INDUSTRY,
HONG KONG 1.7%
Portugal Telecom SA,
TELECOMMUNICATIONS,
PORTUGAL 1.6%
Home Depot Inc.,
MERCHANDISING, U.S. 1.5%
Cheung Kong
Holdings Ltd,
MULTI-INDUSTRY, HONG
KONG 1.5%
3Com Corp.,
DATA PROCESSING &
REPRODUCTION,
UNITED STATES 1.5%
</TABLE>
For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.
TS-3
<PAGE>
TEMPLETON STOCK FUND
- -- CLASS 1
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges.
PERFORMANCE SUMMARY AS OF 12/31/99
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)
The graph below compares the performance of Templeton Stock Fund -- Class 1 and
the Morgan Stanley Capital International (MSCI/R/) World Index, including
reinvested dividends, and the Consumer Price Index (CPI). The Fund's total
return represents the change in value of an investment over the periods shown
and assumes reinvestment of dividends and capital gains at net asset value. The
MSCI World Index includes approximately 1,450 companies representing the stock
markets of 22 countries, including the U.S., Europe, Canada, Australia, New
Zealand, and the Far East. The CPI is a commonly used measure of inflation. The
Fund's performance differs from an index's because an index is not managed, does
not contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. The indexes' sources are MSCI and Standard & Poor's/R/
Micropal (U.S. Bureau of Labor Statistics).
[The following line graph compares the performance of the Templeton Stock Fund-
Class 1 to that of the Morgan Stanley Capital International World Index and the
Consumer Price Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]
Templeton MSCI World CPI
Stock Fund -
Class I
------------------------------------------------------------
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,634 $9,535 $10,103
02/28/1990 $9,694 $9,127 $10,150
03/31/1990 $9,866 $8,578 $10,206
04/30/1990 $9,493 $8,456 $10,223
05/31/1990 $10,213 $9,348 $10,246
06/30/1990 $10,221 $9,283 $10,301
07/31/1990 $10,221 $9,369 $10,341
08/31/1990 $9,484 $8,493 $10,436
09/30/1990 $8,617 $7,599 $10,523
10/31/1990 $8,505 $8,310 $10,587
11/30/1990 $8,765 $8,175 $10,610
12/31/1990 $8,912 $8,348 $10,610
01/31/1991 $9,398 $8,655 $10,674
02/28/1991 $10,030 $9,458 $10,690
03/31/1991 $9,961 $9,181 $10,706
04/30/1991 $9,970 $9,254 $10,722
05/31/1991 $10,291 $9,465 $10,754
06/30/1991 $9,765 $8,882 $10,785
07/31/1991 $10,354 $9,303 $10,801
08/31/1991 $10,505 $9,275 $10,832
09/30/1991 $10,595 $9,520 $10,880
10/31/1991 $10,728 $9,676 $10,896
11/30/1991 $10,434 $9,256 $10,928
12/31/1991 $11,344 $9,932 $10,936
01/31/1992 $11,379 $9,750 $10,952
02/29/1992 $11,745 $9,583 $10,992
03/31/1992 $11,505 $9,133 $11,048
04/30/1992 $11,887 $9,262 $11,063
05/31/1992 $12,325 $9,632 $11,079
06/30/1992 $12,024 $9,311 $11,118
07/31/1992 $12,051 $9,336 $11,142
08/31/1992 $11,796 $9,565 $11,173
09/30/1992 $11,805 $9,479 $11,204
10/31/1992 $11,696 $9,225 $11,243
11/30/1992 $11,906 $9,391 $11,259
12/31/1992 $12,152 $9,469 $11,251
01/31/1993 $12,316 $9,502 $11,306
02/28/1993 $12,598 $9,729 $11,346
03/31/1993 $13,005 $10,295 $11,386
