TEMPLETON VARIABLE PRODUCTS SERIES FUND, 485BPOS, 1996-04-12

TEMPLETON VARIABLE PRODUCTS SERIES FUND
485BPOS, 1996-04-12

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Registration No. 33-20313

As filed with the Securities and Exchange Commission on April 12, 1996

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No.

Post-Effective Amendment No. 13 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 16 X

(Check appropriate box or boxes)

TEMPLETON VARIABLE PRODUCTS SERIES FUND
(Exact Name of Registrant as Specified in Charter)

700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number: (813) 823-8712

Thomas M. Mistele
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b)

X on MAY 1, 1996 pursuant to paragraph (b)

60 days after filing pursuant to paragraph (a)(1)

on (DATE) pursuant to paragraph (a)(1)

75 days after filing pursuant to paragraph (a)(2)

on (DATE) pursuant to paragraph (a)(2) of rule 485

this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

- ------------------------------------------------------------------------------

The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended December 31, 1995 on February 28, 1996.

<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND

CROSS-REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933

PART A (FOR TEMPLETON DEVELOPING MARKETS FUND)

The prospectus for Templeton Developing Markets Fund is not affected by this
Post-Effective Amendment and is included in Post-Effective Amendment No. 12 as
filed with the SEC on February 16, 1996.

PART A (FOR TEMPLETON MONEY MARKET FUND)

ITEM NO. CAPTION

1 Cover Page

2 Not Applicable

3 Financial Highlights

4 Investment Objective and Policies;
Description of Securities and
Investment Techniques

5 Management of the Trust

6 Dividends and Distributions; Other
Information

7 Purchase of Shares; Net Asset Value

8 Redemption of Shares

9 Not Applicable

PART A (FOR TEMPLETON BOND FUND)

ITEM NO. CAPTION

1 Cover Page

2 Not Applicable

3 Financial Highlights

4 Investment Objective and Policies;
Description of Securities and
Investment Techniques

5 Management of the Trust

6 Dividends and Distributions; Other
Information

7 Purchase of Shares; Net Asset Value

<PAGE>

PART A (FOR TEMPLETON BOND FUND)- CONTINUED

ITEM NO. CAPTION

8 Redemption of Shares

9 Not Applicable

PART A (FOR TEMPLETON STOCK FUND)

ITEM NO. CAPTION

1 Cover Page

2 Not Applicable

3 Financial Highlights

4 Investment Objective and Policies;
Description of Securities and
Investment Techniques

5 Management of the Trust

6 Dividends and Distributions; Other Information

7 Purchase of Shares; Net Asset Value

8 Redemption of Shares

9 Not Applicable

PART A (FOR TEMPLETON INTERNATIONAL FUND)

ITEM NO. CAPTION

1 Cover Page

2 Not Applicable

3 Financial Highlights

4 Investment Objective and Policies;
Description of Securities and
Investment Techniques

5 Management of the Trust

6 Dividends and Distributions; Other Information

7 Purchase of Shares; Net Asset Value

8 Redemption of Shares

9 Not Applicable

<PAGE>

PART A (FOR TEMPLETON ASSET ALLOCATION FUND)

ITEM NO. CAPTION

1 Cover Page

2 Not Applicable

3 Financial Highlights

4 Investment Objective and Policies;
Description of Securities and
Investment Techniques

5 Management of the Trust

6 Dividends and Distributions; Other Information

7 Purchase of Shares; Net Asset Value

8 Redemption of Shares

9 Not Applicable

PART B (STATEMENT OF ADDITIONAL INFORMATION FOR ALL SERIES)

ITEM NO. CAPTION

10 Cover Page

11 Table of Contents

12 General Information and History

13 Investment Objectives and Policies

14 Management of the Trust

15 Principal Shareholders

16 Investment Management and Other Services

17 Brokerage Allocation

18 Description of Shares; Other Information, Part A

19 Purchase and Redemption of Shares; Net Asset Value

20 Tax Status

21 Purchase of Shares (Prospectus)

22 Yield and Performance Information

23 Not Applicable

<PAGE>
[INSERT LOGO]
TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- May 1, 1996

Templeton Money Market Fund
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<TABLE>
<CAPTION>
<S> <C>
Templeton Money Market Fund (the "Fund") is a diversified series of Templeton
Variable Products Series Fund (the "Trust"), an open-end, management investment
company. Shares of the Fund are currently sold only to insurance company
separate accounts ("Separate Accounts") to serve as the investment vehicle
for both variable annuity and variable life insurance contracts (the
"Contracts"). The Separate Accounts invest in shares of the Fund and other
series of the Trust in accordance with allocation instructions received from
owners of the Contracts. Such allocation rights are described further in
the accompanying prospectus for the Separate Accounts. Certain series of
the Trust are not available as an investment vehicle for all Contracts. A
purchaser of a Contract should refer to his or her Contract or policy for
INVESTMENT information as to which series of the Trust are available for investment.
OBJECTIVE AND This Prospectus sets forth concisely information about the Fund that a
POLICIES prospective investor ought to know before investing.
AN INVESTMENT IN TEMPLETON MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

SHARES OF THE FUND ARE AVAILABLE EXCLUSIVELY TO INSURANCE COMPANY SEPARATE
ACCOUNTS AS AN INVESTMENT VEHICLE FOR VARIABLE INSURANCE CONTRACTS. THIS
PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OFFERING THE
PURCHASE VARIABLE INSURANCE CONTRACT. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND
OF SHARES RETAINED FOR FUTURE REFERENCE.

A STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED MAY 1, 1996 HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED IN
ITS ENTIRETY BY REFERENCE IN AND MADE A PART OF THIS PROSPECTUS. THIS SAI
IS AVAILABLE WITHOUT CHARGE UPON REQUEST TO FRANKLIN TEMPLETON DISTRIBUTORS,
PROSPECTUS INC., P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030 OR BY CALLING THE
INFORMATION FUND INFORMATION DEPARTMENT AT 1-800-774-5001 OR 1-813-823-8712.

</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- --------------------------------------- ---------
<S> <C>
FINANCIAL HIGHLIGHTS .................. T-2
INVESTMENT OBJECTIVE AND POLICIES .... T-2
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES ............. T-3
PURCHASE OF SHARES .................... T-4
NET ASSET VALUE ....................... T-5
REDEMPTION OF SHARES .................. T-5
</TABLE>

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXCHANGES ....................... T-5
MANAGEMENT OF THE TRUST ......... T-5
BROKERAGE COMMISSIONS ........... T-6
DIVIDENDS AND DISTRIBUTIONS .... T-6
FEDERAL INCOME TAX STATUS ...... T-6
OTHER INFORMATION ............... T-7
</TABLE>

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SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF CAPITAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

The following table of financial highlights has been audited by McGladrey &
Pullen, LLP, independent certified public accountants, for the periods indicated
in their report which is incorporated by reference and which appears in the
Fund's 1995 Annual Report to Shareholders. This statement should be read in
conjunction with the other financial statements and notes thereto included in
the Fund's 1995 Annual Report to Shareholders, which contains further
information about the Funds' performance, and which is available to shareholders
upon request and without charge.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988*
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a
share outstanding throughout the year)
NET ASSET VALUE,
BEGINNING OF YEAR....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................... .05 .03 .02 .03 .05 .07 .08 .02
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS FROM NET
INVESTMENT INCOME....................... (.05) (.03) (.02) (.03) (.05) (.07) (.08) (.02)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net asset value
for the year............................ -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------ ------
NET ASSET VALUE,
END OF YEAR............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............................. 5.35% 3.48% 2.41% 3.10% 5.59% 7.51% 8.13% 1.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........... $20,723 $33,090 $16,992 $21,454 $22,046 $17,982 $5,984 $ 679
Ratio of expenses to average
net assets.............................. .63% 0.71% .75% .69% .70% .84% 1.82% 12.95%**
Ratio of expenses, net of reimbursement,
to average
net assets.............................. .63% 0.71% .75% .69% .70% .84% 1.00% 1.50%**
Ratio of net investment income to
average net assets...................... 5.29% 3.56% 2.38% 3.02% 5.28% 7.19% 7.79% 5.83%**
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* For the period August 31, 1988 (commencement of operations) to
December 31, 1988.
** Annualized.
Total return figures do not include charges applied under the
Contracts. Inclusion of such charges would reduce the total
return figures for all periods shown.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is current income, stability of principal,
and liquidity, which it seeks to achieve by investing in money market
instruments with maturities not exceeding 397 days, consisting primarily of
short term U.S. Government securities, certificates of deposit, time deposits,
bankers' acceptances, commercial paper, and repurchase agreements with banks or
broker-dealers with respect to these securities. As a fundamental policy, the
Fund invests at least 80% of its total assets in these securities. There can be
no assurance that the investment objective of the Fund will be attained.

The Fund intends to use its best efforts to maintain its net asset value at
$1.00 per Share, although there can be no assurance that this will be achieved.
The Fund values all of its portfolio securities using the amortized cost method,
which involves valuing a security at cost on the date of acquisition and
thereafter assuming a constant accretion of discount or amortization of premium.
See 'Purchase, Redemption and Pricing of Shares' in the SAI for a description of
certain conditions and procedures followed by the Fund in connection with
amortized cost valuation. Certain of those conditions and procedures are
summarized below.

In addition, the Fund will not invest more than 5% of its total assets in
the securities (including the securities collateralizing a repurchase agreement)
of, or subject to puts issued by, a single issuer, except that (i) the Fund may
invest in U.S. Government securities or repurchase agreements that are fully
collateralized by U.S. Government securities without any such limitation, and
(ii) the limitation with respect to puts does not apply to unconditional puts if
no more than 10% of the Fund's total assets is invested in securities issued or
guaranteed by the issuer of the unconditional put. Investments in rated
securities not rated in the highest category by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Board of
Trustees to be comparable to those rated in the highest category, will be
limited to 5% of the Fund's total assets, with the investment in any one such
issuer being limited to no more than the greater of 1% of the Fund's total
assets or $1,000,000.

Commercial paper must be issued by domestic corporations or foreign
corporations affiliated with domestic corporations and must meet the quality
standards described under 'Description of Securities and Investment Techniques.'
The Fund may also enter into repurchase agreements, invest in short term
corporate debt obligations, purchase securities on a 'when-issued' basis, lend
its portfolio securities, and borrow money for emergency purposes. The Fund will
not invest more than 10% of its assets in time deposits maturing in more than
seven days which do not have secondary trading markets and which are subject to
early withdrawal penalties. (See 'Description of Securities and Investment
Techniques.')

The Fund is subject to investment restrictions that are described under the
heading 'Investment Restrictions' in the SAI. Those investment restrictions so
designated and the investment objective of the Fund are 'fundamental policies'
of the Fund, which means that they may not be changed without a majority vote of
Shareholders of the Fund. With the exception of the Fund's investment objectives
and those restrictions specifically identified as fundamental, all investment
policies and practices described in this Prospectus and in the SAI are not
fundamental, meaning that the Board of Trustees may change them without
Shareholder approval.

Certain types of investments and investment techniques are described in
greater detail under 'Description of Securities and Investment Techniques' in
this Prospectus and also in the SAI.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

The Fund is authorized to invest in securities and use the various investment
techniques described below. Although these strategies are regularly used by some
investment companies and other institutional investors in various markets, some
of these strategies cannot at the present time be used to a significant extent
by the Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
U.S. GOVERNMENT SECURITIES

The Fund may invest in U.S. Government securities, which are obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills and bonds, which are direct
obligations of the U.S. Treasury, and Government National Mortgage Association
('GNMA') certificates, the principal and interest of which the Treasury
guarantees, are supported by the full faith and credit of the Treasury; others,
such as those of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others are
supported only by the credit of the instrumentality. GNMA certificates represent
part ownership of a pool of mortgage loans on which interest and principal
payments are guaranteed by the Treasury. Principal is repaid monthly over the
term of the loan. Expected payments may be delayed due to the delays in
registering newly traded certificates. The mortgage loans will be subject to
normal principal amortization and may be prepaid prior to maturity. Reinvestment
of prepayments may occur at higher or lower rates than the original yield on the
certificates.
BANK OBLIGATIONS

The Fund may invest in certificates of deposit, which are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. The Fund may invest in bankers'
acceptances, which are negotiable drafts or bills of exchange normally drawn by
an importer or exporter to pay for specific merchandise and which are 'accepted'
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. The Fund may invest in
dollar-denominated certificates of deposit and bankers' acceptances of foreign
and domestic banks having total assets in excess of $1 billion. The Fund may
also invest in certificates of deposit of federally insured savings and loan
associations having total assets in excess of $1 billion.
COMMERCIAL PAPER

The Fund may invest in commercial paper. Investments in commercial paper are
limited to obligations rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ('Moody's') or A-1 or A-2 by Standard & Poor's Corporation ('S&P') or, if
not rated by Moody's or S&P, issued by companies having an outstanding debt
issue currently rated Aaa or Aa by Moody's or AAA or AA by S&P. See the Appendix
in the SAI for a description of these ratings.

T-3
<PAGE>
REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. When the Fund acquires a security
from a bank or a registered broker-dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller agrees to repurchase the security at a
specified time and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed upon rate of return, which is not
tied to the coupon rate on the underlying security. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. Under the Investment Company Act of 1940 (the '1940 Act'), repurchase
agreements are considered to be loans collateralized by the underlying security
and therefore will be fully collateralized. However, if the seller should
default on its obligation to repurchase the underlying security, the Fund may
experience delay or difficulty in exercising its rights to realize upon the
security and might incur a loss if the value of the security should decline, as
well as incur disposition costs in liquidating the security.
BORROWING

The Fund may borrow up to 5% of its total assets for temporary or emergency
purposes. Under the 1940 Act, the Fund may borrow from banks only, and is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if disadvantageous from an investment
standpoint.
WHEN-ISSUED SECURITIES

The Fund may purchase securities on a 'when-issued' basis. New issues of certain
debt securities are often offered on a when-issued basis, meaning that the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally takes
place after the date of the commitment to purchase. The value of when-issued
securities may vary prior to and after delivery depending on market conditions
and changes in interest rate levels. However, the Fund will not accrue any
income on these securities prior to delivery. The Fund will maintain in a
segregated account with its Custodian an amount of cash or high quality debt
securities equal (on a daily marked-to-market basis) to the amount of its
commitment to purchase the when-issued securities.
LOANS OF PORTFOLIO SECURITIES

The Fund may lend to broker-dealers or U.S. banks portfolio securities with an
aggregate market value of up to one-third of its total assets. Such loans must
be secured by collateral (consisting of any combination of cash, U.S. Government
securities, or irrevocable letters of credit) in an amount at least equal (on a
daily marked-to-market basis) to the current market value of the securities
loaned. The Fund may terminate the loans at any time and obtain the return of
the securities loaned within five business days. The Fund will continue to
receive any interest or dividends paid on the loaned securities and will
continue to have voting rights with respect to the securities. It should be
noted that in connection with the lending of its portfolio securities, the Fund
is exposed to the risk of delay in recovery of the securities loaned or possible
loss of rights in the collateral should the borrower become insolvent. In
determining whether to lend securities, the Investment Manager will consider all
relevant facts and circumstances including the creditworthiness of the borrower.
In the event that the borrower defaults on its obligation to return borrowed
securities, because of insolvency or otherwise, the Fund could experience delays
and costs in gaining access to the collateral and could suffer a loss to the
extent that the value of collateral falls below the market value of the borrowed
securities.
EURODOLLAR AND YANKEE OBLIGATIONS

The Fund may invest in dollar-denominated obligations of foreign branches of
domestic banks ('Eurodollar obligations') and dollar-denominated obligations of
domestic branches of foreign banks ('Yankee obligations'). These investments may
involve risks that are different in some respects from investments in
obligations of domestic branches of domestic banks. Such investment risks may
include future political and economic developments, the possible imposition of
withholding taxes on interest income payable on the Eurodollar and Yankee
obligations held by the Fund, possible seizure or nationalization, and the
possible establishment of exchange controls or the adoption of other foreign
government laws and restrictions applicable to the payment of Eurodollar and
Yankee obligations which might adversely affect the payment of principal and
interest.
PURCHASE OF SHARES

Shares of the Fund are offered on a continuous basis at the net asset value only
to separate accounts of insurance companies to serve as the underlying
investment vehicle for both variable annuity and variable life insurance
contracts. Individuals may not purchase shares directly from the Fund. Please
read the prospectus of the insurance company Separate Account for more
information on the purchase of Fund Shares.

In the event that the Trust serves as investment vehicle for both variable
annuity and variable life insurance contracts, or for both variable life
insurance contracts of an insurer and other variable contracts of an
unaffiliated insurer, the Trust's Board of Trustees will monitor events in order
to identify any material conflicts between variable annuity contract owners and
variable life policy owners and/or between separate accounts of different
insurers, as the case may be, and will
T-4
<PAGE>
determine what action, if any, should be taken in the event of such a conflict.
Although the Trust does not currently foresee any disadvantages to contract
owners, an irreconcilable material conflict may conceivably arise between
contract owners of different separate accounts investing in the Trust due to
differences in tax treatment, the management of investments, or other
considerations.
NET ASSET VALUE

The Fund uses the amortized cost method to determine the value of its
portfolio securities. This method involves valuing a security at cost and then
assuming a constant accretion of discount or premium over the period until
maturity, regardless of the impact of fluctuating interest rates on the market
value of the security. The Fund intends to use its best efforts to maintain its
net asset value at $1.00 per Share, although there can be no assurance that this
will be achieved. See 'Purchase, Redemption and Pricing of Shares' in the SAI
for a description of certain conditions and procedures followed by the Fund in
connection with amortized cost valuation.
REDEMPTION OF SHARES

The Trust will redeem all full and fractional Shares presented for redemption on
any business day. Redemptions are effected at the per Share net asset value next
determined after receipt of proper notice of the redemption. Redemption proceeds
normally will be paid to the insurance company within seven days following
receipt of instructions in proper form. The right of redemption may be suspended
by the Trust when the NYSE is closed (other than customary weekend and holiday
closings) or for any period during which trading thereon is restricted because
an emergency exists, as determined by the Securities and Exchange Commission,
making disposal of portfolio securities or valuation of net assets not
reasonably practicable, and whenever the Securities and Exchange Commission has
by order permitted such suspension or postponement for the protection of
shareholders. The Trust will redeem Shares of the Fund solely in cash up to the
lesser of $250,000 or 1% of its net assets during any 90-day period for any one
Shareholder. In consideration of the best interests of the remaining
Shareholders, the Trust reserves the right to pay any redemption price exceeding
this amount in whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that Shares would ever be
redeemed in kind. If Shares are redeemed in kind, however, the redeeming
Shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.

Please refer to the prospectus of your insurance company's Separate Account
for information on how to redeem Shares of the Fund.
EXCHANGES

Shares of the Fund may be exchanged for shares of any other fund available as an
investment option in a Separate Account. Exchanges are treated as a redemption
of shares of one fund and a purchase of shares of the other fund and are
effected at the respective net asset value per Share of each fund on the date of
the exchange. Please refer to the prospectus of your insurance company's
Separate Account for more information concerning exchanges.
MANAGEMENT OF THE TRUST

The Trust is managed by its Board of Trustees and all powers of the Trust are
exercised by or under authority of the Board. Information relating to the
Trustees and Officers is set forth under the heading 'Management of the Trust'
in the SAI.
INVESTMENT MANAGER

The Investment Manager of the Fund is Templeton Global Bond Managers, a division
of Templeton Investment Counsel, Inc. ('TICI'). TICI is a Florida corporation
with offices at Broward Financial Centre, Fort Lauderdale, Florida 33394-3091.
The Investment Manager manages the investment and reinvestment of the Fund's
assets. TICI is an indirect wholly owned subsidiary of Franklin Resources, Inc.
('Franklin'). Through its subsidiaries, Franklin is engaged in various aspects
of the financial services industry. The Investment Manager and its affiliates
serve as advisers for a wide variety of public investment mutual funds and
private clients in many nations. The Templeton organization has been investing
globally over the past 56 years and, with its affiliates, provides investment
management and advisory services to a worldwide client base, including over 4.3
million mutual fund shareholders, foundations, endowments, employee benefit
plans and individuals. The Investment Manager and its affiliates have
approximately 4,100 employees in the United States, Australia, Scotland,
Germany, Hong Kong, Luxembourg, Bahamas, Singapore, Canada, Russia, France,
Poland, Italy, India, Vietnam, South America and South Africa.

The Investment Manager has an extensive global network of investment
research sources. Many different selection methods are used for different funds
and clients and these methods are changed and improved by the Investment
Manager's research on superior selection methods.

T-5
<PAGE>
The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers and Trustees
of the Trust are prohibited from investing in securities held by the Fund or
other funds and accounts which are managed or administered by the Investment
Manager to the extent such transactions comply with the Trust's Code of Ethics.
Please see 'Investment Management and Other Services--Investment Management
Agreements,' in the SAI for further information on securities transactions and a
summary of the Trust's Code of Ethics.

The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for these services, the Fund pays the
Investment Manager a fee equal on an annual basis to .35% of its average daily
net assets during the year.

Further information concerning the Investment Manager, including the
services it renders and its selection of brokers to execute portfolio
transactions, is included under the heading 'Investment Management and Other
Services' in the SAI.
BUSINESS MANAGER

Templeton Funds Annuity Company, P.O. Box 33030, St. Petersburg, Florida
33733-8030, telephone (800) 774-5001 or (813) 823-8712, provides certain
administrative facilities and services for the Trust, including payment of
salaries of officers, preparation and maintenance of books and records, daily
pricing of the Fund's investment portfolio, preparation of tax reports,
preparation of financial reports, and monitoring compliance with regulatory
requirements. For its services, the Business Manager receives a fee equivalent
on an annual basis to 0.15% of the combined average daily net assets of the Fund
and other funds of the Trust, reduced to 0.135% of such assets in excess of
$200,000,000, to 0.10% of such assets in excess of $700,000,000, and to 0.075%
of such assets in excess of $1,200,000,000.
EXPENSES

During the fiscal year ended December 31, 1995, expenses amounted to .63% of the
Fund's average daily net assets.
DISTRIBUTOR

Shares of the Trust are distributed through Franklin Templeton Distributors,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone
(800) 292-9293.
BROKERAGE COMMISSIONS

The Trust's brokerage policies are described under the heading 'Brokerage
Allocation' in the SAI. The Trust's brokerage policies provide that the receipt
of research services from a broker is a factor which may be taken into account
in allocating securities transactions as long as the prices and execution
provided by the broker equal the best available within the scope of the Trust's
brokerage policies.
DIVIDENDS AND DISTRIBUTIONS

The Fund's net investment income (consisting principally of interest accrued or
discount earned less amortization of premium and estimated expenses) is declared
as a dividend daily, including weekends and holidays, immediately prior to the
determination of net asset value, and is paid monthly. Any distributions made by
the Fund will be automatically reinvested in additional Shares of the Fund,
unless an election is made on behalf of a Shareholder to receive distributions
in cash.
FEDERAL INCOME TAX STATUS

The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code (the 'Code'). If the Fund so
qualifies, it generally will not be subject to federal income taxes on amounts
distributed to Shareholders. In order to qualify as a regulated investment
company, the Fund must, among other things, meet certain source of income
requirements. In addition, the Fund must diversify its holdings so that, at the
end of each quarter of the taxable year, (a) at least 50% of the market value of
the Fund's assets is represented by cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (b) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies).

Amounts not distributed by the Fund on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. See the SAI for more information about this tax and its applicability to
the Fund.

Distributions of any net investment income and of any net realized
short-term capital gains in excess of net realized long-term capital losses are
treated as ordinary income for tax purposes in the hands of the Shareholder (the
Separate Account). The excess of any net long-term capital gains over net
short-term capital losses will, to the extent distributed and designated by the
Fund as a capital gain dividend, be treated as long-term capital gains in the
hands of the Separate Account regardless
T-6
<PAGE>
of the length of time the Separate Account may have held the Shares. Any
distributions that are not from the Fund's investment company taxable income or
net capital gain may be characterized as a return of capital to shareholders or,
in some cases, as capital gain. Reference is made to the prospectus for the
applicable Contract for information regarding the federal income tax treatment
of distributions to an owner of a Contract.

To comply with regulations under Section 817(h) of the Code the Fund is
required to diversify its investments so that on the last day of each quarter of
a calendar year no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For this purpose, in the case of U.S.
Government securities, each U.S. Government agency or instrumentality is treated
as a separate issuer. Any securities issued, guaranteed, or insured (to the
extent so guaranteed or insured) by the U.S. Government or an instrumentality of
the U.S. Government are treated as a U.S. Government security for this purpose.

The Treasury Department has indicated that it may issue future
pronouncements addressing the circumstances in which a variable contract owner's
control of the investments of a separate account may cause the contract owner,
rather than the insurance company, to be treated as the owner of the assets held
by the separate account. If the contract owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income. It
is not known what standards will be set forth in such pronouncements or when, if
at all, these pronouncements may be issued.

In the event that rules or regulations are adopted, there can be no
assurance that the Fund will be able to operate as currently described in the
Prospectus, or that the Trust will not have to change the Fund's investment
objective or investment policies. While the Fund's investment objective is
fundamental and may be changed only by a vote of a majority of its outstanding
Shares, the Trustees have reserved the right to modify the investment policies
of the Fund as necessary to prevent any such prospective rules and regulations
from causing the contract owners to be considered the owners of the Shares of
the Fund underlying the Separate Account.
OTHER INFORMATION
CAPITALIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of six separately managed funds. The Board of Trustees
may establish additional Funds in the future. The capitalization of the Trust
consists solely of an unlimited number of Shares of beneficial interest with a
par value of $0.01 each. When issued, Shares of the Trust are fully paid,
non-assessable by the Trust and freely transferable.

