TEMPLETON VARIABLE PRODUCTS SERIES FUND, 485BPOS, 1997-04-30

TEMPLETON VARIABLE PRODUCTS SERIES FUND
485BPOS, 1997-04-30

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997.

File Nos.
33-20313
811-5479
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. (X)

Post-Effective Amendment No. 15

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 18

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, Including Area Code:(813) 823-8712

BARABARA GREEN 700 CENTRAL AVENUE,
P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public Offering:

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

[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1997 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 May 1, 1997 pursuant to paragraph (a)(2)of Rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment

Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to Rule
24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuer's most recent fiscal year was filed on February 26, 1997.

TEMPLETON VARIABLE PRODUCTS SERIES FUND
CROSS REFERENCE SHEET
FORM N-1A

Part A: Information Required in Prospectus
(For Templeton Money Market Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Bond Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Description of Securities
and Policies; Investment
Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton International Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Asset Allocation Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Stock Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Developing Markets Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Franklin Growth Investments Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to
Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Mutual Discovery Investments Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

TEMPLETON VARIABLE PRODUCTS SERIES FUND

Part A: Information Required in Prospectus
(For Mutual Shares Investments Fund Class 1 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and Distributions";
"Other Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Bond Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and Distributions";
"Other Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton International Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares";
"Net Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Asset Allocation Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information red in Prospectus
(For Templeton Stocd Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Templeton Developing Markets Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Franklin Growth Investments Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

Part A: Information Required in Prospectus
(For Mutual Discovery Investments Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

TEMPLETON VARIABLE PRODUCTS SERIES FUND

Part A: Information Required in Prospectus
(For Mutual Shares Investments Fund Class 2 Shares)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Not Applicable

3. Condensed Financial Information "Financial Highlights"

4. General Description "Investment Objective and
Policies; Description of
Securities and
Investment Techniques"

5. Management of the Fund "Management of Trust"

5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholder

6. Capital Stock and Other Securities "Dividends and
Distributions"; "Other
Information"

7. Purchase of Securities Being Offered "Purchase of Shares"; "Net
Asset Value"

8. Redemption or Repurchase "Redemption of Shares"

9. Pending Legal Proceedings Not Applicable

CROSS REFERENCE SHEET
FORM N-1A

Part B: Information Required in
Statement of Additional Information
(For All Series)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History "General Information and
History"

13. Fund Investment Objectives and "Investment Objectives and
Policies Policies"

14. Management of the Fund "Management of the Trust"

15. Control Persons and Principal "Principal Shareholders"
Holders of Securities

16. Investment Advisory and Other "Investment Management and
Services Other Services"

17. Brokerage Allocation "Brokerage Allocation"

18. Capital Stock and Other Securities "Description of Shares"; "Other
Information" in the Prospectus)

19. Purchase, Redemption and Pricing "Purchase and Redemption of
of Securities Being Offered Shares"; "Net Asset Value" in
the Prospectus)

20. Tax Status "Tax Status"

21. Underwriters Purchase of Shares (Prospectus)

22. Calculation of Performance Data "Yield and Performance
Information"

23. Financial Statements Financial Statements

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON MONEY MARKET FUND

- -------------------------------------------------------------------------------
This Prospectus offers shares of Templeton Money Market Fund ("Fund"), a
diversified series of Templeton Variable Products Series Fund (the "Trust"),
an open-end, management investment company. It contains information that a
prospective investor should know before investing.

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 and classes of the Trust are not available as an investment
vehicle for all Contracts. A purchaser of a Contract should refer to the
Separate Account prospectus for his or her Contract for information as to
which series and classes of the Trust are available for investment. For more
information about the Fund's multiclass structure, see "Other Information--
Capitalization and Voting Rights," in this Prospectus.

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.

A statement of additional information ("SAI") dated May 1, 1997, 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 up[on request to the trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
- ---------------------
<S> <C>
FINANCIAL HIGHLIGHTS..................... T-2
INVESTMENT OBJECTIVE AND POLICIES........ T-3
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-4
PURCHASE OF SHARES....................... T-5
NET ASSET VALUE.......................... T-6
REDEMPTION OF SHARES..................... T-6
EXCHANGES................................ T-6
MANAGEMENT OF THE TRUST.................. T-6
DIVIDENDS AND DISTRIBUTIONS.............. T-7
FEDERAL INCOME TAX STATUS................ T-7
OTHER INFORMATION........................ T-8
- --------------------------------------------------------------------------------
</TABLE>
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

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

THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS OFFERING THE VARIABLE INSURANCE CONTRACT. BOTH PROSPECTUSES SHOULD
BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.

This prospectus is not an offering of the securities herein described in any
state, jurisdiction or country, in which the offering is unauthorized. No
sales representative, dealer, or other person is authorized to give any
information or make any representations other than those contained in this
prospectus.

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Trust's independent auditors. Their
audit report for each of the last five fiscal years, appears in the financial
statements in the Trust's Annual Report for the fiscal year ended December 31,
1996. The Trust's annual report also includes more information about the
Fund's performance. For a free copy, please call 1-800-774-5001.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,

- ----------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 $1.00
- ---------------------------------------------------------------------------------------------------------
Net investment income... .05 .05 .03 .02 .03 .05 .07 .08 .02
- ---------------------------------------------------------------------------------------------------------
Dividends from net
investment income...... (.05) (.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 $1.00
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN+........... 4.99% 5.35% 3.48% 2.41% 3.10% 5.59% 7.51% 8.13% 1.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000).................. $14,086 $20,723 $33,090 $16,992 $21,454 $22,046 $17,982 $5,984 $ 679
Ratio of expenses to
average net assets..... .55% .63% .71% .75% .69% .70% .84% 1.82% 12.95%**
Ratio of expenses, net
of reimbursement, to
average net assets..... .55% .63% .71% .75% .69% .70% .84% 1.00% 1.50%**
Ratio of net investment
income to average net
assets................. 4.86% 5.29% 3.56% 2.38% 3.02% 5.28% 7.19% 7.79% 5.83%
- ---------------------------------------------------------------------------------------------------------
</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.

T-2

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.

T-3

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.

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 federal securities laws, 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 federal securities laws, the Fund may borrow from banks only,
and is required to maintain continuous asset coverage of 300% with

T-4

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 their net asset value
only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the Insurance Company Separate Account for more information
on the purchase of the Fund's Class 1 shares.

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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

T-5

investing in the Fund due to differences in tax treatment, the management of
investments, or other considerations. If such a conflict were to occur, one of
the Separate Accounts might withdraw its investment in the Fund. This might
force the Fund to sell portfolio securities at disadvantageous prices.

Initial and subsequent payments allocated to the Fund may be subject to limits
applicable in the Contract purchased.

NET ASSET VALUE

The net asset value is determined as of the scheduled close of the NYSE
generally 4:00 p.m., Eastern time. 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 other funds or classes
available as investment options under the Contracts subject to the terms of the
Contract prospectus. Exchanges are treated as a redemption of shares of one
class or fund and a purchase of shares of one or more of the other classes or
funds and are effected at the respective net asset value per share of the class
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 BOARD

The Board oversees the management of the Fund and elects its officers. The
officers are responsible for the Fund's day-to-day operations. The Board also
monitors the Fund to ensure no material conflicts exist among the classes of
shares. While none is expected, the Board will act appropriately to resolve any
material conflict that may arise.

INVESTMENT MANAGER

The Investment Manager of the Fund is Templeton Global Bond Managers, a
division of Templeton Investment Counsel, Inc. TICI is a Florida corporation
with offices at Broward Financial Centre, Fort Lauderdale, Florida 33394-3091.
TICI manages the Fund's assets and makes its investment decisions. TICI also
performs similar services for

T-6

other funds. TICI is wholly owned by Resources, a publicly owned company engaged
in the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together
TICI and its affiliates manage over $179 billion in assets. The Templeton
organization has been investing globally since 1940. TICI and its affiliates
have offices in Argentina, Australia, Bahamas, Canada, France, Germany, Hong
Kong, India, Italy, Luxembourg, Poland, Russia, Scotland, Singapore, South
Africa, U.S., and Vietnam. Please see "Investment Management and Other Services"
and "Brokerage Allocation" in the SAI for information on securities transactions
and a summary of the Fund's Code of Ethics.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, the Fund paid 0.35% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

TICI tries to obtain the best execution on all transactions. If TICI believes
more than one broker or dealer can provide the best execution, consistent with
internal policies it may consider research and related services and the sale of
Fund shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, when selecting a broker or dealer. Please see "Brokerage Allocation" in
the SAI for more information.

ADMINISTRATIVE SERVICES

Templeton Funds Annuity Company ("Administrator"), 700 Central Avenue, St.
Petersburg, Florida 33701, telephone (800) 774-5001 or (813) 823-8712, provides
certain administrative services and facilities for the Fund.

During the fiscal year ended December 31, 1996, administration fees totaling
0.11% of the average daily net assets of the Trust were paid to the
Administrator. Please see "Fund Administrator" in the SAI for more
information.

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were .55% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

DIVIDENDS AND DISTRIBUTIONS

The Fund's net investment income (consisting principally of interest accrued or
discount earned less amortization of premium and 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).

T-7

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 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

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each fund
in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject to
a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes 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.

T-8

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.

Shareholders of the Trust are given certain voting rights. Shares of each class
of a fund represent proportionate interests in the assets of the fund, and have
the same voting and other rights and preferences as any other class of the Fund
for matters that affect the Fund as a whole. For matters that only affect one
class, however, only shareholders of that class may vote. Each class will vote
separately on matters (1) affecting only that class, (2) expressly required to
be voted on separately by state law, or (3) required to be voted on separately
by federal securities law.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Account will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus 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.

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

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 offers 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.

The investment results will vary. Performance figures are always based on past
performance and do not guarantee future results. For a description of the
methods used to calculate performance for the Fund, see "Performance
Information" in the SAI.

T-9

STATEMENTS AND REPORTS

The Trust's fiscal year ends on December 31. Annual reports containing audited
financial statements of the Fund and semi-annual reports containing unaudited
financial statements, as well as proxy materials are sent to Contract Owners,
annuitants or beneficiaries, as appropriate. Inquires may be directed to the
Fund at the telephone number or address set forth on the cover page of this
prospectus.

T-10

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS--MAY 1, 1997
TEMPLETON BOND FUND
CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Templeton Bond Fund ("Fund"), a
diversified series of Templeton Variable Products Series Fund (the "Trust"),
an open-end, management investment company. It contains information that a
prospective investor should know before investing.

The Fund has two classes of shares: Class 1 and Class 2. This prospectus
offers only Class 1 shares and is for use with Contacts that make Class 1
shares available. For more information about the Fund's classes, see "Other
Information--Capitalization and Voting Rights," below.

A statement of additional information ("SAI") dated May 1, 1997, 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 the trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
FINANCIAL HIGHLIGHTS..................... T-2
INVESTMENT OBJECTIVE AND POLICIES........ T-3
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-3
RISK FACTORS............................. T-7
PURCHASE OF SHARES....................... T-10
NET ASSET VALUE.......................... T-10
REDEMPTION OF SHARES..................... T-10
EXCHANGES................................ T-11
MANAGEMENT OF THE TRUST.................. T-11
DIVIDENDS AND DISTRIBUTIONS.............. T-12
FEDERAL INCOME TAX STATUS................ T-12
OTHER INFORMATION........................ T-13
- --------------------------------------------------------------------------------
</TABLE>

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

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,

- ------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (for a
share outstanding
throughout the year)
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 11.88 $ 10.86 $ 12.15 $ 10.91 $ 10.99 $10.35 $10.32 $10.19 $10.00
- ---------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income.. .85 .80 .71 .60 .58 .61 .60 .83 .20
Net realized and
unrealized gain
(loss)................ .14 .76 (1.28) .65 .03 1.02 .05 (.07) (.01)
------- ------- ------- ------- ------- ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS........... .99 1.56 (.57) 1.25 .61 1.63 .65 .76 .19
- ---------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income..... (1.24) (.54) (.55) (.005) (.57) (.64) (.62) (.63) --
Distributions from net
realized gains........ -- -- (.17) (.005) (.12) (.35) -- -- --
------- ------- ------- ------- ------- ------ ------ ------ ------
TOTAL DISTRIBUTIONS... (1.24) (.54) (.72) (.01) (.69) (.99) (.62) (.63) --
- ---------------------------------------------------------------------------------------------------------
Change in net asset
value.................. (.25) 1.02 (1.29) 1.24 (.08) .64 .03 .13 .19
------- ------- ------- ------- ------- ------ ------ ------ ------
NET ASSET VALUE, END OF
YEAR................... $ 11.63 $ 11.88 $ 10.86 $ 12.15 $ 10.91 $10.99 $10.35 $10.32 $10.19
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN+........... 9.45% 14.92% (4.88)% 11.46% 5.53% 15.86% 6.33% 7.65% 1.90%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year
(000).................. $34,046 $32,910 $29,343 $29,347 $15,674 $8,142 $4,076 $2,349 $254
Ratio of expenses to
average net assets..... .68% .78% .90% .83% 1.00% 1.06% 1.56% 3.67% 15.44%**
Ratio of expenses, net
of reimbursement, to
average net assets..... .68% .78% .90% .83% 1.00% 1.00% 1.00% 1.00% 1.50%**
Ratio of net investment
income to average net
assets................. 7.35% 7.14% 6.80% 6.50% 6.93% 7.63% 7.65% 8.12% 5.94%**
Portfolio turnover rate. 141.19% 188.11% 203.91% 170.33% 147.77% 551.45% 107.58% 48.87% --
- ---------------------------------------------------------------------------------------------------------
</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.

T-2

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 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

T-3

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 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.

BANK OBLIGATIONS

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 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 D by S&P, and between Baa and as low as C by Moody's
or, if unrated, are of equivalent investment quality as determined by the
Investment Manager. 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 or other advantageous developments appear
likely in the future. The Fund will not invest more than 10% of its total assets
in defaulted debt securities, which may be illiquid. 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.

T-4

Issuers of bonds rated Ca may often be in default. 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 determine 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. Many debt obligations of foreign issuers, and especially developing
markets issuers, are either (i) rated below investment grade or (ii) not rated
by U.S. rating agencies so that their selection depends on the Investment
Manager's individual analysis.

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 federal securities laws, 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

LOANS OF PORTFOLIO SECURITIES

T-5

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

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 relative performance of foreign currencies in which securities held by the
Fund are denominated is an important factor in the Fund's overall performance.
The Investment Manager intends to manage the Fund's exposure to various
currencies to take advantage of different yield, risk, and return
characteristics that different currencies, currency denominations, and
countries can provide for U.S. investors. With respect to debt securities, the
Investment Manager, may from time to time make extensive use of forward
currency exchange contracts or options on currencies for hedging purposes.

T-6

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 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. There is no assurance that the Investment Manager's
hedging strategies will be successful.

The Fund's annual portfolio turnover rates for the fiscal years ended December
31, 1995 and December 31, 1996 were 188.11% and 141.19%, respectively. The high
portfolio turnover rate was due to bond maturities and rebalancing the portfolio
to keep interest rate risk and country allocations as desired levels. Higher
portfolio turnover may increase the Fund's transaction costs.

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

T-7

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.

As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss (including risk of total loss)
arising out of Russia's system of share registration and custody. For more
information on these risks and other risks associated with Russian securities,
please see "Investment Objectives and Policies--Risk Factors" in the SAI.

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.

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 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.

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.

T-8

liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity may
also make it more difficult for the Fund to obtain market quotations based on
actual trades for purposes of valuing the Fund's portfolio. In addition, the
Fund may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings. Investments may also be evaluated in the context of
economic and political conditions in the issuer's domicile, such as the
inflation rate, growth prospects, global trade patterns and government
policies. In the event the rating on an issue held in the Fund's portfolio is
changed by the rating service, such change will be considered by the Fund in
its evaluation of the overall investment merits of that security but will not
necessarily result in an automatic sale of the security.

Asset Composition Table. A credit rating by a rating agency evaluates only the
safety of principal and interest of debt obligations, and does not consider
the market value risk associated with an investment in such an obligation. The
table below shows the percentage of the Fund's assets invested in debt
securities rated in each of the specific rating categories shown and those
that are not rated by the rating agency but deemed by the Investment Manager
to be of comparable credit quality. The information was prepared based on a 12
month dollar weighted average of the portfolio compositions in the fiscal year
ended December 31, 1996. The Appendix to the SAI includes a description of
each rating category.

S&P

<TABLE>
<S> <C>
AAA............................................................. 78.45%
AA+............................................................. 5.50%*
A+.............................................................. 4.56%*
A............................................................... 0.38%
A-.............................................................. 1.20%
BBB............................................................. 0.62%
BBB-............................................................ 0.87%*
BB.............................................................. 5.06%*
BB-............................................................. 3.36%

*Figures include securities, which are unrated by S&P, as follows:

AA+............................................................. 2.05%
A+.............................................................. 0.27%
BBB-............................................................ 0.87%
BB.............................................................. 1.56%
</TABLE>

It should be noted that the above ratings are not necessarily indicative of
ratings of bonds at the time of purchase.

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.

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.

T-9

PURCHASE OF SHARES

Class 1 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the Insurance Company Separate Account for more information on
the purchase of the Fund's Class 1 shares.

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
insurance company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment, the
management of investments, or other considerations. If such a conflict were to
occur, one of the Separate Accounts might withdraw its investment in the Fund.
This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a pro
rata basis. It is based on each class' proportionate participation in the Fund,
determined by the value of the shares of each class. To calculate the Net Asset
Value per share of each class, the assets of each class are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares of the class outstanding. The assets in the Fund's
portfolio are valued as described under "Purchase, Redemption and Pricing of
Shares" in the SAI.

REDEMPTION OF SHARES

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might otherwise
hold and also incur the additional costs related to such transactions.

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

T-10

EXCHANGES

Class 1 shares of the Fund may be exchanged for shares of other funds or
classes available as investment options under the Contracts subject to the
terms of the Contract prospectus. Exchanges are treated as a redemption of
shares of one class or fund and a purchase of shares of one or more of the
other classes or funds and are effected at the respective net asset value per
share of the class 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 BOARD

INVESTMENT MANAGER

Templeton Investment Counsel, Inc. TICI is a Florida corporation with offices at
Broward Financial Centre, Fort Lauderdale, Florida 33394-3091. TICI manages the
Fund's assets and makes its investment decisions. TICI also performs similar
services for other funds. TICI is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together TICI and its affiliates manage over $179 billion in assets.
The Templeton organization has been investing globally since 1940. TICI and its
affiliates have offices in Argentina, Australia, Bahamas, Canada, France,
Germany, Hong Kong, India, Italy, Luxembourg, Poland, Russia, Scotland,
Singapore, South Africa, U.S., and Vietnam. Please see "Investment Management
and Other Services" and "Brokerage Allocation" in the SAI for information on
securities transactions and a summary of the Fund's Code of Ethics.

PORTFOLIO MANAGEMENT

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. Cindy New and Neil Devlin
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 and has managed the Fund since May 1996. 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. Ms. New an analyst with the
Investment Manager, joined the Templeton organization in 1993 and has managed
the Fund since May 1996. Prior to that time, she was an auditor with the
accounting firm of Deloitte and Touche. Ms. New maintains emerging markets
research responsibilities for Africa, Developing Europe and the Middle East. Ms.
New holds a masters in business administration degree from the University of
Central Florida and a bachelor of science degree in accounting from the
University of Florida.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, the Fund paid 0.50% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

T-11

sale of Fund shares, as well as shares of other funds in the Franklin Templeton
Group of Funds, when selecting a broker or dealer. Please see "Brokerage
Allocation" in the SAI for more information.

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.68% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

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. Dividends and capital gains are calculated and distributed the same way
for each class of shares. The amount of any income dividends per share will
differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

Any distributions made by the Fund will be automatically reinvested in
additional Shares of the same class 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

T-12

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

Unlike the stockholder of a corporation, Shareholders could under certain
circumstances be held personally liable for the obligations of the Trust. The
Declaration of Trust, however, 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.

Each Share of each class of a 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.
The Separate Account, as Shareholder of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

T-13

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.

PERFORMANCE INFORMATION

From time to time, each class of the Fund advertises its performance.
Performance information for a class of the Fund will generally not be
advertised unless accompanied by comparable performance information for a
Separate Account to which the Fund offers shares of that class.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Net Asset Value of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund. Quotations of yield or total return for a class of 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.

The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a description
of the methods used to calculate performance for the Fund, see "Performance
Information" in the SAI.

STATEMENTS AND REPORTS

T-14

(THIS PAGE INTENTIONALLY LEFT BLANK)

[LOGO OF FRANKLIN TEMPLETON APPEAR HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON INTERNATIONAL FUND

CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Templeton International Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 the Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<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-9
REDEMPTION OF SHARES.................... T-9
EXCHANGES............................... T-9
MANAGEMENT OF THE TRUST................. T-9
DIVIDENDS AND DISTRIBUTIONS............. T-11
FEDERAL INCOME TAX STATUS............... T-11
OTHER INFORMATION....................... T-12
- --------------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,

1996 1995 1994 1993 1992*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
(for a share outstanding
throughout the year)
NET ASSET VALUE, BEGINNING OF
YEAR........................ $ 15.13 $ 13.22 $ 13.83 $ 9.39 $10.00
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income....... .43 .23 .12 .10 .06
Net realized and unrealized
gain (loss)................ 3.15 1.83 (.42) 4.34 (.67)
-------- -------- -------- ------- ------
TOTAL FROM INVESTMENT
OPERATIONS................ 3.58 2.06 (.30) 4.44 (.61)
- --------------------------------------------------------------------------------
Distributions:
Dividends from net invest-
ment income................ (.24) (.10) (.08) -- --
Distributions from net real-
ized gains................. (.07) (.05) (.23) -- --
-------- -------- -------- ------- ------
TOTAL DISTRIBUTIONS........ (.31) (.15) (.31) -- --
- --------------------------------------------------------------------------------
Change in net asset value.... 3.27 1.91 (.61) 4.44 (.61)
-------- -------- -------- ------- ------
NET ASSET VALUE, END OF YEAR. $ 18.40 $ 15.13 $ 13.22 $ 13.83 $ 9.39
- --------------------------------------------------------------------------------
TOTAL RETURN+................ 24.04% 15.78% (2.22)% 47.28% (6.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000)....................... $682,984 $353,141 $150,090 $43,877 $7,050
Ratio of expenses to average
net assets.................. .65% .71% .83% .95% 1.40%**
Ratio of expenses, net of
reimbursement, to average
net assets.................. .65% .71% .83% .95% 1.00%**
Ratio of net investment
income to average net
assets...................... 3.23% 2.36% 1.89% 1.62% 1.76%**
Portfolio turnover rate...... 9.46% 5.19% 6.32% 15.65% 4.50%
Average commission rate paid
(per share)................. $ .004
- --------------------------------------------------------------------------------
</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 charges 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 will invest
predominantly in equity securities issued by large-cap and mid-cap companies.
Large-cap companies are those which have market capitalizations of $5 billion
or more; mid-cap companies are those which have market capitalizations of $1
billion to $5 billion. It may also invest to a lesser degree in smaller
capitalization companies, which may be subject to different and greater risks.
See "Risk Factors," below.

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.

T-2

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."

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 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

BANK OBLIGATIONS

T-3

COMMERCIAL PAPER

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C 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 or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. 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 or other advantageous developments appear
likely in the future. As a fundamental policy, the Fund will invest more than
10% of its total assets in defaulted debt securities, which may be illiquid.
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.
Issuers of bonds rated Ca may often be in default. 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 determine 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. Many debt obligations of foreign issuers, and especially developing
markets issuers, are either (i) rated below investment grade or (ii) not rated
by U.S. rating agencies so that their selection depends on the Investment
Manager's individual analysis.

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

T-4

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

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 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.

RESTRICTED 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

T-5

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.

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 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 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.

T-6

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.

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.

The Fund may invest in companies with relatively small revenues and limited
product lines. Small companies may lack depth of management, they may be unable
to internally generate funds necessary for growth or potential development or to
generate such funds through external financing on favorable terms. Due to these
and other factors, small companies may suffer significant losses, as well as
realize substantial growth.

T-7

The Fund may have difficulty disposing of certain high yielding obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse impact
on market price, and the Fund's ability to dispose of particular issues, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is required
to seek recovery upon a default in the payment of principal or interest on its
portfolio holdings.

Investments may also be evaluated in the context of economic and political
conditions in the issuer's domicile, such as the inflation rate, growth
prospects, global trade patterns and government policies. In the event the
rating on an issue held in the Fund's portfolio is changed by the rating
service, such change will be considered by the Fund in its evaluation of the
overall investment merits of that security but will not necessarily result in
an automatic sale of the security.

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 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.

PURCHASE OF SHARES

Class 1 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the insurance company Separate Account for more information on
the purchase of the Fund's Class 1 shares.

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

T-8

NET ASSET VALUE

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

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

Templeton Investment Counsel, Inc., is a Florida corporation with offices at
Broward Financial Centre, Fort Lauderdale, Florida 33394-3091. TICI manages the
Fund's assets and makes its investment decisions. TICI also performs similar
services for other funds. TICI is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together TICI and its affiliates manage over $179 billion in assets.
The Templeton organization has been investing globally since 1940. TICI and its
affiliates have offices in Argentina, Australia, Bahamas, Canada, France,
Germany, Hong Kong, India, Italy, Luxembourg, Poland, Russia, Scotland,
Singapore, South Africa, U.S., and Vietnam. Please see "Investment Management
and Other Services" and "Brokerage Allocation" in the SAI for information on
securities transactions and a summary of the Fund's Code of Ethics.

T-9

PORTFOLIO MANAGEMENT

The lead portfolio manager for the Fund since July 1996 is Peter Nori. Mr. Nori,
Vice President of TICI, 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 has exercised secondary
portfolio management responsibilities for the Fund since 1995. Mr. Nori's
current responsibilities include covering the data processing/software, textile
and apparel stocks, steel stocks and country coverage of Austria. He holds a
B.A. 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. Gary Motyl and
Stephen Oler exercise secondary portfolio management responsibilities. Mr.
Motyl, Executive Vice President and Director of TICI, has been a security
analyst and portfolio manager with TICI since 1981. His research
responsibilities include the global automobile industry and country coverage of
Germany. Prior to joining the Templeton organization, Mr. Motyl worked from 1974
to 1979 as a security analyst with Standard & Poor's Corporation, and from 1979
to 1981 was a research analyst and portfolio manager with Landmark First
National Bank. Mr. Motyl holds a B.S. degree in Finance from Lehigh University
and an M.B.A. from Pace University and is a Chartered Financial Analyst. Mr.
Oler, Vice President of TICI, is a portfolio manager and research analyst whose
research responsibilities include industry coverage of the global non-life
insurance industry and country coverage of Mexico and Greece. Before joining the
Templeton organization in 1996, Mr. Oler was a senior vice president at Baring
Asset Management, where he was responsible for Latin American portfolio
management and research. During his 11-year stay at Barings, he followed
European equities from the London office, then moved in 1989 to the Boston
office where he followed Canadian equities. Beginning in 1993 he devoted his
full time to following Latin stocks. Mr. Oler received a master of philosophy
degree in international relations from King's College, Cambridge University, and
a B.A. degree with honors from the University of Pennsylvania in American
history. He is a Chartered Financial Analyst.