04/30/1993 $13,209 $10,774 $11,418
05/31/1993 $13,627 $11,024 $11,434
06/30/1993 $13,701 $10,933 $11,450
07/31/1993 $13,906 $11,160 $11,450
08/31/1993 $14,816 $11,674 $11,482
09/30/1993 $14,928 $11,460 $11,506
10/31/1993 $15,559 $11,777 $11,553
11/30/1993 $15,169 $11,113 $11,561
12/31/1993 $16,284 $11,659 $11,561
01/31/1994 $17,185 $12,430 $11,592
02/28/1994 $16,572 $12,271 $11,632
03/31/1994 $15,803 $11,744 $11,671
04/30/1994 $16,048 $12,109 $11,688
05/31/1994 $16,264 $12,142 $11,696
06/30/1994 $15,794 $12,111 $11,736
07/31/1994 $16,593 $12,343 $11,767
08/31/1994 $17,195 $12,717 $11,814
09/30/1994 $16,668 $12,385 $11,846
10/31/1994 $16,837 $12,739 $11,854
11/30/1994 $16,123 $12,190 $11,870
12/31/1994 $15,925 $12,310 $11,870
01/31/1995 $15,728 $12,127 $11,917
02/28/1995 $16,203 $12,307 $11,965
03/31/1995 $16,490 $12,902 $12,005
04/30/1995 $17,122 $13,354 $12,044
05/31/1995 $17,763 $13,471 $12,068
06/30/1995 $18,174 $13,469 $12,092
07/31/1995 $19,074 $14,146 $12,092
08/31/1995 $18,873 $13,833 $12,124
09/30/1995 $19,409 $14,239 $12,148
10/31/1995 $18,969 $14,018 $12,188
11/30/1995 $19,418 $14,507 $12,180
12/31/1995 $19,945 $14,934 $12,171
01/31/1996 $20,337 $15,206 $12,243
02/29/1996 $20,671 $15,301 $12,282
03/31/1996 $21,109 $15,559 $12,346
04/30/1996 $21,568 $15,928 $12,394
05/31/1996 $21,888 $15,944 $12,418
06/30/1996 $22,048 $16,028 $12,425
07/31/1996 $21,109 $15,465 $12,449
08/31/1996 $21,845 $15,646 $12,472
09/30/1996 $22,368 $16,261 $12,512
10/31/1996 $22,710 $16,377 $12,552
11/30/1996 $23,916 $17,298 $12,576
12/31/1996 $24,417 $17,024 $12,576
01/31/1997 $25,442 $17,231 $12,616
02/28/1997 $25,351 $17,433 $12,655
03/31/1997 $25,481 $17,091 $12,687
04/30/1997 $25,339 $17,653 $12,702
05/31/1997 $26,576 $18,746 $12,695
06/30/1997 $28,013 $19,683 $12,710
07/31/1997 $29,344 $20,593 $12,725
08/31/1997 $27,683 $19,219 $12,749
09/30/1997 $30,051 $20,265 $12,781
10/31/1997 $27,377 $19,202 $12,813
11/30/1997 $27,094 $19,545 $12,806
12/31/1997 $27,318 $19,786 $12,790
01/31/1998 $27,012 $20,341 $12,814
02/28/1998 $28,861 $21,720 $12,839
03/31/1998 $30,773 $22,640 $12,863
04/30/1998 $31,009 $22,865 $12,886
05/31/1998 $30,576 $22,582 $12,910
06/30/1998 $30,222 $23,121 $12,925
07/31/1998 $30,169 $23,087 $12,941
08/31/1998 $24,524 $20,012 $12,956
09/30/1998 $23,868 $20,369 $12,972
10/31/1998 $26,060 $22,214 $13,003
11/30/1998 $27,793 $23,539 $13,003
12/31/1998 $27,662 $24,693 $12,995
01/31/1999 $27,806 $25,237 $13,026
02/28/1999 $27,045 $24,568 $13,042
03/31/1999 $28,170 $25,595 $13,081
04/30/1999 $30,879 $26,608 $13,176
05/31/1999 $29,634 $25,639 $13,176
06/30/1999 $31,157 $26,838 $13,176
07/31/1999 $31,142 $26,762 $13,216
08/31/1999 $30,996 $26,718 $13,248
09/30/1999 $30,425 $26,463 $13,311
10/31/1999 $31,274 $27,842 $13,335
11/30/1999 $33,119 $28,628 $13,343
12/31/1999 $35,710 $30,950 $13,343
The historical performance figures shown pertain only to the Fund's Class 1
shares.
Past performance does not guarantee future results.
TS-4
<PAGE>
PERFORMANCE
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.