Unlike the stockholder of a corporation, Shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust. The Declaration of
Trust provides for indemnification out of Trust property for all loss and
expense of any Shareholder held personally liable for the obligations of the
Trust. The risk of a Shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and thus should be considered remote.
VOTING RIGHTS

Shareholders of the Trust are given certain voting rights. Each Share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. In accordance with current
applicable law, the Separate Account, as Shareholder of the Trust, is required
to vote the Shares of the Trust at any regular and special meeting of the
Shareholders of the Trust in accordance with instructions received from owners
of the variable contracts. See the prospectus for the Variable Contract for more
information regarding the pass-through of these voting rights.

Massachusetts business trust law does not require the Trust to hold annual
shareholder meetings, although special meetings may be called for a specific
fund of the Trust, or for the Trust as a whole, for purposes such as electing or
removing Trustees, changing fundamental policies or approving an investment
management contract. In addition, the Trust will be required to hold a meeting
to elect Trustees to fill any existing vacancies on the Board if, at any time,
fewer than a majority of the Trustees have been elected by the Shareholders of
the Trust. In addition, the holders of not less than two-thirds of the
outstanding Shares or other voting interests of the Trust may remove a person
serving as Trustee either by declaration in writing or at a meeting called for
such purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee, if requested in writing
to do so by the holders of not less than 10% of the outstanding Shares or other
voting interests of the Trust. The Trust is required to assist in Shareholders'
communications. In accordance with current laws, an insurance company issuing a
variable life insurance or annuity contract that participates in the Trust will
request voting instructions from contract owners and will vote Shares or other
voting interests in the separate account in proportion to the voting
instructions received.

T-7
<PAGE>
For more information on the Trust and the Fund, an SAI may be obtained
without charge upon request to Franklin Templeton Distributors, Inc., P.O. Box
33030, St. Petersburg, Florida, 33733-8030 -- toll free telephone (800) 774-5001
or (813) 823-8712.
PERFORMANCE INFORMATION

The Fund may include its yield and effective yield and total return in
advertisements or reports to Shareholders or prospective investors. Performance
information for the Fund will not be advertised unless accompanied by comparable
performance information for a separate account to which the Fund offer its
Shares.

The Fund calculates current yield by annualizing the dividend for the most
recent seven-day period and dividing by the net asset value on the last day of
the period for which yield is presented. The Fund's effective yield is
calculated similarly but assumes that income earned from the investment is
reinvested. The Fund's effective yield will be slightly higher than its yield
because of the compounding effect of this assumed reinvestment. Quotations of
average annual total return for the Fund will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in the
Fund over a period of 1, 5 and 10 years (or up to the life of the Fund), will
reflect the deduction of a proportional share of Fund expenses (on an annual
basis), and will assume that all dividends and distributions are reinvested when
paid. Total return may be expressed in terms of the cumulative value of an
investment in the Fund at the end of a defined period of time. Quotations of
yield or total return for the Fund will not take into account charges and
deductions against any separate account to which the Fund's Shares are sold or
charges and deductions against variable insurance contracts, although comparable
performance information for a separate account will take such charges into
account. For a description of the methods used to determine total return for the
Fund, see 'Performance Information' in the SAI.
STATEMENTS AND REPORTS

The Trust's fiscal year ends on December 31. Annual reports (containing
financial statements audited by independent auditors and additional information
regarding the Fund's performance) and semi-annual reports (containing unaudited
financial statements) are sent to Shareholders each year. Additional copies may
be obtained, without charge, upon request to the Business Manager.

T-8

<PAGE>
[INSERT LOGO]
TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- May 1, 1996

Templeton Bond Fund
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Templeton Bond Fund (the "Fund") is a diversified series of Templeton Variable
Products Series Fund (the "Trust"), an open-end, management investment company.
Shares of the Fund are currently sold only to insurance company separate
accounts ("Separate Accounts") to serve as the investment vehicle for both
variable annuity and variable life insurance contracts (the "Contracts").
The Separate Accounts invest in shares of the Fund and other series of the
Trust in accordance with allocation instructions received from owners of
the Contracts. Such allocation rights are described further in the accompanying
Prospectus for the Separate Accounts. Certain series of the Trust are not
available as an investment vehicle for all Contracts. A purchaser of a Contract
should refer to the prospectus for his or her Contract or policy for information
INVESTMENT as to which series of the Trust are available for investment. This Prospectus
OBJECTIVE AND sets forth concisely information about the Fund that a prospective investor
POLICIES ought to know before investing.

A STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED MAY 1, 1996 HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED IN
ITS ENTIRETY BY REFERENCE IN AND MADE A PART OF THIS PROSPECTUS. THE SAI
IS AVAILABLE WITHOUT CHARGE UPON REQUEST TO FRANKLIN TEMPLETON DISTRIBUTORS,
PROSPECTUS INC., P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030 OR BY CALLING THE
INFORMATION FUND INFORMATION DEPARTMENT AT 1-800-774-5001 OR 1-813-823-8712.

</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- --------------------------------------- ---------
<S> <C>
FINANCIAL HIGHLIGHTS .................. T-2
INVESTMENT OBJECTIVE AND POLICIES .... T-2
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES ............. T-3
RISK FACTORS .......................... T-6
PURCHASE OF SHARES .................... T-7
NET ASSET VALUE ....................... T-8
</TABLE>

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REDEMPTION OF SHARES ............ T-8
EXCHANGES ....................... T-8
MANAGEMENT OF THE TRUST ......... T-8
BROKERAGE COMMISSIONS ........... T-10
DIVIDENDS AND DISTRIBUTIONS .... T-10
FEDERAL INCOME TAX STATUS ...... T-10
OTHER INFORMATION ............... T-11
</TABLE>

- -----------------------------------------------------------------------------

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF CAPITAL.

<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

The following table of financial highlights has been audited by McGladrey &
Pullen, LLP, independent certified public accountants, for the periods indicated
in their report which is incorporated by reference and which appears in the
Fund's 1995 Annual Report to Shareholders. This statement should be read in
conjunction with the other financial statements and notes thereto included in
the Fund's 1995 Annual Report to Shareholders, which contains further
information about the Fund's performance, and which is available to shareholders
upon request and without charge.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988*
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a
share outstanding throughout the year)
NET ASSET VALUE,
BEGINNING OF YEAR....................... $ 10.86 $ 12.15 $ 10.91 $ 10.99 $10.35 $10.32 $10.19 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income................... .80 .71 .60 .58 .61 .60 .83 .20
Net realized and unrealized
gain (loss)........................... .76 (1.28) .65 .03 1.02 .05 (.07) (.01)
------- ------- ------- ------- ------- ------- ------ ------
TOTAL FROM
INVESTMENT OPERATIONS.............. 1.56 (.57) 1.25 .61 1.63 .65 .76 .19
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income..................... (.54) (.55) (.005) (.57) (.64) (.62) (.63) --
Distributions from net
realized gains........................ -- (.17) (.005) (.12) (.35) -- -- --
------- ------- ------- ------- ------- ------- ------ ------
TOTAL DISTRIBUTIONS................... (.54) (.72) (.01) (.69) (.99) (.62) (.63) --
- -----------------------------------------------------------------------------------------------------------------------------
Change in net asset value
for the year............................ 1.02 (1.29) 1.24 (.08) .64 .03 .13 .19
------- ------- ------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF YEAR.............. $ 11.88 $ 10.86 $ 12.15 $ 10.91 $10.99 $10.35 $10.32 $10.19
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............................. 14.92% (4.88)% 11.46% 5.53% 15.86% 6.33% 7.65% 1.90%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........... $32,910 $29,343 $29,347 $15,674 $8,142 $4,076 $2,349 $ 254
Ratio of expenses to average
net assets.............................. .78% 0.90% .83% 1.00% 1.06% 1.56% 3.67% 15.44%**
Ratio of expenses, net of reimbursement,
to average
net assets.............................. .78% 0.90% .83% 1.00% 1.00% 1.00% 1.00% 1.50%**
Ratio of net investment income to average
net assets.............................. 7.14% 6.80% 6.50% 6.93% 7.63% 7.65% 8.12% 5.94%**
Portfolio turnover rate................... 188.11% 203.91% 170.33% 147.77% 551.45% 107.58% 48.87% --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is high current income. The Fund seeks to
achieve its objective through a flexible policy of investing primarily in debt
securities of companies, governments and government agencies of various nations
throughout the world, and in debt securities which are convertible into common
stock of such companies. In pursuit of its investment objective, the Fund will
invest at least 65% of its assets in bonds and debentures of such issuers. The
Fund may invest in debt securities rated in any category by Standard & Poor's
Corporation ('S&P') or Moody's Investors Service, Inc. ('Moody's') and
securities which are unrated by any rating agency. See 'Risk Factors' and the
Appendix in the Statement of Additional Information for a description of the S&P
and Moody's ratings. The Fund and its investment manager, Templeton Global Bond
Managers ('TGBM' or the 'Investment Manager'), a division of Templeton
Investment Counsel, Inc. ('TICI'), may, from time to time, use various methods
of selecting securities for the Fund's portfolio, and may also employ and rely
on
T-2
<PAGE>
independent or affiliated sources of information and ideas in connection with
management of the Fund's portfolio. There can be no assurance that the Fund will
achieve its investment objective.

The average maturity of debt securities in the Fund's portfolio will
fluctuate depending upon TGBM's judgment as to future interest rate changes.
Debt securities in which the Fund may also invest include various corporate debt
obligations, structured investments, commercial paper, certificates of deposit,
bankers' acceptances, and repurchase agreements with respect to these
securities.

The Fund may also buy and sell financial futures contracts, bond index
futures contracts, and foreign currency futures contracts. The Fund may purchase
and sell any of these futures contracts for hedging purposes only and not for
speculation. It may engage in such transactions only if the total contract value
of the futures contracts does not exceed 20% of the Fund's total assets. In
addition, the Fund may invest in forward foreign currency exchange contracts,
options on foreign currencies, depositary receipts, 'when-issued' securities and
collateralized mortgage obligations, lend its portfolio securities, and borrow
money for investment purposes (i.e., 'leverage' its portfolio). These investment
techniques are discussed under 'Description of Securities and Investment
Techniques.'

The Fund is subject to investment restrictions that are described under the
heading 'Investment Restrictions' in the Statement of Additional Information.
Those investment restrictions so designated and the investment objective of the
Fund are 'fundamental policies' of the Fund, which means that they may not be
changed without a majority vote of Shareholders of the Fund. With the exception
of the Fund's investment objective and those restrictions specifically
identified as fundamental, all investment policies and practices described in
this Prospectus and in the SAI are not fundamental, meaning that the Board of
Trustees may change them without Shareholder approval.

Certain types of investments and investment techniques are described in
greater detail under 'Description of Securities and Investment Techniques' in
this Prospectus and in the SAI.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

The Fund is authorized to invest in the securities and use the various
investment techniques described below. Although these strategies are regularly
used by some investment companies and other institutional investors in various
markets, some of these strategies cannot at the present time be used to a
significant extent by the Fund in some of the markets in which the Fund will
invest and may not be available for extensive use in the future.
U.S. GOVERNMENT SECURITIES

The Fund may invest in U.S. Government securities, which are obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills and bonds, which are direct
obligations of the U.S. Treasury, and Government National Mortgage Association
('GNMA') certificates, the principal and interest of which the Treasury
guarantees, are supported by the full faith and credit of the Treasury; others,
such as those of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others are
supported only by the credit of the instrumentality. GNMA certificates are
securities representing part ownership of a pool of mortgage loans on which
interest and principal payments are guaranteed by the Treasury. Principal is
repaid monthly over the term of the loan. Expected payments may be delayed due
to the delays in registering newly traded certificates. The mortgage loans will
be subject to normal principal amortization and may be prepaid prior to
maturity. Reinvestment of prepayments may occur at higher or lower rates than
the original yield on the certificates.
COLLATERALIZED MORTGAGE OBLIGATIONS ('CMOS')

The Fund may invest in CMOs, which are fixed-income securities collateralized by
pools of mortgage loans created by commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
issuers in the United States. In effect, CMOs 'pass-through' the monthly
payments made by individual borrowers on their mortgage loans. Timely payment of
interest and principal (but not the market value) of these pools is supprted by
various forms of insurance or guarantees issued by U.S. Government agencies,
private issuers, and mortgage poolers; however, the obligation itself is not
guaranteed. If the collateral securing the obligations is insufficient to make
payment on the obligation, a holder could sustain a loss. In addition, the Fund
may buy CMOs without insurance or guarantees if, in the opinion of the
Investment Manager, the sponsor is creditworthy. The ratings of the CMOs will be
consistent with the ratings criteria of the Fund. Prepayments of the mortgages
included in the mortgage pool may influence the yield of the CMO. Prepayments
usually increase when interest rates are decreasing, thereby decreasing the life
of the pool. Reinvestment of prepayments may be at a lower rate than that on the
original CMO. As a result, the value of CMOs decrease like other debt securities
when interest rates rise, but when interest rates decline, they may not increase
as much as other debt securities, due to the prepayment feature.

T-3
<PAGE>
BANK OBLIGATIONS

The Fund may invest in commercial paper. Investments in commercial paper are
limited to obligations rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P
or, if not rated by Moody's or S&P, issued by companies having an outstanding
debt issue currently rated Aaa or Aa by Moody's or AAA or AA by S&P. See the
Appendix in the SAI for a description of these ratings.
DEBT SECURITIES

Debt securities in which the Fund may invest consistent with its investment
objective and policies may include many types of debt obligations of both
domestic and foreign issuers such as bonds, debentures, notes, commercial paper,
structured investments and obligations issued or guaranteed by governments or
government agencies or instrumentalities. The market value of debt securities
generally varies in response to changes in interest rates and the financial
condition of each issuer. During periods of declining interest rates, the value
of debt securities generally increases. Conversely, during periods of rising
interest rates, the value of such securities generally declines. These changes
in market value will be reflected in the Fund's net asset value.

The Fund may invest in medium and lower quality debt securities that are
rated between BBB and as low as CC by S&P, and between Baa and as low as Ca by
Moody's or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. Bonds rated BB or Ba or lower, commonly referred to as
'junk bonds,' are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation and may be in default. Issues of bonds rated CC or Ca may often be in
default. The Board may consider a change in this operating policy if, in its
judgment, economic conditions change such that a higher level of investment in
high risk, lower quality debt securities would be consistent with the interests
of the Fund and its Shareholders. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) will be carefully
analyzed by the Investment Manager to insure, to the extent possible, that the
planned investment is sound. Unrated debt securities are not necessarily of
lower quality than rated securities but they may not be attractive to as many
buyers. The Fund may, from time to time, purchase defaulted debt securities if,
in the opinion of the Investment Manager, the issuer may resume interest
payments in the near future. The Fund will not invest more than 10% of its total
assets in defaulted debt securities.

Debt securities with similar maturities may have different yields, depending
upon several factors, including the relative financial condition of the issuers.
For example, higher yields are generally available from securities in the lower
rating categories of S&P or Moody's. However, the values of lower rated
securities generally fluctuate more than those of higher rated securities. As a
result, lower rated securities involve greater risk of loss of income and
principal than higher rated securities. A full discussion of the risks of
investing in lower quality debt securities is contained under the caption 'Risk
Factors.' For a description of debt securities ratings, see the Appendix to the
SAI.
REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. When the Fund acquires a security
from a bank or a registered broker-dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller agrees to repurchase the security at a
specified time and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed upon rate of return, which is not
tied to the coupon rate on the underlying security. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. Repurchase agreements will be fully collateralized. However, if the
seller should default on its obligation to repurchase the underlying security,
the Fund may experience delay or difficulty in exercising its rights to realize
upon the security and might incur a loss if the value of the security should
decline, as well as incur disposition costs in liquidating the security.
BORROWING

The Fund may borrow up to 30% of the value of its net assets to increase its
holdings of portfolio securities. Under the 1940 Act, the Fund may borrow from
banks only, and is required to maintain continuous asset coverage of 300% with
respect to such borrowings and to sell (within three days) sufficient portfolio
holdings to restore such coverage if it should decline to less than 300% due to
market fluctuations or otherwise, even if disadvantageous from an investment
standpoint. Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees
T-4
<PAGE>
and/or the cost of maintaining minimum average balances) which may or may not
exceed the income received from the securities purchased with borrowed funds.
WHEN-ISSUED SECURITIES

The Fund may lend to broker-dealers or U.S. banks portfolio securities with an
aggregate market value of up to one-third of its total assets to generate
income. Such loans must be secured by collateral (consisting of any combination
of cash, U.S. Government securities, or irrevocable letters of credit) in an
amount at least equal (on a daily marked-to-market basis) to the current market
value of the securities loaned. The Fund may terminate the loans at any time and
obtain the return of the securities loaned within five business days. The Fund
will continue to receive any interest or dividends paid on the loaned securities
and will continue to have voting rights with respect to the securities. In the
event that the borrower defaults on its obligation to return borrowed
securities, because of insolvency or otherwise, the Fund could experience delays
and costs in gaining access to the collateral and could suffer a loss to the
extent that the value of collateral falls below the market value of the borrowed
securities.
DEPOSITARY RECEIPTS

The Fund may purchase sponsored or unsponsored American Depositary Receipts
('ADRs'), European Depositary Receipts ('EDRs') and Global Depositary Receipts
('GDRs') (collectively, 'Depositary Receipts'). ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of Depositary Receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in Depositary Receipts will
be deemed to be investments in the underlying securities.
FUTURES CONTRACTS

For hedging purposes only, the Fund may buy and sell financial futures contracts
and foreign currency futures contracts. Also, for hedging purposes only, the
Fund may purchase and sell bond index futures contracts. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.

When the Fund enters into a futures contract, it must make an initial
deposit, known as 'initial margin,' as a partial guarantee of its performance
under the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as 'variation margin,' to cover any additional obligation it may have
under the contract. The Fund may not commit more than 5% of its total assets to
initial margin deposits on futures contracts. In addition, the Fund must deposit
in a segregated account additional cash or high quality debt securities to
ensure the futures contracts are unleveraged. The value of assets held in the
segregated account must be equal to the daily market value of all outstanding
futures contracts less any amounts deposited as margin.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES.

The Fund may enter into forward foreign currency exchange contracts ('forward
contracts') to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an
T-5
<PAGE>
obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to 'lock in' the U.S. dollar price of
the security or, when the Investment Manager believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell or buy the former
foreign currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. This latter investment practice is
generally referred to as 'cross-hedging.' The Fund has no specific limitation on
the percentage of assets it may commit to forward contracts, except that the
Fund will not enter into a forward contract if the amount of assets set aside to
cover the contract would impede portfolio management or the Fund's ability to
meet redemption requests. The Fund may also purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of foreign portfolio securities and against increases in the
U.S. dollar cost of foreign securities to be acquired.
RISK FACTORS

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund; nor can
there be any assurance that the Fund's investment objectives will be attained.
As with any investment in securities, the value of, and income from, an
investment in the Fund can decrease as well as increase, depending on a variety
of factors which may affect the values and income generated by the Fund's
portfolio securities, including general economic conditions and market factors.
In addition to the factors which affect the value of individual securities, a
Shareholder may anticipate that the value of the Shares of the Fund will
fluctuate with movements in the broader equity and bond markets, as well.
Changes in the prevailing rates of interest in any of the countries in which the
Fund is invested in fixed income securities will likely affect the value of such
holdings and thus the value of Fund Shares. Increased rates of interest, which
frequently accompany inflation and/or a growing economy, are likely to have a
negative effect on the value of Fund Shares. In addition, changes in currency
valuations will also affect the price of the Shares of the Fund. History
reflects both decreases and increases in stock markets and interest rates in
individual countries and throughout the world, and in currency valuations, and
these may reoccur unpredictably in the future. Additionally, investment
decisions made by the Investment Manager will not always be profitable or prove
to have been correct. The Fund is not intended as a complete investment program.

The Fund is authorized to purchase securities in any foreign country,
developed or underdeveloped. An investor should consider carefully the risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. These risks are often heightened for investments in developing
markets, including certain Eastern European countries. See 'Investment
Objectives and Policies--Risk Factors' in the SAI. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations (including, for example, withholding taxes on interest
and dividends) or other taxes imposed with respect to investments in foreign
nations, foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country), foreign investment controls on daily
stock movements, default in foreign government securities, political or social
instability, or diplomatic developments which could affect investments in
securities of issuers in foreign nations. Some countries may withhold portions
of interest and dividends at the source. In addition, in many countries there is
less publicly available information about issuers than is available in reports
about companies in the United States. Foreign companies are not generally
subject to uniform accounting and auditing and financial reporting standards,
and auditing practices and requirements may not be comparable to those
applicable to United States companies. The Fund may encounter difficulties or be
unable to vote proxies, exercise shareholder rights, pursue legal remedies, and
obtain judgments in foreign courts. These considerations generally are more of a
concern in developing countries, where the possibility of political instability
(including revolution) and dependence on foreign economic assistance may be
greater than in developed countries. Investments in companies domiciled in
developing countries therefore may be subject to potentially higher risks than
investments in developed countries.

Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the United
States. Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.

In many foreign countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increase risk,
therefore, of uninsured loss due to lost, stolen or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States.
T-6
<PAGE>
The Fund may invest in Eastern European countries, which involves special risks
that are described under 'Investment Objectives and Policies--Risk Factors' in
the SAI.

Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.

Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.

Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.

Although they may offer higher yields than do higher rated securities, low
rated and unrated securities generally involve greater volatility of price and
risk of principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
low rated and unrated securities are traded are more limited than those in which
higher rated securities are traded. The existence of limited markets for
particular securities may diminish a Fund's ability to sell the securities at
fair value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in creditworthiness of the issuer.
Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for a Fund to obtain accurate market
quotations for the purpose of valuing the Fund's portfolio. Market quotations
are generally available on many low rated or unrated securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of debt securities that are low rated securities may
be more complex than for issuers of higher rated securities, and the ability of
a Fund to achieve its investment objective may, to the extent of investment in
low rated securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.

Low rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated securities prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of low rated securities
defaults, the Fund may incur additional expenses to seek recovery. The low rated
bond market is relatively new, and many of the outstanding low rated bonds have
not endured a major business recession.

The Fund will usually effect currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market. However,
some price spread on currency exchange (to cover service charges) will be
incurred when the Fund converts assets from one currency to another.

Successful use of forward contracts, options and futures contracts is
subject to special risk considerations and transaction costs. A liquid secondary
market for forward contracts, options and futures contracts may not be available
when a position is sought to be closed. In addition, there may be an imperfect
correlation between movements in the securities or foreign currency on which the
contract or option is based and movements in the securities in the Fund's
portfolio or the currencies in which they are denominated. Successful use of
forward contracts, options and futures contracts is further dependent on the
ability of the Fund's Investment Manager to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices is subject to similar risk considerations. In addition, by writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price.

There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and depositories,
described elsewhere in the Prospectus and in the SAI.
PURCHASE OF SHARES

Shares of the Fund are offered on a continuous basis only to separate accounts
of insurance companies to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts. Individuals may not
purchase shares directly from the Fund. Please read the prospectus of the
insurance company Separate Account for more information on the purchase of Fund
Shares.

T-7
<PAGE>
In the event that the Trust serves as investment vehicle for both variable
annuity and variable life insurance contracts, or for both variable life
insurance contracts of an insurer and other variable contracts of an
unaffiliated insurer, the Trust's Board of Trustees will monitor events in order
to identify any material conflicts between variable annuity contract owners and
variable life policy owners and/or between separate accounts of different
insurers, as the case may be, and will determine what action, if any, should be
taken in the event of such a conflict. Although the Trust does not currently
foresee any disadvantages to contract owners, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Trust due to differences in tax treatment, the
management of investments, or other considerations.
NET ASSET VALUE

The net asset value of the Shares of the Fund is determined as of the scheduled
closing time of the New York Stock Exchange ('NYSE') (generally 4:00 p.m., New
York time) on each day the NYSE is open for trading, computed by dividing the
value of the Fund's securities plus any cash and other assets (including accrued
interest and dividends receivable) less all liabilities (including accrued
expenses) by the number of shares outstanding, adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange or NASDAQ is
valued at its last sale price on the principal exchange on which the security is
traded. The value of a foreign security is determined in its national currency
as of the close of trading on the foreign exchange on which it is traded, or as
of the scheduled closing time of the NYSE if that is earlier, and that value is
then converted into its U.S. dollar equivalent at foreign exchange rates in
effect at noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and asked price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Trustees. All other securities for which
over-the-counter market quotations are readily available are valued at the mean
between the current bid and asked price. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by management and approved in good faith by the Board of Trustees.
REDEMPTION OF SHARES

Please refer to the prospectus of your insurance company's Separate Account
for information on how to redeem Shares of the Fund.
EXCHANGES

Shares of the Fund may be exchanged for Shares of any other fund available as an
investment option in a Separate Account. Exchanges are treated as a redemption
of Shares of one fund and a purchase of Shares of the other fund and are
effected at the respective net asset value per Share of each fund on the date of
the exchange. Please refer to the prospectus of your insurance company's
Separate Account for more information concerning exchanges.
MANAGEMENT OF THE TRUST

The Trust is managed by its Board of Trustees and all powers of the Trust are
exercised by or under authority of the Board. Information relating to the
Trustees and officers is set forth under the heading 'Management of the Trust'
in the SAI.
INVESTMENT MANAGER

The Investment Manager of the Fund is Templeton Global Bond Managers ('TGBM'), a
division of Templeton Investment Counsel, Inc. ('TICI'). TICI is a Florida
corporation with offices at Broward Financial Centre, Fort Lauderdale, Florida
33394-3091. The Investment Manager manages the investment and reinvestment of
the Fund's assets. TICI is an indirect
T-8
<PAGE>
wholly owned subsidiary of Franklin Resources, Inc. ('Franklin'). Through its
subsidiaries, Franklin is engaged in various aspects of the financial services
industry. The Investment Manager and its affiliates serve as advisers for a wide
variety of public investment mutual funds and private clients in many nations.
The Templeton organization has been investing globally over the past 56 years
and, with its affiliates, provides investment management and advisory services
to a worldwide client base, including over 4.3 million mutual fund shareholders,
foundations, endowments, employee benefit plans and individuals. The Investment
Manager and its affiliates have approximately 4,100 employees in the United
States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada, Russia, France, Poland, Italy, India, Vietnam, South America and South
Africa.