MANAGEMENT FEES

Effective May 1, 1997 a new investment management agreement, approved by
shareholders at a special meeting held on February 10, 1997, provides that the
Fund will pay its Investment Manager a monthly fee equal on an annual basis to
0.75% of the Fund's average daily net assets up to $200 million, 0.675% of such
net assets up to $1.3 billion, and 0.60% of such net assets over $1.3 billion.

For the fiscal year ended December 31, 1996, the Fund paid 0.47% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.65% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

T-10

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per
share will differ for each class, however, generally due to the difference in
the applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1
fees.

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 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.

T-11

OTHER INFORMATION

THE FUND'S ORGANIZATION

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

T-12

PERFORMANCE INFORMATION

STATEMENTS AND REPORTS

T-13

[THIS PAGE INTENTIONALLY LEFT BLANK]

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS--MAY 1, 1997
TEMPLETON ASSET ALLOCATION FUND
CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Templeton Asset Allocation Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

A statement of additional information ("SAI") dated May 1, 1997, 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 the trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
FINANCIAL HIGHLIGHTS..................... T-2
INVESTMENT OBJECTIVE AND POLICIES........ T-3
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-3
RISK FACTORS............................. T-7
PURCHASE OF SHARES....................... T-9
NET ASSET VALUE.......................... T-10
REDEMPTION OF SHARES..................... T-10
EXCHANGES................................ T-10
MANAGEMENT OF THE TRUST.................. T-11
DIVIDENDS AND DISTRIBUTIONS.............. T-12
FEDERAL INCOME TAX STATUS................ T-12
OTHER INFORMATION........................ T-13
- --------------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,

- -------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (for a
share outstanding
throughout the year)
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 18.72 $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45 $ 11.62 $ 10.28 $10.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income.. .63 .57 .44 .42 .39 .40 .34 .25 .07
Net realized and
unrealized gain
(loss)................ 2.76 2.87 (.92) 3.03 .66 2.38 (1.23) 1.11 .21
-------- -------- -------- -------- ------- ------- ------- ------- ------
TOTAL FROM INVESTMENT
OPERATIONS........... 3.39 3.44 (.48) 3.45 1.05 2.78 (.89) 1.36 .28
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income..... (.58) (.41) (.31) (.35) (.41) (.38) (.25) (.02) --
Distributions from net
realized gains........ (.45) -- (.07) (.04) -- -- (.03) -- --
-------- -------- -------- -------- ------- ------- ------- ------- ------
TOTAL DISTRIBUTIONS... (1.03) (.41) (.38) (.39) (.41) (.38) (.28) (.02) --
- ---------------------------------------------------------------------------------------------------------------
Change in net asset
value.................. 2.36 3.03 (.86) 3.06 .64 2.40 (1.17) 1.34 .28
NET ASSET VALUE, END OF
YEAR................... $ 21.08 $ 18.72 $ 15.69 $ 16.55 $ 13.49 $ 12.85 $ 10.45 $ 11.62 $10.28
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+........... 18.93% 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).................. $556,027 $406,123 $288,172 $183,360 $79,242 $35,821 $22,702 $13,150 $ 388
Ratio of expenses to
average net assets..... .64% .66% .75% .77% .80% .89% 1.03% 1.41% 14.92%**
Ratio of expenses, net
of reimbursement, to
average net assets..... .64% .66% .75% .77% .80% .89% 1.00% 1.00% 1.50%**
Ratio of net investment
income to average net
assets................. 3.56% 3.73% 4.02% 4.16% 4.47% 3.99% 4.56% 4.81% 2.86%**
Portfolio turnover rate. 57.50% 43.02% 51.36% 81.50% 120.53% 76.65% 8.46% 10.68% --
Average commission rate
paid (per share)....... $ .0008
- ---------------------------------------------------------------------------------------------------------------
</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.

T-2

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 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.

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

U.S. GOVERNMENT SECURITIES

T-3

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")

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

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C 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
15% of its total assets in debt securities rated lower than BBB by S&P or Baa
by Moody's or, if unrated, are of equivalent investment quality as determined
by the Investment Manager. 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 or other advantageous developments
appear likely in the future. Consistent with this limit the Fund will not
invest more than 10% of its total assets in defaulted debt securities, which
may be illiquid. 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. Issuers of bonds rated Ca may often be in default.
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 determine 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. Many debt obligations of foreign
issuers, and especially developing markets issuers, are either (i) rated below
investment grade or (ii) not rated by U.S. rating agencies so that their
selection depends on the Investment Manager's individual analysis.

T-4

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

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. 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 invest in restricted securities, which are securities subject to
legal or contractual restrictions on their resale, such as private placements.

T-5

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

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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

T-6

exposure to various currencies to take advantage of different yield, risk, and
return characteristics that different currencies, currency denominations, and
countries can provide for U.S. investors. With respect to debt securities, the
Investment Manager, may from time to time make extensive use of forward
currency exchange contracts or options on currencies for hedging purposes. The
Investment Manager generally does not actively hedge currency positions with
respect to equity securities, believing that the costs outweigh the potential
benefits. The Manager may, however, hedge where it believes it would be
appropriate.

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 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. There is no assurance that the Investment Manager's hedging strategies
will be successful.

RISK FACTORS

T-7

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.

T-8

The Fund may have difficulty disposing of certain high yielding obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse
impact on market price, and the Fund's ability to dispose of particular
issues, when necessary, to meet the Fund's liquidity needs or in response to a
specific economic event, such as a deterioration in the creditworthiness of
the issuer. Reduced liquidity may also make it more difficult for the Fund to
obtain market quotations based on actual trades for purposes of valuing the
Fund's portfolio. In addition, the Fund may incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.

It should be noted that the above ratings are not necessarily indicative of
ratings of bonds at the time of purchase.

PURCHASE OF SHARES

Class 1 shares of the Fund are offered on a continuous basis at their net
asset value only to separate accounts ("Separate Accounts") of insurance
companies ("Insurance Companies") to serve as the underlying investment
vehicle for both variable annuity and variable life insurance contracts
("Contracts"). Individuals may not purchase these shares directly from the
Fund. Please read the prospectus of the Insurance Company Separate Account for
more information on the purchase of the Fund's Class 1 shares.

T-9

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

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

T-10

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

PORTFOLIO MANAGEMENT

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 William T.
Howard Jr., 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. Howard
holds a BA in international studies from Rhodes College and an MBA in finance
from Emory University. He is a Chartered Financial Analyst and a member of the
Financial Analyst Society. Before joining the Templeton Organization in 1993,
Mr. Howard was a portfolio manager and analyst with the Tennessee Consolidated
Retirement System in Nashville, Tennessee, where he was responsible for research
and management of the international equity portfolio, and specialized in the
Japanese equity market. As a portfolio manager and research analyst with
Templeton, Mr. Howard's research responsibilities include the transportation,
shipping, machinery and engineering industries worldwide. He is also responsible
for country coverage of both Japan and New Zealand.

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 William T. Howard Jr., 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. Howard's background is discussed above.

T-11

MANAGEMENT FEES

Effective May 1, 1997 a new investment management agreement, approved by
shareholders at a special meeting held on February 10, 1997, provides that the
Fund will pay its Investment Manager a monthly fee equal on an annual basis to
0.65% of the Fund's average daily net assets up to $200 million, 0.585% of such
net assets up to $1.3 billion, and 0.52% of such net assets over $1.3 billion.

For the fiscal year ended December 31, 1996, the Fund paid 0.48% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

Templeton Funds Annuity Company ("Administrator"), 700 Central Avenue,
St. Petersburg, Florida 33701, telephone (800) 774-5001 or (813) 823-8712,
provides certain administrative services and facilities for the Fund.

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.64% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

DIVIDENDS AND DISTRIBUTIONS

FEDERAL INCOME TAX STATUS

T-12

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

T-13

Each Share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

PERFORMANCE INFORMATION

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current
distribution
rate shows the dividends or distributions paid to shareholders of a class.
This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Net Asset Value of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund. Quotations of yield or total return for a class of 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.

STATEMENTS AND REPORTS

T-14

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON STOCK FUND

CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Templeton Stock Fund ("Fund"), a
diversified series of Templeton Variable Products Series Fund (the "Trust"),
an open-end, management investment company. It contains information that a
prospective investor should know before investing.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
FINANCIAL HIGHLIGHTS..................... T-2
INVESTMENT OBJECTIVE AND POLICIES........ T-3
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-3
RISK FACTORS............................. T-6
PURCHASE OF SHARES....................... T-8
NET ASSET VALUE.......................... T-9
REDEMPTION OF SHARES.................... T-9
EXCHANGES............................... T-9
MANAGEMENT OF THE TRUST................. T-9
DIVIDENDS AND DISTRIBUTIONS............. T-11
FEDERAL INCOME TAX STATUS............... T-11
OTHER INFORMATION....................... T-12
- --------------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (for a
share outstanding
throughout the year)
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 20.83 $ 16.94 $ 17.53 $ 13.33 $ 12.72 $ 10.29 $ 11.75 $ 10.25 $10.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .41 .40 .26 .23 .25 .27 .32 .18 .18
Net realized and
unrealized gain
(loss)................ 3.88 3.80 (.64) 4.23 .64 2.49 (1.57) 1.34 .071
-------- -------- -------- -------- -------- -------- ------- ------- -----
TOTAL FROM INVESTMENT
OPERATIONS........... 4.29 4.20 (.38) 4.46 .89 2.76 (1.25) 1.52 .25
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income..... (.40) (.27) (.21) (.25) (.28) (.33) (.19) (.02) --
Distributions from net
realized gains........ (1.84) (.04) -- (.01) -- -- (.02) -- --
-------- -------- -------- -------- -------- -------- ------- ------- -----
TOTAL DISTRIBUTIONS... (2.24) (.31) (.21) (.26) (.28) (.33) (.21) (.02) --
- ---------------------------------------------------------------------------------------------------------------
Change in net asset
value.................. 2.05 3.89 (.59) 4.20 .61 2.43 (1.46) 1.50 .25
-------- -------- -------- -------- -------- -------- ------- ------- -----
NET ASSET VALUE,
END OF YEAR............ $ 22.88 $ 20.83 $ 16.94 $ 17.53 $ 13.33 $12.72 $ 10.29 $ 11.75 $10.23
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+........... 22.48% 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)...... $644,366 $498,777 $378,849 $298,392 $166,219 $116,943 $74,264 $49,787 $3,037
Ratio of expenses to
average net assets..... .65% .66% .73% .73% .75% .82% .85% 1.08% 4.39%**
Ratio of expenses, net
of reimbursement, to
average net assets..... .65% .66% .73% .73% .75% .82% .85% .99% 1.50%**
Ratio of net investment
income to average
net assets............. 2.06% 2.18% 1.81% 1.88% 2.36% 2.82% 3.78% 3.63% 5.55%**
Portfolio turnover rate. 23.40% 33.93% 5.10% 4.88% 8.10% 41.24% 17.94% 5.27% --
Average commission rate
paid (per share)....... $ .009
- ---------------------------------------------------------------------------------------------------------------
</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.

T-2

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 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 will
invest predominantly in equity securities issued by large-cap and mid-cap
companies. Large-cap companies are those which have market capitalizations of $5
billion or more; mid-cap companies are those which have market capitalizations
of $1 billion to $5 billion. It may also invest to a lesser degree in smaller
capitalization companies, which may be subject to different and greater risks.
See "Risk Factors," below.

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.")

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

U.S. GOVERNMENT SECURITIES

T-3

BANK OBLIGATIONS

COMMERCIAL PAPER

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C 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 or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. 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 or other advantageous developments appear
likely in the future. As a fundamental policy, the Fund will not invest more
than 10% of its total assets in defaulted debt securities, which may be
illiquid. 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. Issuers of bonds rated Ca may often be in default. 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 determine 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. Many debt obligations of foreign issuers, and especially developing
markets issuers, are either (i) rated below investment grade or (ii) not rated
by U.S. rating agencies so that their selection depends on the Investment
Manager's individual analysis.

REPURCHASE AGREEMENTS

T-4

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

WHEN-ISSUED SECURITIES

LOANS OF PORTFOLIO SECURITIES

RESTRICTED SECURITIES

T-5

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 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.

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 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.

T-6

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 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.

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.

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.

The Fund may invest in companies with relatively small revenues and limited
product lines. Smaller capitalization companies may lack depth of management,
they may be unable to internally generate funds necessary for growth or
potential development or to generate such funds through external financing on
favorable terms. Due to these and other factors, smaller companies may suffer
significant losses, as well as realize substantial growth.

T-7

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. See "Investment
Objectives and Policies--Debt Securities" in the SAI for descriptions of debt
securities rated lower than BBB by S&P and Baa by Moody's.

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.

PURCHASE OF SHARES

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

T-8

NET ASSET VALUE

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

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

T-9

PORTFOLIO MANAGEMENT

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.

William T. Howard Jr., Vice President of TICI and Howard J. Leonard, Senior Vice
President of TICI, exercise secondary portfolio management responsibilities. Mr.
Howard holds a BA in international studies from Rhodes College and an MBA in
finance from Emory University. He is a Chartered Financial Analyst and a member
of the Financial Analyst Society. Before joining the Templeton Organization in
1993, Mr. Howard was a portfolio manager and analyst with the Tennessee
Consolidated Retirement System in Nashville, Tennessee, where he was responsible
for research and management of the international equity portfolio, and
specialized in the Japanese equity market. As a portfolio manager and research
analyst with Templeton, Mr. Howard's research responsibilities include the
transportation, shipping, machinery and engineering industries worldwide. He is
also responsible for country coverage of both Japan and New Zealand. He has
managed the Fund since June 1996. 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.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, the Fund paid 0.47% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.65% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

T-10

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per
share will differ for each class, however, generally due to the difference in
the applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1
fees.

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 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.

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.

T-11

OTHER INFORMATION

THE FUND'S ORGANIZATION

Unlike the stockholder of a corporation, Shareholders could under certain
circumstances be held personally liable for the obligations of the Trust. The
Declaration of Trust, however, 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.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus 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.

T-12

PERFORMANCE INFORMATION

STATEMENTS AND REPORTS

T-13

(THIS PAGE INTENTIONALLY LEFT BLANK)

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON DEVELOPING MARKETS FUND

CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Templeton Developing Markets
Fund ("Fund"), a diversified series of Templeton Variable Products Series Fund
(the "Trust"), an open-end, management investment company. It contains
information that a prospective investor should know before investing.

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
Contracts involve certain fees and expenses not described in this Prospectus
and also may involve certain restrictions or limitations on the allocation of
purchase payments or Contract values to different investment vehicles. In
particular, certain series or classes of the Trust may not be available in
connection with a particular Contract or in a particular state. See the
applicable Contract prospectus for information regarding fees and expenses of
the Contract and any applicable restrictions or limitations. The Fund seeks
long-term capital appreciation by investing in securities of issuers of
countries having developing markets. The Fund is subject to the heightened
foreign securities investment risks that accompany foreign developing markets
and an investment in the Fund may be considered speculative. See "Risk
Factors."

The Fund has two classes of shares: Class 1 and Class 2. This prospectus
offers only Class 1 shares and is for use with Contracts that make Class 1
shares available. For more information about the Fund's classes, see "Other
Information--Capitalization and Voting Rights," below.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- -----------------
- ----
<S> <C>
FINANCIAL HIGHLIGHTS..................... T-2
INVESTMENT OBJECTIVE AND POLICIES........ T-2
INVESTMENT TECHNIQUES.................... T-3
RISK FACTORS............................. T-6
PURCHASE OF SHARES....................... T-9
NET ASSET VALUE.......................... T-9
REDEMPTION OF SHARES.................... T-9
EXCHANGES............................... T-10
MANAGEMENT OF THE TRUST................. T-10
DIVIDENDS AND DISTRIBUTIONS............. T-12
FEDERAL INCOME TAX STATUS............... T-12
OTHER INFORMATION....................... T-13
- --------------------------------------------------------------------------------
</TABLE>

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED

This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Trust's independent auditors. Their
audit report appears in the financial statements in the Trust's Annual Report
for the fiscal year ended December 31, 1996. The Trust's annual report also
includes more information about the Fund's performance. For a free copy,
please
call 1-800-774-5001.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996*
- ------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE (for a share outstanding
throughout the year)
NET ASSET VALUE, BEGINNING OF YEAR............................... $ 10.00
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income........................................... .05
Net realized and unrealized gain (loss)......................... (.62)
-------
TOTAL FROM INVESTMENT OPERATIONS............................... (.57)
- ------------------------------------------------------------------------------
Distributions:
Dividends from net investment income............................ --
Distributions from net realized gains........................... --
-------
TOTAL DISTRIBUTIONS............................................ --
- ------------------------------------------------------------------------------
Change in net asset value........................................ (.57)
-------
NET ASSET VALUE, END OF YEAR..................................... $ 9.43
- ------------------------------------------------------------------------------
TOTAL RETURN+.................................................... (5.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000).................................... $72,245
Ratio of expenses to average net assets.......................... 1.78%**
Ratio of expenses, net of reimbursement, to average net assets... 1.70%**
Ratio of net investment income to average net assets............. 1.52%**
Portfolio turnover rate.......................................... 9.95%
Average commission rate paid (per share)......................... $ .002
- ------------------------------------------------------------------------------
</TABLE>
* Period from March 4, 1996 (commencement of operations) to December 31,
1996.
** Annualized.
+ Total return figures 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 long-term capital appreciation. The Fund
seeks to achieve this objective by investing primarily in equity securities of
issuers in countries having developing markets. It is currently expected that
under normal conditions at least 65% of the Fund's total assets will be invested
in developing market equity securities. The Fund and its investment manager,
Templeton Asset Management Ltd. (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.

T-2

as defined above, (ii) equity securities, traded in any market, of companies
that derive 50% or more of their total revenue from either goods or services
produced in such developing market countries or sales made in such developing
market countries or (iii) equity securities of companies organized under the
laws of, and with a principal office in, a developing market country. "Equity
securities," as used in this Prospectus, refers to common stock, preferred
stock, warrants or rights to subscribe to or purchase such securities and
sponsored or unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), and Global Depositary Receipts ("GDRs")
(collectively, "Depositary Receipts"). Determinations as to eligibility will be
made by the Investment Manager based on publicly available information and
inquiries made to the companies. (See "Risk Factors" for a discussion of the
nature of information publicly available for non-U.S. companies.) The Fund will
at all times, except during defensive periods, maintain investments in at least
three countries having developing markets.

The Fund seeks to benefit from economic and other developments in developing
markets. The investment objective of the Fund reflects the belief that
investment opportunities may result from an evolving long-term international
trend favoring more market-oriented economies, a trend that may especially
benefit certain countries having developing markets. This trend may be
facilitated by local or international political, economic or financial
developments that could benefit the capital markets of such countries. Certain
countries, particularly the emerging market countries which may be in the
process of developing more market-oriented economies, may experience relatively
high rates of economic growth. Other countries, although having relatively
mature developing markets, may also be in a position to benefit from local or
international developments encouraging greater market orientation and
diminishing governmental intervention in economic affairs.

For capital appreciation, the Fund may invest up to 35% of its total assets in
debt securities (defined as bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits, bankers' acceptances and structured
investments) which are rated at least C by Moody's Investors Service, Inc.
("Moody's") or C by Standard & Poor's Corporation ("S&P") or unrated debt
securities deemed to be of comparable quality by the Investment Manager. See
"Risk Factors." As an operating policy, which may be changed by the Board of
Trustees, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than Baa by Moody's or BBB by S&P. Certain debt
securities can provide the potential for capital appreciation based on various
factors such as changes in interest rates, economic and market conditions,
improvement in an issuer's ability to repay principal and pay interest, and
ratings upgrades. Additionally, convertible bonds offer the potential for
capital appreciation through the conversion feature, which enables the holder
of the bond to benefit from increases in the market price of the securities
into which they are convertible. For a description of debt securities ratings,
see the Appendix to the SAI.

The Fund may also lend its portfolio securities and borrow money for investment
purposes (i.e., "leverage" its portfolio). In addition, the Fund may enter into
transactions in options on securities, securities indices and foreign
currencies, forward foreign currency contracts, and futures contracts and
related options. When deemed appropriate by the Investment Manager, the Fund may
invest cash balances in repurchase agreements and other money market investments
to maintain liquidity in an amount to meet expenses or for day-to- day operating
purposes. These investment techniques are described below and under the heading
"Investment Objective and Policies" in the SAI.

When the Investment Manager believes that market conditions warrant, the Fund
may adopt a temporary defensive position and may invest without limit in money
market securities denominated in U.S. dollars or in the currency of any foreign
country. See "Investment Techniques Temporary Investments."

The Fund does not emphasize short-term trading profits and usually expects to
have an annual portfolio turnover rate not exceeding 50%. 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 are "fundamental policies" of the Trust, which means
that they may not be changed without a majority vote of Shareholders of the
Fund. With the exception of those restrictions specifically identified as
fundamental, all investment policies and practices described in this Prospectus
and in the Statement of Additional Information are not fundamental, meaning that
the Board of Trustees may change them without Shareholder approval.

INVESTMENT TECHNIQUES

The Fund is authorized to 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.

T-3

TEMPORARY INVESTMENTS

For temporary defensive purposes, the Fund may invest up to 100% of its total
assets in the following money market securities, denominated in U.S. dollars or
in the currency of any foreign country, issued by entities organized in the
United States or any foreign country: short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) obligations
issued or guaranteed by the U.S. Government or the governments of foreign
countries, their agencies or instrumentalities; finance company and corporate
commercial paper, and other short-term corporate obligations, in each case rated
Prime-1 by Moody's or A or better by S&P or, if unrated, of comparable quality
as determined by the Investment Manager; obligations (including certificates of
deposit, time deposits and bankers' acceptances) of banks; and repurchase
agreements with banks and broker-dealers with respect to such securities.

BORROWING

The Fund may borrow up to one-third of the value of its total assets from banks
to increase its holdings of portfolio securities. Under federal securities law,
the Fund 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 such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may 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.

LOANS OF PORTFOLIO SECURITIES

The Fund may lend to broker-dealers and 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 retain any 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 the collateral falls below the market value of the
borrowed securities.

OPTIONS ON SECURITIES OR INDICES

The Fund may write (i.e., sell) covered put and call options and purchase put
and call options on securities or securities indices that are traded on United
States and foreign exchanges or in the over-the-counter markets. An option on a
security is a contract that permits 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 permits the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option. The Fund may write a call or put option to generate income, and will do
so only if the option is "covered." This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the call, or hold a call at the same or lower exercise price, for the
same exercise period, and on the same securities as the written call. A put is
covered if the Fund maintains liquid assets with a value at least equal to the
exercise price in a segregated account, or holds a put on the same underlying
securities at an equal or greater exercise price. The value of the underlying
securities on which options may be written at any one time will not exceed 15%
of the total assets of the Fund. The Fund will not purchase put or call options
if the aggregate premium paid for such options would exceed 5% of its total
assets at the time of purchase.

FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

T-4

The Fund will generally enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed to
settle the transaction. Second, 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 second
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 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 ability to meet redemption requests. Although forward contracts will be used
primarily to protect the Fund from adverse currency movements, they also involve
the risk that anticipated currency movements will not be accurately predicted.

The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or over-the-
counter. There is no assurance that the Investment Manager's hedging strategies
will be successful.

CLOSED-END INVESTMENT COMPANIES

Some countries, such as South Korea, Chile and India, have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. Subject to federal securities laws, the
Fund may invest in securities of closed-end investment companies. Shares of
certain closed-end investment companies may at times be acquired only at market
prices representing premiums to their net asset values. If the Fund acquires
shares of closed-end investment companies, Shareholders would bear both their
proportionate share of expenses of the Fund (including management and advisory
fees) and, indirectly, the expenses of such closed-end investment companies.

FUTURES CONTRACTS

T-5

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. In addition, when the Fund enters into a futures
contract, it will segregate assets or "cover" its position in accordance with
federal securities laws. See "Investment Objective and Policies -- Futures
Contracts" in the SAI. The Fund may not commit more than 5% of its total assets
to initial margin deposits on futures contracts and related options. The value
of the underlying securities on which futures contracts will be written at any
one time will not exceed 25% of the total assets of the Fund.

REPURCHASE AGREEMENTS

For temporary defensive purposes and for cash management purposes, the Fund may
enter into repurchase agreements with U.S. banks and broker-dealers. Under a
repurchase agreement the Fund acquires a security from a U.S. bank or a
registered broker-dealer who simultaneously 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. Under federal securities
laws, 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 declines,
as well as incur disposition costs in liquidating the security.

DEPOSITARY RECEIPTS

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.

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.

RISK FACTORS

T-6

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.

FOREIGN INVESTMENTS

The Fund has the right 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. 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. Also, some countries may
withhold portions of interest and dividends at the source. 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 increased risk, therefore, of
uninsured loss due to lost, stolen or counterfeit stock certificates. In
addition, the foreign securities markets of any 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.

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.

T-7

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.

HIGH-RISK DEBT SECURITIES

Investments may also be evaluated in the context of economic and political
conditions in the issuer's domicile, such as the inflation rate, growth
prospects, global trade patterns and government policies. In the event the
rating on an issue held in a Fund's portfolio is changed by the rating service,
such change will be considered by the Fund in its evaluation of the overall
investment merits of that security but will not necessarily result in an
automatic sale of the security.

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.

FOREIGN CURRENCY EXCHANGE

LEVERAGE

Leveraging by means of borrowing may 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.

FUTURES CONTRACTS AND RELATED OPTIONS

T-8

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. Successful use of forward contracts, options
and futures contracts is further dependent on the ability of the 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.

PURCHASE OF SHARES

Class 1 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of Insurance Companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the Insurance Company Separate Account for more information on
the purchase of the Fund's Class 1 shares.