<TABLE>
<CAPTION>
Templeton Stock Fund -- Class 1
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 29.10% 124.23% 257.10% 320.39%
Average Annual Total Return 29.10% 17.53% 13.58% 13.49%
Value of $10,000 Investment $ 12,910 $ 22,423 $ 35,710 $ 42,039
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- --------------------------------------------------------------------------------------------------------
One-Year Total Return 25.24% 22.48% 11.88% 1.26% 29.10%
</TABLE>
TEMPLETON STOCK FUND
- -- CLASS 1
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
Past performance does not guarantee future results.
TS-5
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 21.07 $ 23.19 $ 22.88 $ 20.83 $ 16.94
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .21 .39 .47 .41 .40
Net realized and unrealized gains .......... 5.22 .04 2.11 3.88 3.80
-------------------------------------------------------------------------
Total from investment operations ............ 5.43 .43 2.58 4.29 4.20
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... ( .37) ( .49) ( .40) ( .40) ( .27)
Net realized gains ......................... ( 1.74) ( 2.06) ( 1.87) ( 1.84) ( .04)
-------------------------------------------------------------------------
Total distributions ......................... ( 2.11) ( 2.55) ( 2.27) ( 2.24) ( .31)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 24.39 $ 21.07 $ 23.19 $ 22.88 $ 20.83
=========================================================================
Total Return* ............................... 29.10% 1.26% 11.88% 22.48% 25.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $641,849 $646,865 $732,248 $644,366 $498,777
Ratios to average net assets:
Expenses ................................... .85% .89% .81% .65% .66%
Net investment income ...................... .99% 1.65% 2.05% 2.06% 2.18%
Portfolio turnover rate ..................... 45.63% 37.27% 25.82% 23.40% 33.93%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
TS-6
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 20.99 $ 23.15 $ 21.62
----------------------------------------------------
Income from investment operations:
Net investment income .............................. .13 .40 .06
Net realized and unrealized gains (losses) ......... 5.23 ( .03) 1.47
----------------------------------------------------
Total from investment operations .................... 5.36 .37 1.53
----------------------------------------------------
Less distributions from:
Net investment income .............................. ( .32) ( .47) --
Net realized gains ................................. ( 1.74) ( 2.06) --
----------------------------------------------------
Total distributions ................................. ( 2.06) ( 2.53) --
----------------------------------------------------
Net asset value, end of year ........................ $ 24.29 $ 20.99 $ 23.15
====================================================
Total Return* ....................................... 28.79% .99% 7.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $47,741 $25,593 $ 16,414
Ratios to average net assets:
Expenses ........................................... 1.10% 1.14% 1.14%**
Net investment income .............................. .62% 1.37% .75%**
Portfolio turnover rate ............................. 45.63% 37.27% 25.82%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
See Notes to Financial Statements.
TS-7
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 89.0%
AEROSPACE & MILITARY TECHNOLOGY 4.1%
BAE Systems PLC ...................................... United Kingdom 71,043 $ 470,160
Boeing Co. ........................................... United States 182,500 7,585,156
Lockheed Martin Corp. ................................ United States 330,700 7,234,063
Raytheon Co., A ...................................... United States 240,730 5,973,113
Rolls-Royce PLC ...................................... United Kingdom 1,986,100 6,852,827
-----------
28,115,319
-----------
APPLIANCES & HOUSEHOLD DURABLES 4.4%
Guangdong Kelon Electrical Holdings Ltd., H .......... China 1,123,000 852,345
Sony Corp. ........................................... Japan 98,800 29,296,276
-----------
30,148,621
-----------
AUTOMOBILES 3.3%
Fiat SpA ............................................. Italy 130,768 3,732,279
Ford Motor Co. ....................................... United States 117,000 6,252,187
Volkswagen AG ........................................ Germany 102,400 5,773,080
Volvo AB, B .......................................... Sweden 269,200 6,963,433
-----------
22,720,979
-----------
BANKING 6.6%
Australia & New Zealand Banking Group Ltd. ........... Australia 1,936,200 14,085,222
*Banca Nazionale del Lavoro SpA ....................... Italy 1,781,960 5,920,133
Bank Austria AG ...................................... Austria 84,650 4,772,375
Banque Nationale de Paris ............................ France 62,054 5,722,487
Deutsche Bank AG, Br. ................................ Germany 100,700 8,520,925