The Investment Manager uses a disciplined, long-term approach to value
oriented global and international investing. It has an extensive global network
of investment research sources. Securities are selected for the Fund's portfolio
on the basis of fundamental company-by-company analysis. Many different
selection methods are used for different funds and clients and these methods are
changed and improved by the Investment Manager's research on superior selection
methods.

The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers and Trustees
of the Trust are prohibited from investing in securities held by the Fund or
other funds and accounts which are managed or administered by the Investment
Manager to the extent such transactions comply with the Trust's Code of Ethics.
Please see 'Investment Management and Other Services--Investment Management
Agreements,' in the SAI for further information on securities transactions and a
summary of the Trust's Code of Ethics.

The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for these services, the Fund pays its
Investment Manager a monthly fee equal on an annual basis to .50% of its average
daily net assets during the year.

The lead portfolio manager of the Fund since 1993 is Thomas Latta, Vice
President of TGBM. Mr. Latta joined the Templeton organization in 1991. He is
the senior portfolio manager for developed markets fixed income and has research
responsibilities for the core European markets. Mr. Latta is also responsible
for internal fixed income systems development. Mr. Latta began working in the
securities industry in 1981. His experience includes seven years with Merrill
Lynch where he was part of an investment team to the Saudi Arabian Monetary
Authority in Riyadh, Saudi Arabia. While at Merrill Lynch, Mr. Latta also acted
as an advisor to investment managers concerning the modeling and application of
interest rate strategies in fixed income portfolios. Mr. Latta attended the
University of Missouri and New York University. Neil Devlin and Ronald A.
Johnson exercise secondary portfolio management responsibilities with respect to
the Fund. Mr. Devlin, Executive Vice President of the Investment Manager, joined
the Templeton organization in 1987. Prior to that time, he was a portfolio
manager and bond analyst with Constitutional Capital Management of Boston, where
he managed a portion of the Bank of New England's pension money, a number of
trust and corporate pension accounts, and began and managed a mortgage-backed
securities fund for the Bank. Before that, Mr. Devlin was a bond trader and
research analyst for the Bank of New England. Mr. Devlin holds a BA from
Brandeis University. Dr. Johnson, Vice President of TGBM, joined the Templeton
organization in 1995 and is responsible for investment strategies in emerging
fixed income markets and sovereign risk research. Prior to joining the Templeton
organization, Dr. Johnson was chief strategist and head of research for JPBT
Advisers, Inc. in Miami, Florida. Dr. Johnson holds a Ph.D. and MA in economics
from Stanford University and a MBA in finance and BA in economics from Adelphi
University.

During the fiscal year ended December 31, 1995, expenses amounted to .78% of the
Fund's average daily net assets.
DISTRIBUTOR

Shares of the Trust are distributed through Franklin Templeton Distributors,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone
(800) 292-9293.

T-9
<PAGE>
BROKERAGE COMMISSIONS

The Fund normally intends to pay annual dividends representing substantially all
of its net investment income and to distribute annually any net realized capital
gains.

Any distributions made by the Fund will be automatically reinvested in
additional Shares of the Fund, unless an election is made on behalf of a
Shareholder to receive distributions in cash. Dividends or distributions by the
Fund will reduce the per share net asset value by the per share amount so paid.
FEDERAL INCOME TAX STATUS

Distributions of any net investment income and of any net realized
short-term capital gains in excess of net realized long-term capital losses are
treated as ordinary income for tax purposes in the hands of the Shareholder (the
Separate Account). The excess of any net long-term capital gains over net
short-term capital losses will, to the extent distributed and designated by the
Fund as a capital gain dividend, be treated as long-term capital gains in the
hands of the Separate Account regardless of the length of time the Separate
Account may have held the Shares. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. Reference
is made to the prospectus for the applicable Contract for information regarding
the federal income tax treatment of distributions to an owner of a Contract.

T-10
<PAGE>
OTHER INFORMATION
CAPITALIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of six separately managed funds. The Board of Trustees
may establish additional funds in the future. The capitalization of the Trust
consists solely of an unlimited number of Shares of beneficial interest with a
par value of $0.01 each. When issued, Shares of the Trust are fully paid,
non-assessable by the Trust and freely transferable.

Shareholders of the Trust are given certain voting rights. Each Share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. In accordance with current
applicable law, the Separate Account, as Shareholder of the Trust, is required
to vote the Shares of the Trust at any regular and special meeting of the
Shareholders of the Trust in accordance with instructions received from owners
of the variable contracts. See the Prospectus for the Separate Account for more
information regarding the pass-through of these voting rights.

For more information on the Trust, the Fund, and its investment activity and
concurrent risks, a Statement of Additional Information may be obtained without
charge upon request to Franklin Templeton Distributors, Inc., P.O. Box 33030,
St. Petersburg, Florida, 33733-8030 -- toll free telephone (800) 774-5001 or
(813) 823-8712.
PERFORMANCE INFORMATION

The Fund may include its total return in advertisements or reports to
Shareholders or prospective investors. Performance information for the Fund will
not be advertised unless accompanied by comparable performance information for a
separate account to which the Fund offers its Shares.

Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of 1, 5 and 10 years (or up to the life of
the Fund), will reflect the deduction of a proportional share of Fund expenses
(on an annual basis), and will assume that all dividends and distributions are
reinvested when paid. Total return may be expressed in terms of the cumulative
value of an investment in the Fund at the end of a defined period of time.
Quotations of yield or total return for the Fund will not take into account
charges and deductions against any separate account to which the Fund's Shares
are sold or charges and deductions against variable insurance contracts,
although comparable performance information for a separate account will take
such charges into account. For a description of the methods used to determine
total return for the Fund, see 'Performance Information' in the Statement of
Additional Information.
STATEMENTS AND REPORTS

T-11

<PAGE>
[INSERT LOGO]
TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- May 1, 1996

Templeton Stock Fund
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Templeton Stock Fund (the "Fund") is a diversified series of Templeton Variable
Products Series Fund (the "Trust"), an open-end, management investment company.
Shares of the Fund are currently sold only to insurance company separate
accounts ("Separate Accounts") to serve as the investment vehicle for both
variable annuity and variable life insurance contracts (the "Contracts").
The Separate Accounts invest in shares of the Fund and other series of the
Trust in accordance with allocation instructions received from owners of
the Contracts. Such allocation rights are described further in the accompanying
prospectus for the Separate Accounts. Certain series of the Trust are not
available as an investment vehicle for all Contracts. A purchaser of a Contract
should refer to the prospectus for his or her Contract or policy for information
INVESTMENT as to which series of the Trust are available for investment. This Prospectus
OBJECTIVE AND sets forth concisely information about the Fund that a prospective investor
POLICIES ought to know before investing.

A STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED MAY 1, 1996, HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED IN
ITS ENTIRETY BY REFERENCE IN AND MADE A PART OF THIS PROSPECTUS. THE SAI
IS AVAILABLE WITHOUT CHARGE UPON REQUEST TO FRANKLIN TEMPLETON DISTRIBUTORS,
PROSPECTUS INC., P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030 OR BY CALLING THE
INFORMATION FUND INFORMATION DEPARTMENT AT 1-800-774-5001 OR 1-813-823-8712.

</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- --------------------------------------- ---------
<S> <C>
FINANCIAL HIGHLIGHTS .................. T-2
INVESTMENT OBJECTIVE AND POLICIES .... T-2
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES ............. T-3
RISK FACTORS .......................... T-5
PURCHASE OF SHARES .................... T-6
NET ASSET VALUE ....................... T-7
</TABLE>

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REDEMPTION OF SHARES ............ T-7
EXCHANGES ....................... T-7
MANAGEMENT OF THE TRUST ......... T-7
BROKERAGE COMMISSIONS ........... T-9
DIVIDENDS AND DISTRIBUTIONS .... T-9
FEDERAL INCOME TAX STATUS ...... T-9
OTHER INFORMATION ............... T-10
</TABLE>

- -----------------------------------------------------------------------------

<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

The following table of financial highlights has been audited by McGladrey &
Pullen, LLP, independent certified public accountants, for the periods indicated
in their report which is incorporated by reference and which appears in the
Fund's 1995 Annual Report to Shareholders. This statement should be read in
conjunction with the other financial statements and notes thereto included in
the Fund's 1995 Annual Report to Shareholders, which contains further
information about the Fund's performance, and which is available to shareholders
upon request and without charge.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988*
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout
the year)
NET ASSET VALUE,
BEGINNING OF YEAR............... $ 16.94 $ 17.53 $ 13.33 $ 12.72 $ 10.29 $ 11.75 $ 10.25 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .40 .26 .23 .25 .27 .32 .18 .18
Net realized and unrealized
gain (loss)................... 3.80 (.64) 4.23 .64 2.49 (1.57) 1.34 .071
-------- -------- -------- -------- -------- ------- ------- ------
TOTAL FROM INVESTMENT
OPERATIONS................. 4.20 (.38) 4.46 .89 2.76 (1.25) 1.52 .25
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income............. (.27) (.21) (.25) (.28) (.33) (.19) (.02) --
Distributions from
net realized gains............ (.04) -- (.01) -- -- (.02) -- --
-------- -------- -------- -------- -------- ------- ------- ------
TOTAL DISTRIBUTIONS........... (.31) (.21) (.26) (.28) (.33) (.21) (.02) --
- ---------------------------------------------------------------------------------------------------------------------------
Change in net asset value
for the year.................... 3.89 (.59) 4.20 .61 2.43 (1.46) 1.50 .25
-------- -------- -------- -------- -------- ------- ------- ------
NET ASSET VALUE
END OF YEAR..................... $ 20.83 $ 16.94 $ 17.53 $ 13.33 $ 12.72 $ 10.29 $ 11.75 $10.25
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN...................... 25.24% (2.20)% 34.00% 7.12% 27.93% (10.23)% 14.85% 2.50%
RATIOS/SUPPLEMENTAL DATA
Net assets
end of year (000)............... $498,777 $378,849 $298,392 $166,219 $116,943 $74,264 $49,787 $3,037
Ratio of expenses to average net
assets.......................... .66% .73% .73% .75% .82% .85% 1.08% 4.39%**
Ratio of expenses, net of
reimbursement,
to average
net assets...................... .66% .73% .73% .75% .82% .85% .99% 1.50%**
Ratio of net investment income to
average
net assets...................... 2.18% 1.81% 1.88% 2.36% 2.82% 3.78% 3.63% 5.55%**
Portfolio turnover rate........... 33.93% 5.10% 4.88% 8.10% 41.24% 17.94% 5.27% --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Period from August 31, 1988 (commencement of operations) to
December 31, 1988.
** Annualized.
Total return figures do not include charges applied under the
Contracts. Inclusion of such charges would reduce the total
return figures for all periods shown.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is capital growth through a policy of investing
primarily in common stocks issued by companies, large and small, in various
nations throughout the world. In the pursuit of its investment objective, the
Fund will normally maintain at least 65% of its assets in common and preferred
stocks. The Fund may also invest in securities convertible into common stocks
rated in any category by Standard & Poor's Corporation ('S&P') or Moody's
Investors
T-2
<PAGE>
Service, Inc. ('Moody's') and securities which are unrated by any rating agency.
See the Appendix in the Statement of Additional Information for a description of
the S&P and Moody's ratings. Current income will usually be a less significant
factor in selecting investments for the Fund. The Fund and its investment
manager, Templeton Investment Counsel, Inc. ('TICI' or the 'Investment
Manager'), may, from time to time, use various methods of selecting securities
for the Fund's portfolio, and may also employ and rely on independent or
affiliated sources of information and ideas in connection with management of the
Fund's portfolio. There can be no assurance that the Fund will achieve its
investment objective.

For temporary defensive purposes, the Fund may invest without limit in
commercial paper, certificates of deposit, bankers' acceptances, U.S. Government
securities, corporate debt obligations, and repurchase agreements with respect
to these securities. The Fund may also enter into firm commitment agreements,
purchase securities on a 'when-issued' basis, invest in restricted securities,
such as private placements, borrow money for investment purposes and lend its
portfolio securities. (See 'Description of Securities and Investment
Techniques.')

The Fund may also purchase and sell stock index futures contracts for
hedging purposes only and not for speculation. It may engage in such
transactions only if the total contract value of the futures contracts does not
exceed 20% of the Fund's total assets. (See 'Description of Securities and
Investment Techniques.')

T-3
<PAGE>
REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. When the Fund acquires a security
from a bank or a registered broker-dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller agrees to repurchase the security at a
specified time and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed upon rate of return, which is not
tied to the coupon rate on the underlying security. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. Repurchase agreements will be fully collateralized. However, if the
seller should default on its obligation to repurchase the underlying security,
the Fund may experience delay or difficulty in exercising its rights to realize
upon the security and might incur a loss if the value of the security should
decline, as well as incur disposition costs in liquidating the security.
BORROWING

The Fund may borrow up to 30% of the value of its net assets to increase its
holdings of portfolio securities. Under the 1940 Act, the Fund may borrow from
banks only, and is required to maintain continuous asset coverage of 300% with
respect to such borrowings and to sell (within three days) sufficient portfolio
holdings to restore such coverage if it should decline to less than 300% due to
market fluctuations or otherwise, even if disadvantageous from an investment
standpoint. Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
WHEN-ISSUED SECURITIES

The Fund may invest in restricted securities, which are securities subject to
legal or contractual restrictions on their resale, such as private placements.
Such restrictions might prevent the sale of restricted securities at a time when
sale would otherwise be desirable. No restricted securities and no securities
for which there is not a readily available market ('illiquid assets') will be
acquired by the Fund if such acquisition would cause the aggregate value of
illiquid assets and restricted securities to exceed 15% of the Fund's total
assets. Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933. Where registration is
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at fair
value as determined by the management and approved in good faith by the Board of
Trustees.
DEPOSITARY RECEIPTS

The Fund may purchase sponsored or unsponsored American Depositary Receipts
('ADRs'), European Depositary Receipts ('EDRs') and Global Depositary Receipts
('GDRs') (collectively, 'Depositary Receipts'). ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a U.S.
T-4
<PAGE>
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts may
be issued pursuant to sponsored or unsponsored programs. In sponsored programs,
an issuer has made arrangements to have its securities traded in the form of
Depositary Receipts. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities underlying
unsponsored programs and there may not be a correlation between such information
and the market value of the Depositary Receipts. Depositary Receipts also
involve the risks of other investments in foreign securities, as discussed
below. For purposes of each Fund's investment policies, the Fund's investments
in Depositary Receipts will be deemed to be investments in the underlying
securities.
FUTURES CONTRACTS

Also, for hedging purposes only, the Fund may purchase and sell stock index
futures contracts. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period.

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund; nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
Shareholder may anticipate that the value of the Shares of the Fund will
fluctuate with movements in the broader equity and bond markets, as well. A
decline in the stock market of any country in which the Fund is invested in
equity securities may also be reflected in declines in the price of the Shares
of the Fund. Changes in currency valuations will affect the price of the Shares
of the Fund. History reflects both decreases and increases in stock markets, the
prevailing rate of interest, and currency valuations, and these may reoccur
unpredictably in the future. Additionally, investment decisions made by the
Investment Manager will not always be profitable or prove to have been correct.
The Fund is not intended as a complete investment program.

Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the United
States. Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities
T-5
<PAGE>
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser.

In many foreign countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that are
described under 'Investment Objectives and Policies--Risk Factors' in the SAI.

The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as CC by S&P, and
between Baa and as low as Ca by Moody's or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Trustees without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. The Board may consider
a change in this operating policy if, in its judgment, economic conditions
change such that a higher level of investment in high-risk, lower quality debt
securities would be consistent with the interests of the Fund and its
Shareholders. See 'Investment Objectives and Policies--Debt Securities' in the
SAI for descriptions of debt securities rated BBB by S&P and Baa by Moody's.
High-risk, lower quality debt securities commonly referred to as 'junk bonds,'
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and may be in default. Unrated debt securities are not
necessarily of lower quality than rated securities but they may not be
attractive to as many buyers. Regardless of rating levels, all debt securities
considered for purchase (whether rated or unrated) will be carefully analyzed by
the Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Fund may, from time to time, purchase defaulted debt
securities if, in the opinion of the Investment Manager, the issuer may resume
interest payments in the near future. As a fundamental policy, the Fund will not
invest more than 10% of its total assets (at the time of purchase) in defaulted
debt securities, which may be illiquid.

Successful use of stock index futures contracts is subject to special risk
considerations and transaction costs. A liquid secondary market for futures
contracts may not be available when a position is sought to be closed.
Successful use of futures contracts is further dependent on the ability of the
Fund's Investment Manager to correctly predict movements in the securities
markets and no assurance can be given that its judgment will be correct.

Shares of the Fund are offered on a continuous basis at the respective net asset
value of the Fund only to separate accounts of insurance companies to serve as
the underlying investment vehicle for both variable annuity and variable life
insurance contracts. Individuals may not purchase shares directly from the Fund.
Please read the prospectus of the insurance company Separate Account for more
information on the purchase of Fund Shares.

In the event that the Trust serves as investment vehicle for both variable
annuity and variable life insurance contracts, or for both variable life
insurance contracts of an insurer and other variable contracts of an
unaffiliated insurer, the Trust's Board of Trustees will monitor events in order
to identify any material conflicts between variable annuity contract owners
T-6
<PAGE>
and variable life policy owners and/or between separate accounts of different
insurers, as the case may be, and will determine what action, if any, should be
taken in the event of such a conflict. Although the Trust does not currently
foresee any disadvantages to contract owners, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Trust due to differences in tax treatment, the
management of investments, or other considerations.
NET ASSET VALUE

The net asset value of the Shares of the Fund is determined as of the scheduled
closing time of the New York Stock Exchange ('NYSE') (generally 4:00 p.m., New
York time) on each day the NYSE is open for trading, computed by dividing the
value of the Fund's securities plus any cash and other assets (including accrued
interest and dividends receivable) less all liabilities (including accrued
expenses) by the number of shares outstanding, adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange or NASDAQ is
valued at its last sale price on the principal exchange on which the security is
traded. The value of a foreign security is determined in its national currency
as of the close of trading on the foreign exchange on which it is traded, or as
of the scheduled closing time of the NYSE, if that is earlier, and that value is
then converted into its U.S. dollar equivalent at foreign exchange rate in
effect at noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and asked price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Trustees. All other securities for which
over-the-counter market quotations are readily available are valued at the mean
between the current bid and asked price. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by the management and approved in good faith by the Board of
Trustees.
REDEMPTION OF SHARES

Please refer to the prospectus of your insurance company's Separate Account
for information on how to redeem Shares of the Fund.
EXCHANGES

The Investment Manager of the Fund is Templeton Investment Counsel, Inc.
('TICI'). TICI is a Florida corporation with offices at Broward Financial
Centre, Fort Lauderdale, Florida 33394-3091. The Investment Manager manages the
investment and reinvestment of the Fund's assets. TICI is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ('Franklin'). Through its
subsidiaries, Franklin is engaged in various aspects of the financial services
industry. The Investment Manager and its affiliates serve as advisers for a wide
variety of public investment mutual funds and private clients in many nations.
T-7
<PAGE>
The Templeton organization has been investing globally over the past 56 years
and, with its affiliates, provides investment management and advisory services
to a worldwide client base, including over 4.3 million mutual fund shareholders,
foundations, endowments, employee benefit plans and individuals. The Investment
Manager and its affiliates have approximately 4,100 employees in the United
States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada, Russia, France, Poland, Italy, India, Vietnam, South America and South
Africa.

The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for these services, the Fund pays the
Investment Manager a monthly fee equal on an annual basis to .50% of its average
daily net assets during the year.

The lead portfolio manager for the Fund since 1995 is Mark R. Beveridge. Mr.
Beveridge, Vice President of TICI, joined the Templeton organization in 1985. He
has responsibility for the industrial component appliances/household durables
industries, and has market coverage of Argentina, Denmark and Thailand. Prior to
joining the Templeton organization, Mr. Beveridge was a principal with a
financial accounting software firm based in Miami, Florida. He has a Bachelors
Degree in Business Administration with emphasis in finance from the University
of Miami. Lauretta A. Reeves, Vice President of TICI, and Howard J. Leonard,
Senior Vice President of TICI, exercise secondary portfolio management
responsibilities. Ms. Reeves joined the Templeton organization in 1987 as an
equity trader and moved into the research group in 1989. She has research
responsibility for the chemical, medical supply and European banking sectors, as
well as the coverage of the Phillipines market. Prior to joining the Templeton
organization, Ms. Reeves was manager of equity trading for First Equity
Corporation of Florida, a regional brokerage firm. Previously, she worked in
similar positions with two other brokerage houses. She received her Masters in
Business Administration from Nova University and a B.A. in Business
Administration with high honors from Florida International University. Mr.
Leonard has research responsibilities for the global forest products, money
management and airline industries, and coverage of Indonesia, Switzerland,
Brazil and India. Prior to joining the Templeton organization in 1989, Mr.
Leonard was director of investment research at First Pennsylvania Bank, where he
was responsible for equity and fixed income research activities and its proxy
voting service for large pension plan sponsors. He also previously worked at
Provident National Bank as a security analyst. Mr. Leonard holds a B.B.A. in
Finance and Economics from Temple University.

During the fiscal year ended December 31, 1995, expenses amounted to .66% of the
Fund's average daily net assets.
DISTRIBUTOR

Shares of the Trust are distributed through Franklin Templeton Distributors,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone
(800) 292-9293.

T-8
<PAGE>
BROKERAGE COMMISSIONS

The Fund normally intends to pay annual dividends representing substantially all
of its net investment income and to distribute annually any net realized capital
gains.

Distributions of any net investment income and of any net realized
short-term capital gains in excess of net realized long-term capital losses are
treated as ordinary income for tax purposes in the hands of the Shareholder (the
Separate Account). The excess of any net long-term capital gains over net
short-term capital losses will, to the extent distributed and designated by the
Fund as a capital gain dividend, be treated as long-term capital gains in the
hands of the Separate Account regardless of the length of time the Separate
Account may have held the Shares. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. Reference
is made to the prospectus for the applicable Contract for information regarding
the federal income tax treatment of distributions to an owner of a Contract.

T-9
<PAGE>
OTHER INFORMATION
CAPITALIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of six separately managed funds. The Board of Trustees
may establish additional funds in the future. The capitalization of the Trust
consists solely of an unlimited number of Shares of beneficial interest with a
par value of $0.01 each. When issued, Shares of the Trust are fully paid,
non-assessable by the Trust and freely transferable.

Shareholders of the Trust are given certain voting rights. Each Share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. In accordance with current
applicable law, the Separate Account, as Shareholder of the Trust, is required
to vote the Shares of the Trust at any regular and special meeting of the
Shareholders of the Trust in accordance with instructions received from owners
of the variable contracts. See the prospectus for the Separate Account for more
information regarding the pass-through of these voting rights.

T-10

<PAGE>
[INSERT LOGO]
TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- May 1, 1996

Templeton International Fund
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Templeton International Fund (the "Fund") is a diversified series of Templeton
Variable Products Series Fund (the "Trust"), an open-end, management investment
company. Shares of the Fund are currently sold only to insurance company
separate accounts ("Separate Accounts") to serve as the investment vehicle
for both variable annuity and variable life insurance contracts (the
"Contracts"). The Separate Accounts invest in shares of the Fund in accordance
with allocation instructions received from owners of the Contracts. Such
allocation rights are described further in the accompanying prospectus for
the Separate Accounts. Certain series of the Trust are not available as an
investment vehicle for all Contracts. A purchaser of a Contract should refer
to the prospectus for his or her Contract or policy for information as to
INVESTMENT which series of the Trust are available for investment. This Prospectus sets
OBJECTIVE AND forth concisely information about the Trust that a prospective investor ought
POLICIES to know before investing.