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

REDEMPTION OF SHARES

T-9

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

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

Templeton Asset Management Ltd. ("Templeton Singapore"), a Singapore corporation
with offices at 7 Temasek Blvd., #38-03, Suntec Tower One, Singapore 038987.
Templeton Singapore manages the Fund's assets and makes its investment
decisions. Templeton Singapore also performs similar services for other funds.
Templeton Singapore is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together Templeton Singapore and its affiliates manage over $179 billion in
assets. The Templeton organization has been investing globally since 1940.
Templeton Singapore and its affiliates have offices in Argentina, Australia,
Bahamas, Canada, France, Germany, Hong Kong, India, Italy, Luxembourg, Poland,
Russia, Scotland, Singapore, South Africa, U.S., and Vietnam. Please see
"Investment Management and Other Services" and "Brokerage Allocation" in the SAI
for information on securities transactions and a summary of the Fund's Code of
Ethics.

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

J. Mark Mobius, Ph.D.
Managing Director and Portfolio Manager
Templeton Asset Management Ltd.

Dr. Mobius holds a Doctor of Philosophy degree in economics and political
science from the Massachusetts Institute of Technology. He earned his Bachelor's
and Master's degrees from Boston University. He is a member of several
industry-related associations. Dr. Mobius joined the Franklin Templeton Group in
1987 and has managed the Developing Markets Fund from inception.

H. Allan Lam
Portfolio Manager and Analyst
Templeton Asset Management Ltd.

Mr. Lam holds a Bachelor of Arts degree in accounting from Rutgers University.
He has had extensive auditing experience with Deloitte Touche & Tohmatsu and
KPMG Peat Marwick. He joined the Franklin Templeton Group in 1987 and has
managed the Developing Markets Fund from inception.

T-10

Tom Wu
Director, Portfolio Manager, and Analyst
Templeton Asset Management Ltd.

Mr. Wu holds a Master of Business Administration degree from the University of
Oregon. He earned a Bachelor of Social Science Degree in economics from the
University of Hong Kong. Prior to joining the Franklin Templeton Group, in
1987, he was a stockbroker at Vickers da Costa Hong Kong Ltd. He has managed
the Developing Markets Fund from inception.

Dennis Lim
Vice President, Portfolio Manager
Templeton Asset Management Ltd.

Mr. Lim holds a Master of Science degree in Management (Finance Analysis), from
the University of Wisconsin-Milwaukee, (Beta Gamma Sigma, Delta Chapter of
Wisconsin). He earned a Bachelor of Science degree in building engineering from
the National University of Singapore. Prior to joining the Franklin Templeton
Group, in 1990, he worked for the Government of Singapore's Ministry of National
Development. He has managed the Fund since February 1996.

Eddie Chow
Investment Analyst
Templeton Asset Management Ltd.

Mr. Chow holds a Master of Business Administration degree from the University of
Wisconsin-Milwaukee. Prior to joining the Franklin Templeton Group, in 1994, he
worked for many years in the finance and banking industry. He has managed the
Fund since February 1996.

Tek-Khoan Ong
Portfolio Manager
Templeton Asset Management Ltd.

Mr. Ong holds a Masters of Business Administration degree from the Wharton
School, graduating with honors and on the director's list. He earned a Bachelor
of Science degree in computing science and a Bachelor of Science degree, with
honors, both from Imperial College, University of London, UK. Prior to joining
the Franklin Templeton Group, in 1993, he worked for the Monetary Authority of
Singapore (Singapore's central bank) for five years. He has managed the Fund
since February 1996.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, management fees, before any
advance waiver, totaled 1.25% of the Fund's average daily net assets. The fee
paid by the Fund is higher than the advisory fees paid by most other U.S.
investment companies primarily because investing in equity securities in
developing markets, which are not widely followed by professional analysts,
requires the Investment Manager to invest additional time and incur added
expense in developing specialized resources, including research facilities.
During 1996, under an agreement by the Investment Manager to limit its fees,
the Fund paid management fees totaling 1.17% of its average daily net assets.
The Investment Manager does not expect to continue this arrangement in 1997.

PORTFOLIO TRANSACTIONS

Templeton Singapore tries to obtain the best execution on all transactions. If
Templeton Singapore believes more than one broker or dealer can provide the
best execution, consistent with internal policies it may consider research and
related services and the sale of Fund shares, as well as shares of other funds
in the Franklin Templeton Group of Funds, when selecting a broker or dealer.
Please see "Brokerage Allocation" in the SAI for more information.

ADMINISTRATIVE SERVICES

T-11

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses before the management fee waiver described above, were 1.78% of the
Fund's average daily net assets; after this waiver, these expenses were 1.70%
of the Fund's daily average net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

DIVIDENDS AND DISTRIBUTIONS

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"). The Fund so qualifying
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 Statement of Additional Information 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 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.

T-12

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares
of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes in the future.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

T-13

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.

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

The investment results for each class will vary. Performance figures are
always
based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

The Trust's fiscal year ends on December 31. Annual reports containing audited
financial statements of the Fund and semi-annual reports containing unaudited
financial statements, as well as proxy materials are sent to Contract Owners,
annuitants or beneficiaries, as appropriate. Inquiries may be directed to the
Fund at the telephone number or address set forth on the cover page of this
prospectus.

T-14

[LOGO]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
FRANKLIN GROWTH INVESTMENTS FUND
CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Franklin Growth Investments Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 the Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE PAGE
- ----------------- ---- ----
<S> <C> <C> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2 EXCHANGES............................... T-8
DESCRIPTION OF SECURITIES AND INVESTMENT MANAGEMENT OF THE TRUST................. T-8
TECHNIQUES............................... T-2 DIVIDENDS AND DISTRIBUTIONS............. T-9
RISK FACTORS............................. T-5 FEDERAL INCOME TAX STATUS............... T-10
PURCHASE OF SHARES....................... T-7 OTHER INFORMATION....................... T-11
NET ASSET VALUE.......................... T-7 STATEMENTS AND REPORTS.................. T-12
REDEMPTION OF SHARES..................... T-7
- ------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The primary investment objective of the Franklin Growth Investments Fund is
capital appreciation. Current income is only a secondary consideration in
selecting portfolio securities.

Under normal market conditions, the Fund will invest primarily (at least 65% of
assets) in equity securities, including common and preferred stocks, or
securities convertible into common stocks, which are believed to offer
favorable possibilities for capital appreciation, but some of which may yield
little or no current income. The Fund's assets may be invested in shares of
common or capital stock traded on any national securities exchange or over-the-
counter, in convertible securities or, for temporary or defensive purposes, in
cash and money market instruments. From time to time, the Fund may hold
significant cash positions, consistent with its policy on temporary
investments, until suitable investment opportunities are available. Stocks and
other equity securities representing ownership interests in corporations have
historically out performed other asset classes over the long term, but tend to
fluctuate more dramatically over the short term.

The Investment Manager will generally make long-term investments in equity
securities which have been selected based upon fundamental and quantitative
analysis. Following these policies, the Fund will typically invest
predominantly in equity securities issued by large-cap or mid-cap U.S.
companies, which have market capitalizations of $1 billion or more. It may also
invest in smaller capitalization companies, which may be subject to different
and greater risks, but there is no present intention of investing more than 20%
of the Fund's assets in such securities. As an operating policy, the Fund
currently intends to invest no more than 15% of its assets in foreign
securities, including Depositary Receipts.

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.

BORROWING

The Fund may borrow up to 33 1/3% of the value of its net assets to increase
its holdings of portfolio securities. Under federal securities laws, 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.

CONVERTIBLE SECURITIES

The Fund may invest in convertible securities. A convertible security is
generally a debt obligation or preferred stock that may be converted within a
specified period of time into a certain amount of common stock of the same or a
different issuer. A convertible security provides a fixed-income stream and the
opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in its underlying common
stock. As with a straight fixed-income security, a convertible security tends
to increase in market value when interest rates decline and decrease in value
when interest rates rise. Similar to a common stock, the value of a convertible
security tends to increase as the market value of the underlying stock rises,
and it tends to decrease as the market value of the underlying stock declines.
Because its value can be influenced by both interest rate and market movements,
a convertible security is not as sensitive to interest rates as a similar
fixed-income security, nor is it as sensitive to changes in share price as its
underlying stock.

The convertible debt obligations in which the Fund may invest are subject to
the same rating criteria and investment policies as the Fund's investments in
debt obligations.

T-2

DEBT SECURITIES

The Fund does not currently intend to invest more than 5% of its assets in
bonds rated BB or lower by Standard & Poors or Ba or lower by Moody's, or in
unrated bonds of similar quality as determined by the Investment Manager,
commonly referred to as "junk bonds." 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. 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. See "Risk Factors," below. For a description of debt
securities ratings, see the Appendix to the SAI.

DEPOSITARY RECEIPTS

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. 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.

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. 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.

OPTION CONTRACTS

T-3

of its total assets at the time of purchase. In general, the Fund will use
options primarily for hedging purposes, that is, in an attempt to reduce or
control certain types of risks. There is no guarantee, however, that these
transactions will be successful. In addition, these transactions may expose the
Fund to risks related to counterparty creditworthiness, illiquidity, and
increased expenses.

PORTFOLIO TURNOVER

The Fund anticipates its annual portfolio turnover rate generally will not
exceed 100%, but this expected rate is not a limiting factor in the operation
of the Fund's portfolio.

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.

RESTRICTED 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 10% of
the Fund's total assets. Such restriction shall not apply to restricted
securities offered and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act or to foreign securities which are offered or sold outside
the United States where the Managers determine, based upon a continuing review
of the trading markets for the specific restricted security, that such
restricted securities are liquid. For additional details, see the SAI.

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.

TEMPORARY INVESTMENTS

In any period of market weakness or of uncertain market or economic conditions
or while awaiting suitable investment opportunities, the Fund may establish a
temporary defensive position by investing in Money Market Instruments. The Fund
may therefore invest up to 100% of its net assets in short-term debt securities
including, for example, U.S. Government Securities, bank obligations, and the
highest quality commercial paper, or in repurchase agreements, as described
above. The Fund may also invest in non-U.S. currency and short-term instruments
denominated in non-U.S. currencies for temporary defensive purposes.

Any decision to withdraw substantially, and, for a sustained period of time,
from the Fund's investment policies based on its investment objectives, as
described above, will be reviewed by the Board of Trustees. It is not possible
to predict with any certainty when or for how long the Fund will employ
defensive strategies.

T-4

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. The Investment Manager currently expects that such
investments will not exceed 15% of the Fund's assets. 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. 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. Investments in companies domiciled in developing countries
may be subject to potentially higher risks than investments in developed
countries.

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. 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 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.

T-5

investment quality as determined by the Investment Manager. The Fund currently
intends, however, to invest no more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's.

The Fund may have difficulty disposing of certain high yielding obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse
impact on market price, and the Fund's ability to dispose of particular issues,
when necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.

The Fund may invest in relatively new or unseasoned companies which are in
their early stages of development, or small companies positioned in new and
emerging industries where the opportunity for rapid growth is expected to be
above average. These are typically companies which have a market capitalization
of less than $1 billion. Investing in securities of small companies may offer
greater potential for capital appreciation since they are often overlooked by
investors or undervalued in relation to their earnings power. Securities of
unseasoned companies may present greater risks than securities of larger, more
established companies. Small companies may suffer significant losses as well as
realize substantial growth, and investments in such companies tend to be more
volatile and are therefore speculative.

Historically, the small capitalization stocks have been more volatile in price
than the larger capitalization stocks. Among the reasons for the greater price
volatility of these securities are the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of small companies to changing economic conditions. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the net asset value of a Fund
which invests a substantial portion of its net assets in small company stocks
may be more volatile than the shares of a fund that invests solely in larger
capitalization stocks.

Options contracts are subject to special risk considerations and transaction
costs. A liquid secondary market for these 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 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
these 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. 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-6

PURCHASE OF SHARES

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment,
the management of investments, or other considerations. If such a conflict were
to occur, one of the Separate Accounts might withdraw its investment in the
Fund. This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate the Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The assets in the
Fund's portfolio are valued as described under "Purchase, Redemption and
Pricing of Shares" in the SAI.

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.

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might
otherwise hold and also incur the additional costs related to such
transactions.

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

T-7

EXCHANGES

Class 1 shares of the Fund may be exchanged for shares of other funds or
classes available as investment options under the Contracts subject to the
terms of the Contract prospectus. Exchanges are treated as a redemption of
shares of one class or fund and a purchase of shares of one or more of the
other classes or funds and are effected at the respective net asset value per
share of the class 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 BOARD

INVESTMENT MANAGER

Franklin Advisers, Inc., 777 Mariners Island Blvd., San Mateo, California,
94404, is the Investment Manager. The Investment Manager manages the Fund's
assets and makes its investment decisions. Advisers also performs similar
services for other funds. The Investment Manager is wholly owned by Franklin
Resources, Inc. ("Resources"), a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together
Advisers and its affiliates manage over $179 billion in assets. Please see
"Investment Management and Other Services" and "Brokerage Allocation" in the
SAI for information on securities transactions and a summary of the Fund's Code
of Ethics.

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

Conrad B. Herrmann
Portfolio Manager
Franklin Advisers, Inc.

Mr. Herrmann holds a Master of Business Administration degree from Harvard
University and a Bachelor of Arts degree from Brown University. Mr. Herrmann is
a Chartered Financial Analyst, has been with the Franklin Templeton Group since
1989, and prior thereto was Vice President and General Manager of Aquila
Management. He will manage the Fund from inception.

Vivian J. Palmieri
Portfolio Manager
Franklin Advisers, Inc.

Mr. Palmieri holds a Bachelor of Arts degree in economics from Williams
College. He has been with the Franklin Templeton Group since 1965. Mr. Palmieri
will manage the Fund from inception.

Kei Yamamoto
Portfolio Manager
Franklin Advisers, Inc.

Ms. Yamamoto is a Chartered Financial Analyst and has a Master of Science
degree and a Bachelor of Science degree in material science and engineering
from the Massachusetts Institute of Technology. Prior to joining the Franklin
Templeton Group in 1994, Ms Yamamoto worked at Goldman Sachs & Co. as a
financial analyst and at Wasserstein Perella & Co. as an associate and vice
president. Ms Yamamoto will manage the Fund from inception.

T-8

Kevin Carrington
Portfolio Manager
Franklin Advisers, Inc.

Mr. Carrington is a Charter Financial Analyst and holds a Bachelor of Science
degree in business administration from California State University at Chico. He
has been with the Franklin Templeton Group since 1992 and will manage the Fund
from inception.

MANAGEMENT FEES

For its services, the Investment Manager receives a fee equivalent on an annual
basis to 0.60% of the average daily net assets of the Fund, reduced to 0.50% of
such assets in excess of $200 million, to 0.40% of such assets in excess of
$1.3 billion.

PORTFOLIO TRANSACTIONS

The Investment Manager tries to obtain the best execution on all transactions.
If the Investment Manager believes more than one broker or dealer can provide
the best execution, consistent with internal policies it may consider research
and related services and the sale of Fund shares, as well as shares of other
funds in the Franklin Templeton Group of Funds, when selecting a broker or
dealer. Please see "Brokerage Allocation" in the SAI for more information.

ADMINISTRATIVE SERVICES

For its services the Administrator receives a fee equivalent on an annual basis
to 0.15% of the combined average daily net assets of the Fund and other funds
in the Trust, reduced to 0.135% of such assets in excess of $200 million, to
0.10% of such assets in excess of $700 million, and to 0.075% of such assets in
excess of $1.2 billion.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc.,
("Distributors") 700 Central Avenue, St. Petersburg, Florida 33701, toll free
telephone (800) 292-9293.

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

T-9

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.

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.

T-10

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes in the future.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus 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.

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.

T-11

PERFORMANCE INFORMATION

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current
distribution rate shows the dividends or distributions paid to shareholders of
a class. This rate is usually computed by annualizing the dividends paid per
share during a certain period and dividing that amount by the current Net
Asset Value of the class. Unlike current yield, the current distribution rate
may include income distributions from sources other than dividends and
interest received by the Fund. Quotations of yield or total return for a class
of 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.

The investment results for each class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

T-12

[LOGO]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
MUTUAL DISCOVERY INVESTMENTS FUND
CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Mutual Discovery Investments
Fund ("Fund"), a diversified series of Templeton Variable Products Series Fund
(the "Trust"), an open-end, management investment company. It contains
information that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 the Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
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TABLE OF CONTENTS PAGE PAGE
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<S> <C> <C> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2 EXCHANGES............................... T-12
DESCRIPTION OF SECURITIES AND INVESTMENT MANAGEMENT OF THE TRUST................. T-12
TECHNIQUES............................... T-4 DIVIDENDS AND DISTRIBUTIONS............. T-14
RISK FACTORS............................. T-9 FEDERAL INCOME TAX STATUS............... T-14
PURCHASE OF SHARES....................... T-11 OTHER INFORMATION....................... T-15
NET ASSET VALUE.......................... T-12 STATEMENTS AND REPORTS.................. T-17
REDEMPTION OF SHARES..................... T-12 APPENDIX................................ T-17
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</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Mutual Discovery Investments Fund is capital
appreciation.

PORTFOLIO INVESTMENTS

Under normal market conditions, the Fund invests in domestic and foreign equity
securities, including common and preferred stocks and securities convertible
into common stocks, as well as debt obligations of any quality.
Debt obligations may include securities or indebtedness issued by corporations
or governments in any form, including notes, bonds, or debentures, as well as
distressed mortgage obligations and other debt secured by real property. The
Investment Manager has no pre-set limits as to the percentages which may be
invested in equity securities, debt securities or money market instruments. The
Fund may invest in securities from any size issuer, and may invest a
substantial portion of its assets in securities of small capitalization
issuers, which have market capitalizations of less than $1 billion. Securities
of foreign or small cap issuers may be subject to different and greater risks,
as discussed below. The Fund may invest in securities that are traded on
U.S. or foreign exchanges, NASDAQ national market or in the over-the-counter
market. It may invest in any industry sector, although it will not concentrate
in any one industry. From time to time, the Fund may hold significant cash
positions until suitable investment opportunities are available, consistent
with its policy on temporary investments.

The Fund also seeks to invest in securities of domestic and foreign companies
involved in mergers, consolidations, liquidations and reorganizations or as to
which there exist tender or exchange offers, and may participate in such
transactions. The Fund does not presently anticipate investing more than 50% of
its assets in such investments, but is not restricted to that amount. There can
be no assurance that any such transaction proposed at the time of the Fund's
investment will be consummated or will be consummated on the terms and within
the time period contemplated. The Fund may also invest in other forms of
secured or unsecured indebtedness or participations ("Indebtedness"), including
without limitation loan participations and trade claims, of debtor companies
involved in reorganization or financial restructuring, some of which may have
very long maturities. Some of the Indebtedness is illiquid.

SELECTION OF PORTFOLIO INVESTMENTS

The Fund's general policy is to invest in securities which, in the opinion of
its Investment Manager, are available at prices less than their intrinsic
values. The Investment Manager's opinions are based upon analysis and research,
taking into account, among other factors, the relationship of book value to
market value of the securities, cash flow, and multiples of earnings of
comparable securities. These factors are not applied formulaically, as the
Investment Manager examines each security separately; the Investment Manager
has no general criteria as to asset size, earnings or industry type which would
make a security unsuitable for purchase by the Fund.

The Fund generally purchases securities for investment purposes and not for the
purpose of influencing or controlling management of the issuer. However, in
certain circumstances when the Investment Manager perceives that the Fund may
benefit, the Fund may itself seek to influence or control management or may
invest in other entities that purchase securities for the purpose of
influencing or controlling management, such as investing in a potential
takeover or leveraged buyout or investing in other entities engaged in such
practices.

FOREIGN INVESTMENTS

The Fund may purchase securities in any foreign country, developed or
undeveloped, and currently expects to invest up to 50% or more of its total
assets in foreign securities, including sponsored or unsponsored Depositary
Receipts. The Fund presently does not intend to invest more than 5% of its
assets in securities of developing markets including Eastern European countries
and Russia. Foreign investments may include both voting and non-voting
securities, sovereign debt and participation in foreign government deals. The
Fund's investments in foreign securities involve risks related to currency
fluctuations, market volatility, and economic, social, and political
uncertainty that are different from investing in similar domestic securities.
Investments in foreign developing markets involve heightened risks relating to
the smaller size and lesser liquidity of those markets. Investors should
consider carefully the substantial risks involved in investing in foreign
securities, risks that are heightened in developing markets. See "Risk Factors"
below and in the SAI.

CURRENCY TECHNIQUES

T-2

currency futures, forward foreign currency exchange contracts ("forward
contracts") and currency swaps, all of which involve specialized risks. See
"RISK FACTORS."

RISKS ASSOCIATED WITH SMALL CAP INVESTMENTS

Securities of smaller companies, particularly if they are unseasoned, present
greater risks than securities of larger, more established companies. The
smaller companies in which the Fund invests are often not well known, may often
trade at a discount and may not be followed by institutions. The companies may
have relatively small revenues, limited product lines, and a small share of the
market for their products or services. Small cap companies may lack depth of
management, they may be unable to internally generate funds necessary for
growth or potential development or to generate such funds through external
financing on favorable terms, or they may be developing or marketing new
products or services for which markets are not yet established and may never
become established. Due to these and other factors, small cap companies may
suffer significant losses as well as realize substantial growth, and
investments in such companies tend to be more volatile and are therefore
speculative. Besides exhibiting greater volatility, small cap company stocks
may fluctuate independently of larger company stocks. See also "Risk Factors."

CREDIT QUALITY

Debt obligations (including Indebtedness) in which the Fund invests may be
rated or unrated and, if rated, ratings may range from the very highest to the
very lowest categories (currently C for Moody's and D for S&P). Medium and
lower-rated debt obligations are commonly referred to as "junk bonds." In
general, it will invest in these instruments for the same reasons underlying
its investments in equity securities, i.e., that the instruments are available,
in the Investment Manager's opinion, at prices less than their intrinsic
values. Consequently, the Investment Manager's own analysis of a debt
instrument exercises a greater influence over the investment decision than the
stated coupon rate or credit rating. The Fund expects to invest in debt
obligations issued by reorganizing or restructuring companies, or companies
which recently emerged from, or are facing the prospect of a financial
restructuring. It is under these circumstances, which usually involve unrated
or low rated securities that are often in, or are about to, default, that the
Investment Manager seeks to identify securities which are sometimes available
at prices which it believes are less than their intrinsic values. The purchase
of Indebtedness of a troubled company always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may be
lost. However, the debt securities of reorganizing or restructuring companies
typically rank senior to the equity securities of such companies.

Higher yields are generally available from securities in the higher risk, 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 and
involve greater risk of loss of income and principal. Moreover, securities
rated BB or lower by S&P or Ba or lower by Moody's are predominantly
speculative with respect to the issuer's ability to pay principal and interest
and may be in default. In addition, the secondary market for these securities
may be less liquid and market quotations less readily available than higher
rated securities, thereby increasing the degree to which judgment plays a role
in valuing such securities. Because of the Fund's policy of investing in lower
rated, higher risk debt obligations, an investment in the Fund is accompanied
by a higher degree of risk than is present with an investment in higher rated,
lower yielding obligations. Accordingly, investors considering the Fund should
evaluate their overall investment goals and tolerance for risk. See "Risk
Factors" and Appendix.

DEFAULTED DEBT OBLIGATIONS

The Fund may invest without limit in defaulted debt obligations, subject to the
Fund's restriction on investments in illiquid securities. Defaulted debt
obligations may be considered speculative. See the discussion above under
"Credit Quality" for the circumstances under which the Fund generally invests
in defaulted debt obligations.

OTHER INVESTMENT POLICIES

T-3

than 10% of its assets in investment company securities. Investors should
recognize that an investment in the securities of such investment companies
results in layering of expenses such that investors indirectly bear a
proportionate share of the expenses of such investment companies, including
operating costs, and investment advisory and administrative fees. The Fund may
also sell short securities it does not own up to 5% of its assets. Short sales
have risks of loss if the price of the security sold short increases after the
sale, but the Fund can profit if the price decreases. The Fund may also sell
securities "short against the box" (i.e., securities which the Fund owns or has
the immediate and unconditional right to acquire at no additional cost) without
limit. See the SAI for further details concerning short sales.

Under the policies discussed in "Description of Securities and Investment
Techniques," "Risk Factors," and in the SAI, the Fund may also loan its
portfolio securities; enter into repurchase transactions; purchase securities
and debt obligations on a "when-issued" or "delayed delivery" basis; invest in
restricted or illiquid securities; purchase and sell exchange-listed and over-
the-counter put and call options on securities, equity and fixed-income indices
and other financial instruments; purchase and sell financial futures contracts
and options thereon; and engage in other activities specifically identified for
this Fund.

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.

BORROWING

The Fund may borrow up to 33 1/3% of the value of its net assets to increase
its holdings of portfolio securities or for temporary purposes. Under federal
securities laws, 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.

CONVERTIBLE SECURITIES

A convertible security is usually issued either by an operating company or by
an investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of fixed-
income securities issued by that company. When a convertible security issued by
an operating company is "converted," the operating company often issues new
stock to the holder of the convertible security but, if the parity price of the
convertible security is less than the call price, the operating company may pay
out cash instead of common stock. If the convertible security is issued by an
investment bank, the security is an obligation of and is convertible through
the issuing investment bank.

The convertible debt obligations in which the Fund may invest are subject to
the same rating criteria and investment policies as the Fund's investments in
debt obligations. The issuer of a convertible security may be important in
determining the security's market value. This is because the holder of a
convertible security will have recourse only to the issuer. In addition, a
convertible security may be subject to redemption by the issuer, but only after
a specified date and under circumstances established at the time the security
is issued.

T-4

However, unlike convertible debt obligations, convertible preferred stocks are
equity securities. As with common stocks, preferred stocks are subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to
make a dividend payment is generally not an event of default entitling the
preferred shareholder to take action. A preferred stock generally has no
maturity date, so that its market value is dependent on the issuer's business
prospects for an indefinite period of time. In addition, distributions from
preferred stock are dividends, rather than interest payments, and are usually
treated as such for corporate tax purposes. For these reasons, convertible
preferred stocks are treated as preferred stocks for the Fund's financial
reporting, credit rating, and investment limitation purposes.

DEBT SECURITIES

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. 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. See "Risk Factors," below. For a
description of debt securities ratings, see the Appendix.

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.

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
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.

COMMERCIAL PAPER

The Fund may invest in commercial paper, regardless of its rating. Commercial
paper includes short-term unsecured promissory notes issued or guaranteed by
domestic or foreign corporations with a maximum maturity of 270 days. See the
Appendix in the SAI for a description of credit ratings.

T-5

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.