HSBC Holdings PLC .................................... Hong Kong 460,212 6,453,092
-----------
45,474,234
-----------
BROADCASTING & PUBLISHING 2.5%
*Gartner Group Inc., B ................................ United States 224,400 3,099,525
Television Broadcasts Ltd. ........................... Hong Kong 1,023,000 6,974,850
Wolters Kluwer NV .................................... Netherlands 215,100 7,276,110
-----------
17,350,485
-----------
BUSINESS & PUBLIC SERVICES 1.4%
Kurita Water Industries Ltd. ......................... Japan 604,000 9,599,217
-----------
CHEMICALS 2.3%
Akzo Nobel NV ........................................ Netherlands 195,200 9,786,530
BASF AG .............................................. Germany 112,300 5,867,683
-----------
15,654,213
-----------
DATA PROCESSING & REPRODUCTION 2.4%
*3Com Corp. ........................................... United States 215,800 10,142,600
*Newbridge Networks Corp. ............................. Canada 274,200 6,186,638
-----------
16,329,238
-----------
ELECTRICAL & ELECTRONICS 6.2%
Alcatel SA ........................................... France 78,835 18,095,621
Koninklijke Philips Electronics NV ................... Netherlands 121,532 16,517,487
Motorola Inc. ........................................ United States 53,100 7,818,975
-----------
42,432,083
-----------
</TABLE>
TS-8
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 3.7%
*Agilent Technologies Inc. .................. United States 80,200 $ 6,200,462
Hewlett-Packard Co. ........................ United States 85,000 9,684,688
Intel Corp. ................................ United States 121,400 9,992,738
------------
25,877,888
------------
ENERGY EQUIPMENT & SERVICES .4%
TransCanada PipeLines Ltd. ................. Canada 323,900 2,800,159
------------
ENERGY SOURCES 3.4%
Burlington Resources Inc. .................. United States 213,400 7,055,537
Occidental Petroleum Corp. ................. United States 323,100 6,987,038
Perez Companc SA, B ........................ Argentina 415,400 2,127,146
Shell Transport & Trading Co. PLC .......... United Kingdom 866,800 7,203,838
------------
23,373,559
------------
FINANCIAL SERVICES 6.2%
AXA SA ..................................... France 46,391 6,463,822
ING Groep NV ............................... Netherlands 157,637 9,512,496
Lend Lease Corp. Ltd. ...................... Australia 485,500 6,801,711
Mutual Risk Management Ltd. ................ Bermuda 174,500 2,933,781
Nomura Securities Co. Ltd. ................. Japan 960,000 17,333,268
------------
43,045,078
------------
FOOD & HOUSEHOLD PRODUCTS .8%
Archer-Daniels-Midland Co. ................. United States 455,878 5,556,013
------------
FOREST PRODUCTS & PAPER .7%
*Asia Pulp & Paper Co. Ltd., ADR ............ Indonesia 423,500 3,335,062
Carter Holt Harvey Ltd. .................... New Zealand 1,155,252 1,509,045
------------
4,844,107
------------
HEALTH & PERSONAL CARE 4.8%
Astrazeneca PLC, fgn. ...................... United Kingdom 152,291 6,446,180
Aventis SA ................................. France 170,002 9,875,280
Medeva PLC ................................. United Kingdom 2,761,300 7,854,111
Nycomed Amersham PLC ....................... United Kingdom 791,920 4,932,511
*Skyepharma PLC ............................. United Kingdom 4,859,873 3,789,597
------------
32,897,679
------------
INDUSTRIAL COMPONENTS 1.9%
Goodyear Tire & Rubber Co. ................. United States 99,000 2,790,563
Granges AB ................................. Sweden 379,525 7,920,716
Yamato Kogyo Co. Ltd. ...................... Japan 539,000 2,431,658
------------
13,142,937
------------
INSURANCE 5.4%
Ace Ltd. ................................... Bermuda 176,500 2,945,344
Allstate Corp. ............................. United States 242,700 5,824,800
Partnerre Ltd. ............................. Bermuda 84,100 2,727,994
ReliaStar Financial Corp. .................. United States 204,700 8,021,681
Torchmark Corp. ............................ United States 113,400 3,295,688
XL Capital Ltd., A ......................... Bermuda 92,100 4,777,688
Zurich Allied PLC .......................... United Kingdom 826,000 9,798,213
------------
37,391,408
------------
</TABLE>
TS-9
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING 1.8%
CNH Global NV ................................................ Netherlands 259,400 $ 3,453,262
Invensys PLC ................................................. United Kingdom 1,621,958 8,728,801
------------
12,182,063
------------
MERCHANDISING 3.3%
Home Depot Inc. .............................................. United States 154,200 10,572,338
Marks & Spencer PLC .......................................... United Kingdom 1,644,100 7,818,356
Safeway PLC .................................................. United Kingdom 1,305,220 4,492,976
------------
22,883,670
------------
METALS & MINING 1.4%
AK Steel Holding Corp. ....................................... United States 195,400 3,688,175
