TEMPLETON VARIABLE PRODUCTS SERIES FUND, N-30D, 1998-09-08

TEMPLETON VARIABLE PRODUCTS SERIES FUND
N-30D, 1998-09-08

Previous: LORD ABBETT GLOBAL FUND INC, N-30D, 1998-09-08

Next: TEMPLETON VARIABLE PRODUCTS SERIES FUND, N-30D, 1998-09-08

SEMI ANNUAL REPORT

TEMPLETON VARIABLE PRODUCTS SERIES FUND

JUNE 30, 1998

[LOGO](R)

FRANKLIN(R) TEMPLETON (R)

PAGE

A WORD ABOUT RISK

All of the portfolios are subject to certain risks, which will cause investment
return and the value of your principal to go up or down. Generally, investments
offering the potential for higher returns are accompanied by a interest in a
company, have historically outperformed other assets classes over the long term
but tend to fluctuate more dramatically over the shorter term. Bonds, and other
debt obligations, are affected by changes in interest rates and the credit-
worthiness of their issuers. High yield, lower-rated ("junk") bonds generally
have greater price swings and higher default risks. Foreign investing,
especially in developing countries, has additional risks such as changes in
currency values and market price swings and economic, political, or socal
instability. These, and other risks to which particluar portfolios may be
subject such as specialized industry sectors or use of complex securities, are
discussed in the Portfolio's prospectus. Your investment representative can help
you determine which portfolios may be right for you.

PAGE

TABLE OF CONTENTS

Letter To Contract Owners 2

CLASS 2 Portfolio Reports

Mutual Shares Investments Fund MS-1

Templeton Asset Allocation Fund TA-1

Templeton Developing Markets Fund TD-1

Templeton International Fund TI-1

Templeton Stock Fund TS-1

- -------------------------------------------------------------------------------
PLEASE NOTE:
Templeton Variable Products Series Fund ("the Trust") currently consists of ten
separate investment portfolios, nine of which offer Class 1 and Class 2 shares.
Only the portfolios and class listed in the above Table of Contents are
currently available under your insurance contract. Please consult prospectuses
for your insurance contract and the Trust for further information.
- -------------------------------------------------------------------------------

TVPSF.98SA.TFAC2

PAGE

LETTER TO CONTRACT OWNERS

Dear Contract Owner:

We are pleased to bring you this semiannual report of Templeton Variable
Products Series Fund for the six months ended June 30, 1998.

During the reporting period, relatively low interest rates, benign inflation,
and moderate economic growth contributed to strong stock and bond market
performance in the U.S. and most of Europe. However, financial crises in Asia
adversely affected emerging markets there and in other areas such as Latin
America.

In the U.S., large cap stocks performed especially well, with the Dow Jones(R)
Industrial Average advancing 13.2% during the six-month period and the Standard
& Poor's(R) 500 Stock Index increasing 16.8%. Small cap stocks recorded positive
results, and the Russell 2000(R) Index rose 4.4% during the six months under
review.*

Many European stock markets also advanced as corporations there announced plans
to cut costs, improve efficiency, reduce debt burdens and buy back shares.
France, Germany, and Spain (three countries whose equity markets each rose over
35% during the period) were among the region's top performers.*

In Asia, Indonesia's equity market plummeted 59.7%, Singapore's fell 29.5%, and
Hong Kong's declined 18.6% during the six-month period. Although most Latin
American stock markets were resistant to Asia's woes early in the reporting
period, they tumbled later, resulting in significant declines for the period as
a whole. Argentina's market was down 18.9%, Mexico's 25.7%, and Brazil's 8.1%.*

* Sources: Standard & Poor's Micropal and Bloomberg. Indices are unmanaged.
Price appreciation or depreciation is measured in U.S. dollars and includes
reinvested dividends or interest. One cannot invest directly in an index. Dow
Jones Industrial Average's total return is calculated by Wilshire Associates,
Inc.