DEPOSITARY RECEIPTS

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 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. There is no assurance that the Investment Manager's hedging
strategies will be successful.

T-6

LOAN PARTICIPATIONS

The Fund may acquire loan participations and other direct or indirect bank
obligations ("Loan Participations"), in which it will purchase from a lender a
portion of a larger loan which the lender has made to a borrower. Generally
Loan Participations are sold without guarantee or recourse to the lending
institution, and are subject to the credit risks of both the borrower and the
lending institution. They may enable the Fund to acquire an interest in a loan
from a financially strong borrower which it could not do directly. While Loan
Participations generally trade at par value, the Fund may buy Loan
Participations that sell at a discount because of the borrower's credit
problems. To the extent the borrower's credit problems are resolved, the loan
participations may appreciate in value. Loan Participations may have
speculative characteristics, and may be illiquid and/or in default.

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. 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.

OPTIONS AND FUTURES CONTRACTS

The Fund may invest in purchase and sell exchange-listed and over-the-counter
put and call options on securities, equity and fixed-income indices and other
financial instruments, and may purchase and sell financial futures contracts
and options thereon. The value of the underlying securities on which options
may be written at any one time will not exceed 15% of the total assets of the
Fund. The Fund will not purchase put or call options if the aggregate premiums
paid for such options would exceed 5% of its total assets at the time of
purchase.

The Fund will not purchase or sell futures contracts or options on futures
contracts if immediately thereafter the aggregate amount of initial margin
deposits on all the futures positions of the Fund and premiums paid on options
on futures contracts would exceed 5% of the market value of the total assets of
the Fund.

In general, the Fund will use futures and options primarily for hedging
purposes, that is, in an attempt to reduce or control certain types of risks.
There is no guarantee, however, that these transactions will be successful. In
addition, these transactions may expose the Fund to risks related to
counterparty creditworthiness, illiquidity, and increased expenses. A detailed
discussion of these transactions and their risks appears in the SAI. The Fund
does not currently expect to make significant use of these transactions, except
to manage currency risk.

PORTFOLIO TURNOVER

The Fund anticipates its annual portfolio turnover rate generally will not
exceed 100%, but thus expected rate is not a limiting factor in the operation
of the Fund's portfolio.

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.

T-7

RESTRICTED SECURITIES

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. Such restriction shall not
apply to restricted securities offered and sold to "qualified institutional
buyers" under Rule 144A under the 1933 Act or to foreign securities which are
offered or sold outside the United States where the Managers determine, based
upon a continuing review of the trading markets for the specific restricted
security, that such restricted securities are liquid. For additional details,
see the SAI.

TEMPORARY INVESTMENTS

In any period of market weakness or of uncertain market or economic conditions
or while awaiting suitable investment opportunities, the Fund may establish a
temporary defensive position by investing in money market instruments and
short-term debt securities including, for example, U.S. Government Securities,
bank obligations, and the highest quality commercial paper, or in repurchase
agreements, as described above. The Fund may also invest in non-U.S. currency
and short-term instruments denominated in non-U.S. currencies for temporary
defensive purposes.

TRADE CLAIMS

Trade claims are purchased from creditors of companies in financial difficulty
who seek to reduce the number of debt obligations they are owed. Such trade
creditors generally sell their claims in an attempt to improve their balance
sheets and reduce uncertainty regarding payments. For purchasers, trade claims
offer the potential for profits since they are often purchased at a
significantly discounted value and, consequently, have the potential for higher
income and capital appreciation should the debt issuer's financial position
improve. Trade claims are generally liquid as there is a secondary market but
the Board of Trustees will monitor their liquidity.

An investment in trade claims is speculative and there can be no guarantee that
the debt issuer will ever be able to satisfy the obligation. Further, trading
in trade claims is not regulated by federal securities laws but primarily by
bankruptcy laws and commercial laws. Because trade claims are unsecured
obligations, holders may have a lower priority than secured or preferred
creditors.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

T-8

investment objectives and policies, and not for the purpose of investment
leverage. Nonetheless, purchases of securities on such basis may involve more
risk than other types of purchases, for example, counterparty delivery risk. If
the seller fails to complete the transaction, the Fund may miss a price or
yield considered advantageous.

RISK FACTORS

GENERAL

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.

FOREIGN INVESTMENTS

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.

T-9

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.

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.

LOWER RATED DEBT OBLIGATIONS

The Fund may have difficulty disposing of certain lower rated obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse
impact on market price, and the Fund's ability to dispose of particular issues,
when necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.

T-10

SMALL CAPITALIZATION ISSUERS

The Fund may invest in securities of small capitalization companies which have
market capitalizations of less than $1 billion. Investing in securities of
small companies may offer greater potential for capital appreciation since they
are often overlooked by investors or undervalued in relation to their earnings
power. Securities of unseasoned companies may present greater risks than
securities of larger, more established companies. Small companies may suffer
significant losses as well as realize substantial growth, and investments in
such companies tend to be more volatile and are therefore speculative.

OTHER RISKS

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 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.

PURCHASE OF SHARES

Class 1 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the insurance company Separate Account for more information
on the purchase of Fund's Class 1 shares.

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
insurance company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment,
the management of investments, or other considerations. If such a conflict were
to occur, one of the Separate Accounts might withdraw its investment in the
Fund. This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

T-11

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate the Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The assets in the
Fund's portfolio are valued as described under "Purchase, Redemption and
Pricing of Shares" in the SAI.

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.

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might
otherwise hold and also incur the additional costs related to such
transactions.

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

EXCHANGES

Class 1 shares of the Fund may be exchanged for shares of other funds or
classes available as investment options under the Contracts subject to the
terms of the Contract prospectus. Exchanges are treated as a redemption of
shares of one fund and a purchase of shares of one or more of the other funds
and are effected at the respective net asset value per share of the class 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 BOARD

INVESTMENT MANAGER

Franklin Mutual Advisers, Inc., 51 John F. Kennedy Parkway, Short Hills, New
Jersey, 07078 is the Investment Manager. The Investment Manager manages the
Fund's assets and makes its investment decisions. The Investment Manager also
performs similar services for other funds. The Investment Manager is wholly
owned by Franklin Resources, Inc. ("Resources"), a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together the Investment Manager and its affiliates manage over $179 billion in
assets. Please see "Investment Management and Other Services" and "Brokerage
Allocation" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.

T-12

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

Michael F. Price
Chief Executive Officer and President
Franklin Mutual Advisers, Inc.

Mr. Price has a Bachelor of Arts degree in business administration from the
University of Oklahoma. Prior to November 1996, Mr. Price was President and
Chairman of Heine Securities Corporation, an investment adviser acquired by
Resources, for at least 5 years. He became Chief Executive Officer of Franklin
Mutual in November 1996 and will manage the Fund from inception.

Peter Langerman
Senior Vice President
Franklin Mutual Advisers, Inc.

Mr. Langerman has a Bachelor of Arts degree from Yale University, a Masters in
Science from New York University Graduate School of Business and a Juris Doctor
from Stanford University Law School. Prior to November 1996, he was a Research
Analyst for Heine Securities Corporation, an investment adviser acquired by
Resources, for at least 5 years. He joined the Franklin Templeton Group in
November 1996 and will manage the Fund from inception.

Jeffrey Altman
Senior Vice President
Franklin Mutual Advisers, Inc.

Mr. Altman has a Bachelor of Science degree from Tulane University. Prior to
October 1996, Mr. Altman was employed as a Research Analyst and Trader for
Heine Securities Corporation, an investment adviser acquired by Resources, for
at least 5 years. He joined the Franklin Templeton Group in November 1996 and
will manage the Fund from inception.

Robert Friedman
Senior Vice President
Franklin Mutual Advisers, Inc.

Mr. Friedman has a Bachelor of Arts degree in humanities from the John Hopkins
University and a Masters in Business Administration from the Wharton School,
University of Pennsylvania. Prior to November 1996, Mr. Friedman was a Research
Analyst for Heine Securities Corporation, an investment adviser acquired by
Resources, for at least 5 years. He joined the Franklin Templeton Group in
November 1996 and will manage the Fund from inception.

Raymond Garea
Senior Vice President
Franklin Mutual Advisers, Inc.

Mr. Garea has a Bachelor of Science degree in engineering from Case Institute
of Technology and a Masters in Business Administration from the University of
Michigan. Prior to November 1996, he was a Research Analyst for Heine
Securities Corporation, an investment adviser acquired by Resources, for at
least 5 years. He joined the Franklin Templeton Group in November 1996 and will
manage the Fund from inception.

Lawrence Sondike
Senior Vice President
Franklin Mutual Advisers, Inc.

Mr. Sondike has a Bachelor of Arts degree from Cornell University and a Masters
in Business Administration from New York University Graduate School of
Business. Prior to November 1996, he was a Research Analyst for Heine
Securities Corporation, an investment adviser acquired by Resources, for at
least 5 years. He joined the Franklin Templeton Group in November 1996, and
will manage the Fund from inception.

T-13

MANAGEMENT FEES

For its services, the Investment Manager receives a fee equivalent on an annual
basis to 0.80% of the average daily net assets of the Fund.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors
("Distributors"), Inc., P.O. Box 33030700 Central Avenue, St. Petersburg,
Florida 33733-803001, toll free telephone (800) 292-9293.

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

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).

T-14

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.

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the FundTempleton Money Market Fund and Class 1
Shares of the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of
Trustees may establish additional funds or classes in the future.

T-15

the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each
class will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by federal securities law.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus 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.

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

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current
distribution rate shows the dividends or distributions paid to shareholders of
a class. This rate is usually computed by annualizing the dividends paid per
share during a certain period and dividing that amount by the current
Net Asset Value of the class. Unlike current yield, the current distribution
rate may include income distributions from sources other than dividends and
interest received by the Fund. Quotations of yield or total return for a class
of 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.

The investment results for each class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

T-16

APPENDIX

DESCRIPTION OF BOND RATINGS*

MOODY'S

Aaa--Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-
edged." Interest payments are protected by a large or 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 rated Aa are judged to be of high quality by all standards. Together
with the 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, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.

A--Bonds rated A possess many favorable investment attributes and are
considered 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 sometime in the future.

Baa--Bonds rated Baa are considered medium grade obligations. 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 rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

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

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

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

C--Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

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

S&P

AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

T-17

BB, B, CCC, CC--Bonds rated BB, B, CCC and CC 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 obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C--Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC-rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D--Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S

Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are 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. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger likelihood
of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have 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.

[LOGO]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
MUTUAL SHARES INVESTMENTS FUND
CLASS 1 SHARES

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

This Prospectus offers only Class 1 shares of Mutual Shares Investments Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 The Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE PAGE
- ----------------- ---- ----
<S> <C> <C> <C>
INVESTMENT OBJECTIVE AND POLICIES.. T-2 EXCHANGES......................... T-12
DESCRIPTION OF SECURITIES AND MANAGEMENT OF THE TRUST........... T-12
INVESTMENT TECHNIQUES.............. T-4 DIVIDENDS AND DISTRIBUTIONS....... T-14
RISK FACTORS....................... T-9 FEDERAL INCOME TAX STATUS......... T-14
PURCHASE OF SHARES................. T-11 OTHER INFORMATION................. T-15
NET ASSET VALUE.................... T-11 STATEMENTS AND REPORTS............ T-16
REDEMPTION OF SHARES............... T-11 APPENDIX.......................... T-17
- -------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The principal investment objective of the Mutual Shares Investments Fund is
capital appreciation, with income as a secondary objective.

PORTFOLIO INVESTMENTS

Under normal market conditions, the Fund invests primarily in domestic equity
securities, including common and preferred stocks and securities convertible
into common stocks, as well as debt obligations of any quality. Debt
obligations may include securities or indebtedness issued by corporations or
governments in any form, including notes, bonds, or debentures, as well as
distressed mortgage obligations and other debt secured by real property. The
Investment Manager has no pre-set limits as to the percentages which may be
invested in equity securities, debt securities or money market instruments. The
Fund may invest in securities from any size issuer, including smaller
capitalization companies, which may be subject to different and greater risks.
See "Risk Factors, Small Capitalization Issuers." It will tend to invest,
however, in securities of issuers with market capitalizations in excess of $500
million. It may invest in securities that are traded on U.S. or foreign
exchanges, NASDAQ national market or in the over-the-counter market. It may
invest in any industry sector, although it will not concentrate in any one
industry. From time to time, the Fund may hold significant cash positions,
consistent with its policy on temporary investments, until suitable investment
opportunities are available.

The Fund also seeks to invest in securities of domestic and foreign companies
involved in mergers, consolidations, liquidations and reorganizations or as to
which there exist tender or exchange offers, and may participate in such
transactions. The Fund does not presently anticipate investing more than 50% of
its assets in such investments, but is not restricted to that amount. There can
be no assurance that any such transaction proposed at the time of the Fund's
investment will be consummated or will be consummated on the terms and within
the time period contemplated. The Fund may also invest in other forms of
secured or unsecured indebtedness or participations ("Indebtedness"), including
without limitation, loan participations and trade claims, of debtor companies
involved in reorganization or financial restructuring, some of which may have
very long maturities. Some of the Indebtedness is illiquid.

SELECTION OF PORTFOLIO INVESTMENTS

The Fund's general policy is to invest in securities which, in the opinion of
the Investment Manager, are available at prices less than their intrinsic
values. The Investment Manager's opinions are based upon analysis and research,
taking into account, among other factors, the relationship of book value to
market value of the securities, cash flow, and multiples of earnings of
comparable securities. These factors are not applied formulaically, as the
Investment Manager examines each security separately; the Investment Manager
has no general criteria as to asset size, earnings or industry type which would
make a security unsuitable for purchase by the Fund.

CREDIT QUALITY

T-2

always involves a risk as to the creditworthiness of the issuer and the
possibility that the investment may be lost. However, the debt securities of
reorganizing or restructuring companies typically rank senior to the equity
securities of such companies.

Higher yields are generally available from securities in the higher risk, 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 and
involve greater risk of loss of income and principal. Moreover, securities
rated BB or lower by S&P or Ba or lower by Moody's are predominantly
speculative with respect to the issuer's ability to pay principal and interest
and may be in default. In addition, the secondary market for these securities
may be less liquid and market quotations less readily available than higher
rated securities, thereby increasing the degree to which judgment plays a role
in valuing such securities. Because of the Fund's policy of investing in lower
rated, higher risk debt obligations, an investment in the Fund is accompanied
by a higher degree of risk than is present with an investment in higher rated,
lower yielding obligations. Accordingly, investors considering the Fund should
evaluate their overall investment goals and tolerance for risk. See "Risk
Factors" and Appendix.

DEFAULTED DEBT OBLIGATIONS

FOREIGN INVESTMENTS

Although the Fund reserves the right to purchase securities in any foreign
country, developed or undeveloped, the Fund's current investment strategy is to
invest primarily in domestic securities, with no more than 10% of its total
assets in foreign securities, including sponsored or unsponsored Depository
Receipts. The Fund presently does not intend to invest more than 5% of its
assets in securities of developing markets including Eastern European countries
and Russia. Foreign investments may include both voting and non-voting
securities, sovereign debt and participation in foreign government deals. The
Fund's investments in foreign securities involve risks related to currency
fluctuations and political uncertainty. See "Risk Factors" below and the SAI.

CURRENCY TECHNIQUES

The Fund generally expects to hedge against currency risks to the extent that
hedging is available. Currency hedging techniques may include investments in
foreign currency futures contracts, options on foreign currencies or currency
futures, forward foreign currency exchange contracts ("forward contracts") and
currency swaps, all of which involve specialized risks. See "Risk Factors."

OTHER INVESTMENT POLICIES

While the Fund may not purchase securities of registered open-end investment
companies or affiliated investment companies, it may invest from time to time
in other investment company securities subject to the limitation that it will
not purchase more than 3% of the voting securities of another investment
company. In addition, the Fund will not invest more than 5% of its assets in
the securities of any single investment company and will not invest more than
10% of its assets in investment company securities. Investors should recognize
that an investment in the securities of such investment companies results in
layering of expenses such that investors indirectly bear a proportionate share
of the expenses of such investment companies, including operating costs, and
investment advisory and administrative fees. The Fund may also sell short
securities it does not own up to 5% of its assets. Short sales have risks of
loss if the price of the security sold short increases after the sale, but the
Fund can profit if the price decreases. The Fund may also sell securities
"short against the box" (i.e., securities which the Fund owns or has the
immediate and unconditional right to acquire at no additional cost) without
limit. See the SAI for further details concerning short sales.

T-3

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.

BORROWING

CONVERTIBLE SECURITIES

T-4

DEBT SECURITIES

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.

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
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.

COMMERCIAL PAPER

U.S. GOVERNMENT SECURITIES

T-5

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.

DEPOSITARY RECEIPTS

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

The relative performance of foreign currencies in which securities held by the
Fund are denominated can be a factor in the Fund's overall performance. The
Investment Manager, may make extensive use of forward currency exchange
contracts or options on currencies for hedging purposes.

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 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. There is no assurance that the Investment Manager's hedging
strategies will be successful.

LOAN PARTICIPATIONS

T-6

value, the Fund may buy Loan Participations that sell at a discount because of
the borrower's credit problems. To the extent the borrower's credit problems
are resolved, the loan participations may appreciate in value. Loan
Participations may have speculative characteristics and may be illiquid and/or
in default.

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. 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.

OPTIONS AND FUTURES CONTRACTS

PORTFOLIO TURNOVER

The Fund anticipates its annual portfolio turnover rate generally will not
exceed 100%, but thus expected rate is not a limiting factor in the operation
of the Fund's portfolio.

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.

RESTRICTED SECURITIES

T-7

"qualified institutional buyers" under Rule 144A under the 1933 Act or to
foreign securities which are offered or sold outside the United States where
the Managers determine, based upon a continuing review of the trading markets
for the specific restricted security, that such restricted securities are
liquid. For additional details, see the SAI.

TEMPORARY INVESTMENTS

In any period of market weakness or of uncertain market or economic conditions
or while awaiting suitable investment opportunities, the Fund may establish a
temporary defensive position by investing in money market instruments and
short-term debt securities including, for example, U.S. Government Securities,
bank obligations, and the highest quality commercial paper, or in repurchase
agreements, as described above. The Fund may also invest in non-U.S. currency
and short-term instruments denominated in non-U.S. currencies for temporary
defensive purposes.

TRADE CLAIMS

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase securities and debt obligations on a "when-issued" or
"delayed delivery" basis (in the case of GNMA Certificates, a "To-Be-Announced"
basis). Such securities are subject to market fluctuations prior to delivery to
the Fund and generally do not earn interest until their scheduled delivery
date. When the Fund is the buyer in such transactions, it will segregate cash
or liquid securities, having an aggregate value equal to the amount of such
purchase commitments until payment is made. To the extent the Fund engages in
when-issued and delayed delivery transactions, it will do so only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objectives and policies, and not for the purpose of investment leverage.
Nonetheless, purchases of securities on such basis may involve more risk than
other types of purchases, for example, counterparty delivery risk. If the
seller fails to complete the transaction, the Fund may miss a price or yield
considered advantageous.

T-8

RISK FACTORS

GENERAL

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.

FOREIGN INVESTMENTS

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. 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. Investments in companies domiciled
in developing countries therefore may be subject to potentially higher risks
than investments in developed countries.

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. 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 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.

T-9

LOWER RATED DEBT OBLIGATIONS

The Fund may have difficulty disposing of certain lower-rated obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse
impact on market price, and the Fund's ability to dispose of particular issues,
when necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.

SMALL CAPITALIZATION ISSUERS

OTHER RISKS

T-10

PURCHASE OF SHARES

Class 1 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the insurance company Separate Account for more information
on the purchase of the Fund's Class 1 shares.

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment,
the management of investments, or other considerations. If such a conflict were
to occur, one of the Separate Accounts might withdraw its investment in the
Fund. This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 1 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate the Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The assets in the
Fund's portfolio are valued as described under "Purchase, Redemption and
Pricing of Shares" in the SAI.

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.

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might
otherwise hold and also incur the additional costs related to such
transactions.

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

T-11

EXCHANGES

MANAGEMENT OF THE TRUST

THE BOARD

Board oversees the management of the Fund and elects its officers. The officers
are responsible for the Fund's day-to-day operations. The Board also monitors
the Fund to ensure no material conflicts exist among the classes of shares.
While none is expected, the Board will act appropriately to resolve any
material conflict that may arise.

INVESTMENT MANAGER

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

Michael F. Price Chief Executive Officer and President Franklin Mutual
Advisers, Inc.

Peter Langerman Senior Vice President Franklin Mutual Advisers, Inc.

Jeffrey Altman Senior Vice President Franklin Mutual Advisers, Inc.

T-12

Robert Friedman Senior Vice President Franklin Mutual Advisers, Inc.

Raymond Garea Senior Vice President Franklin Mutual Advisers, Inc.

Lawrence Sondike Senior Vice President Franklin Mutual Advisers, Inc.

MANAGEMENT FEES

For its services, the Investment Manager receives a fee equivalent on an annual
basis to 0.60% of the average daily net assets of the Fund.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors
("Distributors"), Inc., 700 Central Avenue, St. Petersburg, Florida 33701, toll
free telephone (800) 292-9293.

T-13

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

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.

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.

T-14

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

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes in the future.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus 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.

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.

T-15

PERFORMANCE INFORMATION

The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

T-16

APPENDIX

DESCRIPTION OF BOND RATINGS*

MOODY'S

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

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

C--Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

S&P

AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

T-17

BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C--Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D--Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger likelihood
of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

T-18

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS--MAY 1, 1997
TEMPLETON BOND FUND
CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Templeton Bond Fund ("Fund"), a
diversified series of Templeton Variable Products Series Fund (the "Trust"),
an open-end, management investment company. It contains information that a
prospective investor should know before investing.

The Fund has two classes of shares: Class 1 and Class 2. This prospectus
offers only Class 2 shares and is for use with Contracts that make Class 2
shares available. For more information about the Fund's classes, see "Other
Information--Capitalization and Voting Rights," below.

A statement of additional information ("SAI") dated May 1, 1997, 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 the trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.
<TABLE>

<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-3
RISK FACTORS............................. T-7
PURCHASE OF SHARES....................... T-10
NET ASSET VALUE.......................... T-10
REDEMPTION OF SHARES..................... T-10
EXCHANGES................................ T-11
MANAGEMENT OF THE TRUST.................. T-11
DIVIDENDS AND DISTRIBUTIONS.............. T-12
FEDERAL INCOME TAX STATUS................ T-12
OTHER INFORMATION........................ T-13
- --------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The average maturity of debt securities in the Fund's portfolio will fluctuate
depending upon TGBM's judgment as to future interest rate changes.

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

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

T-3

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")

BANK OBLIGATIONS

COMMERCIAL PAPER

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C by Moody's
or, if unrated, are of equivalent investment quality as determined by the
Investment Manager. 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 or other advantageous developments appear
likely in the future. The Fund will not invest more than 10% of its total assets
in defaulted debt securities, which may be illiquid. 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.

T-4

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

WHEN-ISSUED SECURITIES

LOANS OF PORTFOLIO SECURITIES

T-5

DEPOSITARY RECEIPTS

FUTURES CONTRACTS

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

T-6

RISK FACTORS

T-7

T-8

S&P

*Figures include securities, which are unrated by S&P, as follows:

It should be noted that the above ratings are not necessarily indicative of
ratings of bonds at the time of purchase.

T-9

PURCHASE OF SHARES

Class 2 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the Insurance Company Separate Account for more information on
the purchase of the Fund's Class 2 shares.

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

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-10

EXCHANGES

Class 2 shares of the Fund may be exchanged for shares of other funds or
classes available as investment options under the Contracts subject to the
terms of the Contract prospectus. Exchanges are treated as a redemption of
shares of one class or fund and a purchase of shares of one or more of the
other classes or funds and are effected at the respective net asset value per
share of the class 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 BOARD

INVESTMENT MANAGER

PORTFOLIO MANAGEMENT

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, the Fund paid 0.50% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

T-11

sale of Fund shares, as well as shares of other funds in the Franklin Templeton
Group of Funds, when selecting a broker or dealer. Please see "Brokerage
Allocation" in the SAI for more information.

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.68% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which it
may pay Distributors, the Insurance Companies or others for activities primarily
intended to sell Class 2 shares or Contracts offering the Class 2 shares.
Payments made under the Plan may be used for, among other things, the printing
of prospectuses and reports used for sales purposes, preparing and distributing
sales literature and related expenses, advertisements, education of contract
owners or dealers and their representatives, and other distribution related
expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.15%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

DIVIDENDS AND DISTRIBUTIONS

FEDERAL INCOME TAX STATUS

T-12

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

T-13

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.

PERFORMANCE INFORMATION

STATEMENTS AND REPORTS

T-14

(THIS PAGE INTENTIONALLY LEFT BLANK)

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON INTERNATIONAL FUND

CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Templeton International Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

The Fund has two classes of shares: Class 1 and Class 2. This prospectus
offers only Class 2 shares, which became available May 1, 1997, and is for use
with Contacts that make Class 2 shares available. For more information about
the Fund's classes, see "Other Information--Capitalization and Voting Rights,"
below.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES................ T-2
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES....................................... T-2
RISK FACTORS..................................... T-5
PURCHASE OF SHARES............................... T-7
NET ASSET VALUE.................................. T-8
REDEMPTION OF SHARES............................. T-8
EXCHANGES....................................... T-8
MANAGEMENT OF THE TRUST......................... T-8
DISTRIBUTION PLAN............................... T-10
DIVIDENDS AND DISTRIBUTIONS..................... T-10
FEDERAL INCOME TAX STATUS....................... T-10
OTHER INFORMATION............................... T-11
- --------------------------------------------------------------------------------------
</TABLE>

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 will invest predominantly in equity
securities issued by large-cap and mid-cap companies. Large-cap companies are
those which have market capitalizations of $5 billion or more; mid-cap companies
are those which have market capitalizations of $1 billion to $5 billion. It may
also invest to a lesser degree in smaller capitalization companies, which may be
subject to different and greater risks. See "Risk Factors," below.

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.

The Fund is subject to investment restrictions that are described under the
heading "Investment Restrictions" in the Statement of Additional Information.

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

U.S. GOVERNMENT SECURITIES

T-2

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

COMMERCIAL PAPER

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C 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 or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. 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 or other advantageous developments appear
likely in the near future. As a fundamental policy, the Fund will not invest
more than 10% of its total assets in defaulted debt securities, which may be
illiquid. 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. Issuers of bonds rated Ca may often be in default. 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 determine 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. Many debt obligations of foreign issuers, and especially developing
markets issuers, are either (i) rated below investment grade or (ii) not rated
by U.S. rating agencies so that their selection depends on the Investment
Manager's individual analysis.