Barrick Gold Corp. ........................................... Canada 348,800 6,169,400
------------
9,857,575
------------
MULTI-INDUSTRY 5.3%
Cheung Kong Holdings Ltd. .................................... Hong Kong 815,000 10,353,284
Cheung Kong Infrastructure Holdings Ltd. ..................... Hong Kong 963,000 1,858,236
*DESC SA de CV DESC, B ........................................ Mexico 5,237,300 4,311,445
*DESC SA de CV DESC, C ........................................ Mexico 2,671,800 2,227,675
Hutchison Whampoa Ltd. ....................................... Hong Kong 802,100 11,659,780
Swire Pacific Ltd., A ........................................ Hong Kong 1,042,000 6,152,673
------------
36,563,093
------------
REAL ESTATE .4%
National Health Investors Inc. ............................... United States 187,700 2,792,038
------------
TELECOMMUNICATIONS 7.1%
Cia de Telecomunicaciones de Chile SA, ADR ................... Chile 117,300 2,140,725
Korea Telecom Corp., ADR ..................................... South Korea 88,900 6,645,275
Nippon Telegraph & Telephone Corp. ........................... Japan 390 6,679,062
Portugal Telecom SA .......................................... Portugal 976,500 10,705,814
Telecom Corp. of New Zealand Ltd. ............................ New Zealand 745,000 3,503,354
Telecom Italia SpA, di Risp .................................. Italy 476,400 6,690,607
Telecomunicacoes Brasileiras SA (Telebras), ADR .............. Brazil 41,800 5,371,300
Telefonos de Mexico SA (Telmex), L, ADR ...................... Mexico 65,900 7,413,750
------------
49,149,887
------------
TRANSPORTATION 3.5%
British Airways PLC .......................................... United Kingdom 928,000 6,043,991
Burlington Northern Santa Fe Corp. ........................... United States 223,700 5,424,725
Canadian National Railway Co. ................................ Canada 227,600 6,013,085
Firstgroup PLC ............................................... United Kingdom 425,500 1,667,562
Peninsular & Oriental Steam Navigation Co. ................... United Kingdom 294,200 4,887,722
------------
24,037,085
------------
UTILITIES ELECTRICAL & GAS 5.7%
Centrais Eletricas Brasileiras SA (Eletrobras), ADR .......... Brazil 514,400 5,625,221
CLP Holdings Ltd. ............................................ Hong Kong 697,500 3,212,260
Evn AG ....................................................... Austria 32,995 4,982,634
Iberdrola SA, Br. ............................................ Spain 486,500 6,739,394
National Power PLC ........................................... United Kingdom 1,054,800 6,068,633
Thames Water Group PLC ....................................... United Kingdom 500,300 6,173,199
Veba AG ...................................................... Germany 129,600 6,327,998
------------
39,129,339
------------
TOTAL COMMON STOCKS (COST $466,374,382)....................... 613,347,967
------------
</TABLE>
TS-10
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS 4.2%
Banco Itau SA, pfd. ....................................................... Brazil 63,094,000 $ 5,413,546
Embotelladora Andina SA, B, ADR, pfd. ..................................... Chile 302,900 4,429,912
News Corp. Ltd., pfd. ..................................................... Australia 1,177,909 10,091,524
Petroleo Brasileiro SA (Petrobras), pfd. .................................. Brazil 15,747,000 4,009,754
*Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..................... Brazil 41,800 652
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............................... Brazil 205,300 5,017,019
------------
TOTAL PREFERRED STOCKS (COST $22,497,583).................................. 28,962,407
------------
PRINCIPAL
AMOUNT**
---------
BONDS (COST $3,911,844) .5%
AXA SA, cvt., 144A, 2.50%, 1/01/14 ........................................ France 3,445,200 EUR 3,512,231
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $492,783,809)......... 645,822,605
------------
(a)REPURCHASE AGREEMENTS 6.3%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $14,003,500)
Collaterized by U.S. Treasury Notes and Bonds ............................ United States 14,000,000 14,000,000
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $29,594,397)
Collaterized by U.S. Treasury Notes and Bonds ............................ United States 29,587,000 29,587,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $43,587,000)............................. 43,587,000
------------
TOTAL INVESTMENTS (COST $536,370,809) 100.0%............................... 689,409,605
OTHER ASSETS, LESS LIABILITIES ............................................ 180,068
------------
TOTAL NET ASSETS 100.0% ................................................... $689,589,673
============
</TABLE>
CURRENCY ABBREVIATION:
EUR--European Unit
*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
(a)AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.