PAGE

With regard to debt obligations, U.S. bond prices** rose, and European
fixed-income markets generally performed well in local currency terms, but due
to the Asian currency crises, bond prices in developing markets experienced
severe volatility and fell slightly during the period. The Salomon Brothers
World Government Bond Index, representative of government bonds in developed
countries, produced a 2.8% total return for the reporting period, while the J.P.
Morgan Emerging Markets Bond Index Plus, which tracks the performance of bond
markets in developing nations, declined 1.1%.*

It is important to remember, of course, that all securities markets move up and
down, and that mixed with the good years can be some bad years. Since no one can
predict exactly how financial markets will perform, we urge you to exercise
patience and focus not on short-term market movements, but on your long-term
investment goals.

We appreciate your participation in Templeton Variable Products Series Fund and
look forward to serving your investment needs in the years to come.

Sincerely,

/s/CHUCK JOHNSON

Charles E. Johnson
President
Templeton Variable Products Series Fund

**As measured by 30-year Treasury securities.

PAGE

This page intentionally left blank.

PAGE

MUTUAL SHARES INVESTMENTS FUND

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: MUTUAL SHARES INVESTMENTS FUND SEEKS CAPITAL APPRECIATION,
WITH INCOME AS A SECONDARY OBJECTIVE, BY INVESTING PRIMARILY IN COMMON AND
PREFERRED STOCKS, BONDS, AND CONVERTIBLE SECURITIES. THE FUND MAY ALSO INVEST IN
FOREIGN SECURITIES.
- -------------------------------------------------------------------------------

We are pleased to bring you this first report of Mutual Shares Investments Fund,
which covers the two-month period from inception on May 1, 1998, through June
30, 1998.

The foundation for all that we do is grounded in the principles of value
investing set forth by Graham and Dodd in their classic text, Security Analysis.
Our basic investment approach began about half a century ago with Max Heine, the
legendary value and bankruptcy investor, who passed down his approach to Michael
Price, who has instilled those same principles into today's portfolio management
team.

Our value strategy focuses primarily on three types of investment opportunities:
stocks trading at a deep discount to asset value; companies in the midst of
change, such as mergers, reorganizations, restructurings, division sales or
purchases, or management changes; and securities of companies that are
distressed or even in bankruptcy.

The Fund may also invest in lower-rated "junk bonds," which entail higher credit
risks, as well as in foreign securities, which involve special risks, such as
political uncertainty or fluctuations in foreign exchange rates in countries
where investments are made. We expect to hedge against currency risk to the
extent possible.

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page MS-6 of
this report.

MS-1

PAGE

In our opinion, the Fund's value-oriented strategy is the best way to achieve
long-term capital appreciation with relatively low risk and low volatility.
While future results are impossible to predict, this strategy has historically
provided excellent long-term returns, particularly on a risk-adjusted basis, in
a wide variety of market conditions. We appreciate your interest in Mutual
Shares Investments Fund and look forward to serving your needs in the future.

Sincerely,

Franklin Mutual Advisers Senior Portfolio Management Team

MS-2

PAGE

This page intentionally left blank.

MS-3

PAGE

MANAGEMENT UPDATE

Franklin Mutual Advisers, Inc. is pleased to announce promotions within its
senior portfolio management team, which will become effective November 1, 1998.

Peter Langerman, currently Chief Operating Officer, will become CEO of Franklin
Mutual Advisers. Robert Friedman, currently Senior Vice President, will become
Chief Investment Officer and will have overall responsibility for the fund's
portfolio management. Their work continues to be supported by the senior
portfolio team of Jeff Altman, Ray Garea, David Marcus, Larry Sondike and David
Winters. While Michael Price will no longer be actively managing the fund's
portfolio, he will continue as Chairman of the Board of Franklin Mutual
Advisers, Inc.