T-3

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 federal securities law, 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

LOANS OF PORTFOLIO SECURITIES

RESTRICTED SECURITIES

T-4

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.

RISK FACTORS

T-5

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 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.

T-6

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.

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 D by S&P, and between
Baa and as low as C 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. The market value of junk bonds tends to reflect individual
developments affecting the issuer to a greater extent than the market value of
higher rated obligations, which react primarily to fluctuations in the general
level of interest rates. Lower rated obligations tend to be more sensitive to
economic conditions. The Fund may have difficulty disposing of certain high
yielding obligations because there may be a thin trading market for a
particular obligation at any given time. Reduced liquidity in the secondary
market may have an adverse impact on market price, and the Fund's ability to
dispose of particular issues, when necessary, to meet the Fund's liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer. Reduced liquidity may also make it more
difficult for the Fund to obtain market quotations based on actual trades for
purposes of valuing the Fund's portfolio. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings.

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 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.

PURCHASE OF SHARES

T-7

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

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

MANAGEMENT OF THE TRUST

THE BOARD

T-8

INVESTMENT MANAGER

PORTFOLIO MANAGEMENT

The lead portfolio manager for the Fund since July 1996 is Peter Nori. Mr. Nori,
Vice President of TICI, 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 has exercised secondary
portfolio management responsibilities for the Fund since 1995. Mr. Nori's
current responsibilities include covering the data processing/software, textile
and apparel stocks, steel stocks and country coverage of Austria. He holds a
B.A.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. Gary Motyl and
Stephen Oler exercise secondary portfolio management responsibilities. Mr.
Motyl, Executive Vice President and Director of TICI, has been a security
analyst and portfolio manager with TICI since 1981. His research
responsibilities include the global automobile industry and country coverage of
Germany. Prior to joining the Templeton organization, Mr. Motyl worked from 1974
to 1979 as a security analyst with Standard & Poor's Corporation,and from 1979
to 1981 was a research analyst and portfolio manager with Landmark First
National Bank. Mr. Motyl holds a B.S. degree in Finance from Lehigh University
and an M.B.A.from Pace University and is a Chartered Financial Analyst. Mr.Oler,
Vice President of TICI, is a portfolio manager and research analyst whose
research responsibilities include industry coverage of the global non-life
insurance industry and country coverage of Mexico and Greece. Before joining the
Templeton organization in 1996, Mr. Oler was a senior vice president at Baring
Asset Management, where he was responsible for Latin American portfolio
management and research. During his 11-year stay at Barings, he followed
European equities from the London office, then moved in 1989 to the Boston
office where he followed Canadian equities. Beginning in 1993 he devoted his
full time to following Latin stocks. Mr. Oler received a master of philosophy
degree in international relations from King's College, Cambridge University, and
a B.A. degree with honors from the University of Pennsylvania in American
history. He is a Chartered Financial Analyst.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, the Fund paid 0.47% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

T-9

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.65% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc.,
700 Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800)
292-9293.

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which
it may pay Distributors, the Insurance Companies or others for activities
primarily intended to sell Class 2 shares or Contracts offering the Class 2
shares. Payments made under the Plan may be used for, among other things, the
printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education
of contract owners or dealers and their representatives, and other
distribution related expenses including a prorated portion of Distributors' or
the Insurance Companies' overhead expenses attributable to the distribution of
these Contracts. Payments made under the Plan may also be used to pay
Insurance Companies, dealers or others for, among other things, services fees
as defined under NASD rules, furnishing personal services or such other
enhanced services as the Fund or a Contract may require, or maintaining
customer accounts and records. Payments under the Fund's Class 2 Rule 12b-1
Plan may not exceed 0.25% per year of Class 2's average daily net assets.
Please see the SAI for additional information.

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per
share will differ for each class, however, generally due to the difference in
the applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1
fees.

FEDERAL INCOME TAX STATUS

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.

T-10

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 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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

T-11

the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters (1) affecting only that class, (2) expressly
required to be voted on separately by state law, or (3) required to be voted on
separately by federal securities laws.

Each share of each class of a 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.
The Separate Account, as Shareholder of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Account will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

PERFORMANCE INFORMATION

STATEMENTS AND REPORTS

T-12

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON ASSET ALLOCATION FUND
CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Templeton Asset Allocation Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

The Fund has two classes of shares: Class 1 and Class 2. This prospectus
offers only Class 2 shares, which became available May 1, 1997, and is for use
with Contracts that make Class 2 shares available. For more information about
the Fund's classes, see "Other Information--Capitalization and Voting Rights,"
below.

A statement of additional information ("SAI") dated May 1, 1997, 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 the trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-2
RISK FACTORS............................. T-6
PURCHASE OF SHARES....................... T-8
NET ASSET VALUE.......................... T-9
REDEMPTION OF SHARES..................... T-9
EXCHANGES............................... T-9
MANAGEMENT OF THE TRUST................. T-10
DISTRIBUTION PLAN....................... T-11
DIVIDENDS AND DISTRIBUTIONS............. T-11
FEDERAL INCOME TAX STATUS............... T-12
OTHER INFORMATION....................... T-13
- --------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

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.

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

U.S. GOVERNMENT SECURITIES

T-2

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")

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

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C 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
15% of its total assets in debt securities rated lower than BBB by S&P or Baa
by Moody's or, if unrated, are of equivalent investment quality as determined
by the Investment Manager. 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 or other advantageous developments
appear likely in the future. Consistent with this limit the Fund will not
invest more than 10% of its total assets in defaulted debt securities, which
may be illiquid. 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. Issuers of bonds rated Ca may often be in default.
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 determine 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. Many debt obligations of foreign
issuers, and especially developing markets issuers, are either (i) rated below
investment grade or (ii) not rated by U.S. rating agencies so that their
selection depends on the Investment Manager's individual analysis.

T-3

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

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. 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

T-4

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. 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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

T-5

Investment Manager, may from time to time make extensive use of forward
currency exchange contracts or options on currencies for hedging purposes. The
Investment Manager generally does not actively hedge currency positions with
respect to equity securities, believing that the costs outweigh the potential
benefits. The Manager may, however, hedge where it believes it would be
appropriate.

RISK FACTORS

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

T-6

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.

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.

T-7

be a thin trading market for a particular obligation at any given time. Reduced
liquidity in the secondary market may have an adverse impact on market price,
and the Fund's ability to dispose of particular issues, when necessary, to meet
the Fund's liquidity needs or in response to a specific economic event, such as
a deterioration in the creditworthiness of the issuer. Reduced liquidity may
also make it more difficult for the Fund to obtain market quotations based on
actual trades for purposes of valuing the Fund's portfolio. In addition, the
Fund may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings.

ASSET COMPOSITION TABLE

A credit rating by a rating agency evaluates only the safety of principal and
interest of debt obligations, and does not consider the market value risk
associated with an investment in such an obligation. The table below shows the
percentage of the Fund's assets invested in debt securities rated in each of the
specific rating categories shown and those that are not rated by the rating
agency but deemed by the Investment Manager to be of comparable credit quality.
The information was prepared based on a 12 month dollar weighted average of the
portfolio compositions in the fiscal year ended December 31, 1996. The Appendix
to the SAI includes a description of each rating category.

It should be noted that the above ratings are not necessarily indicative of
ratings of bonds at the time of purchase.

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.

PURCHASE OF SHARES

T-8

conflicts between variable annuity contract owners and variable life contract
owners and/or between Separate Accounts of different Insurance Companies, 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 Fund due to differences in tax treatment, the management of
investments, or other considerations. If such a conflict were to occur, one of
the Separate Accounts might withdraw its investment in the Fund. This might
force the Fund to sell portfolio securities at disadvantageous prices.

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

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

T-9

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

PORTFOLIO MANAGEMENT

T-10

MANAGEMENT FEES

Effective May 1, 1997 a new investment management agreement, approved by
shareholders at a special meeting held on February 10, 1997, provides that the
Fund will pay its Investment Manager a monthly fee equal on an annual basis to
0.65% of the Fund's average daily net assets up to $200 million, 0.585% of such
net assets up to $1.3 billion, and 0.52% of such net assets over $1.3 billion.

For the fiscal year ended December 31, 1996, the Fund paid 0.48% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

During the fiscal year ended December 31, 1996, administration fees totaling
.11% of the average daily net assets of the Trust were paid to the
Administrator. Please see "Fund Administrator" in the SAI for more
information.

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were .64% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which it
may pay Distributors, the Insurance Companies or others for activities primarily
intended to sell Class 2 shares or Contracts offering the Class 2 shares.
Payments made under the Plan may be used for, among other things, the printing
of prospectuses and reports used for sales purposes, preparing and distributing
sales literature and related expenses, advertisements, education of contract
owners or dealers and their representatives, and other distribution related
expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.25%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

DIVIDENDS AND DISTRIBUTIONS

T-11

same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

FEDERAL INCOME TAX STATUS

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.

T-12

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each fund
in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject to
a Rule 12b-1 fee of 0.25% (0.15% in the case of the Bond Fund) per year of Class
2's average daily net assets. Rule 12b-1 fees will affect performance of Class 2
Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of the
Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees may
establish additional funds or classes in the future.

Each Share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Accounts prospectus 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.

T-13

PERFORMANCE INFORMATION

The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a description
of the methods used to determine total return for the Fund, see "Performance
Information" in the SAI.

STATEMENTS AND REPORTS

T-14

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS--MAY 1, 1997
TEMPLETON STOCK FUND

CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Templeton Stock Fund ("Fund"), a
diversified series of Templeton Variable Products Series Fund (the "Trust"),
an open-end, management investment company. It contains information that a
prospective investor should know before investing.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2
DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES.................... T-2
RISK FACTORS............................. T-5
PURCHASE OF SHARES....................... T-7
NET ASSET VALUE.......................... T-8
REDEMPTION OF SHARES..................... T-8
EXCHANGES............................... T-8
MANAGEMENT OF THE TRUST................. T-8
DISTRIBUTION PLAN....................... T-10
DIVIDENDS AND DISTRIBUTIONS............. T-10
FEDERAL INCOME TAX STATUS............... T-10
OTHER INFORMATION....................... T-11
- --------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

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."

The Fund is subject to investment restrictions that are described under the
heading "Investment Restrictions" in the Statement of Additional Information.

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

U.S. GOVERNMENT SECURITIES

T-2

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

COMMERCIAL PAPER

DEBT SECURITIES

The Fund may invest in medium and lower quality debt securities that are rated
between BBB and as low as D by S&P, and between Baa and as low as C 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 or, if unrated, are of equivalent investment quality as determined by
the Investment Manager. 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 or other advantageous developments appear
likely in the future. As a fundamental policy, the Fund will not invest more
than 10% of its total assets in defaulted debt securities, which may be illiquid
. 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. Issuers of bonds rated Ca may often be in default. 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 determine 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. Many debt obligations of foreign issuers, and especially developing
markets issuers, are either (i) rated below investment grade or (ii) not rated
by U.S. rating agencies so that their selection depends on the Investment
Manager's individual analysis.

REPURCHASE AGREEMENTS

T-3

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

WHEN-ISSUED SECURITIES

LOANS OF PORTFOLIO SECURITIES

RESTRICTED SECURITIES

T-4

DEPOSITARY RECEIPTS

FUTURES CONTRACTS

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 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.

T-5

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.

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.

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.

T-6

PURCHASE OF SHARES

T-7

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

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

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

T-8

services industry through its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources. Together TICI and its
affiliates manage over $179 billion in assets. The Templeton organization has
been investing globally since 1940. TICI and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, U.S., and
Vietnam. Please see "Investment Management and Other Services" and "Brokerage
Allocation" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.

PORTFOLIO MANAGEMENT

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.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, the Fund paid 0.47% of its average
daily net assets in management fees.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

Templeton Funds Annuity Company ("Administrator"), 700 Central Avenue,
St. Petersburg, Florida 33701, telephone (800) 774-5001 or (813) 823-8712,
provides certain administrative services and facilities for the Fund.

TOTAL EXPENSES

During the fiscal year ended December 31, 1996, the total fund operating
expenses were 0.65% of the Fund's daily net assets.

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

T-9

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which it
may pay Distributors, the Insurance Companies or others for activities primarily
intended to sell Class 2 shares or Contracts offering the Class 2 shares.
Payments made under the Plan may be used for, among other things, the printing
of prospectuses and reports used for sales purposes, preparing and distributing
sales literature and related expenses, advertisements, education of contract
owners or dealers and their representatives, and other distribution related
expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.25%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

DIVIDENDS AND DISTRIBUTIONS

FEDERAL INCOME TAX STATUS

T-10

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

Each Share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Account will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

T-11

PERFORMANCE INFORMATION

STATEMENTS AND REPORTS

T-12

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
TEMPLETON DEVELOPING MARKETS FUND

CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Templeton Developing Markets
Fund ("Fund"), a diversified series of Templeton Variable Products Series Fund
(the "Trust"), an open-end, management investment company. It contains
information that a prospective investor should know before investing.

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
Contracts involve certain fees and expenses not described in this Prospectus
and also may involve certain restrictions or limitations on the allocation of
purchase payments or Contract values to different investment vehicles. In
particular, certain series or classes of the Trust may not be available in
connection with a particular Contract or in a particular state. See the
applicable Contract prospectus for information regarding fees and expenses of
the Contract and any applicable restrictions or limitations. The Fund seeks
long-term capital appreciation by investing in securities of issuers of
countries having developing markets. The Fund is subject to the heightened
foreign securities investment risks that accompany foreign developing markets
and an investment in the Fund may be considered speculative. See "Risk
Factors".

<TABLE>
<CAPTION>
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TABLE OF CONTENTS PAGE
- ---------------------
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2
INVESTMENT TECHNIQUES.................... T-3
RISK FACTORS............................. T-6
PURCHASE OF SHARES....................... T-8
NET ASSET VALUE.......................... T-8
REDEMPTION OF SHARES..................... T-9
EXCHANGES............................... T-9
MANAGEMENT OF THE TRUST................. T-9
DISTRIBUTION PLAN....................... T-11
DIVIDENDS AND DISTRIBUTIONS............. T-11
FEDERAL INCOME TAX STATUS............... T-11
OTHER INFORMATION....................... T-12
- --------------------------------------------------------------------------------------
</TABLE>
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

INVESTMENT OBJECTIVE AND POLICIES

The Fund considers countries having developing markets to be all countries that
are generally considered to be developing or emerging countries by the
International Bank for Reconstruction and Development (more commonly referred to
as the World Bank) or the International Finance Corporation, as well as
countries that are classified by the United Nations or otherwise regarded by
their authorities as developing. Currently, the countries not included in this
category include Ireland, Spain, New Zealand, Australia, the United Kingdom,
Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the
United States, Sweden, Finland, Norway, Japan, Iceland Luxembourg and
Switzerland. In addition, as used in this Prospectus, developing market equity
securities means (i) equity securities of companies the principal securities
trading market for which is a developing market country, as defined above, (ii)
equity securities, traded in any market, of companies that derive 50% or more of
their total revenue from either goods or ervices produced in such developing
market countries or sales made in such developing market countries or (iii)
equity securities of companies organized under the laws of, and with a principal
office in, a developing market country. "Equity securities," as used in this
Prospectus, refers to common stock, preferred stock, warrants or rights to
subscribe to or purchase such securities and sponsored or unsponsored American
Depositary Receipts("ADRs"), European Depositary Receipts ("EDRs"), and Global
Depositary Receipts ("GDRs") (collectively, "Depositary Receipts").
Determinations as to eligibility will be made by the Investment Manager based on
publicly available information and inquiries made to the companies. (See "Risk
Factors" for a discussion of the nature of information publicly available for
non-U.S. companies.) The Fund will at all times, except during defensive
periods, maintain investments in at least three countries having developing
markets.

For capital appreciation, the Fund may invest up to 35% of its total assets in
debt securities (defined as bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits, bankers' acceptances and structured
investments) which are rated at least C by Moody's Investors Service, Inc.
("Moody's") or C by Standard & Poor's Corporation ("S&P") or unrated debt
securities deemed to be of comparable quality by the Investment Manager. See
"Risk Factors." As an operating policy, which may be changed by the Board of
Trustees, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than Baa by Moody's or BBB by S&P. Certain debt
securities can provide the potential for capital appreciation based on various
factors such as changes in interest rates, economic and market conditions,
improvement in an issuer's ability to repay principal and pay interest, and
ratings upgrades. Additionally, convertible bonds offer the potential for
capital appreciation through the conversion feature, which enables the holder of
the bond to benefit from increases in the market price of the securities into
which they are convertible. For a description of debt securities ratings, see
the Appendix to the SAI.

T-2

INVESTMENT TECHNIQUES

TEMPORARY INVESTMENTS

BORROWING

The Fund may borrow up to one-third of the value of its total assets from banks
to increase its holdings of portfolio securities. Under federal securities laws,
the Fund 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 such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may 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.

LOANS OF PORTFOLIO

Securities The Fund may lend to broker-dealers and 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 retain any 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 the collateral falls below the market
value of the borrowed securities.

T-3

OPTIONS ON SECURITIES OR INDICES

FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

The Fund will normally conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. 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 will generally enter into forward
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security in
relation to another currency by entering into a forward contract to buy the
amount of foreign currency needed to settle the transaction. Second, 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 second 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 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 ability to meet redemption requests.
Although forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted.

T-4

CLOSED-END INVESTMENT COMPANIES

FUTURE CONTRACTS

For hedging purposes only, the Fund may buy and sell financial futures
contracts, stock index futures contracts, foreign currency futures contracts and
options on any of the foregoing. 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. In addition, when the Fund enters
into a futures contract, it will segregate assets or "cover" its position in
accordance with federal securities laws. See "Investment Objective and
Policies--Futures Contracts" in the SAI. The Fund may not commit more than 5% of
its total assets to initial margin deposits on futures contracts and related
options. The value of the underlying securities on which futures contracts will
be written at any one time will not exceed 25% of the total assets of the Fund.

REPURCHASE AGREEMENTS

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.

T-5

RISK FACTORS

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.

FOREIGN INVESTMENTS

The Fund has the right 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. 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. Also, some countries may
withhold portions of interest and dividends at the source. 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.

T-6

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 any 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 also may 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 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.

HIGH-RISK DEBT SECURITIES

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 D by S&P, and between
Baa and as low as C by Moody's or, if unrated, are of equivalent investment
quality as determined by the Investment Manager. (See Appendix to SAI for a
description of debt securities ratings.) 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. 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. The market
value of junk bonds tends to reflect individual developments affecting the
issuer to a greater extent than the market value of higher rated obligations,
which react primarily to fluctuations in the general level of interest rates.
Lower rated obligations tend to be more sensitive to economic conditions. The
Fund may have difficulty disposing of certain high yielding obligations because
there may be a thin trading market for a particular obligation at any given
time. Reduced liquidity in the secondary market may have an adverse impact on
market price, and the Fund's ability to dispose of particular issues, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is required
to seek recovery upon a default in the payment of principal or interest on its
portfolio holdings. Investments may also be evaluated in the context of economic
and political conditions in the issuer's domicile, such as the inflation rate,
growth prospects, global trade patterns and government policies. In the event
the rating on an issue held in the Fund's portfolio is changed by the rating
service, such change will be considered by the Fund in its evaluation of the
overall investment merits of that security but will not necessarily result in an
automatic sale of the security. 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.

FOREIGN CURRENCY EXCHANGE

T-7

LEVERAGE

FUTURES CONTRACTS AND RELATED OPTIONS

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. Successful use of forward contracts, options and futures
contracts is further dependent on the ability of the 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.

PURCHASE OF SHARES

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
insurance companies, 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 Fund due to differences in tax treatment, the
management of investments, or other considerations. If such a conflict were to
occur, one of the Separate Accounts might withdraw its investment in the Fund.
This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

T-8

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

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

Templeton Asset Management Ltd. ("Templeton Singapore") a Singapore corporation
with offices 7 Temasek Blvd. # 38-03, Suntec Tower One, Singapore, 038987.
Templeton Singapore manages the Fund's assets and makes its investment
decisions. Templeton Singapore also performs similar services for other funds.
Templeton Singapore is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together Templeton Singapore and its affiliates manage over $179 billion in
assets. The Templeton organization has been investing globally since 1940.
Templeton Singapore and its affiliates have offices in Argentina, Australia,
Bahamas, Canada, France, Germany, Hong Kong, India, Italy, Luxembourg, Poland,
Russia, Scotland, Singapore, South Africa, U.S., and Vietnam. Please see
"Investment Management and Other Services" and "Brokerage Allocation" in the SAI
for information on securities transactions and a summary of the Fund's Code of
Ethics.

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

J. Mark Mobius, Ph.D.
Managing Director and Portfolio Manager
Templeton Asset Management Ltd.

T-9

Dr. Mobius holds a Doctor of Philosophy degree in economics and political
science from the Massachusetts Institute of Technology. He earned his
Bachelor's and Master's degrees from Boston University. He is a member of
several industry-related associations. Dr. Mobius joined the the Franklin
Templeton Group in 1987 and has managed the Developing Markets Fund from
inception.

H. Allan Lam
Portfolio Manager and Analyst
Templeton Asset Management Ltd.

Mr. Lam holds a Bachelors of Arts degree in accounting from Rutgers University.
He has had extensive auditing experience with Deloitte Touche & Tohmatsu and
KPMG Peat Marwick. He joined the Franklin Templeton Group in 1987 and has
managed the Developing Markets Fund from inception.

Tom Wu
Director, Portfolio Manager, and Analyst
Templeton Asset Management Ltd.

Dennis Lim
Vice President, Portfolio Manager
Templeton Asset Management Ltd.

Eddie Chow
Investment Analyst
Templeton Asset Management Ltd.

Mr. Chow holds a Master of Business Administration degree from the University of
Wisconsin-Milwaukee. Prior to joining the Franklin Templeton Group in, 1994, he
worked for many years in the finance and banking industry. He has managed the
Fund since February 1996.

Tek-Khoan Ong
Portfolio Manager
Tempelton Asset Management Ltd.

MANAGEMENT FEES

For the fiscal year ended December 31, 1996, management fees, before any advance
waiver, totaled 1.25% of the Fund's average daily net assets. The fee paid by
the Fund is higher than the advisory fees paid by most other U.S. investment
companies primarily because investing in equity securities in developing
markets, which are not widely followed by professional analysts, requires the
Investment Manager to invest additional time and incur added expense in
developing specialized resources, including research facilities. During 1996,
under an agreement by the Investment Manager to limit is fees, the Fund paid
management fees totaling 1.17% of its average daily net assets. The Investment
Manager does not expect to continue this arrangement in 1997.

T-10

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

TOTAL EXPENSES

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc., 700
Central Avenue, St. Petersburg, Florida 33701, toll free telephone (800) 292-
9293.

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which it
may pay Distributors, the Insurance Companies or others for activities primarily
intended to sell Class 2 shares or Contracts offering the Class 2 shares.
Payments made under the Plan may be used for, among other things, the printing
of prospectuses and reports used for sales purposes, preparing and distributing
sales literature and related expenses, advertisements, education of contract
owners or dealers and their representatives, and other distribution related
expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.25%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

DIVIDENDS AND DISTRIBUTIONS

FEDERAL INCOME TAX STATUS

T-11

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).

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

T-12

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts. See
the Separate Account prospectus 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.

PERFORMANCE INFORMATION

T-13

STATEMENTS AND REPORTS

T-14

[LOGO]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
FRANKLIN GROWTH INVESTMENTS FUND
CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Franklin Growth Investments Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 the Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

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TABLE OF CONTENTS PAGE PAGE
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<S> <C> <C> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2 EXCHANGES............................... T-8
DESCRIPTION OF SECURITIES AND MANAGEMENT OF THE TRUST................. T-8
INVESTMENT TECHNIQUES.................... T-2 DISTRIBUTION PLAN....................... T-9
RISK FACTORS............................. T-5 DIVIDENDS AND DISTRIBUTIONS............. T-10
PURCHASE OF SHARES....................... T-7 FEDERAL INCOME TAX STATUS............... T-10
NET ASSET VALUE.......................... T-7 OTHER INFORMATION....................... T-11
REDEMPTION OF SHARES..................... T-7 STATEMENTS AND REPORTS.................. T-12
- ------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The primary investment objective of the Franklin Growth Investments Fund is
capital appreciation. Current income is only a secondary consideration in
selecting portfolio securities.

Under normal market conditions, the Fund will invest primarily (at least 65% of
assets) in equity securities, including common and preferred stocks, or
securities convertible into common stocks, which are believed to offer
favorable possibilities for capital appreciation, but some of which may yield
little or no current income. The Fund's assets may be invested in shares of
common or capital stock traded on any national securities exchange or over-the-
counter, in convertible securities or, for temporary or defensive purposes, in
cash and money market instruments. From time to time, the Fund may hold
significant cash positions, consistent with its policy on temporary
investments, until suitable investment opportunities are available. Stocks and
other equity securities representing ownership interests in corporations have
historically outperformed other asset classes over the long term, but tend to
fluctuate more dramatically over the short term.

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.

BORROWING

CONVERTIBLE SECURITIES

The convertible debt obligations in which the Fund may invest are subject to
the same rating criteria and investment policies as the Fund's investments in
debt obligations.

T-2

DEBT SECURITIES

DEPOSITARY RECEIPTS

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. 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.

PORTFOLIO TURNOVER

The Fund anticipates its annual portfolio turnover rate generally will not
exceed 100%, but thus expected rate is not a limiting factor in the operation
of the Fund's portfolio.

T-3

OPTION CONTRACTS

The Fund may also write covered call options and purchase put options on
securities. The value of the underlying securities on which options may be
written at any one time will not exceed 15% of the total assets of the Fund.
The Fund will not purchase put or call options if the aggregate premiums paid
for such options would exceed 5% of its total assets at the time of purchase.
In general, the Fund will use options primarily for hedging purposes, that is,
in an attempt to reduce or control certain types of risks. There is no
guarantee, however, that these transactions will be successful. In addition,
these transactions may expose the Fund to risks related to counterparty
creditworthiness, illiquidity, and increased expenses.

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.

RESTRICTED SECURITIES

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 10% of the Fund's total assets. Such restriction shall not
apply to restricted securities offered and sold to "qualified institutional
buyers" under Rule 144A under the 1933 Act or to foreign securities which are
offered or sold outside the United States where the Managers determine, based
upon a continuing review of the trading markets for the specific restricted
security, that such restricted securities are liquid. For additional details,
see the SAI.