See Notes to Financial Statements.
TS-11
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $492,783,809)............................ $ 645,822,605
Repurchase agreements, at value and cost .......................................... 43,587,000
Receivables:
Investment securities sold ....................................................... 34,682,380
Fund shares sold ................................................................. 22,452
Dividends and interest ........................................................... 1,437,543
-------------
Total assets .................................................................... 725,551,980
-------------
Liabilities:
Payables:
Investment securities purchased .................................................. 510,791
Fund shares redeemed ............................................................. 563,320
To affiliates .................................................................... 467,340
Funds advanced by custodian ....................................................... 34,138,994
Accrued expenses .................................................................. 281,862
-------------
Total liabilities ............................................................... 35,962,307
-------------
Net assets, at value ............................................................... $ 689,589,673
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 5,470,586
Net unrealized appreciation ....................................................... 153,038,796
Accumulated net realized gain ..................................................... 109,151,709
Beneficial shares ................................................................. 421,928,582
-------------
Net assets, at value ............................................................... $ 689,589,673
=============
CLASS 1:
Net asset value per share ($641,848,812 /divided by/ 26,312,122 shares outstanding) $ 24.39
=============
CLASS 2:
Net asset value per share ($47,740,861 /divided by/ 1,965,579 shares outstanding).. $ 24.29
=============
</TABLE>
See Notes to Financial Statements.
TS-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,032,325)
Dividends ................................................... $ 11,337,859
Interest .................................................... 406,650
------------
Total investment income ................................... $ 11,744,509
Expenses:
Management fees (Note 4) .................................... 4,458,962
Administrative fees (Note 4) ................................ 616,251
Distribution fees - Class 2 (Note 4) ........................ 77,935
Custodian fees .............................................. 137,300
Reports to shareholders ..................................... 151,300
Professional fees ........................................... 68,500
Trustees' fees and expenses ................................. 400
Other ....................................................... 1,182
------------
Total expenses ............................................ 5,511,830
------------
Net investment income .................................... 6,232,679
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 113,535,358
Foreign currency transactions .............................. (992,164)
------------
Net realized gain ......................................... 112,543,194
Net unrealized appreciation on investments ................ 45,757,412
------------
Net realized and unrealized gain ............................. 158,300,606
------------
Net increase in net assets resulting from operations ......... $164,533,285
============
</TABLE>
See Notes to Financial Statements.
TS-13
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 6,232,679 $ 12,029,676
Net realized gain from investments and foreign currency transactions 112,543,194 47,568,957
Net unrealized appreciation (depreciation) on investments ........... 45,757,412 (47,396,839)
-----------------------------------
Net increase in net assets resulting from operations ............... 164,533,285 12,201,794
Distributions to shareholders from:
Net investment income: ...............................................