Mr. Langerman joined Heine Securities Corporation (predecessor of Franklin
Mutual Advisers) in 1986 as an analyst, and was named Chief Operating Officer in
May 1997. He has spent a considerable part of his time focusing on investments
in companies in financial distress and bankruptcy.

Mr. Friedman has been responsible for numerous large domestic positions as well
as having oversight of non-U.S. investments and was based in London for two
years, and has considerable experience implementing the Mutual Advisers value
philosophy both domestically and abroad.

MS-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
Financial Highlights

<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)+
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $10.00
-------------
Income from investment operations:
Net investment income...................................... .01
Net realized and unrealized losses......................... (.48)
-------------
Total from investment operations............................ (.47)
-------------
Net asset value, end of period.............................. $9.53
-------------
-------------
Total Return*............................................... (4.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $557
Ratios to average net assets:
Expenses................................................... 1.00%**
Expenses, excluding waiver and payments by affiliate....... 13.63%**
Net investment income...................................... .33%**
Portfolio turnover rate..................................... 12.15%
</TABLE>

*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE CONTRACT LEVEL FOR COST OF
INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY AND EXPENSE
RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE VARIABLE ANNUITY
CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING INVESTMENT VEHICLE. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
+FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998.

See Notes to Financial Statements. MS-5

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 31.7%
APPLIANCES & HOUSEHOLD DURABLES .9%
Premark International Inc. ................................. United States 150 $ 4,837
--------
AUTOMOBILES 1.7%
General Motors Corp. ....................................... United States 75 5,011
*Lear Corp. ................................................ United States 90 4,618
--------
9,629
--------
BANKING 2.2%
Chase Manhattan Corp. ...................................... United States 70 5,285
First Chicago NBD Corp. .................................... United States 30 2,659
PNC Bank Corp. ............................................. United States 80 4,305
--------
12,249
--------
BROADCASTING & PUBLISHING .5%
United News & Media Plc. ................................... United Kingdom 200 2,801
--------
BUSINESS & PUBLIC SERVICES .9%
Suez Lyonnaise des Eaux SA.................................. France 30 4,937
--------
CHEMICALS 1.9%
Morton International Inc. .................................. United States 75 1,875
Olin Corp. ................................................. United States 105 4,377
*W R Grace & Co. ........................................... United States 250 4,266
--------
10,518
--------
ENERGY SOURCES 3.3%
*Ocean Energy Inc. ......................................... United States 200 3,913
Shell Transport & Trading Co. Plc. ......................... United Kingdom 665 4,688
Societe Elf Aquitaine SA.................................... France 35 4,921
Tidewater Inc. ............................................. United States 150 4,950
--------
18,472
--------
FINANCIAL SERVICES 2.9%
Beneficial Corp. ........................................... United States 55 8,425
United Asset Management Corp. .............................. United States 285 7,428
--------
15,853
--------
FOREST PRODUCTS & PAPER 2.2%
Bowater Inc. ............................................... United States 90 4,253
Rayonier Inc. .............................................. United States 100 4,600
*Stone Container Corp. ..................................... United States 200 3,125
--------
11,978
--------
HEALTH & PERSONAL CARE 1.2%
*Apria Healthcare Group Inc. ............................... United States 250 1,672
*Vencor Inc. ............................................... United States 700 5,075
--------
6,747
--------
INDUSTRIAL COMPONENTS 2.0%
Charter Plc. ............................................... United Kingdom 450 4,711
Lucas Varity Plc. .......................................... United Kingdom 1,650 6,573
--------
11,284
--------
INSURANCE .9%
St. Paul Co. Inc. .......................................... United States 120 5,047
--------
</TABLE>