TEMPORARY INVESTMENTS

T-4

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. The Investment Manager currently expects that such
investments will not exceed 15% of the Fund's assets. 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. 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. Investments in companies domiciled in developing countries
therefore may be subject to potentially higher risks than investments in
developed countries.

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. 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. 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 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.

T-5

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. The market value of junk bonds
tends to reflect individual developments affecting the issuer to a greater
extent than the market value of higher rated obligations, which react primarily
to fluctuations in the general level of interest rates. Lower rated obligations
tend to be more sensitive to economic conditions.
The Fund may have difficulty disposing of certain high yielding obligations
because there may be a thin trading market for a particular obligation at any
given time. Reduced liquidity in the secondary market may have an adverse
impact on market price, and the Fund's ability to dispose of particular issues,
when necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, the Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.

Historically, the smaller capitalization stocks have been more volatile in
price than the larger capitalization stocks. Among the reasons for the greater
price volatility of these securities are the less certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for such stocks,
and the greater sensitivity of small companies to changing economic conditions.
Besides exhibiting greater volatility, small company stocks may, to a degree,
fluctuate independently of larger company stocks. Small company stocks may
decline in price as large company stocks rise, or rise in price as large
company stocks decline. Investors should therefore expect that the net asset
value of a Fund which invests a substantial portion of its net assets in small
company stocks may be more volatile than the shares of a fund that invests
solely in larger capitalization stocks.

T-6

PURCHASE OF SHARES

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment,
the management of investments, or other considerations. If such a conflict were
to occur, one of the Separate Accounts might withdraw its investment in the
Fund. This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate the Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The assets in the
Fund's portfolio are valued as described under "Purchase, Redemption and
Pricing of Shares" in the SAI.

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.

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might
otherwise hold and also incur the additional costs related to such
transactions.

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

T-7

EXCHANGES

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGER

Franklin Advisers, Inc., 777 Mariners Island Blvd., San Mateo, California,
94404, is the Investment Manager. The Investment Manager manages the Fund's
assets and makes its investment decisions. The Investment Manager also performs
similar services for other funds. Advisers is wholly owned by Franklin
Resources, Inc. ("Resources"), a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together
the Investment Manager and its affiliates manage over $179 billion in assets.
Please see "Investment Management and Other Services" and "Brokerage
Allocation" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

Conrad B. Herrmann
Portfolio Manager
Franklin Advisers, Inc.

Mr. Herrmann holds a Master of Business Administration degree from Harvard
University and a Bachelor of Arts degree from Brown University. Mr. Herrmann is
a Chartered Financial Analyst has been with the Franklin Templeton Group since
1989 and prior thereto was Vice President and General Manager of Aquila
Management. He will manage the Fund from inception.

Vivian J. Palmieri
Portfolio Manager
Franklin Advisers, Inc.

Mr. Palmieri holds a Bachelor of Arts degree in economics from Williams
College. He has been with the Franklin Templeton Group since 1965. Mr. Palmieri
will manage the Fund from inception.

Kei Yamamoto
Portfolio Manager
Franklin Advisers, Inc.

T-8

Kevin Carrington
Portfolio Manager
Franklin Advisers, Inc.

MANAGEMENT FEES

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc.
("Distributors"), 700 Central Avenue, St. Petersburg, Florida 33701, toll free
telephone (800) 292-9293.

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which
it may pay Distributors, the Insurance Companies or others for activities
primarily intended to sell Class 2 shares or Contracts offering the Class 2
shares. Payments made under the Plan may be used for, among other things, the
printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education
of contract owners or dealers and their representatives, and other distribution
related expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.25%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

T-9

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

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.

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.

T-10

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes in the future.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Accounts prospectus 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

T-11

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.

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

The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

T-12

[LOGO]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
MUTUAL DISCOVERY INVESTMENTS FUND
CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Mutual Discovery Investments
Fund ("Fund"), a diversified series of Templeton Variable Products Series Fund
(the "Trust"), an open-end, management investment company. It contains
information that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 the Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE PAGE
- ----------------- ---- ----
<S> <C> <C> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2 MANAGEMENT OF THE TRUST................. T-12
DESCRIPTION OF SECURITIES AND INVESTMENT DISTRIBUTION PLAN....................... T-14
TECHNIQUES............................... T-4 DIVIDENDS AND DISTRIBUTIONS............. T-14
RISK FACTORS............................. T-9 FEDERAL INCOME TAX STATUS............... T-15
PURCHASE OF SHARES....................... T-11 OTHER INFORMATION....................... T-16
NET ASSET VALUE.......................... T-12 STATEMENTS AND REPORTS.................. T-17
REDEMPTION OF SHARES..................... T-12 APPENDIX................................ T-17
EXCHANGES................................ T-12
- ---------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Mutual Discovery Investments Fund is capital
appreciation.

PORTFOLIO INVESTMENTS

Under normal market conditions, the Fund invests in domestic and foreign equity
securities, including common and preferred stocks and securities convertible
into common stocks, as well as debt obligations of any quality. Debt
obligations may include securities or indebtedness issued by corporations or
governments in any form, including notes, bonds, or debentures, as well as
distressed mortgage obligations and other debt secured by real property. The
Investment Manager has no pre-set limits as to the percentages which may be
invested in equity securities, debt securities or money market instruments. The
Fund may invest in securities from any size issuer, and may invest a
substantial portion of its assets in securities of small capitalization
issuers, which have market capitalizations of less than $1 billion. Securities
of foreign or small cap issuers may be subject to different and greater risks,
as discussed below. The Fund may invest in securities that are traded on U.S.
or foreign exchanges, NASDAQ national market or in the over-the-counter market.
It may invest in any industry sector, although it will not concentrate in any
one industry. From time to time, the Fund may hold significant cash positions
until suitable investment opportunities are available, consistent with its
policy on temporary investments.

SELECTION OF PORTFOLIO INVESTMENTS

FOREIGN INVESTMENTS

CURRENCY TECHNIQUES

T-2

currency futures, forward foreign currency exchange contracts ("forward
contracts") and currency swaps, all of which involve specialized risks. See
"RISK FACTORS."

RISKS ASSOCIATED WITH SMALL CAP INVESTMENTS

CREDIT QUALITY

DEFAULTED DEBT OBLIGATIONS

OTHER INVESTMENT POLICIES

T-3

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.

BORROWING

CONVERTIBLE SECURITIES

T-4

determining the security's market value. This is because the holder of a
convertible security will have recourse only to the issuer. In addition, a
convertible security may be subject to redemption by the issuer, but only after
a specified date and under circumstances established at the time the security
is issued.

DEBT SECURITIES

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.

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
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.

COMMERCIAL PAPER

T-5

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.

DEPOSITARY RECEIPTS

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 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

T-6

dollar value of foreign portfolio securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. There is no assurance that
the Investment Manager's hedging strategies will be successful.

LOAN PARTICIPATIONS

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. 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.

OPTIONS AND FUTURES CONTRACTS

PORTFOLIO TURNOVER

The Fund anticipates its annual portfolio turnover rate generally will not
exceed 100%, but thus expected rate is not a limiting factor in the operation
of the Fund's portfolio.

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

T-7

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.

RESTRICTED SECURITIES

TEMPORARY INVESTMENTS

In any period of market weakness or of uncertain market or economic conditions
or while awaiting suitable investment opportunities, the Fund may establish a
temporary defensive position by investing in money market instruments and
short-term debt securities including, for example, U.S. Government Securities,
bank obligations, and the highest quality commercial paper, or in repurchase
agreements, as described above. The Fund may also invest in non-U.S. currency
and short-term instruments denominated in non-U.S. currencies for temporary
defensive purposes.

TRADE CLAIMS

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

T-8

delivery transactions, it will do so only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objectives and
policies, and not for the purpose of investment leverage. Nonetheless,
purchases of securities on such basis may involve more risk than other types of
purchases, for example, counterparty delivery risk. If the seller fails to
complete the transaction, the Fund may miss a price or yield considered
advantageous.

RISK FACTORS

GENERAL

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.

FOREIGN INVESTMENTS

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.

The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.

T-9

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.

LOWER RATED DEBT OBLIGATIONS

A Fund may have difficulty disposing of certain lower-rated obligations because
there may be a thin trading market for a particular obligation at any given
time. Reduced liquidity in the secondary market may have an adverse impact on
market price, and a Fund's ability to dispose of particular issues, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
Reduced liquidity may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
In addition, a Fund may incur additional expenses to the extent it is required
to seek recovery upon a default in the payment of principal or interest on its
portfolio holdings.

T-10

SMALL CAPITALIZATION ISSUERS

OTHER RISKS

PURCHASE OF SHARES

Class 2 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the insurance company Separate Account for more information
on the purchase of Fund's Class 2 shares.

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
insurance company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment,
the management of investments, or other considerations. If such a conflict were
to occur, one of the Separate Accounts might withdraw its investment in the
Fund. This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

T-11

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate the Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The assets in the
Fund's portfolio are valued as described under "Purchase, Redemption and
Pricing of Shares" in the SAI.

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.

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might
otherwise hold and also incur the additional costs related to such
transactions.

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

EXCHANGES

Class 2 shares of the Fund may be exchanged for shares of other funds or
classes available as investment options under the Contracts subject to the
terms of the Contract prospectus. Exchanges are treated as a redemption of
shares of one fund and a purchase of shares of one or more of the other funds
and are effected at the respective net asset value per share of the class 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 BOARD

INVESTMENT MANAGERS

INVESTMENT MANAGER

T-12

Manager and its affiliates manage over $179 billion in assets. Please see
"Investment Management and Other Services" and "Brokerage Allocation" in the
SAI for information on securities transactions and a summary of the Fund's Code
of Ethics.

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

Michael F. Price Chief Executive Officer and President Franklin Mutual
Advisers, Inc.

Peter Langerman Senior Vice President Franklin Mutual Advisers, Inc.

Jeffrey Altman Senior Vice President Franklin Mutual Advisers, Inc.

Robert Friedman Senior Vice President Franklin Mutual Advisers, Inc.

Raymond Garea Senior Vice President Franklin Mutual Advisers, Inc.

Mr. Garea has a Bachelor of Science degree in engineering from Case Institute
of Technology and a Masters in Business Administration from the University of
Michigan. Prior to November 1996, he was a Research Analyst for Heine
Securities Corporation, an investment adviser acquired by Resources, for at
least 5 years. Mr. Garea has also been a Manager (Director) of MB Metroplis
L.L.C. since 1994. He joined the Franklin Templeton Group in November 1996 and
will manage the Fund from inception.

T-13

Lawrence Sondike Senior Vice President Franklin Mutual Advisers, Inc.

MANAGEMENT FEES

For its services, the Investment Manager receives a fee equivalent on an annual
basis to 0.80% of the average daily net assets of the Fund.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors, Inc.
("Distributors"), 700 Central Avenue, St. Petersburg, Florida 33701, toll free
telephone (800) 292-9293.

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which
it may pay Distributors, the Insurance Companies or others for activities
primarily intended to sell Class 2 shares or Contracts offering the Class 2
shares. Payments made under the Plan may be used for, among other things, the
printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education
of contract owners or dealers and their representatives, and other distribution
related expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.25%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

T-14

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.

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.

T-15

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes in the future.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus 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.

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.

T-16

PERFORMANCE INFORMATION

The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

APPENDIX

DESCRIPTION OF BOND RATINGS*

MOODY'S

T-17

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

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

C--Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

S&P

AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

C--Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D--Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

T-18

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger likelihood
of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

T-19

[LOGO]

TEMPLETON VARIABLE PRODUCTS SERIES FUND PROSPECTUS -- MAY 1, 1997
MUTUAL SHARES INVESTMENTS FUND
CLASS 2 SHARES

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

This Prospectus offers only Class 2 shares of Mutual Shares Investments Fund
("Fund"), a diversified series of Templeton Variable Products Series Fund (the
"Trust"), an open-end, management investment company. It contains information
that a prospective investor should know before investing.

A Statement of Additional Information ("SAI") dated May 1, 1997, 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 the Trust, 700 Central Avenue, St.
Petersburg, Florida 33701 or by calling 1-800-774-5001 or 1-813-823-8712.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE PAGE
- ----------------- ---- ----
<S> <C> <C> <C>
INVESTMENT OBJECTIVE AND POLICIES........ T-2 MANAGEMENT OF THE TRUST................. T-12
DESCRIPTION OF SECURITIES AND INVESTMENT DISTRIBUTION PLAN....................... T-14
TECHNIQUES............................... T-4 DIVIDENDS AND DISTRIBUTIONS............. T-14
RISK FACTORS............................. T-9 FEDERAL INCOME TAX STATUS............... T-14
PURCHASE OF SHARES....................... T-11 OTHER INFORMATION....................... T-15
NET ASSET VALUE.......................... T-11 STATEMENTS AND REPORTS.................. T-16
REDEMPTION OF SHARES..................... T-11 APPENDIX................................ T-17
EXCHANGES................................ T-12
- ---------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The principal investment objective of the Mutual Shares Investments Fund is
capital appreciation, with income as a secondary objective.

PORTFOLIO INVESTMENTS

Under normal market conditions, the Fund invests primarily in domestic equity
securities, including common and preferred stocks and securities convertible
into common stocks, as well as debt obligations of any quality. Debt
obligations may include securities or indebtedness issued by corporations or
governments in any form, including notes, bonds, or debentures, as well as
distressed mortgage obligations and other debt secured by real property. The
Investment Manager has no pre-set limits as to the percentages which may be
invested in equity securities, debt securities or Money Market Instruments. The
Fund may invest in securities from any size issuer, including smaller
capitalization companies, which may be subject to different and greater risks.
See "Risk Factors, Small Capitalization Issuers." It will tend to invest,
however, in securities of issuers with market capitalizations in excess of $500
million. It may invest in securities that are traded on U.S. or foreign
exchanges, NASDAQ national market or in the over-the-counter market. It may
invest in any industry sector, although it will not concentrate in any one
industry. From time to time, the Fund may hold significant cash positions,
consistent with its policy on temporary investments, until suitable investment
opportunities are available.

The Fund also seeks to invest in securities of domestic and foreign companies
involved in mergers, consolidations, liquidations and reorganizations or as to
which there exist tender or exchange offers, and may participate in such
transactions. The Fund does not presently anticipate investing more than 50% of
its assets in such investments, but is not restricted to that amount. There can
be no assurance that any such transaction proposed at the time of the Fund's
investment will be consummated or will be consummated on the terms and within
the time period contemplated. The Fund may also invest in other forms of
secured or unsecured indebtedness or participations ("Indebtedness"), including
without limitation, loan participations and trade claims, of debtor companies
involved in reorganization or financial restructuring, some of which may have
very long maturities. Some of the Indebtedness is illiquid.

SELECTION OF PORTFOLIO INVESTMENTS

CREDIT QUALITY

T-2

However, the debt securities of reorganizing or restructuring companies
typically rank senior to the equity securities of such companies.

DEFAULTED DEBT OBLIGATIONS

FOREIGN INVESTMENTS

Although the Fund reserves the right to purchase securities in any foreign
country, developed or undeveloped, the Fund's current investment strategy is to
invest primarily in domestic securities, with no more than 10% of its total
assets in foreign securities, including sponsored or unsponsored Depositary
Receipts. The Fund presently does not intend to invest more than 5% of its
assets in securities of developing markets including Eastern European countries
and Russia. Foreign investments may include both voting and non-voting
securities, sovereign debt and participation in foreign government deals. The
Fund's investments in foreign securities involve risks related to currency
fluctuations and political uncertainty. See "Risk Factors" below and the SAI.

CURRENCY TECHNIQUES

OTHER INVESTMENT POLICIES

T-3

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.

BORROWING

CONVERTIBLE SECURITIES

DEBT SECURITIES

T-4

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.

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.

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
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.

COMMERCIAL PAPER

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.

T-5

DEPOSITARY RECEIPTS

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

The relative performance of foreign currencies in which securities held by the
Fund are denominated can be a factor in the Fund's overall performance. The
Investment Manager, may from time to time make extensive use of forward
currency exchange contracts or options on currencies for hedging purposes.

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 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. There can be no assurance that the Investment Manager's hedging
strategies will be successful.

LOAN PARTICIPATIONS

The Fund may acquire loan participations and other direct or indirect bank
obligations ("Loan Participations"), in which it will purchase from a lender a
portion of a larger loan which the lender has made to a borrower. Generally
Loan Participations are sold without guarantee or recourse to the lending
institution, and are subject to the credit risks of both the borrower and the
lending institution. They may enable the Fund to acquire an interest in a loan
from a financially strong borrower which it could not do directly. While Loan
Participations generally trade at par value, the Fund may buy some Loan
Participations that sell at a discount because of the borrower's credit
problems. To the extent the borrower's credit problems are resolved, the loan
participations may appreciate in value. Loan Participations may have
speculative characteristics, and may be illiquid and/or in default.

T-6

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. 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.

OPTIONS AND FUTURES CONTRACTS

PORTFOLIO TURNOVER

The Fund anticipates its annual portfolio turnover rate generally will not
exceed 100%, but thus expected rate is not a limiting factor in the operation
of the Fund's portfolio.

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.

RESTRICTED SECURITIES

T-7

TEMPORARY INVESTMENTS

In any period of market weakness or of uncertain market or economic conditions
or while awaiting suitable investment opportunities, the Fund may establish a
temporary defensive position by investing in money market instruments and
short-term debt securities including, for example, U.S. Government Securities,
bank obligations, and the highest quality commercial paper, or in repurchase
agreements, as described above. The Fund may also invest in non-U.S. currency
and short-term instruments denominated in non-U.S. currencies for temporary
defensive purposes.

TRADE CLAIMS

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

T-8

RISK FACTORS

GENERAL

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.

FOREIGN INVESTMENTS

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. 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. Investments in companies domiciled
in developing countries therefore may be subject to potentially higher risks
than investments in developed countries.

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. 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 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.

T-9

LOWER RATED DEBT OBLIGATIONS

SMALL CAPITALIZATION ISSUERS

The Fund may invest in securities of small capitalization companies which have
market capitalization of less than $1 billion. Investing in securities of small
companies may offer greater potential for capital appreciation since they are
often overlooked by investors or undervalued in relation to their earnings
power. Securities of unseasoned companies may present greater risks than
securities of larger, more established companies. Small companies may suffer
significant losses as well as realize substantial growth, and investments in
such companies tend to be more volatile and are therefore speculative.

OTHER RISKS

T-10

PURCHASE OF SHARES

Class 2 shares of the Fund are offered on a continuous basis at their net asset
value only to separate accounts ("Separate Accounts") of insurance companies
("Insurance Companies") to serve as the underlying investment vehicle for both
variable annuity and variable life insurance contracts ("Contracts").
Individuals may not purchase these shares directly from the Fund. Please read
the prospectus of the insurance company Separate Account for more information
on the purchase of the Fund's Class 2 shares.

The Trust serves as investment vehicle for both variable annuity and variable
life insurance contracts, and for both variable life insurance contracts of an
Insurance Company and other variable contracts of unaffiliated Insurance
Companies. Therefore, the Trust's Board of Trustees monitors events in order to
identify any material conflicts between variable annuity contract owners and
variable life contract owners and/or between Separate Accounts of different
Insurance Companies, 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 Fund due to differences in tax treatment,
the management of investments, or other considerations. If such a conflict were
to occur, one of the Separate Accounts might withdraw its investment in the
Fund. This might force the Fund to sell portfolio securities at disadvantageous
prices.

Initial and subsequent payments allocated to the Class 2 shares of the Fund may
be subject to limits applicable in the Contract purchased.

NET ASSET VALUE

The net asset value per share of each class of the Fund is determined as of the
scheduled close of the NYSE generally 4:00 p.m., Eastern time. The Net Asset
Value of all outstanding shares of each class of the Fund is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate the Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The assets in the
Fund's portfolio are valued as described under "Purchase, Redemption and
Pricing of Shares" in the SAI.

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.

If a substantial portion of the Fund's shares should be redeemed within a short
period, the Fund might have to liquidate portfolio securities it might
otherwise hold and also incur the additional costs related to such
transactions.

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

T-11

EXCHANGES

MANAGEMENT OF THE TRUST

THE BOARD

INVESTMENT MANAGERS

PORTFOLIO MANAGEMENT

The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio.

Michael F. Price
Chief Executive Officer and President
Franklin Mutual Advisers, Inc.

Peter Langerman
Senior Vice President
Franklin Mutual Advisers, Inc.

Jeffrey Altman
Senior Vice President
Franklin Mutual Advisers, Inc.

T-12

Robert Friedman
Senior Vice President
Franklin Mutual Advisers, Inc.

Raymond Garea
Senior Vice President
Franklin Mutual Advisers, Inc.

Lawrence Sondike
Senior Vice President
Franklin Mutual Advisers, Inc.

MANAGEMENT FEES

For its services, the Investment Manager receives a fee equivalent on an annual
basis to 0.60% of the average daily net assets of the Fund.

PORTFOLIO TRANSACTIONS

ADMINISTRATIVE SERVICES

DISTRIBUTOR

The Trust's principal underwriter is Franklin Templeton Distributors
("Distributors"), Inc., 700 Central Avenue, St. Petersburg, Florida 33701, toll
free telephone (800) 292-9293.

T-13

DISTRIBUTION PLAN

Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan," under which
it may pay Distributors, the Insurance Companies or others for activities
primarily intended to sell Class 2 shares or Contracts offering the Class 2
shares. Payments made under the Plan may be used for, among other things, the
printing of prospectuses and reports used for sales purposes, preparing and
distributing sales literature and related expenses, advertisements, education
of contract owners or dealers and their representatives, and other distribution
related expenses including a prorated portion of Distributors' or the Insurance
Companies' overhead expenses attributable to the distribution of these
Contracts. Payments made under the Plan may also be used to pay Insurance
Companies, dealers or others for, among other things, services fees as defined
under NASD rules, furnishing personal services or such other enhanced services
as the Fund or a Contract may require, or maintaining customer accounts and
records. Payments under the Fund's Class 2 Rule 12b-1 Plan may not exceed 0.25%
per year of Class 2's average daily net assets. Please see the SAI for
additional information.

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. Dividends and capital gains are calculated and distributed the
same way for each class of shares. The amount of any income dividends per share
will differ for each class, however, generally due to the difference in the
applicable Rule 12b-1 fees. Class 1 shares are not subject to Rule 12b-1 fees.

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.

T-14

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.

OTHER INFORMATION

THE FUND'S ORGANIZATION

The Trust was organized as a Massachusetts business trust on February 25, 1988
and currently consists of nine separately managed funds. Each class of each
fund in the Trust is offered through a separate prospectus and is sold only to
Insurance Company Separate Accounts to serve as an investment vehicle for
variable annuity and variable life insurance contracts. The Templeton Money
Market Fund has a single class of shares. The other eight funds ("Multiclass
Funds") began offering two classes of shares, Class 1 and Class 2, on May 1,
1997; all shares of the Multiclass Funds purchased before that date are
considered Class 1 shares. Class 2 shares of the Multiclass Funds are subject
to a Rule 12b-1 fees of 0.25% (0.15% in the case of the Bond Fund) per year of
Class 2's average daily net assets. Rule 12b-1 fees will affect performance of
Class 2 Shares. Shares of the Templeton Money Market Fund and Class 1 Shares of
the Multiclass Funds are not subject to Rule 12b-1 fees. The Board of Trustees
may establish additional funds or classes in the future.

Each share of each class of a 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.
The Separate Accounts, as Shareholders of the Trust, are entitled to vote the
Shares of the Trust at any regular and special meeting of the Shareholders of
the Trust. However, the Separate Accounts will generally vote their shares in
accordance with instructions received from owners of the variable contracts.
See the Separate Account prospectus for more information regarding the pass-
through of these voting rights.

T-15

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.

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

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Net Asset Value of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund. Quotations of yield or total return for a class of 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.

The investment results for each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a
description of the methods used to calculate performance for the Fund, see
"Performance Information" in the SAI.

STATEMENTS AND REPORTS

T-16

APPENDIX

DESCRIPTION OF BOND RATINGS*

MOODY'S

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

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

C--Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

S&P

AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

T-17

C--Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D--Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger likelihood
of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

T-18

TEMPLETON
VARIABLE PRODUCTS
SERIES FUND

STATEMENT OF
ADDITIONAL INFORMATION
700 Central Avenue MAY 1, 1997
St. Petersburg, FL 33701 1-800/DIAL BEN

Table of ContentsPage
Introduction.......................................... 1
Investment Objectives and Policies ................... 2
Investment Restrictions .............................. 13
Officers and Trustees................................. 14
Investment Management and
Other Services....................................... 20
Brokerage Allocation ................................. 22
Portfolio Turnover ................................... 23
Summary of Code of Ethics............................. 23
Purchase, Redemption and
Pricing of Shares ................................... 23
Redemptions in Kind................................... 25
Class 2 Distribution Plan............................. 25
Tax Status ........................................... 25
Description of Shares ................................ 28
Performance Information .............................. 28
Financial Statements ................................. 30
Appendix - Corporate Bond, Preferred Stock
and Commercial Paper Ratings ........................ 30

<PAGE>

INTRODUCTION
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 nine series of Shares:
Templeton Money Market ("Money Market") Fund, Templeton Bond ("Bond") Fund,
Templeton Stock ("Stock") Fund, Templeton Asset Allocation ("Asset
Allocation") Fund, Templeton Developing Markets ("Developing Markets") Fund,
Franklin Growth Investments ("Growth") Fund, Mutual Discovery Investments
("Mutual Discovery") Fund, Mutual Shares Investments ("Mutual Shares") Fund
and Templeton International ("International") Fund (collectively, the
"Funds"). Each Fund, except the Money Market Fund, has two classes of shares,
Class 1 and Class 2. Each class of each Fund has a separate prospectus. All
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 or Classes are available as an
investment vehicle for all contracts. Please refer to the contract prospectus
for information concerning the availability of each class of each Fund.

THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") DATED MAY 1, 1997, IS NOT A
PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN
SET FORTH IN THE PROSPECTUSES. THIS SAI IS INTENDED TO PROVIDE YOU WITH
ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE TRUST
AND THE FUNDS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF EACH
FUND AND CLASS IN WHICH YOU MAY BE INTERESTED. EACH PROSPECTUS IS DATED MAY
1, 1997, MAY BE AMENDED FROM TIME TO TIME, AND 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.

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."

Convertible Securities. The Funds may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when
interest rates decline and decrease in value when interest rates rise.
Similar to a common stock, the value of a convertible security tends to
increase as the market value of the underlying stock rises, and it tends to
decrease as the market value of the underlying stock declines. Because its
value can be influenced by both interest rate and market movements, a
convertible security is not as sensitive to interest rates as a similar
fixed-income security, nor is it as sensitive to changes in share price as
its underlying stock.