</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- --------------------------------------- ---------
<S> <C>
FINANCIAL HIGHLIGHTS .................. T-2
INVESTMENT OBJECTIVE AND POLICIES .... T-2
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES ............. T-3
RISK FACTORS .......................... T-5
PURCHASE OF SHARES .................... T-7
NET ASSET VALUE ....................... T-7
</TABLE>

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REDEMPTION OF SHARES ............ T-7
EXCHANGES ....................... T-8
MANAGEMENT OF THE TRUST ......... T-8
BROKERAGE COMMISSIONS ........... T-9
DIVIDENDS AND DISTRIBUTIONS .... T-9
FEDERAL INCOME TAX STATUS ...... T-9
OTHER INFORMATION ............... T-10
</TABLE>

- -----------------------------------------------------------------------------

<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

The following table of financial highlights has been audited by McGladrey &
Pullen, LLP, independent certified public accountants, for the periods indicated
in their report which is incorporated by reference and which appears in the
Fund's 1995 Annual Report to Shareholders. This statement should be read in
conjunction with the other financial statements and notes thereto included in
the Fund's 1995 Annual Report to Shareholders, which contains further
information about the Fund's performance, and which is available to shareholders
upon request and without charge.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C> <C>
1995 1994 1993 1992*
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
NET ASSET VALUE, BEGINNING OF PERIOD............................................ $ 13.22 $ 13.83 $ 9.39 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income......................................................... .23 .12 .10 .06
Net realized and unrealized gain (loss)....................................... 1.83 (.42) 4.34 (.67)
-------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS............................................ 2.06 (.30) 4.44 (.61)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income.......................................... (.10) (.08) -- --
Distributions from net realized gain.......................................... (.05) (.23) -- --
-------- ------- ------- ------
TOTAL DISTRIBUTIONS......................................................... (.15) (.31) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Change in net asset value for the year.......................................... 1.91 (.61) 4.44 (.61)
-------- ------- ------- ------
NET ASSET VALUE, END OF YEAR.................................................... $ 15.13 $ 13.22 $ 13.83 $ 9.39
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................................................................... 15.78% (2.22)% 47.28% (6.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)................................................. $353,141 150,090 $43,877 $7,050
Ratio of expenses to average net assets......................................... .71% .83% .95% 1.40%**
Ratio of expenses, net of reimbursement, to average net assets.................. .71% .83% .95% 1.00%**
Ratio of net investment income to average net assets............................ 2.36% 1.89% 1.62% 1.76%**
Portfolio turnover rate......................................................... 5.19% 6.32% 15.65% 4.50%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Period from May 1, 1992 (commencement of operations) to
December 31, 1992.
** Annualized.
Total return figures do not include charges applied under the
Contracts. Inclusion of such figures would reduce the total
return figures for all periods shown.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
outside the United States. In pursuit of its investment objective, the Fund will
invest at least 65% of its assets in securities of issuers in at least three
countries outside the United States. Any income realized will be incidental.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities such as convertible bonds which are
rated in any category by Standard & Poor's Corporation ('S&P') or Moody's
Investors Service, Inc. ('Moody's') or which are unrated by any rating agency.
See the Appendix in the Statement of Additional Information for a description of
the S&P and Moody's ratings. The Fund and its investment manager, Templeton
Investment Counsel, Inc. ('TICI' or the 'Investment Manager'), may, from time to
time, use various methods of selecting securities for the Fund's portfolio, and
may also employ and rely on independent or affiliated sources of information and
ideas in connection with management of the Fund's portfolio. There can be no
assurance that the Fund will achieve its investment objective.

For temporary defensive purposes, the Fund may invest without limit in
commercial paper, certificates of deposit, bank time deposits in the currency of
any nation, bankers' acceptances, U.S. Government securities, corporate debt
obligations, and repurchase agreements with respect to these securities. The
Fund may also enter into firm commitment agreements, purchase securities on a
'when-issued' basis, invest in restricted securities, such as private
placements, lend its portfolio securities and borrow money for investment
purposes. (See 'Description of Securities and Investment Techniques.')

The Fund may purchase and sell financial futures contracts, stock index
futures contracts, and foreign currency futures contracts for hedging purposes
only and not for speculation. It may engage in such transactions only if the
total contract value of the futures contracts does not exceed 20% of the Fund's
total assets. (See 'Description of Securities and Investment Techniques.')

T-2
<PAGE>
The Fund is subject to investment restrictions that are described under the
heading 'Investment Restrictions' in the Statement of Additional Information.
Those investment restrictions so designated and the investment objective of the
Fund are 'fundamental policies' of the Fund, which means that they may not be
changed without a majority vote of Shareholders of the Fund. With the exception
of the Fund's investment objective and those restrictions specifically
identified as fundamental, all investment policies and practices described in
this Prospectus and in the SAI are not fundamental, meaning that the Board of
Trustees may change them without Shareholder approval.

The Fund is authorized to invest in the various securities and use the various
investment techniques described below. Although these strategies are regularly
used by some investment companies and other institutional investors in various
markets, some of these strategies cannot at the present time be used to a
significant extent by the Fund in some of the markets in which the Fund will
invest and may not be available for extensive use in the future.
U.S. GOVERNMENT SECURITIES

The Fund may invest in medium and lower quality debt securities that are
rated between BBB and as low as CC by S&P, and between Baa and as low as Ca by
Moody's, or if unrated, are of equivalent investment quality as determined by
the Investment Manager. As an operating policy, which may be changed by the
Board of Trustees without shareholder approval, the Fund will not invest more
than 5% of its total assets in debt securities rated below BBB by S&P or Baa by
Moody's. Bonds rated BB or lower, commonly referred to as 'junk bonds,' are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and may be in
default. Issues of bonds rated Ca may often be in default. The Board may
consider a change in this operating policy if, in its judgment, economic
conditions change such that a higher level of investment in high risk, lower
quality debt securities would be
T-3
<PAGE>
consistent with the interests of the Fund and its Shareholders. Regardless of
rating levels, all debt securities considered for purchase (whether rated or
unrated) will be carefully analyzed by the Investment Manager to insure, to the
extent possible, that the planned investment is sound. For temporary defensive
purposes, the Fund may invest in short-term corporate debt obligations similarly
rated. Unrated debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers.

Debt securities with similar maturities may have different yields, depending
upon several factors, including the relative financial condition of the issuers.
For example, higher yields are generally available from securities in the lower
rating categories of S&P or Moody's. However, the values of lower rated
securities generally fluctuate more than those of higher rated securities. As a
result, lower rated securities involve greater risk of loss of income and
principal than higher rated securities. A full discussion of the risks of
investing in lower quality debt securities is contained under the caption 'Risk
Factors in the SAI.' For a description of debt securities ratings, see the
Appendix to the SAI.
REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. When the Fund acquires a security
from a bank or a registered broker-dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller agrees to repurchase the security at a
specified time and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed upon rate of return, which is not
tied to the coupon rate on the underlying security. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. Repurchase agreements will be fully collateralized. However, if the
seller should default on its obligation to repurchase the underlying security,
the Fund may experience delay or difficulty in exercising its rights to realize
upon the security and might incur a loss if the value of the security should
decline, as well as incur disposition costs in liquidating the security.
BORROWING

The Fund may borrow up to 30% of the value of its net assets to increase its
holdings of portfolio securities. Under the 1940 Act, the Fund may borrow from
banks only, and is required to maintain continuous asset coverage of 300% with
respect to such borrowings and to sell (within three days) sufficient portfolio
holdings to restore such coverage if it should decline to less than 300% due to
market fluctuations or otherwise, even if disadvantageous from an investment
standpoint. Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
WHEN-ISSUED SECURITIES

The Fund may invest in restricted securities, which are securities subject to
legal or contractual restrictions on their resale, such as private placements.
Such restrictions might prevent the sale of restricted securities at a time when
sale would otherwise be desirable. No restricted securities and no securities
for which there is not a readily available market ('illiquid assets') will be
acquired by the Fund if such acquisition would cause the aggregate value of
illiquid assets and restricted securities to exceed 15% of the Fund's total
assets. Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933. Where
T-4
<PAGE>
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair value as determined by the management and approved in good faith by the
Board of Trustees.
DEPOSITARY RECEIPTS

The Fund may purchase sponsored or unsponsored American Depositary Receipts
('ADRs'), European Depositary Receipts ('EDRs') and Global Depositary Receipts
('GDRs') (collectively, 'Depositary Receipts'). ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of Depositary Receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in Depositary Receipts will
be deemed to be investments in the underlying securities.
FUTURES CONTRACTS

For hedging purposes only, the Fund may buy and sell financial futures contracts
and foreign currency futures contracts. Also, for hedging purposes only, the
Fund may purchase and sell stock index futures contracts. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund; nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
Shareholder may anticipate that the value of the Shares of the Fund will
fluctuate with movements in the broader equity and bond markets, as well. A
decline in the stock market of any country in which the Fund is invested in
equity securities may also be reflected in declines in the price of the Shares
of the Fund. Changes in currency valuations will also affect the price of the
Shares of the Fund. History reflects both decreases and increases in stock
markets and currency valuations, and these may reoccur unpredictably in the
future. Additionally, investment decisions made by the Investment Managers will
not always be profitable or prove to have been correct. The Fund is not intended
as a complete investment program.

The Fund is authorized to purchase securities in any foreign country,
developed or underdeveloped. An investor should consider carefully the risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. These risks are often heightened for investments in developing
markets, including certain Eastern European countries. See 'Investment
Objectives and Policies--Risk Factors' in the SAI. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations (including, for example, withholding taxes on interest
and dividends) or other taxes imposed with respect to investments in foreign
nations, foreign exchange controls (which may include suspension of the ability
to transfer currency
T-5
<PAGE>
from a given country), foreign investment controls on daily stock movements,
default in foreign government securities, political or social instability, or
diplomatic developments which could affect investments in securities of issuers
in foreign nations. Some countries may withhold portions of interest and
dividends at the source. In addition, in many countries there is less publicly
available information about issuers than is available in reports about companies
in the United States. Foreign companies are not generally subject to uniform
accounting and auditing and financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to United
States companies. Further, the Fund may encounter difficulties or be unable to
vote proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts. These considerations generally are more of a
concern in developing countries, where the possibility of political instability
(including revolution) and dependence on foreign economic assistance may be
greater than in developed countries. Investments in companies domiciled in
developing countries therefore may be subject to potentially higher risks than
investments in developed countries.

Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the United
States. Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security of, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.

In many foreign countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that are
described under 'Investment Objectives and Policies--Risk Factors' in the SAI.

Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations may also be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.

The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as CC by S&P, and
between Baa and as low as Ca by Moody's or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Trustees without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. The Board may consider
a change in this operating policy if, in its judgment, economic conditions
change such that a higher level of investment in high-risk, lower quality debt
securities would be consistent with the interests of the Fund and its
Shareholders. See 'Investment Objectives and Policies--Debt Securities' in the
SAI for descriptions of debt securities rated BBB by S&P and Baa by Moody's.
High-risk, lower quality debt securities, commonly referred to as 'junk bonds,'
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and may be in default. Unrated debt securities are not
necessarily of lower quality than rated securities but they may not be
attractive to as many buyers. Regardless of rating levels, all debt securities
considered for purchase (whether rated or unrated) will be carefully analyzed by
the Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Fund may, from time to time, purchase defaulted debt
securities if, in the opinion of the Investment Manager, the issuer may resume
interest payments in the near future. As a fundamental policy, the Fund will not
invest more than 10% of its total assets (at the time of purchase) in defaulted
debt securities, which may be illiquid.

Successful use of futures contracts is subject to special risk
considerations and transaction costs. A liquid secondary market for futures
contracts may not be available when a position is sought to be closed. In
addition, there may be an
T-6
<PAGE>
imperfect correlation between movements in the securities or foreign currency on
which the contract is based and movements in the securities in the Fund's
portfolio or the currencies in which they are denominated. Successful use of
forward contracts, options and futures contracts is further dependent on the
ability of the Fund's Investment Manager to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct.

Shares of the Fund are offered on a continuous basis at the net asset value of
the Fund only to separate accounts of insurance companies to serve as the
underlying investment vehicle for both variable annuity and variable life
insurance contracts. Individuals may not purchase shares directly from the Fund.
Please read the prospectus of the insurance company Separate Account for more
information on the purchase of Fund Shares.

In the event that the Trust serves as investment vehicle for both variable
annuity and variable life insurance contracts, or for both variable life
insurance contracts of an insurer and other variable contracts of an
unaffiliated insurer, the Trust's Board of Trustees will monitor events in order
to identify any material conflicts between variable annuity contract owners and
variable life policy owners and/or between separate accounts of different
insurers, as the case may be, and will determine what action, if any, should be
taken in the event of such a conflict. Although the Trust does not currently
foresee any disadvantages to contract owners, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Trust due to differences in tax treatment, the
management of investments, or other considerations.
NET ASSET VALUE

The net asset value of the Shares of the Fund is determined as of the scheduled
closing time of the New York Stock Exchange ('NYSE') (generally 4:00 p.m., New
York time) on each day the NYSE is open for trading by dividing the value of the
Fund's securities plus any cash and other assets (including accrued interest and
dividends receivable) less all liabilities (including accrued expenses) by the
number of shares outstanding, adjusted to the nearest whole cent. A security
listed or traded on a recognized stock exchange or NASDAQ is valued at its last
sale price on the principal exchange on which the security is traded. The value
of a foreign security is determined in its national currency as of the close of
trading on the foreign exchange on which it is traded, or as of the scheduled
closing time of the NYSE, if that is earlier, and that value is then converted
into its U.S. dollar equivalent at foreign exchange rate in effect at noon, New
York time, on the day the value of the foreign security is determined. If no
sale is reported at that time, the mean between the current bid and asked price
is used. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the NYSE, and will therefore not be reflected in the computation of
the Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
fair value as determined by the management and approved in good faith by the
Board of Trustees. All other securities for which over-the-counter market
quotations are readily available are valued at the mean between the current bid
and asked price. Securities for which market quotations are not readily
available and other assets are valued at fair value as determined by the
management and approved in good faith by the Board of Trustees.
REDEMPTION OF SHARES

Please refer to the prospectus of your insurance company's Separate Account
for information on how to redeem Shares of the Fund.

T-7
<PAGE>
EXCHANGES

Shares of the Fund may be exchanged for shares of any other fund available as an
investment option in a Separate Account. Exchanges are treated as a redemption
of shares of one fund and a purchase of shares of the other fund and are
effected at the respective net asset value per share of each fund on the date of
the exchange. Please refer to the prospectus of your insurance company's
Separate Account for more information concerning exchanges.
MANAGEMENT OF THE TRUST

The Investment Manager of the Fund is Templeton Investment Counsel, Inc.
('TICI'). TICI is a Florida corporation with offices at Broward Financial
Centre, Fort Lauderdale, Florida 33394-3091. The Investment Manager manages the
investment and reinvestment of the Fund's assets. TICI is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ('Franklin'). Through its
subsidiaries, Franklin is engaged in various aspects of the financial services
industry. The Investment Manager and its affiliates serve as advisers for a wide
variety of public investment mutual funds and private clients in many nations.
The Templeton organization has been investing globally over the past 56 years
and, with its affiliates, provides investment management and advisory services
to a worldwide client base, including over 4.3 million mutual fund shareholders,
foundations, endowments, employee benefit plans and individuals. The Investment
Manager and its affiliates have approximately 4,100 employees in the United
States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada, Russia, France, Poland, Italy, India, Vietnam, South America and South
Africa.

The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for these services, the Fund pays its
Investment Manager a monthly fee equal on an annual basis to .50% of its average
daily net assets during the year.

The lead portfolio manager for the Fund since 1995 is Lauretta A. Reeves.
Ms. Reeves, Vice President of TICI, joined the Templeton organization in 1987 as
an equity trader and moved into the research group in 1989. She has research
responsibility for the chemical, medical and European banking sectors and the
Philippines market. Prior to joining the Templeton organization, she was manager
of equity trading for First Equity Corporation of Florida, a regional brokerage
firm. Ms. Reeves received a Masters in Business Administration from Nova
University and a Bachelor of Business Administration degree with high honors
from Florida International University. She is also a Chartered Financial
Analyst. Peter Nori and Gary Motyl exercise secondary portfolio management
responsibility. Mr. Nori is a research analyst whose current responsibilities
include covering data processing/software, textile and apparel stocks. Mr. Nori
completed Franklin's management training program before moving into portfolio
research in 1990 as an equity analyst and co-portfolio manager of the Franklin
Convertible Securities Fund. He holds a B.S. degree in Finance and an M.B.A.
with an emphasis in finance from the University of San Francisco and is a
Chartered Financial Analyst. Mr. Motyl has been a security analyst and portfolio
manager with TICI since 1981. His research responsibilities include the global
automobile industry. Prior to joining the Templeton organization, Mr. Motyl
worked from 1974 to 1979 as a security analyst at Standard & Poor's Corporation,
and then worked as a research analyst and portfolio manager from 1979 to 1981
with Landmark First National Bank. He holds a B.S. in Finance from Lehigh
University and an M.B.A. from Pace University.

Templeton Funds Annuity Company, P.O. Box 33030, St. Petersburg, Florida
33733-8030, telephone (800) 774-5001 or (813) 823-8712, provides certain
administrative facilities and services for the Trust, including payment of
salaries of officers, preparation and maintenance of books and records, daily
pricing of the Fund's investment portfolio, preparation of tax reports,
preparation of financial reports, and monitoring compliance with regulatory
requirements. For its services, the Business Manager receives a fee equivalent
on an annual basis to 0.15% of the combined average daily net assets of the Fund
T-8
<PAGE>
and other funds of the Trust, reduced to 0.135% of such assets in excess of
$200,000,000, to 0.10% of such assets in excess of $700,000,000, and to 0.075%
of such assets in excess of $1,200,000,000.
EXPENSES

During the fiscal year ended December 31, 1995, expenses amounted to .71% of the
Fund's average daily net assets.
DISTRIBUTOR

Shares of the Trust are distributed through Franklin Templeton Distributors,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone
(800) 292-9293.

BROKERAGE COMMISSIONS

DIVIDENDS AND DISTRIBUTIONS

The Fund normally intends to pay annual dividends representing substantially all
of its net investment income and to distribute annually any net realized capital
gains.

FEDERAL INCOME TAX STATUS

The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code (the 'Code'). If the Fund so qualifies
it generally will not be subject to federal income taxes on amounts distributed
to Shareholders. In order to qualify as a regulated investment company, the Fund
must, among other things, meet certain source of income requirements. In
addition, the Fund must diversify its holdings so that, at the end of each
quarter of the taxable year, (a) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (b) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies).

Distributions of any net investment income and of any net realized
short-term capital gains in excess of net realized long-term capital losses are
treated as ordinary income for tax purposes in the hands of the Shareholder (the
Separate Account). The excess of any net long-term capital gains over net
short-term capital losses will, to the extent distributed and designated by the
Fund as a capital gain dividend, be treated as long-term capital gains in the
hands of the Separate Account regardless of the length of time the Separate
Account may have held the Shares. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. Reference
is made to the prospectus for the applicable Contract for information regarding
the federal income tax treatment of distributions to an owner of a Contract.

In the event that rules or regulations are adopted, there can be no
assurance that the Fund will be able to operate as currently described in the
Prospectus, or that the Trust will not have to change the Fund's investment
objective or investment policies. While the Fund's investment objective is
fundamental and may be changed only by a vote of a majority
T-9
<PAGE>
of its outstanding Shares, the Trustees have reserved the right to modify the
investment policies of the Fund as necessary to prevent any such prospective
rules and regulations from causing the contract owners to be considered the
owners of the Shares of the Fund underlying the Separate Account.

OTHER INFORMATION
CAPITALIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of six separately managed funds. The Board of Trustees
may establish additional funds in the future. The capitalization of the Trust
consists solely of an unlimited number of Shares of beneficial interest with a
par value of $0.01 each. When issued, Shares of the Trust are fully paid,
non-assessable by the Trust and freely transferable.

Shareholders of the Trust are given certain voting rights. Each Share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. In accordance with current
applicable law, the Separate Account, as Shareholder of the Trust, is required
to vote the Shares of the Trust at any regular and special meeting of the
Shareholders of the Trust in accordance with instructions received from owners
of the variable contracts. See the prospectus for the Separate Account for more
information regarding the pass-through of these voting rights.

T-10

<PAGE>
[INSERT LOGO]
TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- May 1, 1996

Templeton Asset Allocation Fund
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Templeton Asset Allocation Fund (the "Fund") is a diversified series of Templeton
Variable Products Series Fund (the "Trust"), an open-end, management investment
company. Shares of the Fund are currently sold only to insurance company
separate accounts ("Separate Accounts") to serve as the investment vehicle
for both variable annuity and variable life insurance contracts (the
"Contracts"). The Separate Accounts invest in shares of the Fund in accordance
with allocation instructions received from owners of the Contracts. Such
allocation rights are described further in the accompanying prospectus for
the Separate Accounts. Certain series of the Trust are not available as an
investment vehicle for all Contracts. A purchaser of a Contract should refer
to the prospectus for his or her Contract or policy for information as to
INVESTMENT which series of the Trust are available for investment. This Prospectus sets
OBJECTIVE AND forth concisely information about the Fund that a prospective investor ought
POLICIES to know before investing.

</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- --------------------------------------- ---------
<S> <C>
FINANCIAL HIGHLIGHTS .................. T-2
INVESTMENT OBJECTIVE AND POLICIES .... T-2
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES ............. T-3
RISK FACTORS .......................... T-6
PURCHASE OF SHARES .................... T-8
NET ASSET VALUE ....................... T-8
</TABLE>

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REDEMPTION OF SHARES ............ T-8
EXCHANGES ....................... T-8
MANAGEMENT OF THE TRUST ......... T-9
BROKERAGE COMMISSIONS ........... T-10
DIVIDENDS AND DISTRIBUTIONS .... T-10
FEDERAL INCOME TAX STATUS ...... T-10
OTHER INFORMATION ............... T-11
</TABLE>

- -----------------------------------------------------------------------------

<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

The following table of financial highlights has been audited by McGladrey &
Pullen, LLP, independent certified public accountants, for the periods indicated
in their report which is incorporated by reference and which appears in the
Fund's 1995 Annual Report to Shareholders. This statement should be read in
conjunction with the other financial statements and notes thereto included in
the Fund's 1995 Annual Report to Shareholders, which contains further
information about the Fund's performance, and which is available to shareholders
upon request and without charge.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988*
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for
a share outstanding throughout the
year)
NET ASSET VALUE,
BEGINNING OF YEAR.................. $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45 $ 11.62 $ 10.28 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income.............. .57 .44 .42 .39 .40 .34 .25 .07
Net realized and unrealized
gain (loss)...................... 2.87 (.92) 3.03 .66 2.38 (1.23) 1.11 .21
-------- -------- -------- ------- ------- ------- ------- ------
TOTAL FROM INVESTMENT
OPERATIONS.................... 3.44 (.48) 3.45 1.05 2.78 (.89) 1.36 .28
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income................ (.41) (.31) (.35) (.41) (.38) (.25) (.02) --
Distributions from
net realized gains............... -- (.07) (.04) -- -- (.03) -- --
-------- -------- -------- ------- ------- ------- ------- ------
TOTAL DISTRIBUTIONS.............. (.41) (.38) (.39) (.41) (.38) (.28) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Change in net asset value
for the year....................... 3.03 (.86) 3.06 .64 2.40 (1.17) 1.34 .28
-------- -------- -------- ------- ------- ------- ------- ------
NET ASSET VALUE,
END OF YEAR........................ $ 18.72 $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45 $ 11.62 $10.28
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................... 22.48% (2.96)% 26.12% 8.42% 27.05% (7.80)% 13.25% 2.80%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (000).................. $406,123 $288,172 $183,360 $79,242 $35,821 $22,702 $13,150 $ 388
Ratio of expenses to average
net assets......................... .66% .75% .77% .80% .89% 1.03% 1.41% 14.92%**
Ratio of expenses, net of
reimbursement, to average
net assets......................... .66% .75% .77% .80% .89% 1.00% 1.00% 1.50%**
Ratio of net investment income to
average net assets................. 3.73% 4.02% 4.16% 4.47% 3.99% 4.56% 4.81% 2.86%**
Portfolio turnover rate.............. 43.02% 51.36% 81.50% 120.53% 76.65% 8.46% 10.68% --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Period from August 31, 1988 (commencement of operations) to
December 31, 1988.
** Annualized.
Total return figures do not include charges applied under the
Contracts. Inclusion of such figures would reduce the total
return figures for all periods shown.

INVESTMENT OBJECTIVE AND POLICIES

The Fund seeks a high level of total return through a flexible policy of
investing in the following market segments: stocks of companies in any nation,
debt securities of companies and governments of any nation, and money market
instruments. The mix of investments among these three market segments will be
adjusted in an attempt to capitalize on total return potential produced by
changing economic conditions throughout the world. The Fund and its investment
manager, Templeton Investment Counsel, Inc. ('TICI' or the 'Investment Manager')
may, from time to time, use various methods of selecting securities for the
Fund's portfolio, and may also employ and rely on independent or affiliated
sources of information and
T-2
<PAGE>
ideas in connection with the management of the Fund's portfolio. There can be no
assurance that the Fund will achieve its investment objective.

There are no minimum or maximum percentages as to the amount of the Fund's
assets which may be invested in each of the market segments. Except as noted
below and under 'Investment Restrictions' in the SAI, the Fund's Investment
Manager has complete flexibility in determining the amount and nature of stock,
debt securities or money market instruments in which the Fund may invest.

The Fund seeks investment opportunities in all types of securities issued by
companies or governments of any nation. It has the flexibility to invest in
preferred stocks and certain debt securities, rated or unrated, such as
convertible bonds and bonds selling at a discount. The Fund may invest in
collateralized mortgage obligations and restricted securities, lend its
portfolio securities, and borrow money for investment purposes.

The Fund may purchase and sell financial futures contracts, stock index
futures contracts, and foreign currency futures contracts for hedging purposes
only and not for speculation. It may engage in such transactions only if the
total contract value of the futures contracts does not exceed 20% of the Fund's
total assets. The Fund may also invest in forward foreign currency exchange
contracts and options on foreign currencies. (See 'Description of Securities and
Investment Techniques.')