MS-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
LEISURE & TOURISM 2.1%
Callaway Golf Co. .......................................... United States 135 $ 2,658
Hilton Hotels Corp. ........................................ United States 150 4,275
*MGM Grand Inc. ............................................ United States 150 4,734
--------
11,667
--------
MACHINERY & ENGINEERING .7%
New Holland NV.............................................. Netherlands 200 3,925
--------
MERCHANDISING 4.4%
American Stores Co. ........................................ United States 200 4,838
Dillards Inc., A............................................ United States 140 5,801
Hudson's Bay Co. ........................................... Canada 230 5,271
Quaker State Corp. ......................................... United States 275 4,503
*Toys R Us Inc. ............................................ United States 180 4,241
--------
24,654
--------
METALS & MINING .6%
Aluminum Co. of America..................................... United States 50 3,297
--------
MULTI-INDUSTRY 1.0%
Investor AB, A.............................................. Sweden 90 5,214
*Saab AB, B................................................. Sweden 22 232
--------
5,446
--------
REAL ESTATE .9%
*Cadillac Fairview Corp. ................................... Canada 225 5,172
--------
TELECOMMUNICATIONS .6%
*US Cellular Corp. ......................................... United States 115 3,536
--------
U.S. REGIONAL BANKS .8%
First Virginia Banks Inc. .................................. United States 90 4,601
--------
TOTAL COMMON STOCKS......................................... 176,650
--------
TOTAL INVESTMENTS (COST $191,211) 31.7%..................... 176,650
OTHER ASSETS, LESS LIABILITIES 68.3%........................ 379,969
--------
TOTAL NET ASSETS 100.0%..................................... $556,619
========
</TABLE>

*NON-INCOME PRODUCING.

See Notes to Financial Statements. MS-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $191,211)........ $176,650
Cash....................................................... 375,658
Receivables:
Investment securities sold................................ 4,553
Dividends................................................. 328
From affiliates........................................... 7,372
--------
Total assets.......................................... 564,561
========
Liabilities:
Accrued liabilities........................................ 7,942
--------
Total liabilities..................................... 7,942
--------
Net assets, at value........................................ $556,619
========
Net assets consist of:
Undistributed net investment income........................ $ 191
Net unrealized depreciation................................ (14,561)
Accumulated net realized loss.............................. (1,026)
Beneficial shares.......................................... 572,015
--------
Net assets, at value........................................ $556,619
========
CLASS 1:
Net asset value per share ($556,619 / 58,417 shares
outstanding)............................................. $9.53
========
</TABLE>

MS-8 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998
(UNAUDITED)

<TABLE>
<S> <C> <C>
Dividend Income (net of foreign taxes of $52)............... $ 771
--------
Expenses:
Management fees (Note 3)................................... 349
Administrative fees (Note 3)............................... 55
Custodian fees............................................. 1,100
Reports to shareholders.................................... 1,300
Registration and filing fees............................... 900
Professional fees.......................................... 2,600
Trustees' fees and expenses................................ 200
Other...................................................... 1,402
-------
Total expenses........................................ 7,906
Expenses waived/paid by affiliate (Note 3)............ (7,326)
--------
Net expenses...................................... 580
--------
Net investment income........................... 191
--------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... (1,072)
Foreign currency transactions............................. 46
-------
Net realized loss...................................... (1,026)
Net unrealized depreciation on investments............. (14,561)
--------
Net realized and unrealized loss............................ (15,587)
--------
Net decrease in net assets resulting from operations........ $(15,396)
=========
</TABLE>

See Notes to Financial Statements. MS-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)+
-------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 191
Net realized loss from investments and foreign currency
transactions............................................ (1,026)
Net unrealized depreciation on investments................ (14,561)
--------
Net decrease in net assets resulting from operations.... (15,396)
Fund share transactions (Note 2)........................... 572,015
-------------
Net increase in net assets.............................. 556,619
Net assets:
Beginning of period........................................ --
-------------
End of period.............................................. $556,619
=============
Undistributed net investment income included in net assets:
End of period.............................................. $ 191
=============
</TABLE>

+FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998.