A convertible security is usually issued either by an operating company or by
an investment bank. When issued by an operating company, a convertible
security tends to be senior to common stock, but subordinate to other types
of fixed-income securities issued by that company. When a convertible
security issued by an operating company is "converted," the operating company
often issues new stock to the holder of the convertible security but, if the
parity price of the convertible security is less than the call price, the
operating company may pay out cash instead of common stock. If the
convertible security is issued by an investment bank, the security is an
obligation of and is convertible through the issuing investment bank.

The convertible debt obligations in which the Funds may invest are subject to
the same rating criteria and investment policies as the Funds' investments in
debt obligations. The issuer of a convertible security may be important in
determining the security's market value. This is because the holder of a
convertible security will have recourse only to the issuer. In addition, a
convertible security may be subject to redemption by the issuer, but only
after a specified date and under circumstances established at the time the
security is issued.

However, unlike convertible debt obligations, convertible preferred stocks
are equity securities. As with common stocks, preferred stocks are
subordinated to all debt obligations in the event of insolvency, and an
issuer's failure to make a dividend payment is generally not an event of
default entitling the preferred shareholder to take action. A preferred stock
generally has no maturity date, so that its market value is dependent on the
issuer's business prospects for an indefinite period of time. In addition,
distributions from preferred stock are dividends, rather than interest
payments, and are usually treated as such for corporate tax purposes. For
these reasons, convertible preferred stocks are treated as preferred stocks
for the Funds' financial reporting, credit rating, and investment limitation
purposes.

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 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 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 credit worthiness 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.

Depositary Receipts. The Funds 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 Funds' investment policies, the
Funds' investments in Depositary Receipts will be deemed to be investments in
the underlying securities.

Diversification. Each Fund intends to diversify its investments to meet the
requirements under Section 5 of the 1940 Act, under Section 851 of the Code
relating to regulated investment companies, and under Section 817 of the Code
relating to the treatment of variable contracts issued by insurance companies.

As diversified funds under the 1940 Act, each Fund may not, with respect to
75% of its total assets, purchase the securities of any one issuer (except
U.S. Government Securities) if more than 5% of the value of the Fund's assets
would be invested in such issuer.

In order to comply with the diversification requirements under section 851 of
the Code, each Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of
each Fund's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in
the securities of a single issuer and each Fund will not own more than 10% of
the outstanding voting securities of a single issuer. A Fund's investments in
U.S. Government Securities are not subject to these limitations.

In order to comply with the Code's diversification requirements under Section
817, each Fund will diversify its investments such that (i) no more than 55%
of the Fund's assets is represented by any one investment; (ii) no more than
70% of the Fund's assets is represented by any two investments; (iii) no more
than 80% of the Fund's assets is represented by any three investments; and
(iv) no more than 90% of the Fund's assets is represented by any four
investments. In the case of Funds investing in obligations of U.S. government
agencies or instrumentalities, each agency or instrumentality is treated as a
separate issuer for purposes of the above rules.

Foreign Securities - General. 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. 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. 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. Also, some countries may
withhold portions of interest and dividends at the source. 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 increased risk, therefore,
of uninsured loss due to lost, stolen or counterfeit stock certificates. In
addition, the foreign securities markets of any 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.

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.

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.

Illiquid Securities. Generally an "illiquid security" is any security that
cannot be disposed of promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the instrument. Subject
to this limitation, the Board of Trustees has authorized each Fund to invest
in restricted securities where such investment is consistent with the Fund's
investment objective and has authorized such securities to be considered to
be liquid to the extent the Fund's Investment Manager determines that there
is a liquid institutional or other market for such securities for example,
restricted securities which may be freely transferred among qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933,
as amended, and for which a liquid institutional market has developed. The
Board of Trustees will review any determination by the Fund's Investment
Managers to treat a restricted security as liquid on a regular basis,
including the Investment Managers' assessment of current trading activity and
the availability of reliable price information. In determining whether a
restricted security is properly considered a liquid security, the Funds'
advisers and the Board of Trustees will take into account the following
factors: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (iii) dealer undertakings to make a market in the
security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). To the extent a
Fund invests in restricted securities that are deemed liquid, the general
level of illiquidity in the applicable Fund may be increased if qualified
institutional buyers become uninterested in purchasing these securities or
the market for these securities contracts.

Structured Investments. Included among the issuers of debt securities in
which the Funds (except the 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. The Bond, Asset Allocation, International, Developing
Markets, Mutual Discovery, and Mutual Shares Funds may purchase and sell
financial futures contracts. Currently, futures contracts are available on
several types of fixed-income securities including: U.S. treasury bonds,
notes and bills, commercial paper, and certificates of deposit.

As long as required by regulatory authorities, these 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 high quality debt 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 off setting 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, the Bond, Asset Allocation, Developing Markets,
Mutual Discovery and Mutual Shares 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, the Bond, Asset
Allocation, International, Developing Markets, Mutual Discovery and Mutual
Shares 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.

The Bond, Asset Allocation, Developing Markets, Mutual Discovery and Mutual
Shares 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.

The Bond, Asset Allocation, International, Developing Markets, Mutual
Discovery and Mutual Shares 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. As indicated in the prospectus, certain
Funds 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.

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 receive from the
seller cash equal to the difference between the closing price of the index
and the exercise price of the option.

A 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.

Each 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 a 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, a 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. A 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.

A 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.

A 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.

A 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.

Short Sales. Certain Funds may make short sales of securities as indicated in
their respective prospectuses. A short sale is a transaction in which the
Fund sells a security it does not own in anticipation that the market price
of that security will decline. Each Fund expects to make short sales as a
form of hedging to offset potential declines in long positions in similar
securities, in order to maintain portfolio flexibility and for profit.

When a Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. government
securities or other high grade liquid securities similar to those borrowed.
The Fund will also be required to deposit similar collateral with its
custodian to the extent, if any, necessary so that the value of both
collateral deposits in the aggregate is at all times equal to at least 100%
of the current value of the security sold short.

If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at
which it sold the security short, its potential loss is theoretically
unlimited.

The Mutual Discovery and Mutual Series Funds may make short sales, but will
not make a short sale if, after giving effect to such sale, the market value
of all securities sold short exceeds 5% of the value of the Fund's total
assets or the Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. These
Funds may also make short sales "against the box" without respect to such
limitations. In this type of short sale, at the time of the sale, the Funds
own or have the immediate and unconditional right to acquire at no additional
cost the identical security.

Stock Index Futures Contracts. The Stock, Asset Allocation, Developing
Markets, International, Mutual Discovery and Mutual Shares 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 trade done 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 the
Investment Managers to predict correctly movements in the direction of the
stock markets. No assurance can be given that the Investment Managers'
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, a 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, A 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.

Reverse Repurchase Agreements. Certain Funds may enter into reverse
repurchase agreements with banks and broker-dealers. Reverse repurchase
agreements involve sales by a Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a
fixed price. During the reverse repurchase agreement period, the Fund
continues to receive dividend payments on these securities.

When effecting reverse repurchase transactions, each Fund will establish a
segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal
in value to its obligations with respect to reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by a Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, a Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Reverse repurchase agreements are considered
borrowings by the Funds and as such are subject to the investment limitations
discussed under "Fundamental Investment Restrictions."
These transactions may increase the volatility of a Fund's income or net
asset value. The Fund carries the risk that any securities purchased with the
proceeds of the transaction will depreciate or not generate enough income to
cover the Fund's obligations under the reverse repurchase transaction. These
transactions also increase the interest and operating expenses of a fund.

RISK FACTORS

Each Fund, except the Money Market Fund, has 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. The Growth Fund's investments in foreign securities are not
currently expected to exceed 15% of its assets. 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 (except the Money Market Fund) may invest up
to 15% of their total assets in unlisted securities or securities with a
limited trading market, in the opinion of management such securities 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 they have 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 program simple minded 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) as 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 subsequential legal 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 the 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. The Funds which are
authorized to engage in futures transactions 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.

The 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 movements 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 of 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 (i) the Bond, Asset Allocation, Developing
Markets, Growth, Mutual Discovery and Mutual Shares 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 (ii) the Bond, Asset Allocation, Developing
Markets, International, Growth, Mutual Discovery and Mutual Shares Funds may
purchase and sell foreign currency futures and financial futures; and (iii)
the Stock, Asset Allocation, Developing Markets, International, Growth,
Mutual Discovery and Mutual Shares Funds may purchase and sell stock index
futures contracts; and (iv) Templeton Bond Fund may purchase and sell bond
index futures contracts.

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. The Developing
Markets, Growth, Mutual Discovery and Mutual Shares Funds may borrow money
from banks in an amount up to 331/3% of the 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.

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.

As a non-fundamental policy, the Growth, Mutual Discovery and Mutual Shares
Funds will not 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 these securities of such company, in the
aggregate own more than 5% of the securities of such company.

The Franklin Growth Investments Fund will not, as a non-fundamental policy,
(i) invest for purposes of control of an issuer, (ii) invest more than 5% in
unseasoned issuers, (iii) use margin accounts or (iv) invest more than 10% of
its assets in illiquid securities.

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.

OFFICERS AND TRUSTEES

The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the
officers and Board members and their principal occupations for the past five
years are shown below. Members of the Board who are considered "interested
persons" of the Fund under the 1940 Act are indicated by an asterisk ("*").

Name, Address and Age Offices with Trust Principal Occupation During
Past Five Years

HARRIS J. ASHTON Trustee
Metro Center
1 Station Place
Stamford, Connecticut
Age 64
President, Chief Executive Officer
and Chairman of the Board, General
Host Corporation (nursery and craft
centers); Director, RBC Holdings,
Inc. (a bank holding company) and
Bar-S Foods (a meat packing
company); and director, trustee or
managing general partner, as the
case may be, of 56 of the investment
companies in the Franklin Templeton
Group
of Funds.
NICHOLAS F. BRADY* Trustee
102 East Dover Street
Easton, Maryland
Age 65
Chairman of Templeton Emerging
markets Investment Trust PLC;
Chairman of Templeton Latin America
Investment Trust PLC; chairman of
Darby Overseas Investments, Ltd. (an
investment firm) (1994-present);
chairman and director of Templeton
Central and Eastern European Fund;
director of the Amerada Hess
Corporation, Christiana Companies,
and the H.J. Heinz Company;
formerly, Secretary of the United
States Department of the Treasury
(1988-1993); and chairman of the
board of Dillion, Read & Co. Inc.
(investment banking) prior thereto;
and director or trustee of 23 of the
investment companies in the Franklin
Templeton Group of Funds.
S. JOSEPH FORTUNATO Trustee
200 Campus Drive
Florham Park, New Jersey
Age 63
Member of the law firm of Pitney,
Hardin, Kipp & Szuch; Director of
General Host Corporation; director,
trustee or managing general partner,
as the case may be, of 58 of the
investment companies in the Franklin
Templeton Group of Funds.
ANDREW H. HINES, JR. Trustee
150 2nd Avenue N.
St. Petersburg, Florida
Age 72
Consultant for the Triangle
Consulting Group; chairman and
director of Precise Power
Corporation; executive-in-residence
of Eckerd College (1991-present);
director of Checkers Drive-In
Restaurants Inc.; formerly, chairman
of the board and chief executive
officer of Florida Progress
Corporation (1982-1990) and director
of various of its subsidiaries; and
director or trustee of 24 of the
investment companies in the Franklin
Templeton Group of Funds.
EDITH E. HOLIDAY Trustee
3239 38th Street, N.W.
Washington, D.C. 20016
Age 44
Director (1993-present) of Amerada
Hess Corporation and Hercules
Incorporated; director of Beverly
Enterprises, Inc. (1995-present) and
H.J. Heinz Company (1994-present);
chairman (1995-present) and trustee
(1993-present) of National Child
Research Center; formerly, assistant
to the President of the United
States and Secretary of the Cabinet
(1990-1993), general counsel to the
United States Treasury Department
(1989-1990), and counselor to the
Secretary and Assistant Secretary
for Public Affairs and Public
Liaison-United States Treasury
Department (1988-1989); and director
or trustee of 15 of the investment
companies in the Franklin Templeton
Group of Funds.
CHARLES B. JOHNSON* Chairman of
777 Mariners Island Blvd. the Board and
San Mateo, California Vice President
Age 63
President, chief executive officer,
and director of Franklin Resources,
Inc.; chairman of the board and
director of Franklin Advisers, Inc.
and Franklin Templeton Distributors,
Inc.; director of General Host
Corporation (nursery and craft
centers) and Franklin Templeton
Services, Inc.; and officer and/or
director, trustee or managing
general partner, as the case may be,
of most other subsidiaries of
Franklin Resources, Inc. and 57 of
the investment companies in the
Franklin Templeton Group of Funds.
BETTY P. KRAHMER Trustee
2201 Kentmere Parkway
Wilmington, Delaware
Age 67
Director or trustee of various civic
associations; formerly, economic
analyst, U.S. government; and
director or trustee of 23 of the
investment companies in the Franklin
Templeton Group of Funds.
GORDON S. MACKLIN Trustee
8212 Burning Tree Road
Bethseda, Maryland 20817
Age 67
Chairman, White River Corporation
(information and financial
services); Director, Fund American
Enterprises Holdings, Inc.
(financial services), MCI
Communications Corporation, CCC
Information Services Group, Inc.
(information services), MedImmune,
Inc. (biotechnology), Source One
Mortgage Services Corporation
(financial services), Shoppers
Express (home shopping), Spacehab,
Inc. (aerospace services); and
director, trustee or managing
general partner, as the case may be,
of 53 of the investment companies in
the Franklin Templeton Group of
Funds; formerly Chairman, Hambrecht
and Quist Group (venture capital and
investment banking); Director, H & Q
Healthcare Investors (investment
trust); and President, National
Association of Securities Dealers,
Inc.
FRED R. MILLSAPS Trustee
2665 NE 37th Drive
Fort Lauderdale, Florida
Age 67
Manager of personal investments
(1978-present); director of various
other business and nonprofit
organizations; formerly, chairman
and chief executive officer of
Landmark Banking Corporation
(1969-1978); financial vice
president of Florida Power and Light
(1965-1969); and vice president of
The Federal Reserve Bank of Atlanta
(1958-1965); and director or trustee
of 24 of the investment companies in
the Franklin Templeton Group of
Funds.

CHARLES E. JOHNSON President
777 Mariners Island Blvd.
San Mateo, California
Age 39
Senior Vice President and Director,
Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton
Distributors, Inc.; President and
Director, Templeton Worldwide, Inc.
and Franklin Institutional Services
Corporation; officer and/or
director, as the case may be, of
some of the subsidiaries of Franklin
Resources, Inc. and officer and/or
director or trustee, as the case may
be, of 39 the investment companies
in the Franklin Templeton Group of
Funds.
MARK G. HOLOWESKO Vice President
Lyford Cay
Nassau, Bahamas
Age 36
President and director of Templeton
Global Advisors Limited; chief
investment officer of the global
equity research for Templeton
Worldwide, Inc.; president or vice
president of the Templeton Funds;
formerly, investment administrator
with Roy West Trust Corporation
(Bahamas) Limited (1984-1985); and
director or trustee of 22 of the
investment companies in the Franklin
Templeton Group of Funds.

MARTIN L. FLANAGAN Vice President
777 Mariners island Blvd.
San Mateo, California
Age 36
Senior Vice President, Chief
Financial Officer and Treasurer,
Franklin Resources, Inc.; President,
Franklin Templeton Services, Inc.;
Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice
President and Treasurer, Franklin
Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Senior
Vice President, Franklin/Templeton
Investor Services, Inc.; Treasurer,
Franklin Advisory Services, Inc. and
Franklin Investment Advisory
Services, Inc.; officer of most
other subsidiaries of Franklin
Resources, Inc.; and officer,
director and/or trustee of 61 of the
investment companies in the Franklin
Templeton Group of Funds.
SAMUEL J. FORESTER, JR. Vice President
500 East Broward Blvd.
Fort Lauderdale, Florida
Age 47
President of the Templeton Global
Bond Managers Division of Templeton
Investment Counsel, Inc.; president
or vice president of other Templeton
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).

JOHN R. KAY Vice President
500 East Broward Blvd.
Fort Lauderdale, Florida
Age 56
Vice president and treasurer of
Templeton Global Investors, Inc. and
Templeton Worldwide, Inc.; assistant
vice president of Franklin Templeton
Distributors, Inc.; formerly, vice
president and controller of the
Keystone Group, Inc.; and director
or trustee of
22 of the investment companies in
the Franklin Templeton Group of
Funds.

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

RUPERT H. JOHNSON, JR. Vice President
777 Mariners Island Blvd.
San Mateo, California
Age 55
Executive Vice President and
Director, Franklin Resources, Inc.
and Franklin Templeton Distributors,
Inc.; President and Director,
Franklin Advisers, Inc.; Senior Vice
President and Director, Franklin
Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.;
Director, Franklin/Templeton
Investor Services, Inc.; and officer
and/or director, trustee or managing
general partner, as the case may be,
of most of the other subsidiaries of
Franklin Resources, Inc. and of 61
of the investment companies in the
Franklin Templeton Group of Funds.
HARMON E. BURNS Vice President
777 Mariners Island Blvd.

San Mateo, California
Age 51
Executive Vice President, Secretary
and Director, Franklin Resources,
Inc.; Executive Vice President and
Director, Franklin Templeton
Distributors, Inc.; Executive Vice
President, Franklin Advisers, Inc.
and Franklin Templeton Services,
Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer
and/or director, as the case may be,
of the other subsidiaries of
Franklin Resources, Inc.; and
officer and/or director or trustee
of 61 of the investment companies in
the Franklin Templeton Group of
Funds.

DEBORAH R. GATZEK Vice President
777 Mariners Island Blvd.
San Mateo, California
Age 47
Senior Vice President and General
Counsel, Franklin Resources, Inc.;
Senior Vice President, Franklin
Templeton Services, Inc., and
Franklin Templeton Distributors,
Inc.; Vice President, Franklin
Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment
Advisory Services, Inc., and officer
of 61 of the investment companies in
the Franklin Templeton Group of
Funds.

JAMES R. BAIO Treasurer
500 East Broward Blvd.
Fort Lauderdale, Florida
Age 42
Certified public accountant; senior
vice president of Templeton
Worldwide, Inc., Templeton Global
Investors, Inc., and Templeton Funds
Trust Company; formerly, senior tax
manager, Ernst & Young (certified
public accountants) (1977-1989). and
director or trustee of 22 of the
investment companies in the Franklin
Templeton Group of Funds.

*These are Trustees who are "interested persons" of the Trust as that term is
defined in the 1940 Act. Charles B. Johnson is an interested person due to
his ownership interest in Franklin Resources, Inc. 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. The remaining
Trustees are not interested persons ("independent Trustees").

The table above shows the Officers and Trustees who are affiliated with the
Trust's Principal Underwriter and Investment Managers. Nonaffiliated
trustees and Mr. Brady are paid 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. As shown above, some of
the nonaffiliated Trustees also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton
Group of Funds.

The following table shows the total fees paid to the nonaffiliated Trustees
by the Trust and by all investment companies in the Franklin Templeton Group
of Funds:
<TABLE>
<CAPTION>

Number of Boards Total
Aggregate in the Franklin Compensation
Fees Received Templeton Group from all Funds
from the of Funds on which in Franklin
Name of Trustee Trust* Trustee Serves*** Templeton Group*
<S> <C> <C> <C>
Harris J. Ashton............................................ $7,350 56 $343,591
Nicholas F. Brady........................................... 7,350 23 119,275
F. Bruce Clarke**........................................... 7,697 19 69,500
Hasso-G von Diergardt-Naglo**............................... 7,697 20 66,375
S. Joseph Fortunato......................................... 7,350 58 360,411
Andrew H. Hines, Jr. ....................................... 8,027 22 130,525
Betty P. Krahmer............................................ 7,350 22 119,275
Gordon S. Macklin........................................... 7,680 53 335,541
Fred R. Millsaps............................................ 7,697 24 125,275

</TABLE>
*For the fiscal year ended December 31, 1996.

**Messrs. Clarke and Von Diergardt-Naglo resigned as Trustees during 1996.

***We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the Board members are responsible. The Franklin Templeton Group of
Funds currently includes 61 registered investment companies, with
approximately 171 U.S. based funds or series.

Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, and paid pro rata by
each fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. No officer or Board member
received any other compensation, including pension or retirement benefits,
directly or indirectly from the Fund or other funds in the Franklin Templeton
Group of Funds. Certain officers or Board members who are shareholders of
Resources may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.

As of April 1, 1997, the officers and Trustees owned no shares of the Trust.
Many of the Board members own shares in other funds in the Franklin Templeton
Group of Funds. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers
and the father and uncle, respectively, of Charles E. Johnson.

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 April 1, 1997, there
were 14,272,186.040 Shares of Templeton Money Market Fund outstanding;
3,116,453.177 Shares of Templeton Bond Fund outstanding; 31,723,925.674
Shares of Templeton Stock Fund outstanding; 29,745,368.077 Shares of
Templeton Asset Allocation Fund outstanding; 40,786,698.743 Shares of
Templeton International Fund outstanding; and 12,121,556,999 Shares of
Templeton Developing Markets Fund outstanding. As of April 1, 1997, Phoenix
Home Mutual Life Insurance Company ("Phoenix Home Life") owned 100% of the
outstanding Shares of Templeton Money Market Fund, 56.95% of the outstanding
Shares of Templeton Bond Fund, 48.90% of the outstanding Shares of Templeton
Stock Fund, 25.72% of the outstanding Shares of Templeton Asset Allocation
Fund, and 15.43% of the outstanding Shares of Templeton International Fund.
As of April 1, 1997, The Travelers Insurance Company ("The Travelers") owned
43.05% of the outstanding Shares of Templeton Bond Fund, 51.07% of the
outstanding Shares of Templeton Stock Fund, and 37.42% of the outstanding
Shares of Templeton Asset Allocation Fund. As of April 1, 1997, the Variable
Annuity Life Insurance Company ("VALIC") owned 36.80% of the outstanding
shares of Templeton Asset Allocation Fund and 78.16% of Templeton
International Fund. As of April 1, 1997, IDS/American Express ("IDS/AMEX"), a
Minnesota Corporation, on behalf of the Flexible Portfolio Annuity, owned
94.02% of the outstanding shares of the Templeton Developing Markets Fund.
However, Phoenix Home Life, The Travelers, VALIC and IDS/AMEX 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, VALIC and IDS/AMEX. To this extent, Phoenix Home Life, The
Travelers VALIC, and IDS/AMEX 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 April 1, 1997, 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 Managers and Services Provided. 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 Manager of Franklin Growth Investments Fund is
Franklin Advisers, Inc. ("Advisers"). The Investment Manager of Mutual
Discovery Investments Fund and Mutual Shares Investments Fund is Franklin
Mutual Advisers, Inc. ("Mutual Advisers"). The Investment Managers are
indirect wholly owned subsidiaries of Franklin Resources, Inc. ("Resources"),
a publicly traded company whose shares are listed on the NYSE.

The Investment Managers provide investment research and portfolio management
services, including the selection of securities for the Funds to buy, hold or
sell, and the selection of brokers through whom the Fund's portfolio
transactions are executed. Their activities are subject to the review and
supervision of the Board to whom they render periodic reports of the Funds'
investment activities. The Investment Managers are covered by fidelity
insurance on their officers, directors and employees for the protection of
the Funds.

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 "Brokerage
Allocation--Summary of Code of Ethics."
The Investment Management Agreements will continue in effect through February
1998 and 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.

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 $1.3 billion and further reduced to 0.25% of
such net assets in excess of $1.3 billion. Templeton Bond Fund pays its
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 $1.3 billion and further reduced to 0.40% of
such net assets in excess of $1.3 billion.

Templeton Asset Allocation Fund pays its Investment Manager a monthly fee
equal on an annual basis to 0.65% of its average daily net assets up to $200
million, reduced to 0.585% of such net assets from $200 million up to $1.3
billion and further reduced to 0.52% of such net assets in excess of $1.3
billion.

Templeton Stock and International Funds pay their Investment Manager a
monthly fee equal on an annual basis to 0.75% of its average daily net assets
up to $200 million, reduced to 0.675% of such net assets from $200 million up
to $1.3 billion and further reduced to 0.60% of such net assets in excess of
$1.3 billion.

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.

The Franklin Growth Investments Fund is obligated to pay Advisers a monthly
fee, based upon the Fund's average daily net assets, computed at the annual
rate of 0.60 of 1% of average daily net assets on the first $200 million of
average daily net assets; 0.50% of 1% up to $1.2 billion of average daily net
assets; and 0.40 of 1% on average daily net assets in excess of $1.2 billion.

The Mutual Discovery Fund and Mutual Shares Fund are obligated to pay
Franklin Mutual a monthly fee, based upon each Fund's average daily net
assets, computed at the annual rate of .80 and .60, of 1%, respectively of
average daily net assets.

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.

For the fiscal year ended December 31, 1996, management fees for the
Developing Markets Fund, before any advance waiver, totaled $313,283. Under
an agreement by the Investment Manager to limit its fees, the Fund paid
management fees totaling $293,918.

During the fiscal years ended December 31, 1996, 1995 and 1994, the Funds
paid the following investment management fees:

1996 1995 1994
Templeton Money Market Fund ................. $ 55,132 $ 74,375 $ 88,106
Templeton Bond Fund ......................... $ 162,273 $ 156,062 $ 149,843
Templeton Stock Fund ........................ $2,627,573 $2,102,259 $1,686,602
Templeton Asset Allocation Fund ............. $2,245,898 $1,662,023 $1,186,540
Templeton International Fund ................ $2,445,202 $1,222,834 $ 404,532
Templeton Developing Markets Fund............ $ 293,918

Fund Administrator. Templeton Funds Annuity Company ("TFAC") performs certain
administrative functions as Fund Administrator for the Trust. These include
preparing and maintaining books, records and tax and financial reports, and
monitoring compliance with regulatory requirements. TFAC is a wholly owned
and subsidiary of Resources.

For its services, the Fund Administrator 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 $1.2 billion. The fee is allocated among the Funds according to
their respective average daily net assets. During the fiscal years ended
December 31, 1996, 1995, and 1994, the Fund Administrator received fees of
$1,801,632, $1,380,760, $1,006,867 respectively.

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 Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York 10286, acts as custodian of the
securities and other assets of the Franklin Growth Investments Fund. The
State Street Bank and Trust Company, Atlantic Division, 225 Franklin Street,
Boston, MA 02110 acts as custodian for the Mutual Discovery and Mutual Shares
Investments Funds. The Custodians, their 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. The Custodians do not participate in
decisions relating to the purchase and sale of portfolio securities.