The Fund is subject to investment restrictions that are described under the
heading 'Investment Restrictions' in the SAI. Those investment restrictions so
designated and the investment objective of the Fund are 'fundamental policies'
of the Fund, which means that they may not be changed without a majority vote of
Shareholders of the Fund. With the exception of the Fund's investment objective
and those restrictions specifically identified as fundamental, all investment
policies and practices described in this Prospectus and in the SAI are not
fundamental, meaning that the Board of Trustees may change them without
Shareholder approval.

The Fund may invest in CMOs, which are fixed-income securities collateralized by
pools of mortgage loans created by commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
issuers in the United States. In effect, CMOs 'pass-through' the monthly
payments made by individual borrowers on their mortgage loans. Timely payment of
interest and principal (but not the market value) of these pools is supported by
various forms of insurance or guarantees issued by U.S. Government agencies,
private issuers, and mortgage poolers; however, the obligation itself is not
guaranteed. If the collateral securing the obligations is insufficient to make
payment on the obligation, a holder could sustain a loss. In addition, the Fund
may buy CMOs without insurance or guarantees if, in the opinion of the
Investment Manager, the sponsor is creditworthy. The ratings of the CMOs will be
consistent with the ratings criteria of the Fund. Prepayments of the mortgages
included in the mortgage pool may influence the yield of the CMO. Prepayments
usually increase when interest rates are decreasing, thereby decreasing the life
of the pool. Reinvestment of prepayments may be at a lower rate than that on the
original CMO. As a result, the value of CMOs decrease like other debt securities
when interest rates rise, but when interest rates decline, they may not increase
as much as other debt securities, due to the prepayment feature.

T-3
<PAGE>
BANK OBLIGATIONS

The Fund may invest in certificates of deposit, which are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. The Fund may invest in
dollar-denominated certificates of deposit of foreign and domestic banks having
total assets in excess of $1 billion. The Fund may also invest in certificates
of deposit of federally insured savings and loan associations having total
assets in excess of $1 billion. The Fund may hold cash and time deposits with
banks in the currency of any major nation.
COMMERCIAL PAPER

The Fund may invest in medium and lower quality debt securities that are
rated between BBB and as low as CC by S&P, and between Baa and as low as Ca by
Moody's or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. As an operating policy, which may be changed by the
Board of Trustees without shareholder approval, the Fund will not invest more
than 5% of its total assets in debt securities rated below BBB by S&P or Baa by
Moody's. Bonds rated BB or lower, commonly referred to as 'junk bonds,' are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and may be in
default. The Board may consider a change in this operating policy if, in its
judgment, economic conditions change such that a higher level of investment in
high risk, lower quality debt securities would be consistent with the interests
of the Fund and its Shareholders. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) will be carefully
analyzed by the Fund's Investment Manager to insure, to the extent possible,
that the planned investment is sound. Unrated debt securities are not
necessarily of lower quality than rated securities but they may not be
attractive to as many buyers. The Fund may, from time to time, purchase
defaulted debt securities if, in the opinion of the Investment Manager, the
issuer may resume interest payments in the near future. The Fund will not invest
more than 10% of its total assets in defaulted debt securities.

Debt securities with similar maturities may have different yields, depending
upon several factors, including the relative financial condition of the issuers.
For example, higher yields are generally available from securities in the lower
rating categories of S&P or Moody's. However, the values of lower rated
securities generally fluctuate more than those of higher rated securities. As a
result, lower rated securities involve greater risk of loss of income and
principal than higher rated securities. A full discussion of the risks of
investing in lower quality debt securities is contained under the caption 'Risk
Factors' in the SAI. For a description of debt securities ratings, see the
Appendix to the SAI.
REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements. When the Fund acquires a security
from a bank or a registered broker-dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller agrees to repurchase the security at a
specified time and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed upon rate of return, which is not
tied to the coupon rate on the underlying security. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. Repurchase agreements will be fully collateralized. However, if the
seller should default on its obligation to repurchase the underlying security,
the Fund may experience delay or difficulty in exercising its rights to realize
upon the security and might incur a loss if the value of the security should
decline, as well as incur disposition costs in liquidating the security.
BORROWING

The Fund may lend to broker-dealers or U.S. banks portfolio securities with an
aggregate market value of up to one-third of its total assets. Such loans must
be secured by collateral (consisting of any combination of cash, U.S. Government
securities, or irrevocable letters of credit) in an amount at least equal (on a
daily marked-to-market basis) to the current market value of the securities
loaned. The Fund may terminate the loans at any time and obtain the return of
the securities loaned within five business days. The Fund will continue to
receive any interest or dividends paid on the loaned securities and will
continue to have voting rights with respect to the securities. In the event that
the borrower defaults on its obligation to return borrowed securities, because
of insolvency or otherwise, the Fund could experience delays and costs in
gaining access to the collateral and could suffer a loss to the extent that the
value of collateral falls below the market value of the borrowed securities.
RESTRICTED SECURITIES

The Fund may purchase sponsored or unsponsored American Depositary Receipts
('ADRs'), European Depositary Receipts ('EDRs') and Global Depositary Receipts
('GDRs') (collectively, 'Depositary Receipts'). ADRs are Depositary Receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary Receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of Depositary Receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in Depositary Receipts will
be deemed to be investments in the underlying securities.
FUTURES CONTRACTS

For hedging purposes only, the Fund may buy and sell financial futures contracts
and foreign currency futures contracts. Also, for hedging purposes only, the
Fund may purchase and sell stock index futures contracts. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.

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<PAGE>
When the Fund enters into a futures contract, it must make an initial
deposit, known as 'initial margin,' as a partial guarantee of its performance
under the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as 'variation margin,' to cover any additional obligation it may have
under the contract. The Fund may not commit more than 5% of its total assets to
initial margin deposits on futures contracts. In addition, the Fund must deposit
in a segregated account additional cash or high quality debt securities to
ensure the futures contracts are unleveraged. The value of assets held in the
segregated account must be equal to the daily market value of all outstanding
futures contracts less any amounts deposited as margin.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES.

The Fund may enter into forward foreign currency exchange contracts ('forward
contracts') to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to 'lock in' the U.S.
dollar price of the security or, when the Investment Manager believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the former foreign currency (or another currency which acts as a proxy
for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This later investment
practice is generally referred to as 'cross-hedging.' The Fund has no specific
limitation on the percentage of assets they may commit to forward contracts,
except that the Fund will not enter into a forward contract if the amount of
assets set aside to cover the contract would impede portfolio management or the
Fund's ability to meet redemption requests. The Fund may also purchase and write
put and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
RISK FACTORS

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund; nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
Shareholder may anticipate that the value of the Shares of the Fund will
fluctuate with movements in the broader equity and bond markets, as well. A
decline in the stock market of any country in which the Fund is invested in
equity securities may also be reflected in declines in the price of the Shares
of the Fund. Changes in prevailing rates of interest in any of the countries in
which the Fund is invested in fixed income securities will likely affect the
value of such holdings and thus the value of Fund Shares. Increased rates of
interest which frequently accompany inflation and/or a growing economy are
likely to have a negative effect on the value of the Fund's Shares. In addition,
changes in currency valuations will affect the price of the Shares of the Fund.
History reflects both decreases and increases in stock markets and interest
rates in individual countries and throughout the world, and in currency
valuations, and these may reoccur unpredictably in the future. Additionally,
investment decisions made by the Investment Manager will not always be
profitable or prove to have been correct. The Fund is not intended as a complete
investment program.

The Fund is authorized to purchase securities in any foreign country,
developed or underdeveloped. An investor should consider carefully the risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. These risks are often heightened for investments in developing
markets, including certain Eastern European countries. See 'Investment
Objectives and Policies--Risk Factors' in the SAI. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations (including, for example, withholding taxes on interest
and dividends) or other taxes imposed with respect to investments in foreign
nations, foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country), foreign investment controls on daily
stock movements, default in foreign government securities, political or social
instability, or diplomatic developments which could affect investments in
securities of issuers in foreign nations. Also, some countries may withhold
portions of interest and dividends at the source. In addition, in many countries
there is less publicly available information about issuers than is available in
reports about companies in the United States. Foreign companies are not
generally subject to uniform accounting and auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to United States companies. Further, the Fund may encounter
difficulties or be unable to vote proxies, exercise shareholder rights, pursue
legal remedies, and obtain judgments in foreign courts. These considerations
generally are more of a concern in developing countries, where the possibility
of political instability (including revolution) and dependence on foreign
economic assistance may be greater than in developed countries. Investments in
companies domiciled in developing countries therefore may be subject to
potentially higher risks than investments in developed countries.

Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the United
States. Foreign securities markets also have different clearance and settlement
procedures, and
T-6
<PAGE>
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security of, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

In many foreign countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increase risk,
therefore, of uninsured loss due to lost, stolen or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that are
described under 'Investment Objectives and Policies--Risk Factors' in the SAI.

Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations may also be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.

Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustment in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.

Successful use of forward contracts, options and futures contracts are
subject to special risk considerations and transaction costs. A liquid secondary
market for forward contracts, options and futures contracts may not be available
when a position is sought to be closed. In addition, there may be an imperfect
correlation between movements in the securities or foreign currency on which the
contract or option is based and movements in the securities or currency in the
Fund's portfolio or the currencies in which they are denominated. Successful use
of forward contracts, options and futures contracts is further dependent on the
ability of the Fund's Investment Manager to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices is subject to similar risk considerations. In addition, by writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price.

T-7
<PAGE>
PURCHASE OF SHARES

Shares of the Fund are offered on a continuous basis at net asset value only to
separate accounts of insurance companies to serve as the underlying investment
vehicle for both variable annuity and variable life insurance contracts.
Individuals may not purchase shares directly from the Fund. Please read the
prospectus of the insurance company Separate Account for more information on the
purchase of Fund Shares.

In the event that the Trust serves as investment vehicle for both variable
annuity and variable life insurance contracts, or for both variable life
insurance contracts of an insurer and other variable contracts of an
unaffiliated insurer, the Trust's Board of Trustees will monitor events in order
to identify any material conflicts between variable annuity contract owners and
variable life policy owners and/or between separate accounts of different
insurers, as the case may be, and will determine what action, if any, should be
taken in the event of such a conflict. Although the Trust does not currently
foresee any disadvantages to contract owners, an irreconcilable material
conflict may conceivably arise between contract owners of different separate
accounts investing in the Trust due to differences in tax treatment, the
management of investments, or other considerations.
NET ASSET VALUE

The net asset value of the Shares of the Fund is determined as of the scheduled
closing time of the New York Stock Exchange ('NYSE') (generally 4:00 p.m., New
York time) on each day the NYSE is open for trading. The net asset value is
computed by dividing the value of the Fund's securities plus any cash and other
assets (including accrued interest and dividends receivable) less all
liabilities (including accrued expenses) by the number of shares outstanding,
adjusted to the nearest whole cent. A security listed or traded on a recognized
stock exchange or NASDAQ is valued at its last sale price on the principal
exchange on which the security is traded. The value of a foreign security is
determined in its national currency as of the close of trading on the foreign
exchange on which it is traded, or as of the scheduled closing time of the NYSE,
if that is earlier, and that value is then converted into its U.S. dollar
equivalent at foreign exchange rate in effect at noon, New York time, on the day
the value of the foreign security is determined. If no sale is reported at that
time, the mean between the current bid and asked price is used. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of the NYSE,
and will therefore not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at fair value as determined by
the management and approved in good faith by the Board of Trustees. All other
securities for which over-the-counter market quotations are readily available
are valued at the mean between the current bid and asked price. Securities for
which market quotations are not readily available and other assets are valued at
fair value as determined by the management and approved in good faith by the
Board of Trustees.
REDEMPTION OF SHARES

Please refer to the prospectus of your insurance company's Separate Account
for information on how to redeem Shares of the Fund.
EXCHANGES

Shares of the Fund may be exchanged for shares of any other fund available as an
investment option in a Separate Account. Exchanges are treated as a redemption
of shares of one fund and a purchase of shares of the other fund and are
effected at the respective net asset value per share of each fund on the date of
the exchange. Please refer to the prospectus of your insurance company's
Separate Account for more information concerning exchanges.

T-8
<PAGE>
MANAGEMENT OF THE TRUST

The Investment Manager of the Fund is Templeton Investment Counsel, Inc.
('TICI'). TICI is a Florida corporation with offices at Broward Financial
Centre, Fort Lauderdale, Florida 33394-3091. The Investment Manager manages the
investment and reinvestment of the Fund's assets. TICI is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ('Franklin'). Through its
subsidiaries, Franklin is engaged in various aspects of the financial services
industry. The Investment Manager and its affiliates serve as advisers for a wide
variety of public investment mutual funds and private clients in many nations.
The Templeton organization has been investing globally over the past 56 years
and, with its affiliates, provides investment management and advisory services
to a worldwide client base, including over 4.3 million mutual fund shareholders,
foundations, endowments, employee benefit plans and individuals. The Investment
Manager and its affiliates have approximately 4,100 employees in the United
States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada, Russia, France, Poland, Italy, India, Vietnam, South America and South
Africa.

The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for these services, the Fund pays its
Investment Manager a monthly fee equal on an annual basis to .50% of its average
daily net assets during the year.

The lead portfolio manager of the fixed income portion of the Fund since
1993 is Thomas Latta, Vice President of Templeton Global Bond Managers ('TGBM'),
a division of TICI. Mr. Latta joined the Templeton organization in 1991. He is
the senior portfolio manager for developed markets fixed income and has research
responsibilities for the core European markets. Mr. Latta is also responsible
for internal fixed income systems development. Mr. Latta began working in the
securities industry in 1981. His experience includes seven years with Merrill
Lynch where he was part of an investment team to the Saudi Arabian Monetary
Authority in Riyadh, Saudi Arabia. While at Merrill Lynch, Mr. Latta also acted
as an advisor to investment managers concerning the modeling and application of
interest rate strategies in fixed income portfolios. Neil Devlin and Tom
Wilkinson exercise secondary portfolio management responsibilities with respect
to the fixed income portion of the Fund. Mr. Devlin, Executive Vice President of
TGBM, joined the Templeton organization in 1987. Prior to that time, he was a
portfolio manager and bond analyst with Constitutional Capital Management of
Boston, where he managed a portion of the Bank of New England's pension money, a
number of trust and corporate pension accounts, and began and managed a
mortgage-backed securities fund for the Bank. Before that, Mr. Devlin was a bond
trader and research analyst for the Bank of New England. Mr. Wilkinson, Vice
President of TGBM, joined the Templeton organization in 1985 and is the senior
portfolio manager for Franklin Templeton's emerging markets fixed income group
with research responsibilities covering East Asia.

The lead portfolio manager for the equity portion of the Fund since 1995 is
Gary Clemons, Vice President of TICI. He is a research analyst with
responsibility for the financial services and telecommunications industry, as
well as country coverage of Argentina and Sweden. Prior to joining the Templeton
organization in 1993, Mr. Clemons worked as a research analyst for Structured
Asset Management in New York, a subsidiary of Templeton International, where his
duties included management of a small capitalization fund. He holds an M.B.A.
with an emphasis on finance/investment banking from the University of Wisconsin
and a B.S. from the University of Nevada-Reno. Peter Nori and James Chaney
exercise secondary portfolio management responsibilities for the equity portion
of the Fund. Mr. Nori, Vice President of the Investment Manager, is a research
analyst whose current responsibilities include covering data
processing/software, textile and apparel stocks. Mr. Nori completed Franklin's
management training program before moving into portfolio research in 1990 as an
equity analyst and co-portfolio manager of the Franklin Convertible Securities
Fund. He holds a B.S. degree in Finance and an M.B.A. with an emphasis in
finance from the University of San Francisco. Mr. Chaney, Senior Vice President
of TICI, has global research responsibility for merchandising, regional banks
and environmental companies. Prior to joining the Templeton organization in
1991, Mr. Chaney spent six years with GE Investments, where he was vice
president of international equities. He also has seven years experience as an
international consulting engineer and project manager. Mr. Chaney holds an
M.B.A.
T-9
<PAGE>
with high honors from Columbia University, an M.S. in Engineering from
Northeastern University and a B.S. in Engineering from the University of
Massachusetts-Amherst.

During the fiscal year ended December 31, 1995, expenses amounted to .66% of the
Fund's average daily net assets.
DISTRIBUTOR

Shares of the Trust are distributed through Franklin Templeton Distributors,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone
(800) 292-9293.
BROKERAGE COMMISSIONS

The Fund normally intends to pay annual dividends representing substantially all
of its net investment income and to distribute annually any net realized capital
gains.

Distributions of any net investment income and of any net realized
short-term capital gains in excess of net realized long-term capital losses are
treated as ordinary income for tax purposes in the hands of the Shareholder (the
Separate Account). The excess of any net long-term capital gains over net
short-term capital losses will, to the extent distributed and designated by the
Fund as a capital gain dividend, be treated as long-term capital gains in the
hands of the Separate Account regardless of the length of time the Separate
Account may have held the Shares. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. Reference
is made to the prospectus for the applicable Contract for information regarding
the federal income tax treatment of distributions to an owner of a Contract.

To comply with regulations under Section 817(h) of the Code the Fund is
required to diversify its investments so that on the last day of each quarter of
a calendar year no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three
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<PAGE>
investments, and no more than 90% is represented by any four investments.
Generally, all securities of the same issuer are treated as a single investment.
For this purpose, in the case of U.S. Government securities, each U.S.
Government agency or instrumentality is treated as a separate issuer. Any
securities issued, guaranteed, or insured (to the extent so guaranteed or
insured) by the U.S. Government or an instrumentality of the U.S. Government are
treated as a U.S. Government security for this purpose.

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of six separately managed Funds. The Board of Trustees
may establish additional funds in the future. The capitalization of the Trust
consists solely of an unlimited number of Shares of beneficial interest with a
par value of $0.01 each. When issued, Shares of the Trust are fully paid,
non-assessable by the Trust and freely transferable.

Shareholders of the Trust are given certain voting rights. Each Share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. In accordance with current
applicable law, the Separate Account, as Shareholder of the Trust, is required
to vote the Shares of the Trust at any regular and special meeting of the
Shareholders of the Trust in accordance with instructions received from owners
of the variable contracts. See the prospectus for the Separate Account for more
information regarding the pass-through of these voting rights.

For more information on the Trust, the Fund, and its investment activity and
concurrent risks, an SAI may be obtained without charge upon request to Franklin
Templeton Distributors, Inc., P.O. Box 33030, St. Petersburg, Florida,
33733-8030 -- toll free telephone (800) 774-5001 or (813) 823-8712.
PERFORMANCE INFORMATION

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<PAGE>
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of 1, 5 and 10 years (or up to the life of
the Fund), will reflect the deduction of a proportional share of Fund expenses
(on an annual basis), and will assume that all dividends and distributions are
reinvested when paid. Total return may be expressed in terms of the cumulative
value of an investment in the Fund at the end of a defined period of time.
Quotations of yield or total return for the Fund will not take into account
charges and deductions against any separate account to which the Fund's Shares
are sold or charges and deductions against variable insurance contracts,
although comparable performance information for a separate account will take
such charges into account. For a description of the methods used to determine
total return for the Fund, see 'Performance Information' in the SAI.
STATEMENTS AND REPORTS

T-12

TEMPLETON VARIABLE PRODUCTS SERIES FUND

THIS STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996,
IS NOT A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUSES OF TEMPLETON MONEY MARKET FUND, TEMPLETON BOND FUND,

TEMPLETON STOCK FUND, TEMPLETON ASSET ALLOCATION FUND AND

TEMPLETON INTERNATIONAL FUND DATED MAY 1, 1996, AND THE PROSPECTUS
OF TEMPLETON DEVELOPING MARKETS FUND DATED FEBRUARY 16, 1996, AS

EACH PROSPECTUS IS AMENDED FROM TIME TO TIME, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST TO FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 292-9293

TABLE OF CONTENTS

General Information and - Investment Management

History.......................... 1 Agreements................... 23
Investment Objectives and - Management Fees.............. 24
Policies......................... 2 - The Investment Managers...... 25
- Investment Policies........... 2 - Business Manager............. 25
- Debt Securities............... 2 - Custodian.................... 26
- Structured Investments........ 3 - Legal Counsel................ 26
- Futures Contracts............. 3 - Independent Accountants...... 26
- Foreign Currency Hedging - Reports to Shareholders...... 26
Transactions.................. 4 Brokerage Allocation............
- Options on Securities or - Portfolio Turnover........... 27
Indices....................... 5 Purchase, Redemption and Pricing
- Stock Index Futures Contracts. 7 of Shares....................... 29
- Risk Factors.................. 9 - Redemptions in Kind.......... 30
Investment Restrictions.......... 14 Tax Status...................... 31
Trading Policies................. 15 Description of Shares........... 34

- Personal Securities Yield and Performance

Transactions................. 16 Information..................... 34
Management of the Trust.......... 16 Financial Statements............ 38
Trustee Compensation............. 21 Appendix - Corporate Bond,
Preferred Stock and
Principal Shareholders........... 22 Commercial Paper Ratings........ i
Investment Management and Other
Services.........................23

GENERAL INFORMATION AND HISTORY

.......Templeton Variable Products Series Fund (the "Trust") was organized as a
Massachusetts business trust on February 25, 1988 and is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company. The Trust currently has six series of Shares:
Templeton Money Market Fund, Templeton Bond Fund, Templeton Stock Fund,
Templeton Asset Allocation Fund, Templeton Developing Markets Fund and Templeton
International Fund (collectively, the "Funds"). Shares of the Funds are sold
only to insurance company separate accounts to serve as the investment vehicle
for certain variable annuity and life insurance contracts. Not all of the Funds
are available as an investment vehicle for all contracts. Please refer to the
contract prospectus for information concerning the availability of the Funds.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT POLICIES. The investment objective and policies of each
Fund are described in each Fund's Prospectus under the heading "Investment
Objective and Policies."

DEBT SECURITIES. Each Fund may invest in debt securities to the extent
provided in the Fund's prospectus. The market value of debt securities generally
varies in response to changes in interest rates and the financial condition of
each issuer. During periods of declining interest rates, the value of debt
securities general increases. Conversely, during periods of rising interest
rates, the value of such securities generally declines. These changes in market
value will be reflected in a Fund's net asset value.

Bonds rated Ba or lower by Moody's Investors Service, Inc. ("Moody's") or
BB or lower by Standard & Poor's Corporation ("S&P") are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation and may be in default.
Bonds which are rated C by Moody's are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated C by S&P are obligations on
which no interest is being paid. For a full description of each debt securities
rating, see the Appendix.

Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish a Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for a Fund to obtain accurate market
quotations for the purposes of valuing a Fund's portfolio. Market quotations are
generally available on many low rated or unrated securities only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of a Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.

Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, a Fund may incur additional expenses to seek
recovery.

STRUCTURED INVESTMENTS. Included among the issuers of debt securities in
which the Funds (except Templeton Money Market Fund) may invest are entities
organized and operated solely for the purpose of restructuring the investment
characteristics of various securities. These entities are typically organized by
investment banking firms which receive fees in connection with establishing each
entity and arranging for the placement of its securities. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments and the issuance by that entity
of one or more classes of securities ("Structured Investments") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. Because Structured
Investments of the type in which such Funds anticipate investing typically
involve no credit enhancement, their credit risk will generally be equivalent to
that of the underlying instruments.

The Funds are permitted to invest in a class of Structured Investments
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks than unsubordinated Structured Investments. Although a
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of a Fund's assets that may be used for borrowing
activities.

Certain issuers of Structured Investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investment in these
Structured Investments may be limited by the restrictions contained in the 1940
Act. Structured Investments are typically sold in private placement
transactions, and there currently is not an active trading market for Structured
Investments. To the extent such investments are illiquid, they will be subject
to a Fund's restrictions on investments in illiquid securities.

FUTURES CONTRACTS. Templeton Bond, Asset Allocation, International
and Developing Markets Funds may purchase and sell financial futures contracts.
Currently, futures contracts are available on several types of fixed-income
securities including: U.S. reasury bonds, notes and bills, commercial paper, and
certificates of deposit.

As long as required by regulatory authorities, Templeton Bond, Asset
Allocation, International and Developing Markets Funds will limit their use of
futures contracts to hedging transactions in order to avoid being a commodity
pool. For example, they might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Funds' securities or the price of the securities which the Funds intend to
purchase. The Funds' hedging may include sales of futures contracts as an offset
against the effect of expected increases in interest rates and purchases of
futures contracts as an offset against the effect of expected declines in
interest rates. Although other techniques could be used to reduce the Funds'
exposure to interest rate fluctuations, they may be able to hedge their exposure
more effectively and perhaps at a lower cost by using futures contracts.

At the time a Fund purchases or sells a futures contract, it is required
to deposit with its custodian (or broker, if legally permitted) a specified
amount of cash or U.S. Government securities ("initial margin"). The margin
required for a futures contract is set by the exchange or board of trade on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Funds expect to earn interest income on initial margin deposits.
A futures contract held by a Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Funds pay or receive
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by a Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing daily net asset value, a Fund will mark
to market its open futures positions. In addition, the Fund must deposit in a
segregated account additional cash or high quality debt securities to ensure the
futures contracts are unleveraged. The value of assets held in the segregated
account must be equal to the daily market value of all outstanding futures
contracts less any amounts deposited as margin.

Although some financial futures contracts call for making or taking
delivery of the underlying securities, in most cases these obligations are
closed out before the settlement date. The closing of a contractual obligation
is accomplished by purchasing or selling an identical offsetting futures
contract. Other financial futures contracts by their terms call for cash
settlements.

FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against foreign
currency exchange rate risks, Templeton Bond, Asset Allocation and Developing
Markets Funds may enter into forward foreign currency exchange contracts, as
well as purchase put or call options on foreign currencies. In addition, for
hedging purposes only, Templeton Bond, Asset Allocation, International and
Developing Markets Funds may enter into foreign currency futures contracts, as
described below. The Funds may also conduct their foreign currency exchange
transactions on a spot (I.E., cash) basis at the spot rate prevailing in the
foreign currency exchange market.

A Fund may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. A Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when a Fund believes
that a foreign currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when a Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward contract to buy that foreign currency for a fixed
dollar amount. This second investment practice is generally referred to as
"cross-hedging." Because in connection with a Fund's forward foreign currency
transactions an amount of the Fund's assets equal to the amount of the purchase
will be held aside or segregated to be used to pay for the commitment, a Fund
will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked-to-market on a daily
basis. While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event, a Fund's ability to utilize
forward contracts in the manner set forth above may be restricted. Forward
contracts may limit potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for a Fund than if it
had not engaged in such contracts.

Templeton Bond, Asset Allocation and Developing Markets Funds may
purchase and write put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the dollar cost of foreign securities to be acquired.
As is the case with other kinds of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and a Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuation in exchange rates, although, in the event of rate movements
adverse to a Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by a Fund will be traded on U.S. and foreign exchanges or
over-the-counter.

Templeton Bond, Asset Allocation, International and Developing Markets
Funds may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of a
Fund's portfolio securities or adversely affect the prices of securities that a
Fund intends to purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of a Fund's Investment Manager to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, a Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.

OPTIONS ON SECURITIES OR INDICES. Templeton Developing Markets Fund may
write covered call and put options and purchase call and put options on
securities or stock indices that are traded on United States and foreign
exchanges and in the over-the-counter markets.1

An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index gives the purchaser of the
option, in return for the premium paid, the right to received from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option.

Templeton Developing Markets Fund may write a call or put option only if
the option is "covered". A call option on a security written by the Fund is
"covered" if the Fund owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security is also "covered" if the Fund holds a
call on the same security and in the same principal amount as the call written
where the exercise price of the call held (1) is equal to or less than the
exercise price of the call written or (2) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash or high
grade U.S. Government securities in a segregated account with its custodian. A
put option on a security written by the Fund is "covered" if the Fund maintains
cash or fixed income securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.

Templeton Developing Markets Fund will cover call options on stock
indices that it writes by owning securities whose price changes, in the opinion
of its Investment Manager, are expected to be similar to those of the index, or
in such other manner as may be in accordance with the rules of the exchange on
which the option is traded and applicable laws and regulations. Nevertheless,
where the Fund covers a call option on a stock index through ownership of
securities, such securities may not match the composition of the index. In that
event, the Fund will not be fully covered and could be subject to risk of loss
in the event of adverse changes in the value of the index. The Fund will cover
put options on stock indices that it writes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.

Templeton Developing Markets Fund will receive a premium from writing a
put or call option, which increases the Fund's gross income in the event the
option expires unexercised or is closed out at a profit. If the value of a
security or an index on which the Fund has written a call option falls or
remains the same, the Fund will realize a profit in the form of the premium
received (less transaction costs) that could offset all or a portion of any
decline in the value of the portfolio securities being hedged. If the value of
the underlying security or index rises, however, the Fund will realize a loss in
its call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's investments. By writing a put option, the Fund
assumes the risk of a decline in the underlying security or index. To the extent
that the price changes of the portfolio securities being hedged correlate with
changes in the value of the underlying security or index, writing covered put
options on indices or securities will increase the Fund's losses in the event of
a market decline, although such losses will be offset in part by the premium
received for writing the option.

Templeton Developing Markets Fund may also purchase put options to hedge
its investments against a decline in value. By purchasing a put option, the Fund
will seek to offset a decline in the value of the portfolio securities being
hedged through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option does
not increase, the Fund's loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will depend, in
part, on the correlation between the changes in value of the underlying security
or index and the changes in value of the Fund's security holdings being hedged.

Templeton Developing Markets Fund may purchase call options on individual
securities to hedge against an increase in the price of securities that the Fund
anticipates purchasing in the future. Similarly, the Fund may purchase call
options on a securities index to attempt to reduce the risk of missing a broad
market advance, or an advance in an industry or market segment, at a time when
the Fund holds uninvested cash or short-term debt securities awaiting
investment. When purchasing call options, the Fund will bear the risk of losing
all or a portion of the premium paid if the value of the underlying security or
index does not rise.

There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Trading could be interrupted, for
example, because of supply and demand imbalances arising from a lack of wither
buyers or sellers, or the options exchange could suspend trading after the price
has risen or fallen more than the maximum specified by the exchange. Although
the Fund may be able to offset to some extent any adverse effects of being
unable to liquidate an option position, the Fund may experience losses in some
cases as a result of such inability.

STOCK INDEX FUTURES CONTRACTS. Templeton Stock, Asset Allocation,
Developing Markets and International Funds may buy and sell index futures
contracts with respect to any stock index, and Templeton Bond Fund may buy and
sell index futures contracts with respect to any bond index traded on a
recognized stock exchange or board of trade. The Funds may invest in index
futures contracts for hedging purposes only, and not for speculation. A Fund may
engage in such transactions only to an extent that the total contract value of
the futures contracts do not exceed 20% of the Fund's total assets at the time
when such contracts are entered into. Successful use of stock index futures is
subject to the ability of Templeton Investment Counsel, Inc. (the Investment
Manager of Templeton Stock Fund, Templeton Asset Allocation Fund, and Templeton
International Fund), Templeton Asset Management Ltd. (the Investment Manager of
Templeton Developing Markets Fund) and the Templeton Global Bond Managers
division of Templeton Investment Counsel, Inc. (the Investment Manager of
Templeton Bond Fund and Templeton Money Market Fund)(collectively, the
"Investment Managers") to predict correctly movements in the direction of the
stock markets. No assurance can be given that the Investment Manager's judgment
in this respect will be correct.

A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the contract
is made. The value of a unit is the current value of the stock index. For
example, the Standard & Poor's Stock Index ("S&P 500 Index" or "Index") is
composed of 500 selected common stocks, most of which are listed on the New York
Stock Exchange. The S&P 500 Index assigns a relative weighing to the value of
one share of each of these 500 common stocks included in the Index, and the
Index fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and the
actual level of the stock index at the expiration of the contract. For example,
if a Fund enters into a futures contract to buy 500 units of the S&P 500 Index
at a specified future date at a contract price of $150 and the S&P 500 Index is
at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4).
If a Fund enters into a futures contract to sell 500 units of the stock index at
a specified future date at a contract price of $150 and the S&P 500 Index is at
$154 on the future date, the Fund will lose $2,000 (500 units x loss of $4).

During or in anticipation of a period of market appreciation, Templeton
Stock Fund, Templeton Asset Allocation Fund, Templeton International Fund or
Templeton Developing Markets Fund may enter into a "long hedge" of common stock
which it proposes to add to its portfolio by purchasing stock index futures for
the purpose of reducing the effective purchase price of such common stock. To
the extent that the securities which a Fund proposes to purchase change in value
in correlation with the stock index contracted for, the purchase of futures
contracts on that index would result in gains to the Fund which could be offset
against rising prices of such common stock.

During or in anticipation of a period of market decline, Templeton Stock
Fund, Templeton Asset Allocation Fund, Templeton International Fund or Templeton
Developing Markets Fund may "hedge" common stock in its portfolio by selling
stock index futures for the purpose of limiting the exposure of its portfolio to
such decline. To the extent that a Fund's portfolio of securities changes in
value in correlation with a given stock index, the sale of futures contracts on
that index could substantially reduce the risk to the portfolio of a market
decline and, by so doing, provide an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs.

RISK FACTORS. Templeton Bond Fund, Templeton Stock Fund, Templeton Asset
Allocation Fund, Templeton International Fund and Templeton Developing Markets
Fund have the right to purchase securities in any foreign country, developed or
developing, if they are listed on an exchange, as well as a limited right to
purchase such securities if they are unlisted. Investors should consider
carefully the risks involved in securities of companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments.

There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less volume than the New York
Stock Exchange ("NYSE"), and securities of some foreign companies are less
liquid and more volatile than securities of comparable United States companies.
A Fund, therefore, may encounter difficulty in obtaining market quotations for
purposes of valuing its portfolio and calculating its net asset value. Although
the Funds may invest uo to 15% of their total assets in unlisted securities or
securities with a limited trading market, in the opinion of management such
seurities do not present a significant liquidity problem. Commission rates in
foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.

Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Funds' investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.

In addition, many countries in which the Funds may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.

Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Funds could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values and may be
adverse to the Funds' Shareholders.

Certain Eastern European countries, which do not have market economies,
are characterized by an absence of developed legal structures governing private
and foreign investments and private property. Certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment of foreign persons in a particular company, or limit the
investment of foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals.

Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
a Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of a Fund's cash and securities, the Fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such countries.

Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the United States
securities markets, and should be considered highly speculative. Such risks
include: (1) delays in settling portfolio transactions and risk of loss arising
out of Russia's system of share registration and custody; (2) the risk that it
may be impossible or more difficult than in other countries to obtain and/or
enforce a judgment; (3) pervasiveness of corruption and crime in the Russian
economic system; (4) currency exchange rate volatility and the lack of available
currency hedging instruments; (5) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation); (6) controls on
foreign investment and local practices disfavoring foreign investors and
limitations on repatriation of invested capital, profits and dividends, and on a
Fund's ability to exchange local currencies for U.S. dollars; (7) the risk that
the government of Russia or other executive or legislative bodies may decide not
to continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (8) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (9)
dependency on exports and the corresponding importance of international trade;
(10) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (11) possible
difficulty in identifying a purchaser of securities held by a Fund due to the
underdeveloped nature of the securities markets.

There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for a Fund to lose its
registration through fraud, negligence or even mere oversight. While each Fund
will endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive a Fund of
its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for a Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent a Fund from
investing in the securities of certain Russian companies deemed suitable by the
Investment Manager. Further, this also could cause a delay in the sale of
Russian company securities by a Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.

The Funds endeavor to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when a Fund changes investment from one
country to another or when proceeds of the sale of Shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies which would prevent a Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source, or impose
other taxes with respect to a Fund's investments in securities of issuers of
that country. There is the possibility of expropriation, nationalization or
confiscatory taxation, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in those
nations.

Each Fund may be affected either unfavorably or favorably by fluctuations
in the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. Some countries in which a Fund may invest may also have fixed or
managed currencies that are free floating against the U.S. dollar. Further,
certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which a Fund's securities are
denominated may have a detrimental impact on the Fund. Through each Fund's
flexible policy, the Investment Managers endeavor to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places a Fund's investments. The exercise of
this flexible policy may include decisions to purchase securities with
substantial risk characteristics and other decisions such as changing the
emphasis on investments from one nation to another and from one type of security
to another. Some of these decisions may later prove profitable and others may
not. No assurance can be given that profits, if any, will exceed losses.

The Trustees consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would affect
the liquidity of the Funds' assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Trustees also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services --Custodian"). However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Investment Managers, or reckless
disregard of the obligations and duties under the Investment Management
Agreements, any losses resulting from the holding of a Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
risk of the Shareholders. No assurance can be given that the Trustees' appraisal
of the risks will always be correct or that such exchange control restrictions
or political acts of foreign governments might not occur.

There are several risks associated with the use of futures contracts and
stock index futures contracts as hedging techniques. A purchase or sale of a
futures contract may result in losses in excess of the amount invested. There
can be significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures, including technical influences in futures trading, and differences
between the financial instruments being hedged and the instruments underlying
the standard contracts available for trading in such respects as interest rate
levels, maturities, and creditworthiness of issuers. A decision as to whether,
when, and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.

Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and, therefore, does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.

There can be no assurance that a liquid market will exist at a time when
a Fund seeks to close out a futures position, and it would remain obligated to
meet margin requirements until the position is closed. Templeton Bond, Stock,
Asset Allocation, Developing Markets and International Funds intend to purchase
or sell futures only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. In
addition, many of the futures contracts available may be relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

Use of stock index futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by a Fund for hedging purposes also depends upon the Investment
Manager's ability to predict correctly movements in the direction of the market,
as to which no assurance can be given.

Templeton Bond, Asset Allocation, International and Developing Markets
Funds may enter into a contract for the purchase or sale of a security
denominated in a foreign currency and may enter into a forward foreign currency
contract ("forward contract") in order to "lock in" the U.S. dollar price of the
security. In addition, when an Investment Manager believes that the currency of
a particular foreign country may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell or buy the amount
of the former foreign currency, approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency. The projection
of short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.

It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Funds to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency a Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency a Fund is obligated to
deliver.

If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between a Fund
entering into a forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the foreign currency,
the Fund will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, a Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

INVESTMENT RESTRICTIONS

The Funds have imposed upon themselves certain investment restrictions
which, together with their investment objectives, are fundamental policies
except as otherwise indicated. No changes in a Fund's investment objectives,
policies or investment restrictions (except those which are not fundamental
policies) can be made without the approval of the Shareholders of that Fund. For
this purpose, the provisions of the 1940 Act require the affirmative vote of the
lesser of either (a) 67% or more of the Fund's Shares present at a Shareholders'
meeting at which the holders more than 50% of the outstanding Shares are present
or represented by proxy or (b) more than 50% of the outstanding Shares of the
Fund.

In accordance with these restrictions, a Fund will not:

1. Invest in real estate or mortgages on real estate, or purchase or
sell commodity contracts, except that Templeton Bond, Asset
Allocation and Developing Markets Funds may invest in marketable
securities secured by real estate or interests therein, such as CMOs,
or issued by companies or investment trusts which invest in real
estate or interests therein and Templeton Bond, Asset Allocation,
Developing Markets and International Funds may purchase and sell
foreign currency futures and financial futures, and Templeton
Stock, Asset Allocation, Developing Markets and International
Funds may purchase and sell stock index futures contracts, and
Templeotn Bond Fund may purchase and sell bond index futures
contracts.

Purchase or retain securities of any company in which Trustees or
officers of the Trust or of a Fund's Investment Manager,
individually owning more than 1/2 of 1% of the securities of such
company, in the aggregate own more than 5% of the securities of such
company.

2. With respect to 75% of its total assets, invest more than 5% of the
total value of its assets in the securities of any one issuer, or
purchase more than 10% of any class of securities of any one
company, including more than 10% of its outstanding voting
securities (except for investments in obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities).

3. Act as an underwriter, or issue senior securities except as set
forth in Investment Restriction 6 below.

4. Lend money, except that all Funds may purchase publicly distributed
bonds, debentures, notes and other evidences of indebtedness and may
buy from a bank or broker-dealer U.S. Government obligations with a
simultaneous agreement by the seller to repurchase them at the
original purchase price plus accrued interest, and may lend their
portfolio securities.

5. Borrow money for any purpose other than redeeming its Shares or
purchasing its Shares for cancellation, and then only as a temporary
measure up to an amount not exceeding 5% of the value of
its total assets, except that Templeton Bond, Stock, Asset
Allocation and International Funds may borrow money in amounts up
to 30% of the value of its net assets. Templeton Developing
Markets Fund may borrow money from banks in an amount up to 33 1/3%
of such Fund's total assets (including the amount borrowed),
but may not pledge, mortgage or hypothecate its assets for any
purpose, except to secure borrowings and then only to an extent
not greater than 15% of the Fund's total assets. Arrangements
with respect to margin for futures contracts, forward contracts
and related options are not deemed to be pledge of assets.

6. Invest more than 25% of its total assets in a single industry,
except that this limitation will not apply to investments in
securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, or repurchase agreements on such securities,
and Templeton Money Market Fund may invest in obligations issued by
domestic banks (including certificates of deposit, repurchase
agreements, and bankers' acceptances) without regard to this
limitation.

Participate on a joint or a joint and several basis in any trading
account in securities. (see "Trading Policies" as to transaction in
the same securities for the Funds and other Templeton funds and
clients.

As non-fundamental investment policies, which may be changed by the Board
of Trustees without Shareholder approval, a Fund will not invest more than 15%
of its total assets in securities of foreign issuers which are not listed on a
recognized United States or foreign securities exchange, or more than 15% of its
total assets in (a) securities with a limited trading market, (b) securities
subject to legal or contractual restrictions as to resale, and (c) repurchase
agreements not terminable within seven days. In addition, as non-fundamental
investment policies, Templeton Stock, Asset Allocation, Developing Markets and
International Funds will not invest more than 5% of each Fund's assets in debt
securities rated lower than Baa by Moody's Investors Service, Inc. or BBB by
Standard & Poor's Corporation.

Whenever any investment policy or investment restriction states a maximum
percentage of a Fund's assets which may be invested in any security or other
property, it is intended that such maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of such security or
property. The investment restrictions do not preclude a Fund from purchasing the
securities of any issuer pursuant to the exercise of subscription rights
distributed to a Fund by the issuer, unless such purchase would result in a
violation of investment restriction number 7, or the non-fundamental investment
policies discussed above.

TRADING POLICIES

The Investment Managers and their affiliated companies serve as
investment manager to other investment companies and private clients.
Accordingly, the respective portfolios of certain of these funds and clients may
contain many or some of the same securities. When certain funds or clients are
engaged simultaneously in the purchase or sale of the same security, the trades
may be aggregated for execution and then allocated in a manner designed to be
equitable to each party. The larger size of the transaction may affect the price
of the security and/or the quantity which may be bought or sold for each party.
If the transaction is large enough, brokerage commissions may be negotiated
below those otherwise chargeable.

Sale or purchase of securities, without payment of brokerage commissions,
fees (except customary transfer fees) or other remuneration in connection
therewith, may be effected between any of these funds, or between funds and
private clients, under procedures adopted pursuant to Rule 17a-7 under the 1940
Act.

PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin
Templeton Group, as defined in the SEC Rule 17(j) under the 1940 Act, who are
employees of Franklin Resources, Inc. or their subsidiaries, are permitted to
engage in personal securities transactions subject to the following general
restrictions and procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after this clearance;
(2) Copies of all brokerage confirmations must be sent to the Compliance Officer
and within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance Officer; (3) In
addition to items (1) and (2), access persons involved in preparing and making
investment decisions must file annual reports of their securities holdings each
January and also inform the Compliance Officer (or other designated personnel)
if they own a security that is being considered for a fund or other client
transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.

MANAGEMENT OF THE TRUST

The name, address, principal occupation during the past five years and
other information with respect to each of the Trustees and Principal Executive
Officers of the Trust are as follows:

NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS

HARRIS J. ASHTON Chairman of the Board, president, and chief executive
Metro Center officer of General Host Corporation (nursery and craft
1 Station Place centers); and a director of RBC Holdings (U.S.A.) Inc.
Stamford, Connecticut (a bank holding company) and Bar-S Foods. Age 63.
Trustee

NICHOLAS F. BRADY* Chairman of Templeton Emerging Markets Investment Trust
102 East Dover Street PLC, Templeton Latin America Investment Trust PLC;
Easton, Maryland chairman of Darby Overseas Investments, Ltd. (an
Trustee investment firm)(1994-present); director of the Amerada
Hess Corporation, Capital Cities/ABC, Inc., Christiana
Companies, and the H.J. Heinz Company; Secretary of the
United States Department of the Treasury (1988-January
1993); and chairman of the board of Dillion, Read & Co.
Inc.(investment banking) prior thereto. Age 65.

<PAGE>

NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS

F. BRUCE CLARKE Retired; formerly, credit adviser for the Bank
19 Vista View Blvd. of Canada, Toronto. Age 86.
Thornhill, Ontario

Trustee

HASSO-G VON DIERGARDT-NAGLO Farmer; and president of Clairhaven Investments,
R.R. 3 Ltd. andother private investment companies.
Stouffville, Ontario Age 79.
Trustee

S. JOSEPH FORTUNATO Member of the law firm of Pitney, Hardin,
200 Campus Drive Kipp & Szuch; and a director of.
Florham Park, New Jersey General Host Corporation. Age 63
Trustee

ANDREW H. HINES, JR. Consultant for the Triangle Consulting Group;
150 2nd Avenue N. chairman of the board and chief executive officer
St. Petersburg, Florida of Florida Progress Corporation (1982-February
Trustee 1990)and director of various of its subsidiaries;
chairman and director of Precise Power
Corporation; executive-in-residence of Eckerd
College (1991-present); and a director of
Checkers Drive-In Restaurants, Inc. Age 72.

CHARLES B. JOHNSON* President and director of Franklin Resources, Inc.
777 Mariners Island Blvd. chairman of the board and director of Franklin
San Mateo, California Advisers, Inc. and Franklin Templeton
Chairman of the Board Distributors, Inc.; director of General Host
and Vice President Corporation (nursery and craft centers),and
Templeton Global Investors, Inc.; and officer and

director, trustee or managing general partner,
as the case may be, of most other subsidiaries of
Franklin Resources, Inc. Age 63.

BETTY P. KRAHMER Director or trustee of various civic associations;
2201 Kentmere Parkway formerly, economic analyst, U.S. Government.
Wilmington, Delaware Age 66.
Trustee

<PAGE>

NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS

GORDON S. MACKLIN Chairman of White River Corporation (information
8212 Burning Tree Road services); director of Fund America Enterprises
Bethesda, Maryland 20817 Holdings, Inc., Lockheed Martin Corporation, MCI
Trustee Communications Corporation, Fusion Systems
Corporation, Infovest Corporation, and Medimmune,
Inc.; formerly chairman of Hambrecht and Quist
Group; director, H&Q Healthcare Investors; and
president of the National Association of
Securities Dealers, Inc. Age 67.

FRED R. MILLSAPS Manager of personal investments (1978-present);
2665 NE 37th Drive chairman and chief executive office of Landmark
Fort Lauderdale, Florida Banking Corporation (1969-1978); financia vice
Trustee president of Florida Power and Light (1965-1969);
vice president of The Federal Reserve Bank of
Atlanta (1958-1965); director of various other
business and nonprofit organizations. Age 66.

CHARLES E. JOHNSON Senior vice president and director of Franklin
777 Mariners Island Blvd. Resources, Inc.; senior vice president of
San Mateo, California Franklin Templeton Distributors, Inc.; presiden and
President Director of Franklin Institutional Service Corp-
oration and Templeton Worldwide, Inc.; chairman
of the board of Templeton Investment Counsel,
Inc.; vice president and/or director, as the case
may be, for some of the subsidiaries of Franklin
Resources, Inc. Age 39.

MARK G. HOLOWESKO President and director of Templeton Global Advisors
Lyford Cay Limited; chief investment officer of the global
Nassau, Bahamas equity group for Templeton Worldwide, Inc.;
Vice President president or vice president of the Templeton Funds;
formerly, investment administrator with Roy West
Trust Corporation (Bahamas) Limited (1984-1985).
Age 36.

<PAGE>

NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS

MARTIN L. FLANAGAN Senior vice president, treasurer, and chief
777 Mariners Island Blvd. financial officer of Franklin Resources, Inc.;
San Mateo, California executive vice president and director of
Vice President Templeton Investment Counsel, Inc.; director,
president and chief executive officer of
Templeton Global Investors, Inc.; director or
trustee and president or vice president of
various Templeton Funds;
accountant with Arthur Andersen & Company
(1982-1983); and a member of the International
Society of Financial Analysts and the American
Institute of Certified Public Accountants. Age 35.

SAMUEL J. FORESTER, JR. President of the Templeton Global Bond Managers
500 E Broward Blvd. Division of Templeton Investment Counsel, Inc.;
Fort Lauderdale, Florida president or vice president of other Templeton
Vice President Funds; founder and partner of Forester, Hairston
Investment Management (1989-1990); managing
director (Mid-East Region) of Merrill Lynch,
Pierce, Fenner & Smith Inc. (1987-1988); and an
advisor for Saudi Arabian Monetary Agency
(1982-1987). Age 47.

JOHN R. KAY Vice president of the Templeton Funds; vice
500 E Broward Blvd. president and treasurer of Templeton Global
Fort Lauderdale, Florida Investors, Inc. and Templeton Worldwide, Inc.;
Vice President assistant vice president of President Franklin
Templeton Distributors, Inc.; formerly, vice
president and controller, the Keystone Group, Inc.
Age 55.

<PAGE>

NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS

THOMAS J. LATTA Vice president of the Templeton Global Bond Managers
500 East Broward Blvd. division of Templeton Investment Counsel, Inc.;
Fort Lauderdale, Florida vice president of various Templeton Funds; formerly,
Vice President portfolio President manager, Forester & Hairston
(1988-1991); investment adviser, Merrill Lynch,
Pierce, Fenner & Smith Incorporated (1981-1988).
Age 35.

RUPERT H. JOHNSON, JR. Executive vice president, secretary and director,
777 Mariners Island Blvd. Franklin Resources, Inc.; executive vice president
San Mateo, California and director, Franklin Templeton Distributors, Inc.;
Vice President executive vice president, Franklin Advisers, Inc.;
director, Franklin Templeton Investor Services, Inc.:
officer and/or director, as the case may be,of other
subsidiaries of Franklin Resources, Inc. Age 55.

HARMON E. BURNS Executive vice president, secretary and director,
777 Mariners Island Blvd. Franklin Resources, Inc.; executive vice president
San Mateo, California and director, Franklin Templeton Distributors, Inc.;
Vice President executive vice president, Franklin Advisers, Inc;
director, Franklin Templeton Investor Services,
Inc.; officer and/or director, as the case may be,
of other subsidiaries of Franklin Resources, Inc.
Age 51.