MS-10 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Mutual Shares Investment Fund (the Fund) is a separate, diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The Fund
seeks capital appreciation through a policy of investing primarily in domestic
equity securities and domestic debt obligations. The following summarizes the
Fund's significant accounting policies.

a. SECURITY VALUATION:

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.

b. FOREIGN CURRENCY TRANSLATION:

The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.

e. ACCOUNTING ESTIMATES:

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.

MS-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENT FUND
Notes to Financial Statements (unaudited) (continued)

2. BENEFICIAL SHARES

The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class and the exchange privilege of each class.

At June 30, 1998, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's Class 1 shares were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 1998*
------------------
SHARES AMOUNT
------------------
<S> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 58,417 $572,015
------------------
Net increase................................................ 58,417 $572,015
==================
</TABLE>

*Commencement of sales was May 1, 1998.

As of June 30, 1998, there were no transactions in the Fund's Class 2 shares.

Templeton Funds Annuity Company, the Fund's administrative manager, is the
record owner of 25,000 Class 1 shares as of June 30, 1998.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Franklin Mutual
Advisers, Inc. (Franklin Mutual), Templeton Funds Annuity Company (TFAC) and
Franklin/Templeton Distributors, Inc. (Distributors), the Fund's investment
manager, administrative manager and principal underwriter, respectively.

The Fund pays an investment management fee to Franklin Mutual of 0.60% per year
of the average daily net assets of the Fund. Franklin Mutual agreed in advance
to reduce management fees to the extent necessary to limit total expenses to an
annual rate of 1.00% and 1.25% of the average daily net assets of Class 1 and
Class 2 shares, respectively, through December 31, 1998, as noted in the
Statement of Operations. The Fund pays its allocated share of an administrative
fee to TFAC based on the Trust's aggregate average daily net assets as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>

4. INCOME TAXES

The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At June 30, 1998, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 3,217
Unrealized depreciation..................................... (17,778)
--------
Net unrealized depreciation................................. $(14,561)
========
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1998 aggregated $207,311 and $15,029, respectively.

MS-12

PAGE

TEMPLETON ASSET ALLOCATION FUND

TEMPLETON ASSET
ALLOCATION FUND
Portfolio Breakdown
Based on Total Net Assets
6/30/98

[This chart shows in pie format the portfolio breakdown of Templeton Variable
Products Series Fund - Templeton Asset Allocation Fund, based on total net
assets as of June 30, 1998.]

[PIE CHART APPEARS HERE]

<TABLE>
<S> <C>
Stocks 80.0%
Bonds 19.2%
Short-Term Investments & Other Net Assets 0.8%
</TABLE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: TEMPLETON ASSET ALLOCATION FUND SEEKS A HIGH LEVEL OF
TOTAL RETURN THROUGH A FLEXIBLE POLICY OF INVESTING IN STOCKS OF COMPANIES IN
ANY NATION, DEBT OBLIGATIONS OF COMPANIES AND GOVERNMENTS OF ANY NATION, AND
MONEY MARKET INSTRUMENTS. THE FUND'S ASSETS ARE ALLOCATED AMONG DIFFERENT
INVESTMENTS AMONG THESE THREE MARKET SEGMENTS DEPENDING UPON WORLDWIDE MARKET
AND ECONOMIC CONDITIONS.
- -------------------------------------------------------------------------------

The Asian financial crisis and its effects on companies around the world
continued to dominate economic news during the first half of 1998. As stock and
bond markets encountered severe volatility, investors experienced the negative
implications of global corporate interdependence.

In Asia, bad debts, foreign exchange exposure, and political instability sent
equity markets tumbling, and indicated that the region's economic problems were
far from over. At the end of the reporting period, our exposure to Asian stocks
was less than 7% of total net assets, with most of these holdings in Hong Kong.
Although the crisis required us to exercise extra caution when making investment
decisions in these markets, it gave us an opportunity to uncover long-term
investments at what we believed to be bargain prices. We intend to focus on
companies with quality management, strong balance sheets, and prospects for
long-term earnings growth.