Class 1 ............................................................. (10,783,247) (15,083,722)
Class 2 ............................................................. (372,246) (357,002)
Net realized gains:
Class 1 ............................................................. (49,890,491) (63,413,199)
Class 2 ............................................................. (1,972,049) (1,560,086)
Fund share transactions (Note 3):
Class 1 ............................................................. (100,093,706) (19,220,136)
Class 2 ............................................................. 15,710,115 11,228,384
-----------------------------------
Net increase (decrease) in net assets .............................. 17,131,661 (76,203,967)
Net assets:
Beginning of year .................................................... 672,458,012 748,661,979
-----------------------------------
End of year .......................................................... $ 689,589,673 $ 672,458,012
===================================
Undistributed net investment income included in net assets:
End of year .......................................................... $ 5,470,586 $ 11,403,074
===================================
</TABLE>
See Notes to Financial Statements.
TS-14
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Stock Fund (the Fund) is a separate, diversified series of Templeton
Variable Products Series Fund (the Trust), which is an open-end investment
company registered under the Investment Company Act of 1940. The 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. The
following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does 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, and 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 currency denominated assets and liabilities other than investments
in securities held at the end of the reporting period.
c. 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 Fund. 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.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
d. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
TS-15
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (continued)
2. MERGER OF TEMPLETON VARIABLE ANNUITY FUND
On May 8, 1998, the Fund acquired all of the net assets of Templeton Variable
Annuity Fund (Variable Annuity Fund) pursuant to a plan of reorganization
approved by Variable Annuity Fund's shareholders. The merger was accomplished
by a tax-free exchange of 699,965 Class 1 shares of the Fund (valued at $23.84
per share) for the net assets of the Variable Annuity Fund which aggregated
$16,687,175, including $4,980,981 of unrealized appreciation. The combined net
assets of the Fund immediately after the merger were $839,071,006.
3. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class, and the exchange privilege of each class.
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 3,853,882 $ 81,887,246 1,862,209 $ 34,187,929
Shares issued on reinvestment of distributions 3,313,694 60,673,738 3,523,201 78,496,920
Shares issued on merger ....................... -- -- 699,965 16,687,175
Shares redeemed ............................... (11,555,092) (242,654,690) (6,963,562) (148,592,160)
----------------------------------------------------------------------
Net decrease .................................. (4,387,516) $ (100,093,706) (878,187) $ (19,220,136)
======================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 912,104 $ 19,443,978 641,741 $ 14,204,072
Shares issued on reinvestment of distributions 128,314 2,344,295 86,200 1,917,088
Shares redeemed ............................... (294,245) (6,078,158) (217,530) (4,892,776)
----------------------------------------------------------
Net increase .................................. 746,173 $ 15,710,115 510,411 $ 11,228,384
==========================================================
</TABLE>
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), and Franklin/Templeton Distributors, Inc. (Distributors), the Fund's
investment manager, administrative manager, and principal underwriter,
respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>
TS-16
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (continued)
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.
5. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $537,940,376 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 197,659,684
Unrealized depreciation ............. (46,190,455)
-------------
Net unrealized appreciation ......... $ 151,469,229
=============
</TABLE>
Net realized gains differ for financial statement and tax purposes primarily
due to differing treatments of wash sales.
At December 31, 1999, the Fund has deferred currency losses occurring
subsequent to October 31, 1999 of $596,000. For tax purposes, such losses will
be reflected in the year ending December 31, 2000.
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $286,049,156 and $471,031,775,
respectively.
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including Templeton Stock Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.
8. SUBSEQUENT EVENT
On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Growth
Fund.
TS-17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund
In our opinion, the accompanying statement of asset and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Stock Fund, series of
Templeton Variable Products Series Fund at December 31, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended December 31, 1998, including the
financial highlights for each of the four years in the period then ended were
audited by other independent accountants whose report dated January 28, 1999
expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000.
TS-18
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
TS-19
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $88,455,613 as a capital gain dividend for the fiscal year ended
December 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
11.63% of ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended December 31, 1999.
TS-20
<PAGE>
REPORT OF SPECIAL MEETING
OF SHAREHOLDERS
At a Special Meeting on February 8, 2000, the shareholders of Templeton
Variable Products Series Fund (TVP) approved an Agreement and Plan of
Reorganization (Reorganization) pursuant to which each TVP fund will merge with
the similar, corresponding fund of the Franklin Templeton Variable Insurance
Products Trust (VIP), to be effective as of May 1, 2000. The Reorganization
provides that TVP shareholders will receive VIP shares equal in value to their
current TVP shares.