DEBORAH R. GATZEK Senior Vice President, Legal, Franklin Resources,
777 Mariners Island Blvd. Inc. and Franklin Templeton Distributors, Inc.;
San Mateo, California vice president, Franklin Advisers, Inc. Age 47.
Vice President

<PAGE>

NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH TRUST DURING PAST FIVE YEARS

THOMAS M. MISTELE Senior vice president of Templeton Global Investors,
700 Central Avenue Inc.; vice president of Franklin Templeton
St. Petersburg, Florida Distributors, Inc.; secretary of the Templeton ,
Secretary Funds; formerly attorney, Dechert Price & Rhoads
(1985-1988) and Freehill, Hollingdale & Page(1988);
and judicial clerk, U.S. District Court (Eastern
District of Virginia) (1984-1985). Age 42.

JAMES R. BAIO Certified public accountant; treasurer of the
500 East Broward Blvd. Templeton Funds; senior vice president of Templeton
Fort Lauderdale, Florida Worldwide, Inc., Templeton Global Investors, Inc.,
Treasurer and Templeton Funds Trust Company; formerly, senior
tax manager, Ernst & Young (certified public
accountants) (1977-1989). Age 41.

--------------------------------------------------
* THESE ARE TRUSTEES WHO ARE "INTERESTED PERSONS" OF THE TRUST AS THAT
TERM IS DEFINED IN THE 1940 ACT. MR. BRADY AND FRANKLIN RESOURCES, INC.
ARE LIMITED PARTNERS OF DARBY OVERSEAS PARTNERS, L.P. ("DARBY
OVERSEAS"). MR. BRADY ESTABLISHED DARBY OVERSEAS IN FEBRUARY, 1994,
AND IS CHAIRMAN AND A SHAREHOLDER OF THE CORPORATE GENERAL PARTNER OF
DARBY OVERSEAS.IN ADDITION,DARBY OVERSEAS AND TEMPLETON GLOBAL ADVISORS
LIMITED ARE LIMITED PARTNERS OF DARBY EMERGING MARKETS FUND, L.P.

There are no family relationships between any of the Trustees.

TRUSTEE COMPENSATION

All of the Trust's Officers and Trustees also hold positions with other
investment companies in the Franklin Templeton Group. No compensation is paid by
the Trust to any officer or trustee who is an officer, trustee or employee of
the Investment Managers or their affiliates. Each Templeton Fund pays its
independent directors and trustees and Mr. Brady an annual retainer and/or fees
for attendance at Board and Committee meetings, the amount of which is based on
the level of assets in each fund. Accordingly, the Trust currently pays the
independent Trustees and Mr. Brady an annual retainer of $6000.00 and a fee of
$500.00 per meeting attended of the Board and its Committees. The independent
Trustees and Mr. Brady are reimbursed for any expenses incurred in attending
meetings, paid pro rata by each Franklin Templeton Fund in which they serve. No
pension or retirement benefits are accrued as part of Trust expenses.
The following table shows the total compensation paid to the Trustees by
the Trust and by all investment companies in the Franklin Templeton Group:

<TABLE>
<CAPTION> NUMBER OF FRANKLIN TOTAL COMPENSATION FROM
AGGREGATE TEMPLETON FUND BOARDS ALL FUNDS IN FRANKLIN
COMPENSATION FROM ON WHICH TRUSTEE TEMPLETON GROUP*
THE TRUST* SERVES
NAME OF TRUSTEE
<S> <C> <C> <C>

Harris J. Ashton $7,350 56 $327,925
Nicholas F. Brady 7,350 24 98,225
F. Bruce Clarke 7,697 20 83,350
Hasso-G von Diergardt-Naglo 7,697 20 77,350
S. Joseph Fortunato 7,350 58 344,745
Andrew H. Hines, Jr. 8,027 24 106,325
Betty P. Krahmer 7,350 24 93,475
Gordon S. Macklin 7,680 53 321,525
Fred R. Millsaps 7,697 24 104,325

</TABLE>

* FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.

PRINCIPAL SHAREHOLDERS

Shares of the Fund are sold to and owned only by insurance company
separate accounts to serve as the investment vehicle for variable annuity and
life insurance contracts. As of March 18, 1996, there were 15,543,760 Shares of
Templeton Money Market Fund outstanding, of which no Shares were owned by the
Trustees and officers of the Trust; 3,019,923 Shares of Templeton Bond Fund
outstanding, of which no Shares were owned by the Trustees and officers of the
Trust; 27,074,495 Shares of Templeton Stock Fund outstanding, of which no Shares
were owned by the Trustees and officers of the Trust; 23,584,151 Shares of
Templeton Asset Allocation Fund outstanding, of which no Shares were owned by
the Trustees and officers of the Trust; and 27,604,099 Shares of Templeton
International Fund outstanding, of which no Shares were owned by the Trustees
and officers of the Trust. As of March 18, 1996, Phoenix Home Mutual Life
Insurance Company ("Phoenix Home Life") owned 100% of the outstanding Shares of
Templeton Money Market Fund, 59% of the outstanding Shares of Templeton Bond
Fund, 57% of the outstanding Shares of Templeton Stock Fund, 34% of the
outstanding Shares of Templeton Asset Allocation Fund, and 23% of the
outstanding Shares of Templeton International Fund As of March 18, 1996, The
Travelers Insurance Company ("The Travelers") owned 41% of the outstanding
Shares of Templeton Bond Fund, 43% of the outstanding Shares of Templeton Stock
Fund, and 40% of the outstanding Shares of Templeton Asset Allocation Fund. As
of March 18, 1996, the Variable Annuity Life Insurance Company ("VALIC") owned
26% of the outstanding shares of Templeton Asset Allocation Fund and 73% of
Templeton International Fund. However, Phoenix Home Life, The Travelers and
VALIC will exercise voting rights attributable to these Shares in accordance
with voting instructions received by owners of the contracts issued by Phoenix
Home Life, The Travelers, and VALIC. To this extent, Phoenix Home Life, The
Travelers and VALIC do not exercise control over the Trust by virtue of the
voting rights from their ownership of Trust Shares. To the knowledge of
management, as of March 18, 1996, no other person owned of record or
beneficially 5% or more of the Shares of any of the Funds.

INVESTMENT MANAGEMENT AND OTHER SERVICES

INVESTMENT MANAGEMENT AGREEMENTS. The Investment Manager of Templeton
Money Market Fund and Templeton Bond Fund is the Templeton Global Bond Managers
division ("TGBM") of Templeton Investment Counsel, Inc. ("TICI"), a Florida
corporation with offices in Fort Lauderdale, Florida. The Investment Manager of
Templeton Asset Allocation Fund, Templeton Stock Fund, and Templeton
International Fund is TICI. The Investment Manager of Templeton Developing
Markets Fund is Templeton Asset Management Ltd. ("Templeton Singapore"). The
Investment Management Agreements between TICI and TGBM and the Trust on behalf
of such Funds (the "Management Agreements"), dated October 30, 1992, and amended
and restated on February 25, 1994, were approved by the Shareholders of the
Funds on October 30, 1992, and were last approved by the Board of Trustees,
including a majority of the Trustees who were not parties to the Agreements or
interested persons of any such party, at a meeting held on February 23, 1996,
and will continue through April 30, 1997. The Investment Management Agreement
between Templeton Singapore and the Trust on behalf of Templeton Developing
Markets Fund, dated February 23, 1996, was approved by the sole shareholder of
the Fund on March 1, 1996 and by the Board of Trustees, including a majority of
the Trustees who were not parties to the Agreement or interested persons of any
such party, at a meeting held on February 23, 1996 and will continue in effect
through April 30, 1997. The Management Agreements will continue from year to
year thereafter subject to approval annually by the Board of Trustees or by vote
of a majority of the outstanding Shares of each Fund (as defined in the 1940
Act) and also, in either event, the approval of a majority of those Trustees who
are not parties to the Management Agreements or interested persons of any such
party in person at a meeting called for the purpose of voting on such approval.

The Investment Management Agreements require the Investment Managers to
manage the investment and reinvestment of each Fund's assets. The Investment
Managers are not required to furnish any personnel, overhead items or facilities
for the Funds, including daily pricing or trading desk facilities, although such
expenses are paid by investment advisers of some other investment companies.

The Management Agreements provide that the Investment Managers will
select brokers and dealers for execution of each Fund's portfolio transactions
consistent with the Fund's brokerage policies (see "Brokerage Allocation").
Although the services provided by broker-dealers in accordance with the
brokerage policies incidentally may help reduce the expenses of or otherwise
benefit the Investment Managers and other investment management clients of the
Investment Managers and of their affiliates, as well as the Funds, the value of
such services is indeterminable and the Investment Managers' fee is not reduced
by any offset arrangement by reason thereof.

Under the Management Agreements, the Investment Managers are permitted to
provide investment advisory services to other clients, including clients which
may invest in the same types of securities as the Funds and, in providing such
services, the Investment Managers may use information furnished by others.
Conversely, information furnished by others to the Investment Managers in
providing services to other clients may be useful to the Investment Managers in
providing services to the Funds. When an Investment Manager determines to buy or
sell the same security for a Fund that the Investment Manager or certain of its
affiliates have selected for one or more of the Investment Manager's other
clients or for clients of its affiliates, the orders for all such securities
trades may be placed for execution by methods determined by the Investment
Manager, with approval by the Board of Trustees, to be impartial and fair, in
order to seek good results for all parties. Records of securities transactions
of persons who know when orders are placed by a Fund are available for
inspection at least four times annually by the compliance officer of the Trust
so that the non-interested Trustees (as defined in the 1940 Act) can be
satisfied that the procedures are generally fair and equitable to all parties.

The Investment Managers also provide management services to numerous
other investment companies or funds and accounts pursuant to management
agreements with each fund or account. The Investment Managers may give advice
and take action with respect to any of the other funds and accounts they manage,
or for their own accounts, which may differ from the action taken by an
Investment Manager on behalf of a Fund. Similarly, with respect to a Fund, an
Investment Manager is not obligated to recommend, purchase or sell, or to
refrain from recommending, purchasing or selling any security that the
Investment Manager and access persons, as defined by the 1940 Act, may purchase
or sell for its or their own account or for the accounts of any other fund or
accounts. Furthermore, the Investment Managers are not obligated to refrain from
investing in securities held by a Fund or other funds which they manage or
administer. Any transactions for the accounts of the Investment Managers and
other access persons will be made in compliance with the Trust's Code of Ethics
as described in the section "Trading Policies - Personal Securities
Transactions."

The Management Agreements provide that the Investment Managers shall have
no liability to the Trust, a Fund or any Shareholder of a Fund for any error of
judgment, mistake of law, or any loss arising out of any investment or other act
or omission in the performance by the Investment Manager of its duties under the
Management Agreement, or for any loss or damage resulting from the imposition by
any government of exchange control restrictions which might affect the liquidity
of a Fund's assets, or from acts or omissions of custodians or securities
depositories, or from any wars or political acts of any foreign governments to
which such assets might be exposed, except any liability resulting from willful
misfeasance, bad faith or gross negligence on the Investment Manager's part, or
reckless disregard of its duties under the Management Agreement. The Management
Agreements will terminate automatically in the event of their assignment, and
may be terminated by the Trust on behalf of a Fund at any time without payment
of any penalty on 60 days' written notice, with the approval of a majority of
the Trustees in office at the time or by vote of a majority of the outstanding
voting securities of that Fund (as defined by the 1940 Act).

MANAGEMENT FEES. For its services, Templeton Money Market Fund pays its
Investment Manager a monthly fee equal on an annual basis to 0.35% of its
average daily net assets up to $200 million, reduced to 0.30% of such net assets
from $200 million up to $1,300 million and further reduced to 0.25% of such net
assets in excess of $1,300 million. Templeton Bond, Stock, Asset Allocation and
International Funds each pay their Investment Manager a monthly fee equal on an
annual basis to 0.50% of its average daily net assets up to $200 million,
reduced to 0.45% of such net assets from $200 million up to $1,300 million and
further reduced to 0.40% of such net assets in excess of $1,300 million.
Templeton Developing Markets Fund pays its Investment Manager a monthly fee
equal on an annual basis to 1.25% of its average daily net assets. During the
fiscal years ended December 31, 1995, 1994 and 1993, the Funds paid the
following investment management fees:

<PAGE>

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Templeton Money Market Fund $74,375 $88,106 $55,445
Templeton Bond Fund $156,062 $149,843 $111,575
Templeton Stock Fund $2,102,259 $1,686,602 $1,089,643
Templeton Asset Allocation Fund $1,662,023 $1,186,540 $608,471
Templeton International Fund $1,222,834 $404,532 $95,518

</TABLE>
The Investment Managers may determine in advance to limit the management
fees or to assume responsibility for the payment of certain operating expenses
relating to the operation of any Fund, which may have the effect of decreasing
the total expenses and increasing the total return of such Fund. Any such action
is voluntary and may be terminated by the Investment Managers at any time unless
otherwise indicated. Templeton Singapore, the Investment Manager of Templeton
Developing Markets Fund, has agreed in advance to reduce its fee to the extent
necessary to limit the total expenses (excluding interest, taxes, brokerage
commissions, and extraordinary expenses) of such Fund to an annual rate of 1.70%
of the Fund's average daily net assets until May 1, 1997. If such fee reduction
is insufficient to limit such Fund's total expenses to 1.70% of average daily
net assets, the Fund's Business Manager has agreed to reduce its fee and, to the
extent necessary, assume other Fund expenses, so as to so limit the Fund's total
expenses.

THE INVESTMENT MANAGERS. The Investment Managers are indirect wholly
owned subsidiaries of Franklin, a publicly traded company whose shares are
listed on the NYSE. Charles B. Johnson (a Trustee and Vice President of the
Trust) and Rupert H.Johnson, Jr. are principal shareholders of Franklin and
own, respectively, approximately 20% and 16% of its outstanding shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

BUSINESS MANAGER. Templeton Funds Annuity Company performs certain
administrative functions as Business Manager for the Trust, including:

providing office space, telephone, office equipment and supplies
for the Trust;

paying compensation of the Trust's officers for
services rendered as such; authorizing expenditures and approving
bills for payment on behalf of the Trust;

supervising preparation of annual and semi-annual reports,
notices of dividends, capital gains distributions and tax credits;

daily pricing of the Funds' investment portfolios and supervising
publication of daily quotations of the bid and asked prices of the
Funds' Shares, earnings reports and other financial data;

providing trading desk facilities for the Funds;

monitoring relationships with organizations serving the Trust,
including the Custodian and printers;

supervising compliance by the Trust with recordkeeping
requirements under the 1940 Act and regulations thereunder, with
state regulatory requirements, maintaining books and records for
the Trust (other than those maintained by the Custodian and
Transfer Agent), and filing of tax reports on behalf of the Trust
other than the Trust's income tax returns; and

providing executive, clerical and secretarial help needed to
carry out these responsibilities.

For its services, the Business Manager receives a monthly fee equal on an
annual basis to 0.15% of the combined average daily net assets of the Funds,
reduced to 0.135% of the Funds' aggregate net assets in excess of $200 million,
further reduced to 0.10% annually of such net assets in excess of $700 million
and further reduced to 0.075% annually of such net assets in excess of $1,200
million. The fee is allocated among the Funds according to their respective
average daily net assets. Since the Business Manager's fee covers services often
provided by investment advisers to other funds, the Funds' combined expenses for
management and administrative services together may be higher than those of some
other investment companies. During the fiscal years ended December 31, 1995,
1994, and 1993, the Business Manager received fees of $1,380,760, $1,006,867 and
$568,481, respectively.

The Business Manager is relieved of liability to the Trust for any act or
omission in the course of its performance under the Business Management
Agreement, in the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of its obligations and duties under the Agreement. The
Business Management Agreement may be terminated by a Fund at any time on 60
days' written notice without payment of penalty, provided that such termination
shall be directed or approved by vote of a majority of the Trustees of the Trust
in office at the time or by vote of a majority of the outstanding voting
securities of that Fund, and shall terminate automatically and immediately in
the event of its assignment.

Templeton Funds Annuity Company is an indirect wholly-owned subsidiary of
Franklin.

CUSTODIAN. The Chase Manhattan Bank, N.A. serves as Custodian of the
Trust's assets, which are maintained at the Custodian's principal office,
MetroTech Center, Brooklyn, New York, New York 11245 and at the offices of its
branches and agencies throughout the world. The Custodian has entered into
agreements with foreign sub-custodians approved by the Trustees pursuant to Rule
17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians,
generally domestically and frequently abroad, do not actually hold certificates
for the securities in their custody, but instead have book records with domestic
and foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities. Compensation for the services
of the Custodian is based on a schedule of charges agreed on from time to time.

LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Trust.

INDEPENDENT ACCOUNTANTS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New
York, New York 10017, serves as independent accountants for the Trust. Its audit
services comprise examination of the Trust's financial statements, review of the
Trust's filings with the Securities and Exchange Commission ("SEC") and
preparation of the Trust's federal and state corporation tax returns.

REPORTS TO SHAREHOLDERS. The Trust's fiscal year ends on December 31.
Shareholders are provided at least semiannually with reports showing the Funds'
portfolios and other information, including an annual report with financial
statements audited by independent accountants. Shareholders who would like to
receive an interim quarterly report may phone the Fund Information Department at
1-800/DIAL BEN.

BROKERAGE ALLOCATION

The Management Agreements provide that the Investment Managers are
responsible for selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to as "brokers")
for the execution of a Fund's portfolio transactions, and, when applicable, the
negotiation of commissions in connection therewith. All recommendations,
decisions and placements are made in accordance with the following principles:

1. Purchase and sale orders are usually placed with brokers
who are selected by an Investment Manager as able to achieve
"best execution" of such orders. "Best execution" means
prompt and reliable execution at the most favorable
securities price, taking into account the other provisions
hereinafter set forth. The determination of what may
constitute best execution and price in the execution of a
securities transaction by a broker involves a number of
considerations, including, without limitation, the overall
direct net economic result to a Fund (involving both price
paid or received and any commissions and other costs paid),
the efficiency with which the transaction is effected, the
ability to effect the transaction at all where a large block
is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future,
and the financial strength and stability of the broker.
Such considerations are judgmental and are weighed by an
Investment Manager in determining the overall reasonableness
of brokerage commissions.

2. In selecting brokers for portfolio transactions, the
Investment Managers take into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by a
Fund.

3. The Investment Managers are authorized to allocate brokerage
business to brokers who have provided brokerage and research
services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act"), for a Fund
and/or other accounts, if any, for which an Investment Manager
exercises investment discretion (as defined in Section 3(a)
(35) of the 1934 Act) and, as to transactions as to which
fixed minimum commission rates are not applicable, to
cause a Fund to pay a commission for effecting a securities
transaction in excess of the amount another broker would have
charged for effecting that transaction, if an Investment
Manager in making the selection in question determines in
good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either
that particular transaction or the Investment Manager's
overall responsibilities with respect to the Fund and the
other accounts, if any, as to which it exercises investment
discretion. In reaching such determination, anInvestment
Manager is not required to place or to attempt to place a
pecific dollar value on the research or execution services of
a broker or on the portion of any commission reflecting
either of said services. In demonstrating that such
determinations were made in good faith, the Investment Manager
shall be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Trust's brokerage
policy; that the research services provide lawful and
appropriate assistance to an Investment Manager in the per-
formance of its investment decision-making responsibilities;
and that the commissions paid were within a reasonable
range. The determination that commissions were within a
reasonable range shall be based on any available information
as to the level of commissions known to be charged by other
brokers on comparable transactions, but there shall be taken
into account the Trust's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually it is
more beneficial to a Fund to obtain a favorable price
than to pay the lowest commission and (ii) the quality,
comprehensiveness and frequency of research studies which are
provided for an Investment Manager are useful to the
Investment Manager in performing its management services under
its Management Agreement with the Trust. Research services
provided by brokers to an Investment Manager are considered
to be in addition to, and not in lieu of, services required to
be performed by the Investment Manager under its Management
Agreement with the Trust. Research furnished by brokers
through whom a Fund effects securities transactions may be
used by an Investment Manager for any of its accounts, and
not all such research may be used by the Investment Manager
for that Fund. When execution of portfolio transactions is
allocated to brokers trading on exchanges with fixed
brokerage commission rates, account may be taken of various
services provided by the broker, including quotations outside
the United States for daily pricing of foreign securities
held in a Fund's portfolio.

4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange are executed with
primary market makers acting as principal, except where, in
the judgement of an Investment Manager, better prices and
execution may be obtained on a commission basis or from other
sources.

5. Sales of shares of investment companies registered under the
1940 Act which have either the same investment adviser, or an
investment adviser affiliated with an Investment Manager, made
by a broker is one factor among others to be taken into
account in deciding to allocate portfolio transactions
(including agency transactions, principal transactions,
purchases in underwritings or tenders in response to tender
offers) for the account of a Fund to that broker; provided
that the broker shall furnish "best execution," as defined
in paragraph 1 above, and that such allocation shall be
within the scope of the Fund's other policies as stated
above; and provided further, that in every allocation made
to abroker in which such sale of shares is taken into account
there shall be no increase in the amount of the commissions
or other compensation paid to such broker beyond a reasonable
commission or other compensation determined, as set forth in
paragraph 3 above, on the basis of best execution alone
or best execution plus research services, without taking
account of or placing any value upon such sale of shares.

Insofar as known to management, no Trustee or officer of the Trust, nor
the Investment Manager or Principal Underwriter or any person affiliated with
any of them, has any material direct or indirect interest in any broker employed
by or on behalf of the Trust. Franklin Templeton Distributors, Inc., the Trust's
Principal Underwriter, is a registered broker-dealer, but it has never executed
any purchase or sale transactions for the Funds' portfolios or participated in
any commissions on any such transactions, and has no intention of doing so in
the future. The total brokerage commissions on the Trust's portfolio
transactions (not including any spreads or concessions on principal
transactions) during the fiscal years ended December 31, 1995, 1994, and 1993
were $1,525,000,$672,000 and $340,552, respectively. All portfolio transactions
are allocated to broker-dealers only when their prices and execution, in the
good faith judgment of management, are equal to the best available within the
scope of the Trust's policies. There is no fixed method used in determining
which broker-dealers receive which order or how many orders.

PORTFOLIO TURNOVER. For reporting purposes, each Fund's portfolio
turnover rate is calculated by dividing the value of the lesser of purchases or
sales of portfolio securities for the fiscal year by the monthly average of the
value of the portfolio securities owned by the Fund during the fiscal year. In
determining such portfolio turnover, short-term U.S. Government securities and
all other securities whose maturities at the time of acquisition were one year
or less are excluded. A 100% portfolio turnover rate would occur, for example,
if all of the securities in the portfolio (other than short-term securities)
were replaced once during the fiscal year. The portfolio turnover rate for each
of the Funds will vary from year to year, depending on market conditions.

It is anticipated that the rate of portfolio turnover as defined above
for Templeton Stock, Asset Allocation, International and Developing Markets
Funds will be less than 50%, and for Templeton Bond Fund, less than 100%, under
normal market conditions. Portfolio turnover could be greater in periods of
unusual market movement and volatility. Templeton Bond Fund's portfolio turnover
rates for the fiscal years ended December 31, 1995 and 1994 were 188.11% and
203.91%, respectively. These rates exceed the anticipated portfolio turnover
rate for Templeton Bond Fund as a result of changing interest rates and currency
exposure considerations.

PURCHASE, REDEMPTION AND PRICING OF SHARES

The Prospectus describes the manner in which a Fund's Shares may be
purchased and redeemed. See "How to Buy Shares of the Funds" and "How to Sell
Shares of the Funds."

Net asset value per Share is calculated separately for each Fund. Net
asset value per Share is determined as of the scheduled closing time of the NYSE
(generally 4:00 p.m., New York time) every Monday through Friday (exclusive of
national business holidays). The Trust's offices will be closed, and net asset
value will not be calculated, on those days on which the NYSE is closed, which
currently are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Templeton Money Market Fund uses the amortized cost method to determine
the value of its portfolio securities pursuant to Rule 2a-7 under the 1940 Act.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
which Templeton Money Market Fund would receive if the security were sold.
During these periods the yield to a shareholder may differ somewhat from that
which could be obtained from a similar fund which utilizes a method of valuation
based upon market prices. Thus, during periods of declining interest rates, if
the use of the amortized cost method resulted in a lower value of the Fund's
portfolio on a particular day, a prospective investor in the Fund would be able
to obtain a somewhat higher yield than would result from investment in a fund
utilizing solely market values, and existing Shareholders would receive
corresponding less income. The converse would apply during periods of rising
interest rates.

In accordance with Rule 2a-7, the Fund is required to (i) maintain a
dollar-weighted average portfolio maturity of 90 days or less; (ii) purchase
only instruments having remaining maturities of 397 days or less; and (iii)
invest only in U.S. dollar denominated securities determined in accordance with
procedures established by the Board of Trustees to present minimal credit risks
and which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations (or one rating organization if the instrument was rated by only
one such organization, subject to ratification of the investment by the Board of
Trustees). If a security is unrated, it must be of comparable quality as
determined in accordance with procedures established by the Board of Trustees,
including approval or ratification of the security by the Board except in the
case of U.S. Government securities. Pursuant to the Rule, the Board is required
to establish procedures designed to stabilize, to the extent reasonably
possible, the Fund's price per Share as computed for the purpose of sales and
redemptions at $1.00. Such procedures will include review of the Fund's
portfolio holdings by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per Share based on amortized
cost. The extent of any deviation will be examined by the Board of Trustees. If
such deviation exceeds 1/2 of 1%, the Board will promptly consider what action,
if any, will be initiated. In the event the Board determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing Shareholders, the Board will take such corrective action
as it regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per Share by using available market quotations.