Equity markets in Latin America also declined as fears about the Asian crisis
spread to all emerging markets. However, we believed the downturn in Latin
American stocks to be a short-term phenomenon and viewed it as an opportunity to
search for potential investments there.

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page TA-7 of
this report.

TA-1

PAGE

TEMPLETON ASSET
ALLOCATION FUND
Geographic Distribution
Based on Total Net Assets
6/30/98

[This chart shows in bar format the geographic distribution of Templeton
Variable Products Series Fund - Templeton Asset Allocation Fund, based on total
net assets as of June 30, 1998.]

<TABLE>
<S> <C>
Europe 48.6%
North America 22.5%
Latin America 14.8%
Asia 6.6%
Australia/New Zealand 5.8%
Middle East/Africa 0.9%
Short-Term Investments
& Other Net Assets 0.8%
</TABLE>

Although trading at historically high valuations, domestic equities were
considered a "safe haven" from the economic turmoil in Asia and the U.S. market
continued its upward march. The unmanaged Standard & Poor's 500 Stock Index
posted a 16.8% total return for the period and we reduced the Fund's U.S. equity
exposure from 16.2% of total net assets to 13.1% because we believed the market
was fully valued. However, many of our remaining U.S. holdings performed well
for the Fund. For example, telecommunications company Lucent Technologies Inc.
increased 108.5% during the period.

The Fund also benefited from its large exposure to European equities. Interest
rates fell in several European nations as the region prepared for the European
Monetary Union, and stock markets there performed strongly. The financial sector
performed especially well, with Banque Nationale de Paris BNP and Axa-UAP
ranking among the Fund's top performers.

With regard to fixed-income securities, domestic bond prices experienced some
volatility due to the Asian crisis, but finished the period higher as a result
of moderate economic growth and benign inflation. European bond prices were
positively influenced by developments in the U.S., as well as by the
arrangements to establish a common European currency. Responding to these
conditions, we positioned the Fund to capture gains from falling interest rates
in industrial markets and to earn relatively high yields while avoiding undue
credit or currency risk in emerging markets. We increased the Fund's average
maturity and shifted exposure away from what we believed to be riskier European
bond markets, such as Sweden, Denmark, and Spain. At the same time, we increased
our holdings in core European markets, such as France and the United Kingdom. We
concentrated our emerging market bond holdings in major Latin American
countries, such as Argentina, Brazil, and Mexico, which provided relatively
stable returns during an otherwise volatile period for Asian and Eastern
European bond markets.

TA-2

PAGE

TEMPLETON ASSET
ALLOCATION FUND
Top 10 Equity Holdings
Based on Total Net Assets
6/30/98

[This chart lists the top 10 equity holdings, including the industry and
country, of Templeton Variable Products Series Fund - Templeton Asset Allocation
Fund, based on total net assets as of June 30, 1998.]

<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Axa - UAP,
Financial Services, France 3.4%

Banque Nationale de Paris BNP,
Banking, France 3.2%

Zuerich Versicherungs, new,
Insurance, Switzerland 2.4%

Alcatel Alsthom Cie
Generale D'Electricite SA,
Electrical & Electronics, France 2.4%

Lucent Technologies Inc.,
Telecommunications, U.S. 2.1%

Philips Electronics NV,
Electrical & Electronics,
Netherlands 2.1%

Mertita Ltd., A,
Banking, Finland 1.9%

YPF Sociedad
Anonima, ADR,
Energy Sources, Argentina 1.7%

News Corp. Ltd.,
Broadcasting & Publishing,
Australia 1.7%

British Steel Plc., ADR,
Metals & Mining,
United Kingdom 1.7%
</TABLE>

For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.

Please remember that this discussion accurately reflects our views and opinions
as of June 30, 1998, the end of the reporting period. However, it is not
necessarily a complete analysis of every material fact regarding any industry,
security, or investment. Keep in mind that market and economic conditions are
changing constantly, which may affect our strategies and portfolio holdings.
Although historic performance is no guarantee of future results, these insights
may help you understand our investment and management philosophy.