In addition, at a Special Meeting of shareholders of Templeton Developing
Markets Equity, Templeton Global Asset Allocation, and Templeton International
Equity Funds, each a series of VIP, shareholders approved new investment
advisory agreements and changes to, and elimination of, certain of the
fundamental investment restrictions of each series, to be effective as of May
1, 2000.
The VIP Board of Trustees approved name changes for several of
the combined TVP/VIP funds which will also take effect, as of
May 1, 2000.
<TABLE>
<CAPTION>
NEW VIP COMBINED FUND NAME
YOUR CURRENT TVP FUND NAME AS OF MAY 1, 2000
- ---------------------------------------------------------------------------------------------
<S> <C>
Franklin Strategic Income Investments Fund Franklin Strategic Income Securities Fund
Templeton Asset Allocation Fund Templeton Asset Strategy Fund
Templeton Developing Markets Fund Templeton Developing Markets Securities Fund
Templeton International Fund Templeton International Securities Fund
</TABLE>
R-1
<PAGE>
At the Special Meeting of Shareholders of each series of Templeton Variable
Products Series Fund (TVP) held on February 8, 2000, shareholders voted as
follows:
1. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Large Cap Growth Investments Fund and the Franklin Large Cap
Growth Securities Fund, a series of the Franklin Templeton Variable Insurance
Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ---------------- --------------- ------------ --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
88,108.591 82,549.531 93.691% 0.000 0.000% 5,559.060 6.309%
</TABLE>
2. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Small Cap Investments Fund and the Franklin Small Cap Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ------------------- ------------------ ------------ --------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
3,910,681.268 3,676,403.633 94.009% 44,760.236 1.145% 189,517.399 4.846%
</TABLE>
3. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin S&P 500 Index Fund and the Franklin S&P 500 Index Fund, a series
of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------- ---------------- ------------ --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
666,529.442 627,225.217 94.103% 13,207.807 1.982% 26,096.418 3.915%
</TABLE>
4. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Strategic Income Investments Fund and the Franklin Strategic
Income Securities Fund, a series of the Franklin Templeton Variable Insurance
Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------- ---------------- ------------ --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
413,690.850 410,740.206 99.287% 0.000 0.000% 2,950.644 0.713%
</TABLE>
R-2
<PAGE>
5. Regarding the approval of the Agreement and Plan of Reorganization between
the Mutual Shares Investments Fund and the Mutual Shares Securities Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------- ---------------- ------------ -------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
481,079.686 462,972.399 96.236% 5,433.373 1.130% 12,673.914 2.634%
</TABLE>
6. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Asset Allocation Fund and the Templeton Global Asset Allocation
Fund, a series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -------------------- ------------------- ------------ ------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
30,053,798.611 27,094,661.662 90.154% 1,263,049.081 4.202% 1,696,087.868 5.644%
</TABLE>
7. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Bond Fund -- Class 1 and the Templeton Global Income Securities
Fund -- Class 1, a series of the Franklin Templeton Variable Insurance Products
Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ------------------- ------------------ ------------ --------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
2,085,176.738 1,838,325.020 88.162% 92,878.521 4.454% 153,973.197 7.384%
</TABLE>
8. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Bond Fund -- Class 2 and the Templeton Global Income Securities
Fund -- Class 2, a series of the Franklin Templeton Variable Insurance Products
Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ---------------- --------------- ------------ -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
50,207.875 44,120.171 87.875% 4,594.020 9.150% 1,493.684 2.975%
</TABLE>
R-3
<PAGE>
9. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Developing Markets Fund and the Templeton Developing Markets
Equity Fund, a series of the Franklin Templeton Variable Insurance Products
Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -------------------- ------------------- ------------ ---------------- ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
43,104,307.479 38,032,307.453 88.233% 995,683.149 2.310% 4,076,316.877 9.457%
</TABLE>
10. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton International Fund and the Templeton International Equity Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -------------------- ------------------- ------------ ------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
50,011,973.703 44,879,630.867 89.738% 1,787,919.242 3.575% 3,344,423.594 6.687%
</TABLE>
11. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Stock Fund and the Templeton Global Growth Fund, a series of the
Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -------------------- ------------------- ------------ ---------------- ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
28,354,704.714 25,499,530.878 89.931% 973,896.763 3.434% 1,881,277.073 6.635%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
R-4