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 and review
of the Trust's filings with the Securities and Exchange Commission ("SEC").

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 Investment Managers select brokers and dealers to execute the Funds'
portfolio transactions in accordance with criteria set forth in the
management agreement and any directions that the Board may give.

When placing a portfolio transaction, the Investment Managers seek to obtain
prompt execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid by a
Fund is negotiated between the Investment Managers and the broker executing
the transaction. The determination and evaluation of the reasonableness of
the brokerage commissions paid are based to a large degree on the
professional opinions of the persons responsible for placement and review of
the transactions. These opinions are based on the experience of these
individuals in the securities industry and information available to them
about the level of commissions being paid by other institutional investors of
comparable size. The Investment Managers will ordinarily place orders to buy
and sell over-the-counter securities on a principal rather than agency basis
with a principal market maker unless, in the opinion of the Investment
Managers, a better price and execution can otherwise be obtained. Purchases
of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price.

The Investment Managers may pay certain brokers commissions that are higher
than those another broker may charge, if the Investment Mangers determine in
good faith that the amount paid is reasonable in relation to the value of the
brokerage and research services it receives. This may be viewed in terms of
either the particular transaction or the Investment Managers' overall
responsibilities to client accounts over which they exercise investment
discretion. The services that brokers may provide to the Investment Managers
include, among others, supplying information about particular companies,
markets, countries, or local, regional, national or transnational economies,
statistical data, quotations and other securities pricing information, and
other information that provides lawful and appropriate assistance to the
Investment Managers in carrying out their investment advisory
responsibilities. These services may not always directly benefit a Fund. They
must, however, be of value to the Investment Managers in carrying out their
overall responsibilities to their clients.

A Fund seeks to obtain prompt execution of orders at the most favorable net
price. Transactions may be directed to dealers in return for research and
statistical information, as well as for special services provided by the
dealers in the execution of orders.

It is not possible to place a dollar value on the special executions or on
the research services the Investment Managers receive from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the Investment Managers to
supplement their own research and analysis activities and to receive the
views and information of individuals and research staffs of other securities
firms. As long as it is lawful and appropriate to do so, the Investment
Managers and their affiliates may use this research and data in their
investment advisory capacities with other clients. If a Fund's officers are
satisfied that the best execution is obtained, the sale of Fund shares, as
well as shares of other funds in the Franklin Templeton Group of Funds, may
also be considered a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.

Because Distributors is a member of the NASD, it may sometimes receive
certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. As a means of recapturing brokerage for the
benefit of the Fund, any portfolio securities tendered by the Fund will be
tendered through Distributors if it is legally permissible to do so. In turn,
the next management fee payable to the Investment Managers will be reduced by
the amount of any fees received by Distributors in cash, less any costs and
expenses incurred in connection with the tender.

If purchases or sales of securities of a Fund and one or more other
investment companies or clients supervised by the Investment Managers are
considered at or about the same time, transactions in these securities will
be allocated among the several investment companies and clients in a manner
deemed equitable to all by the Investment Managers, taking into account the
respective sizes of the funds and the amount of securities to be purchased or
sold. In some cases this procedure could have a detrimental effect on the
price or volume of the security so far as a Fund is concerned. In other cases
it is possible that the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to a Fund.

During the fiscal years ended December 31, 1996, 1995 and 1994, the Trust
paid brokerage commissions totaling $2,594,403, $1,525,000 and $672,000,
respectively.

As of December 31, 1996, no Fund owned any securities issued by its regular
broker-dealers.

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, Mutual Discovery
Investments Fund, Mutual Shares Investments Fund and the Franklin Growth
Investments 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, 1996 and 1995 were 141.19% and 188.11%,
respectively. These rates exceed the anticipated portfolio turnover rate for
Templeton Bond Fund as a result of changing interest rates and currency
exposure considerations.

Summary of Code of Ethics. 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.

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.

Money Market Fund. 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.

For the purpose of determining the aggregate net assets of a Fund cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued, and dividends are recorded on the ex-dividend date. Portfolio
securities listed on a securities exchange or on NASDAQ for which market
quotations are readily available are valued at the last quoted sale price of
the day or, if there is no such reported sale, within the range of the most
recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices.
Portfolio securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market as determined by the Investment Managers.

Trading in securities on European and Far Eastern exchanges and
over-the-counter markets is normally completed well before the close of
business in New York on each day on which the NYSE is open. Trading of
European or Far Eastern securities generally, or in a particular country or
countries, may not take place on every New York business day. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and on which the Funds' net asset values are not calculated.
The Funds calculate net asset value per share, and therefore effect sales,
redemptions and repurchases of their shares, as of the close of the NYSE once
on each day on which the Exchange is open. Such calculation does not take
place contemporaneously with the determination of the prices of many of the
portfolios securities used in such calculation and if events occur which
materially affect the value of those foreign securities, they will be valued
at fair market value as determined by the management and approved in good
faith by the Board of Trustees.

Generally, trading in corporate bonds, U.S. government securities and Money
Market Instruments is substantially completed each day at various times prior
to the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of each class is determined as of such times.
Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange that will not be reflected in the computation of the Net Asset Value
of each class. If events materially affecting the values of these securities
occur during such period, then the securities will be valued at their fair
value as determined in good faith by the Board.

Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the Board. With the approval of
the Board of Trustees, a Fund may utilize a pricing service, bank or
securities dealer to perform any of the above described functions.

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.

The Class 2 Distribution Plan
Each Class 2 of the Trust, except for the Money Market Fund, has adopted a
distribution plan or "Rule 12b-1" Plan ("Plan") pursuant to rule 12b-1 of the
1940 Act. Under the Plans, each Fund offering Class 2 shares, except the
Templeton Bond Fund, may pay up to a maximum of 0.25% per year of the average
daily net assets attributable to their respective Class 2 shares. Under the
Templeton Bond Fund's Class 2 Plan, the Templeton Bond Fund may pay up to a
maximum of 0.15% per year of the average daily net assets attributable to its
Class 2 shares. These fees may be used to compensate the Trust's distributor,
Franklin/Templeton Distributors, Inc. ("Distributors"), the Insurance
Companies or others for distribution and related services and as a servicing
fee.

The terms and provisions of the Plan, including terms and provisions relating
to required reports, term, and approval, are consistent with Rule 12b-1. In
no event shall the aggregate asset-based sales charges, which include
payments made under each plan exceed the amount permitted to be paid under
the rules of the National Association of Securities Dealers, Inc.

Each plan has been approved in accordance with the provisions of Rule 12b-1.
The plans are renewable annually by a vote of the Board, including a majority
vote of the Board members who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the plans,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such Board members be done by the
non-interested members of the Board. The plans and any related agreement may
be terminated at any time, without penalty, by vote of a majority of the
non-interested Board members on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of a management agreement with an Investment
Manager, or by vote of a majority of the outstanding shares of the class.
Distributors, the Insurance Companies or others may also terminate their
respective distribution or service agreement at any time upon written notice.

The plans and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without approval
by a majority of the outstanding shares of the class, and all material
amendments to the plans or any related agreements shall be approved by a vote
of the non-interested members of the Board, cast in person at a meeting
called for the purpose of voting on any such amendment.

A report will be submitted in writing to the Board at least quarterly on the
amounts and purpose of any payment made under the plans and any related
agreements, and the Board will be furnished with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the plans should be continued.

TAX STATUS

Templeton Money Market Fund intends to declare dividends daily and to pay
dividends monthly. All other 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 in applicable 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 is 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 debts securities denominated 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 oppositions 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. In addition,
Class 2 Shares of each Fund offering Class 2 Shares will bear the expense of
the Class 2 Distribution plan as it applies to each Fund. The net asset value
of a Share of a class of a Fund is based on the assets belonging to that Fund
less the liabilities charged to that class of the Fund, and dividends are
paid on Shares of a class of a Fund only out of lawfully available assets
belonging to that class of the 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.

PERFORMANCE INFORMATION

Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation be accompanied by certain standardized
performance information computed as required by the SEC. On May 1, 1997, each
Fund (except the Money Fund) began offering Class 2 shares and renamed its
existing shares as Class 1 shares. Any Class 2 performance shown for the
periods prior to May 1, 1997 represents the historical results of Class 1
Shares. Performance of Class 2 shares for the periods after May 1, 1997
reflects Class 2's higher annual fees and expenses resulting from its Rule
12b-1 plan. Historical performance data for Class 2 will generally not be
restated to include 12b-1 fees, although the Trust may restate these figures
consistent with SEC rules. Regardless of the method used, past performance
does not guarantee future results, and is an indication of the return to
shareholders only for the limited historical period used.

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

6
Yield = 2 [(1 + a-b) - 1]
-------
cd
where:
a = dividends 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, 1996, the 7-day annualized yield
of Money Market Fund was 4.73% and the effective yield of Money Market Fund
was 4.85%.

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
indicated periods ended December 31, 1996:

<TABLE>
<CAPTION>
Fund 1 Year Period 5 Year Period Since Inception
<S> <C> <C> <C> <C>
Money Market Fund ....................... 4.99% 3.86% 5.09%1
Bond Fund - Class I...................... 9.45% 7.07% 8.02%1
Stock Fund - Class I .................... 22.48% 14.45% 13.47%1
Asset Allocation Fund - Class I ......... 18.93% 14.01% 12.30%1
International Fund - Class I ............ 24.04% N/A 15.28%2
Developing Markets Fund - Class I ....... N/A N/A -5.70%3
</TABLE>

1Since inception on August 31, 1988
2Since inception on May 1, 1992
3Since inception on March 4, 1996. Aggregate total return represents the
change in value of an investment over the indicated period. Since the fund
has existed for less than one year, average annual total returns are not
provided.

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) Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.

(14) 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."

**Sir John Templeton sold the Templeton organization to Franklin Resources,
Inc. in October 1992 and resigned from the Trust's Board on April 15, 1995.
He is no longer involved with the investment management process.

FINANCIAL STATEMENTS

The audited financial statements contained in the Trust's Annual Report to
Shareholders dated December 31, 1996, including the auditors' report, are
incorporated herein by reference. These financial statements do not include
information for Class 2, as Class 2 shares were not publicly offered prior to
the date of this SAI.

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 "giltedge." 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 maybe lacking or maybe 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.

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.

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.

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:

o Leading market positions in well-established industries.

o High rates of return on funds employed.

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

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

o Well-established access 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 off shoot-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.

TVPSF SAI 05/97

Mutual funds, annuities, and other investment products:

o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by any bank;
o are subject to investment risks, including the possible loss of principal.

TEMPLETON VARIABLE PRODUCTS SERIES FUND
File Nos. 33-20313

FORM N-1A
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
Templeton International Fund and Templeton Developing
Markets Trust):

(1) The audited financial statements contained in the Trust's
Annual Report for the fiscal year ended December 31, 1996, filed
on forn N-30D on March 10, 1997, are incorporated herein by
reference.

Part A: (for Franklin Growth Investments, Mutual Discovery Investments
and Mutual Shares Investments Funds):

(1) Financial Highlights not applicable because Franklin
Growth Investments, Mutual Discovery Investments and Mutual
Shares Investments Funds had not commenced operations as of
December 31, 1996.

(b) Exhibits:

The following exhibits where applicable, are herewith incorporated by reference
to the filings as noted with the exception of Exhibits 11(a); which is attached.

(1) Declaration of Trust
Filing: Registration Statement of Registrant on
Form N-1A
File No. 33-20313
Filing Date: February 25, 1988

(2) copies of the By-Laws or instruments corresponding
thereto;

(3) copies of any voting trust agreement with respect to
more than five percent of any class of equity
securities of the Registrant;

Not Applicable

(4) specimens or copies of each security issued by the
Registrant, including copies of all constituent
instruments, defining the rights of the holders of
such securities, and copies of each security being
registered;

Not Applicable

(5) Copies of all investment advisory contracts relating
to the management of the assets of the Registrant;

(a) Amended and Restated Investment Management
Agreement for Templeton Money Market Fund and Templeton Bond Fund
Filing: Registration Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 25, 1988

(b) Form of Investment Management Agreement for Templeton
Developing Markets Fund
Filing: Post-Effective Amendment No. 12 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 16, 1996

(c) Form of Investment Management Agreement between Registrant
on behalf of the Templeton Asset Allocation Fund and
Templeton Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(d) Form of Investment Management Agreement between Registrant
on behalf of the Templeton Stock Fund and Templeton
Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(e) Form of Investment Management Agreement between Registrant
on behalf of the Templeton International Fund and Templeton
Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(f) Form of Investment Management Agreement between Registrant
on behalf of Franklin Growth Investments Fund and Franklin
Advisers, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(g) Form of Investment Management Agreement between Registrant
on behalf of the Mutual Discovery Investments Fund and
Franklin Mutual Advisers, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
\ Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(h) Form of Investment Management Agreement between Registrant
on behalf of the Mutual Shares Investments Fund and
Franklin Mutual Advisers, Inc.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(6) copies of each underwriting or distribution contract
between the Registrant and a principal underwriter, and
specimens or copies of all agreements between principal
underwriters and dealers;

(a) Amended and Restated Distribution Agreement
Filing: Post-Effective Amendment No.10 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: December 22, 1995

(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of Trustees
or officers of the Registrant in their capacity as such; any such
plan that is not set forth in a formal document, furnish a reasonably
detailed description thereof;

Not Applicable

(8) copies of all custodian agreements and depository contracts under
Section 17(f) of the Investment Company Act of 1940 (the "1940 Act"),
with respect to securities and similar investments of the Registrant,
including the schedule of renumeration;

(a) Amended and Restated Custodian Agreement
Filing: Post-Effective Amendment No.13 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: April 12, 1996

(b) Form of Custody Agreement between Registrant on behalf of Mutual
Discovery Investments Fund and Mutual Shares Investments Fund,
and the State Street Bank and Trust
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(c) Form of Master Custody Agreement between the Registrant on behalf
of Franklin Growth Investments Fund and the Bank Of New York
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(9) Copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part at
or after the date of filing the Registration Statement;

(a) Form of Amended and Restated Business Management Agreement
Filing: Post-Effective Amendment No.12 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 16, 1996

(b) Form of Fund Administration Agreement between Registrant and
Templeton Funds Annuity Company
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(10) an opinion and consent of counsel as to the legality
of the securities being registered, indicating
whether they will when sold be legally issued, fully
paid and nonassessable;

(a) Opinion of Counsel - filed with Rule 24f-2 Notice
on February 26, 1997

(11) Copies of any other rulings and consents to the use
thereof relied on in the preparation of this
registration statement and required by Section 7 of
the 1933 Act;

(a) Consent of Independent Auditors dated April 21, 1997.

(12) all financial statements omitted from Item 23;

Not Applicable

(13) copies of any agreements or understandings made in
consideration for providing the initial capital
between or among the Registrant, the underwriter,
adviser, promoter or initial stockholders and
written assurances from promoters or initial
stockholders that their purchases were made for
investment purposes without any present intention of
redeeming or reselling;

(a) Letter concerning initial capital
Filing: Post-Effective Amendment No. 2 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: August 26, 1988

(14) copies of the model plan used in the establishment
of any retirement plan in conjunction with which
Registrant offers its securities, any instructions
thereto and any other documents making up the model
plan. Such form(s) should disclose the costs and
fees charged in connection therewith;

Not Applicable

(15) copies of any plan entered into by Registrant
pursuant to Rule 12b-1 under the 1940 Act, which
describes all material aspects of the financing of
distribution of Registrant's shares, and any
agreements with any person relating to
implementation of such plan.

(a) Form of Distribution Plan between the Registrant on behalf
Of Templeton Asset Allocation Fund, Templeton Bond Fund,
Templeton Developing Markets Fund, Templeton International
Fund, Templeton Stock Fund, Franklin Growth Investments Fund,
Mutual Shares Investments Fund, Mutual Discovery Investments
Fund And Franklin Templeton Distributors
Filing: Post-effective Amendment No. 14 To Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

(16) Schedule for computation of each performance
quotation provided in the registration statement in
response to Item 22 (which need not be audited).

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

(17) Power of Attorney

(a) Power of Attorney from Officers and Directors of the
Registrant excecuted December 12, 1996.
Filing: Post-Effective Amendment No. 14 to Registration
Statement of Registrant on Form N-1A
File No. 33-20313
Filing Date: February 14, 1997

Item 25 Persons Controlled by or under Common Control with Registrant

As of April 1, 1997, 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 48.90% of the outstanding
shares of Templeton Stock Fund, 25.72% of the outstanding shares of Templeton
Asset Allocation Fund, 56.95% of the outstanding shares of Templeton Bond Fund,
100% of the outstanding shares of Templeton Money Market Fund and 15.43% of the
outstanding shares of Templeton International Fund. As of April 1, 1997, The
Travelers Insurance Company ("The Travelers"), on behalf of The Travelers Fund U
for Variable Annuities, owned of record 51.07% of the outstanding shares of
Templeton Stock Fund, 37.42% of the outstanding shares of Templeton Asset
Allocation Fund, and 43.05% of the outstanding shares of Templeton Bond Fund. As
of April 1, 1997, The Variable Life Insurance company ("VALIC"), a Texas
Corporation, on behalf of The Variable Life Insurance Company Separate Account
A, owned of record 36.80% of the outstanding shares of Templeton Asset
Allocation Fund and 78.16% of Templeton International Fund. As of April 1, 1997,
IDS/American Express ("IDS/AMEX"), a Minnesota Corporation, on behalf of the
Flexible portfolio Annuity, owned 94.02% of the outstanding shares of the
Templeton Developing Markets Fund. Phoenix Home Life, The Travelers VALIC and
IDS/AMEX, 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 Holders of Securities

NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF April 1, 1997
-------------- --------------------

Templeton Stock Fund 3
Templeton Bond Fund 2
Templeton Asset Allocation Fund 4
Templeton Money Market Fund 1
Templeton International Fund 7
Templeton Developing Markets Fund 3

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

(a) The officers and directors of the Registrant's investment adviser
also serve as officers and/or directors or trustees for (1) Franklin
Resources, Inc. ("Resources"), the corporate parent of all the Registrant's
Investment Managers, and/or (2) other investment companies in the Franklin
Group of Funds.

(b) Templeton Investment Counsel, Inc.

Templeton Investment Counsel, Inc. ("TICI"), an indirect, wholly owned
subsidiary of Resources, serves as adviser to all Funds in the Trust except the
Templeton Developing Markets, Mutual Discovery Investments, Mutual Shares
Investments, and Franklin Growth Investments Funds and in that capacity
furnishes portfolio management services and investment research. For additional
information please see Part B and Schedules A and D of Form ADV of TICI (SEC
File 801-15125), incorporated herein by reference, which set forth the officers
and directors of TICI and information as to any business, profession, vocation
of employment of a substantial nature engaged in by those officers and directors
during the past two years.

Templeton Asset Management ("Templeton Singapore"), an indirect, wholly owned
subsidiary of Resources, serves as investment manager to Templeton Developing
Markets Fund. For information please see Part B and Schedules A and D of Form
ADV of Templeton Singapore (SEC File 801-46997), incorporated herein by
reference, which set forth the officers and directors of Templeton Singapore and
information as to any business, profession, vocation of employment of a
substantial nature engaged in by those officers and directors during the past
two years.

(d) Franklin Mutual Advisers, Inc.

Franklin Mutual Advisers, Inc. ("Mutual Advisers"), a direct, wholly owned
subsidiary of Resources, will serve as investment manager to the Mutual
Discovery Investments Fund and the Mutual Series Investments Fund. For
information please see Part B and Schedules A and D of Form ADV of Mutual
Advisers (SEC File 801-53068), incorporated herein by reference, which set forth
the officers and directors of Mutual Advisers and information as to any
business, profession, vocation of employment of a substantial nature engaged in
by those officers and directors during the past two years.

(e) Franklin Advisers, Inc.

Franklin Advisers, Inc. ("Advisers"), a direct wholly owned subsidiary of
Resources, will serve as Investment Manager to the Franklin Growth Investments
Fund. For additional information, please see Part B and Schedules A and D of
Form ADV of Advisers (SEC File 801-26292), incorporated herein by reference,
which sets forth the officers and directors of Advisers and information as to
any business, profession, vocation or employment of a substantial nature engaged
in by those officers and directors during the past two years.

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 Asset Allocation 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 Templeton Fund Allocator Series
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:
NAME POSITION WITH UNDERWRITER POSITION WITH REGISTRANT

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 Vice President
and Director
Edward V. McVey Senior Vice President None
Kenneth A. Lewis Treasurer None
William J. Lippman Senior Vice President None
Deborah R. Gatzek Senior Vice President Vice President
and Assistant Secretary
Richard C. Stoker Senior Vice President None
Daniel T. O'Lear 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
Bert W. Feuss 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
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
Sarah Stypa Vice President None
Francie Arnone Vice President None
Alison Hawksley Vice President None
John R. Kay Assistant Vice President Vice President
Susan Thompson Assistant Vice President None
Virginia Marans Assistant Vice President None
Bernadette Marino Assistant Vice President None
Howard
Andrea Dover Assistant Vice President None
Laura Komar Assistant Vice President None
Leslie M. Kratter Secretary None
Karen DeBellis Assistant Treasurer Assistant Treasurer
Philip A. Scatena Assistant Treasurer None

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

There are no management-related service contracts not discussed in Part A or
Part B.

Item 32 Undertakings

(a) Not applicable

(b) The Registrant hereby undertakes to file a post-effective amendment
using financial statements which need not be certified, within four
to six months from the effective date of Registrant's Registration
Statement for its new series, Mutual Discovery Investments Fund,
Mutual Shares Investments Fund and Franklin Growth Investments Fund
(all of which are effective May 1, 1997) under the Securities Act
of 1933.

(c) The Registrant hereby undertakes to comply with the information
requirement in Item 5A of the Form N-1A by including the required
information in the Fund's annual report and to furnish each person
to whom a prospectus is delivered a copy of the annual report upon
request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this post-effective
amendment to the Registrant's Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of San Mateo and the
State of California, on the 30th day of April, 1997.

TEMPLETON VARIABLE PRODUCTS SERIES FUND

By: /s/Charles E. Johnson*
Charles E. Johnson, President

*By:/s/ Karen L. Skidmore
Karen L. Skidmore
as attorney-in-fact

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

Charles E. Johnson* Principal Executive Officer and Trustee
Charles E. Johnson Dated: April 30,1997

Fred R. Millsaps* Trustee
Fred R. Millsaps Dated: April 30, 1997

Edith E. Holiday* Trustee
Edith E. Holiday Dated: April 30, 1997

Betty P. Krahmer* Trustee
Betty P. Krahmer Dated: April 30, 1997

Charles B. Johnson* Trustee
Charles B. Johnson Dated: April 30, 1997

Harris J. Aston* Trustee
Harris J. Ashton Dated: April 30, 1997

S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: April 30, 1997

Andrew H. Hines, Jr.* Trustee
Andrew H. Hines, Jr. Dated: April 30, 1997

Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: April 30, 1997

Nicholas F. Brady* Trustee
Nicholas F. Brady Dated: April 30, 1997

James R. Baio* Trustee
James R. Baio Dated: April 30, 1997

*By
/s/Karen L. Skidmore, Attorney-in-Fact
(Pursuant to Powers of Attorney listed in item 17)

TEMPLETON VARIABLE PRODUCTS SERIES FUND
REGISTRATION STATEMENT
EXHIBITS INDEX

EXHIBIT NO. DESCRIPTION LOCATION

EX-99.B1 Declaration of Trust *

EX-99.B2 By-Laws *

EX-99.B5(a) Amended and Restated Investment Management Agreement
for Templeton Money Market Fund and Templeton Bond Fund *

EX-99.B5(b) Form of Investment Management Agreement for Templeton
Developing Markets Fund *

EX-99.B5(c) Form of Investment Management Agreement between
Registrant on behalf of the Templeton Asset Allocation
Fund and Templeton Investment Counsel, Inc. *

EX-99.B5(d) Form of Investment Management Agreement between
Registrant on behalf of the Templeton Stock Fund and
Templeton Investment Counsel, Inc. *

EX-99.B5(e) Form of Investment Management Agreement between Registrant
on behalf of the Templeton International Fund and
Templeton Investment Counsel, Inc. *

EX-99.B5(f) Form of Investment Management Agreement between Registrant
on behalf of Franklin Growth Investments Fund and
Franklin Advisers, Inc. *

EX-99.B5(g) Form of Investment Management Agreement between Registrant
on behalf of the Mutual Discovery Investments Fund
and Franklin Mutual Advisers, Inc. *

EX-99.B5(h) Form of Investment Management Agreement between Registrant
on behalf of the Mutual Shares Investments Fund and
Franklin Mutual Advisers, Inc. *

EX-99.B8(a) Amended and Restated Custodian Agreement *

EX-99.B8(b) Form of Custody Agreement between Registrant on behalf of
Mutual Discovery Investments Fund and Mutual Shares
Investments Fund and the State Street Bank and Trust *

EX-99.B8(c) Form of Master Custody Agreement between the Registrant
on behalf Franklin Growth Investments Fund and the
Bank of New York *

EX-99.B9(a) Form of Amended and Restated Business Management Agreement *

EX-99.B9(b) Form of Fund Administration Agreement between Registrant *
and Templeton Funds Annuity Company

EX-99.B10(a) Opinion of Counsel *

EX-99.B11(a) Consent of Independent Auditors dated April 21, 1997 Attached

EX-99.B13(a) Letter concerning initial capital *

EX-99.B15(a) Form of Distribution Plan between the Registrant
on behalf of Templeton Asset Allocation Fund
Templeton Bond Fund, Templeton Developing
Markets Fund, Templeton International Fund,
Templeton Stock Fund, Franklin Growth
Investments Fund, Mutual Shares Investments Fund,
Mutual Discovery Investments Fund and Franklin
Templeton Distributors *

EX-99.B16(a) Scheduled for computation of each performance quotation *

EX-99.B17(a) Power of Attorney from Officers and Directors
of the Registrant executed December 12, 1996 *

*Incorporated by Reference

AUDITORS CONSENT
MCGLADREY & PULLEN, LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated January 31 , 1997,
except for the third papagraph of Note 3, as to which the date is February 10,
1997, on the financial statements of Templeton Stock Fund, Templeton
International Fund, Templeton Asset Allocation Fund, Templeton Money Market
Fund, Templeton Bond Fund and Templeton Developing Markets Fund series of
Templeton Variable Products Series Fund referred to therein which appears in the
1996 Annual Report to Shareholders, and which is incorporated herein by
reference, in Post-Effective Amendment No. 15 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, LLP

New York, New York
April 21, 1997