The Board of Trustees may establish procedures under which a Fund may
suspend the determination of net asset value for the whole or any part of any
period during which (1) the NYSE is closed other than for customary weekend and
holiday closings, (2) trading on the NYSE is restricted, (3) an emergency
exists, as determined by the SEC, as a result of which disposal of securities
owned by the Fund is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (4)
for such other period as the SEC may by order permit for the protection of the
holders of a Fund's Shares.

REDEMPTIONS IN KIND. Redemption proceeds are normally paid in cash;
however each Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash, in conformity with rules of the SEC. In such circumstances, the securities
distributed would be valued at the price used to compute the Fund's net asset
value. If Shares are redeemed in kind, the redeeming Shareholder might incur
brokerage costs in converting the assets into cash. Each Fund is obligated to
redeem Shares solely in cash up to the lesser of $250,000 or 1% of its net
assets during any 90-day period for any one Shareholder.

<PAGE>

TAX STATUS

Templeton Money Market Fund intends to declare dividends daily and to pay
dividends monthly. Templeton Stock, Bond, Asset Allocation, Developing Markets
and International Funds normally intend to pay an annual dividend representing
substantially all of their net investment income and to distribute annually any
net realized capital gains. By so doing and meeting certain diversification of
assets and other requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), and as described in the Prospectus, each Fund intends to qualify
as a regulated investment company under the Code. The status of the Funds as
regulated investment companies does not involve government supervision or
management of their investment practices or policies. As a regulated investment
company, each Fund will be relieved of liability for United States federal
income tax on that portion of its net investment income and net realized capital
gains which it distributes to its Separate Account Shareholders.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are also subject to a nondeductible 4% excise tax
unless the exception described below applies. To avoid the tax if it otherwise
applies, a Fund must distribute during each calendar year, (i) at least 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (ii) at least 98% of its capital gains in excess of its
capital losses for the twelve-month period ending on October 31 of the calendar
year (adjusted for certain ordinary losses), and (iii) all ordinary income and
capital gains for previous years that were not distributed during such years. To
avoid application of the excise tax, each Fund intends to make its distributions
in accordance with the calendar year distribution requirement. A distribution
will be treated as paid on December 31 of the calendar if it is declared by a
Fund during October, November, or December of that year to Shareholders of
record on a date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will be taxable to Shareholders (a
Separate Account) in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. The
excise tax provisions described above will not apply in a given calendar year to
a Fund if all of its shareholders at all times during the calendar year are
segregated asset accounts of life insurance companies where the shares are held
in connection with variable contracts. (For this purpose, any shares of a
regulated investment company attributable to an investment not exceeding
$250,000 made in connection with the organization of the company is not taken
into account.) Accordingly, if this condition regarding the ownership of Shares
of each of the Funds is met, the excise tax will be inapplicable to that Fund
even if the calendar year distribution requirement is not met.

The Funds may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, the Fund itself may be subject to tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to Shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which a Fund held the PFIC shares. A Fund itself will be subject to tax
on the portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Certain distributions from a
PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.

The Funds may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election may be available
that would involve marking to market the Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized. If this
election were made, tax at the Fund level under the PFIC rules would generally
be eliminated, but the Fund could, in limited circumstances, incur nondeductible
interest charges. The Fund's intention to qualify annually as a regulated
investment company may limit its elections with respect to PFIC shares.

Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject a Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.

Income received by a Fund from sources within a foreign country may be
subject to withholding taxes and other taxes imposed by that country. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time that Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain financial contracts and forward contracts, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of a Fund's net investment income to be distributed to its Shareholders as
ordinary income.

Debt securities purchased by a Fund may be treated for federal income tax
purposes as having original issue discount. Original issue discount essentially
represents interest for federal income tax purposes and can be defined generally
as the excess of the stated redemption price at maturity over the issue price.
Original issue discount, whether or not any income is actually received by a
Fund, is treated for U.S. federal income tax purposes as ordinary income earned
by the Fund, and therefore is subject to the distribution requirements of the
Code. Generally, the amount of original issue discount included in the income of
a Fund each year is determined on the basis of a constant yield to maturity
which takes into account the compounding of accrued but unpaid interest.

Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semiannual compounding of interest.

Certain options, futures contracts and forward contracts in which the
Templeton Stock, Bond, Asset Allocation, Developing Markets and International
Funds may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60-40"), except for certain foreign currency gains and losses
which will be treated as ordinary in character. Also, section 1256 contracts
held by a Fund at the end of each taxable year (and, in some cases, for purposes
of the 4% excise tax, on October 31 of each year) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.

The hedging transactions undertaken by certain of the Funds may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to the Funds of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by the Funds which is taxed as ordinary income when distributed to Shareholders.

Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.

The requirements under the Code relating to the qualification of a Fund
as a regulated investment company may limit the extent to which a Fund may
engage in futures and forward currency contracts.

Distributions of any net investment income and of any net realized short
term capital gains are treated as ordinary income for tax purposes in the hands
of the Separate Account Shareholder. The excess of any net long-term capital
gains over net short-term capital losses will, to the extent distributed and
designated by the distributing Fund as a capital gain dividend, be treated as
long-term capital gains in the hands of the Shareholder regardless of the length
of time a Separate Account may have held the Shares.

Reference is made to the Prospectus for the applicable Contract for
information regarding the federal income tax treatment of distributions to
owners of contracts.

DESCRIPTION OF SHARES

The Shares of each Fund have the same preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications, and terms and conditions of redemption, except as follows: all
consideration received from the sale of Shares of a Fund, together with all
income, earnings, profits and proceeds thereof, belongs to that Fund and is
charged with liabilities in respect to that Fund and of that Fund's part of
general liabilities of the Trust in the proportion that the total net assets of
the Fund bear to the total net assets of all Funds. The net asset value of a
Share of a Fund is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on Shares of a Fund
only out of lawfully available assets belonging to that Fund. In the event of
liquidation or dissolution of the Trust, the Shareholders of each Fund will be
entitled, out of assets of the Fund available for distributions, to the assets
belonging to that particular Fund.

Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which, under the
terms of the Declaration of Trust, are binding only on the property of the
Trust, which, under the terms of the Declaration of Trust, are binding only on
the property of the Trust. The Declaration of the Trust provides for
indemnification out of Trust property for all loss and expense of any
Shareholder held personally liable for the obligations of the Trust. The risk of
a Shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations and, thus, should be considered remote.

YIELD AND PERFORMANCE INFORMATION

The Trust may, from time to time, include the yield and effective yield
of Templeton Money Market Fund or the total return of all Funds in
advertisements or reports to Shareholders or prospective investors. Performance
information for the Funds will not be advertised unless accompanied by
comparable performance information for a separate account to which the Funds
offer their Shares.

Current yield for Templeton Money Market Fund will be based on the change
in the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day period, less a pro-rata share of Templeton Money Market
Fund expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective Yield" for Templeton Money Market Fund assumes that all
dividends received during an annual period have been reinvested. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:

EFFECTIVE YIELD = (1 + Base Period Return) 365/7 - 1

YIELD = 2[(1 + A-B)6 - 1]
cd

WHERE a = dividend and interest earned during the period,

b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Shares outstanding during the
period that were entitled to receive dividends, and

d = the maximum offering price per Share on the last day of the
period.

For the seven-day period ending December 31, 1995, the 7-day annualized
yield of Money Market Fund was 5.29% and the effective yield of Money Market
Fund was 5.36%.

Quotations of average annual total return for the Funds will be expressed
in terms of the average annual compounded rate of return for periods in excess
of one year or the total return for periods less than one year of a hypothetical
investment in the Funds over periods of one, five, or ten years (up to the life
of a Fund) calculated pursuant to the following formula: P(1 + T)n = ERV (where
P = a hypothetical initial payment of $1,000, T = the average annual total
return for periods of one year or more or the total return for periods of less
than one year, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of the maximum initial sales charge and
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. The
following table shows the average annual total returns for each Fund for the
periods indicated:

FUND 1 YEAR PERIOD(1) 5 YEAR PERIOD(1) SINCE INCEPTION
- ---- ------------- ------------- ---------------
<S> <C> <C> <C>
Money Market Fund 5.35% 3.98% 5.03%(2)
Bond Fund 14.92% 8.30% 7.81%(2)
Stock Fund 25.24% 17.48% 12.31%(2)
Asset Allocation Fund 22.48% 15.66% 11.44%(2)
International Fund 15.78% 13.00%(3)

</TABLE>
- --------------------------------------

(1) For period ended December 31, 1995
(2) Since inception on August 31, 1988
(3) Since inception on May 1, 1992

Performance information for a Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in a Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.

Quotations of yield or total return for a Fund will not take into account
charges and deductions against any separate account to which the Funds' Shares
are sold or charges and deductions against variable insurance contracts,
although comparable performance information for a separate account will take
such charges into account. Performance information for a Fund reflects only the
performance of a hypothetical investment in a Fund during the particular time
period on which the calculations are based. Performance information should be
considered in light of a Fund's investment objective and policies,
characteristics and quality of the portfolio and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.

From time to time, each Fund and the Investment Managers may also refer
to the following information:

(1) The Investment Managers' and their affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.

(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.

(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a
similar financial organization.

(4) The geographic distribution of the Fund's portfolio and the
Fund's top ten holdings.

(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements
due to a liberalization of securities laws and a reduction of
foreign exchange controls, and improving communication
technology, of various countries as published by various
statistical organizations.

(6) To assist investors in understanding the different returns and
risk characteristics of various investments, the Fund may show
historical returns of various investments and published indices
(E.G., Ibbotson Associates, Inc. Charts and Morgan Stanley EAFE
- Index).

(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.

(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.

(9) Allegorical stories illustrating the importance of persistent
long-term investing.

(10) The Fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services,
Inc. or Morningstar, Inc.

(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or other
securities.

(12) The number of Shareholders in the Fund or the aggregate number
of shareholders of the Franklin Templeton Funds or the dollar
amount of fund and private account assets under management in
advertising materials.

(13) Quotations from the Templeton organization's founder, Sir John
Templeton,** advocating the virtues of diversification and
long-term investing, including the following:

o "Never follow the crowd. Superior performance
is possible only if you invest differently from
the crowd."

o "Diversify by company, by industry and by country."

o "Always maintain a long-term perspective."

o "Invest for maximum total real return."

o "Invest - don't trade or speculate."

o "Remain flexible and open-minded about types of
investment."

o "Buy low."

o "When buying stocks, search for bargains among
quality stocks."

o "Buy value, not market trends or the economic
outlook."

o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."

o "Do your homework or hire wise experts to help you."

o "Aggressively monitor your investments."

o "Don't panic."

o "Learn from your mistakes."

o "Outperforming the market is a difficult task."

o "An investor who has all the answers doesn't even
understand all the questions."

o "There's no free lunch."

o "And now the last principle: Do not be fearful or
negative too often."

FINANCIAL STATEMENTS

The financial statements contained in the Trust's Annual Report to
Shareholders dated December 31, 1995 are incorporated herein by reference.

<PAGE>

APPENDIX

DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE

Aaa: Bonds which are rated Aaa by Moody's Investors Service Inc.
("Moody's") are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with a Aaa group, they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat greater than the Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered as medium-grade
obligations, (I.E., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, thereby, not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the security over any long period of time may
be small.

Caa: Bonds which are rated Caa are of poor standing. Such
securities may be in default or there may be present elements of danger with
respect to principal or interest.

Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds are
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Absence of Rating: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the quality
of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are
not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
ratings classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.

STANDARD & POOR'S CORPORATION

AAA: Debt rated "AAA" by Standard & Poor's Corporation ("S&P") has
the highest rating assigned by S&P. Capacity to pay interest and repay principal
is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in a small degree.

A: Debt rated "A" has a very strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the highest rated
categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC, C: Debt rated "BBB", "B", "CCC", "CC" and
"C" are regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
this obligation. "BB" indicates that the lowest degree of speculation and "C"
the highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

BB: Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

B: Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.

CCC: Debt rated "CCC" has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have to capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.

CC: The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.

C: The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

CI: The rating "CI" is reserved for income bonds on which no
interest is being paid.

D: Debt rated "D" is in payment default. The "D" rating is used when
interest payments are not made on the date due even if the applicable grace
periods has not expired, unless S&P believe that such payments will be made
during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

DESCRIPTION OF PREFERRED STOCK RATINGS
MOODY'S INVESTORS SERVICE

aaa: considered to be a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stocks.

aa: considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

a: considered to be an upper-medium-grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classifications, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.

baa: considered to be medium-grade, neither highly protected nor
poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.

ba: considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be
very moderate and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.

b: generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms of the issue
over any long period of time may be small.

caa: likely to be in arrears on dividend payments. This rating
designation does not purport to indicate the future status of payments.

ca: speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.

c: lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.

STANDARD & POOR'S CORPORATION

"AAA": This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.

"AA": A preferred stock issue rated "AA" also qualifies as a
high-quality fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues
rated "AAA."
"A": An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.

"BBB": An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for preferred stock
in this category than for issues in the "A" category.

"BB", "B", "CCC": Preferred stock rated "BB", "B", and "CCC" are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

"CC": The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is currently paying.

"C": The preferred stock rated "C" is a non-paying issue.

"D": A preferred stock rated "D" is a non-paying issue with the issuer
in default on debt instruments.

NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Plus (+) or Minus(-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.

DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE

The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months.

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:

Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.

- Well-established ccess to a range of financial markets and
assured sources of alternate liquidity.

Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated PRIME-3 (or supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

STANDARD & POOR'S CORPORATION

S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories ranging from "A" for the highest quality
obligations to "D" for the lowest. The four categories are as follows:

A: Commercial paper rated "A" is regarded as having the
greatest capacity for timely payment. Issues in this
category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety.

A-1: Commercial paper rated "A-1" is regarded as having a very strong
degree of safety regarding timely payment. A "+" designation is
applied to those issues rated "A-1" which possess an
overwhelming degree of safety.

A-2: Commercial paper rated "A-2" is regarded as having a strong
capacity for timely payment; however, the relative degree of
safety is not as high as for issues designated "A-1".

A-3: Commercial paper rated "A-3" is regarded as having a
satisfactory capacity for timely payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B: Commercial paper rated "B" is regarded as having only an
adequate capacity for timely payment and such capacity may be
damaged by changing conditions or short-term adversities.

C: Commercial paper rated "C" is regarded as having a doubtful
capacity for repayment.

D: Commercial paper rated "D" is for a payment default. The "D"
rating is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period.

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS

Part A: (for Templeton Money Market Fund, Templeton Bond Fund,
Templeton Stock Fund, Templeton Asset Allocation Fund and
Templeton International Fund):

(1) Financial Highlights

Part A: (for Templeton Developing Markets Fund):

(1) Financial Highlights not applicable because Templeton
Developing Markets Fund had not commenced operations
as of December 31, 1995.
Part B:

Audited financial statements dated December 31, 1995 are
incorporated by reference from the Trust's Annual Report dated
as of December 31, 1995. Information is not included for
Templeton Developing Markets Fund because it had not commenced
operations as of December 31, 1995.

Audited financial statements incorporated herein by reference
include:

(1) Report of Independent Certified Public Accountants

(2) Statement of Assets and Liabilities as of December
31, 1995

(3) Statement of Operations for fiscal period ended
December 31, 1995

(4) Statement of Changes in Net Assets

(5) Investment Portfolio as of December 31, 1995

(6) Notes to Financial Statements

(b) EXHIBITS

(1) Declaration of Trust2

(2) By-Laws1

(3) N/A

(4) N/A

(5) (a) Amended and Restated Investment Management
Agreement for Templeton Stock Fund,
Templeton International Fund and Templeton
Asset Allocation Fund3

(b) Amended and Restated Investment Management
Agreement for Templeton Money
Market Fund and Templeton Bond Fund 2

(6) Amended and Restated Distribution Agreement5

(7) N/A

(8) Amended and Restated Custodian Agreement4

(9) Form of Amended and Restated Business Management
Agreement3

(10) Opinion and consent of counsel - filed with Rule
24f-2 Notice on February 28, 1996

(11) Consent of independent certified public accountants

(12) N/A

(13) Letter concerning initial capital6

(14) N/A

(15) N/A

(16) Previously filed with Post-Effective Amendment No. 9
to Registration Statement filed
on April 27, 1995.

<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

As of March 18, 1996, Phoenix Home Life Mutual Insurance
Company, a Connecticut corporation ("Phoenix Home Life"), on
its own behalf and on behalf of its Phoenix Variable
Accumulation Account, owned of record 57% of the outstanding
shares of Templeton Stock Fund, 34% of the outstanding shares
of Templeton Asset Allocation Fund, 59% of the outstanding
shares of Templeton Bond Fund, 100% of the outstanding shares
of Templeton Money Market Fund and 23% of the outstanding
shares of Templeton International Fund. As of March 18, 1996,
The Travelers Insurance Company ("The Travelers"), on behalf
of The Travelers Fund U for Variable Annuities, owned of
record 43% of the outstanding shares of Templeton Stock Fund,
40% of the outstanding shares of Templeton Asset Allocation
Fund, and 41% of the outstanding shares of Templeton Bond
Fund. As of March 18, 1996, The Variable Life Insurance
company ("VALIC"), a Texas Corporation, on behalf of The
Variable Life Insurance Company Separate Account A, owned of
record 27% of the outstanding shares of Templeton Asset
Allocation Fund and 73% of Templeton International Fund.
Phoenix Home Life, The Travelers and VALIC, (the
"Participating Insurance Companies") will vote shares in
accordance with the voting instructions of holders of variable
annuity contracts issued by the Participating Companies for
which the Registrant serves as the investment vehicle.

ITEM 26. NUMBER OF RECORD HOLDERS
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF MARCH 18, 1996
-------------- --------------------

Templeton Stock Fund 2
Templeton Bond Fund 2
Templeton Asset Allocation Fund 3
Templeton Money Market Fund 1
Templeton International Fund 5
Templeton Developing Markets Fund 1

ITEM 27. INDEMNIFICATION

Reference is made to Article IV of the Registrant's
Declaration of Trust, which is incorporated herein by
reference.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers
or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling persons in
connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND ITS OFFICERS
AND DIRECTORS

The business and other connections of Registrant's Investment
Managers are described in Part B of this Registration
Statement.

For information relating to the Investment Managers' officers
and directors, reference is made to Forms ADV filed under the
Investment Advisers Act of 1940 by Templeton Investment
Counsel, Inc. and Templeton Asset Management Ltd.

ITEM 29. PRINCIPAL UNDERWRITERS

Franklin Templeton Distributors, Inc. also acts as principal
underwriter of shares of the following investment companies:

AGE High Income Fund, Inc.
Franklin Balance Sheet Investment Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Trust
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Japan Fund
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Real Estate Securities Fund
Templeton Smaller Companies Growth, Inc.

(b) The directors and officers of FTD, located at 700 Central
Avenue, P.O. Box 33030, St. Petersburg, Florida 33733, are as
follows:

POSITION WITH UNDERWRITER POSITION WITH REGISTRANT
NAME
<S> <C> <C>
Charles B. Johnson Chairman of the Board Chairman, Trustee and
Vice President

Gregory E. Johnson President None

Rupert H. Johnson Executive Vice President Vice President

Harmon E. Burns Executive Vice President and Vice President
Director

Edward V. McVey Senior Vice President None

Kenneth V. Domingues Senior Vice President None

Kenneth A. Lewis Treasurer None

William J. Lippman Senior Vice President None

Deborah R. Gatzek Senior Vice President and Assistant Vice President
Secretary

Richard C. Stoker Senior Vice President None

Charles E. Johnson Senior Vice President President

Loretta Fry Vice President None

James K. Blinn Vice President None

Richard O. Conboy Vice President None

James A. Escobedo Vice President None

Robert N. Geppner Vice President None

Mike Hackett Vice President None

Peter Jones Vice President None

Philip J. Kearns Vice President None

<PAGE>

POSITION WITH UNDERWRITER POSITION WITH REGISTRANT
NAME
Ken Leder Vice President None

Jack Lemein Vice President None

John R. McGee Vice President None

Thomas M. Mistele Vice President Secretary

Harry G. Mumford Vice President None

Vivian J. Palmieri Vice President None

Kent P. Strazza Vice President None

Leslie M. Kratter Secretary None

John R. Kay Assistant Vice President Vice President

Karen DeBellis Assistant Treasurer Assistant Treasurer

Philip A. Scatena Assistant Treasurer None

</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Templeton Funds Annuity
Company, 700 Central Avenue, St. Petersburg, Florida
33733-3080.

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS

(a) Not applicable.

(b) Not applicable.

(c) Registrant undertakes to furnish to each person to
whom a Prospectus is provided a copy of its latest
Annual Report, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has met the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Petersburg, Florida on the 12th
day of April, 1996.

TEMPLETON VARIABLE PRODUCTS SERIES FUND

By:
Charles E. Johnson*
President

*By:/s/THOMAS M. MISTELE
Thomas M. Mistele
as attorney-in-fact**

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to this Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:

SIGNATURE TITLE DATE

__________________________________ President (Chief Executive April 12, 1996
Charles E. Johnson* Officer)

__________________________________ Trustee April 12, 1996
Hasso-G von Diergardt-Naglo*

__________________________________ Trustee April 12, 1996
Fred R. Millsaps*

__________________________________ Trustee April 12, 1996
F. Bruce Clarke*

__________________________________ Trustee April 12, 1996
Betty P. Krahmer*

__________________________________ Trustee April 12, 1996
Charles B. Johnson*

<PAGE>

SIGNATURE TITLE DATE

__________________________________ Trustee April 12, 1996
Harris J. Aston*

__________________________________ Trustee April 12, 1996
S. Joseph Fortunato*

__________________________________ Trustee April 12, 1996
Andrew H. Hines, Jr.*

__________________________________ Trustee April 12, 1996
Gordon S. Macklin*

__________________________________ Trustee April 12, 1996
Nicholas F. Brady*

__________________________________ Trustee April 12, 1996
James R. Baio*

</TABLE>

*By:/s/THOMAS M. MISTELE
Thomas M. Mistele**
as attorney-in-fact

- ---------------------
** POWERS OF ATTORNEY WERE PREVIOUSLY FILED WITH REGISTRATION
STATEMENT NO. 33-20313 AND ARE
INCORPORATED BY REFERENCE OR FILED HEREWITH.

1. ALL OPTION TRANSACTIONS ENTERED INTO BY THE FUND WILL BE TRADED ON A
RECOGNIZED EXCHANGE, OR WILL BE CLEARED THROUGH A RECOGNIZED FORMAL
CLEARING ARRANGEMENT.
* SIR JOHN TEMPLETON SOLD THE TEMPLETON ORGANIZATION TO FRANKLIN
RESOURCES, INC. IN OCTOBER, 1992 AND RESIGNED FROM THE TRUST'S BOARD
ON APRIL 16, 1995. HE IS NO LONGER INVOLVED WITH THE INVESTMENT
MANAGEMENT PROCESS.
2 REFERENCE IS MADE TO REGISTRATION STATEMENT NO. 33-20313, FILED ON
FEBRUARY 25, 1988.
3 REFERENCE IS MADE TO POST-EFFECTIVE AMENDMENT NO 9 TO THE REGISTRATION
STATEMENT, FILE ON APRIL 27, 1995.

4 REFERENCE IS MADE TO POST-EFFECTIVE AMENDMENT NO. 12 TO THE
REGISTRATION STATEMENT, FILED ON FEBRUARY 16, 1996.

5 REFERENCE IS MADE TO POST-EFFECTIVE AMENDMENT NO. 10 TO THE
REGISTRATION STATEMENT, FILED ON DECEMBER 22, 1995.

6 REFERENCE IS MADE TO PRE-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION
STATEMENT, FILED ON AUGUST 26, 1988.

MCGLADREY & PULLEN, LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated January 31, 1996 on
the financial statements of Templeton Stock Fund, Templeton International Fund,
Templeton Asset Allocation Fund, Templeton Money Market Fund and Templeton Bond
Fund series of Templeton Variable Products Series Fund referred to therein which
appears in the 1995 Annual Report to Shareholders, and which is incorporated
herein by reference, in Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A, File No. 33-20313, as filed with the Securities and
Exchange Commission.

We also consent to the reference to our firm in the Prospectus under
the caption "Financial Highlights" and in the Statement of Additional
Information under the caption "Independent Accountants".

/s/ McGladrey & Pullen, L.L.P.

New York, New York
April 4, 1996

April 12, 1996

Securities and Exchange Commission 450 - 5th Street, N.W.
Washington, D.C. 20549

Re: Templeton Variable Products Series Fund
(File No. 33-20313 and 811-5479)

Dear Sirs:

On behalf of Templeton Variable Products Series Fund (the "Fund") attached
hereto for electronic filing pursuant to the Securities Act of 1933 is Amendment
No. 13 to the Fund's Registration Statement on Form N-1A, with exhibits, marked
to indicate changes from Post-Effective Amendment No. 12. Also attached is the
financial data schedule required by Rule 483(e) under the 1933 Act.

This amendment is being filed pursuant to Rule 485(b) under the 1933 Act. This
Post-Effective does not contain any disclosure that would render it ineligible
to become effective pursuant to Rule 485(b). It is being filed for the purpose
of updating the Fund's financial information pursuant to Section 10(a)(3) of the
1933 Act and to separate the prospectuses for each series of the Fund.

Please direct any comments or questions regarding this filing to me at
(813)823-8712, extension 7642.

Sincerely,

/s/Ellen Stoutamire

Ellen Stoutamire
Associate Counsel