It is important to remember that investments in foreign securities involve
special risks including changes in currency values, market price swings, and
economic, social, and political developments in the countries where the
portfolios are invested. Developing markets involve similar but higher risks
related to their smaller size and lesser liquidity. These risks are discussed in
the prospectus.

We thank you for investing in Templeton Asset Allocation Fund, and welcome your
comments or suggestions.

Sincerely,

/s/GARY R. CLEMONS

Gary R. Clemons
Portfolio Manager
Templeton Asset Allocation Fund

/s/TOM LATTA

Thomas Latta
Portfolio Manager
Templeton Asset Allocation Fund

TA-3

PAGE

CLASS 2

Templeton Asset Allocation Fund - Class 2 delivered an 8.99% total return for
the six-month period ended June 30, 1998. Total return of Class 2 shares
represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results. Past expense reductions by the manager increased returns.

NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY CONTRACT FEES, EXPENSES, OR SALES CHARGES. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD BE LOWER. THESE CONTRACT CHARGES AND DEDUCTIONS,
PARTICULARLY FOR VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON
CONTRACT VALUES AND INSURANCE BENEFITS. SEE THE CONTRACT PROSPECTUS FOR A
COMPLETE DESCRIPTION OF THESE CHARGES, INCLUDING SALES CHARGES.

TEMPLETON ASSET ALLOCATION FUND - CLASS 2
Periods ended 6/30/98

<TABLE>
<CAPTION>
SINCE
SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR 3-YEAR* 5-YEAR* (5/1/92)* (5/1/97)
=======================================================================================
<S> <C> <C> <C> <C> <C>
Average Annual Total Return 9.09% 17.82% 15.17% 19.85% 16.34%

Cumulative Total Return 9.09% 63.63% 102.59% 231.41% 19.25%

Value of $10,000 Investment $10,909 $16,363 $20,259 $33,141 $11,925

<CAPTION>
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
=======================================================================================
<S> <C> <C> <C> <C> <C>
One-Year Total Return 8.70% 13.90% 18.46% 26.62% 9.09%
</TABLE>

*Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represent the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997, reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.

Investment return and the value of your principal will go up and down with
market conditions, currencies and the economic, social, and political climates
of the countries where investments are made. Emerging markets involve similar
but higher risks related to their smaller size and lesser liquidity. You may
have a gain or loss when you sell your shares.

Past performance is not predictive of future results.

TA-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the
period)
Net asset value, beginning of period..... $22.35 $21.08 $18.72 $15.69 $16.55 $13.49
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income................... .39 .67 .63 .57 .44 .42
Net realized and unrealized gains
(losses).............................. 1.63 2.44 2.76 2.87 (.92) 3.03
-------------------------------------------------------------------------------------
Total from investment operations......... 2.02 3.11 3.39 3.44 (.48) 3.45
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income................... (.66) (.63) (.58) (.41) (.31) (.35)
Net realized gains...................... (.67) (1.21) (.45) -- (.07) (.04)
-------------------------------------------------------------------------------------
Total distributions...................... (1.33) (1.84) (1.03) (.41) (.38) (.39)
-------------------------------------------------------------------------------------
Net asset value, end of period........... $23.04 $22.35 $21.08 $18.72 $15.69 $16.55
=====================================================================================

Total Return*............................ 9.16% 15.52% 18.93% 22.48% (2.96)% 26.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........ $782,299 $735,568 $556,027 $406,123 $288,172 $183,360
Ratios to average net assets:
Expenses................................ .77%** .74% .64% .66% .75% .77%
Net investment income................... 3.37%** 3.32% 3.56% 3.73% 4.02% 4.16%
Portfolio turnover rate.................. 19.02% 45.27% 57.50% 43.02% 51.36% 81.50%
</TABLE>

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED)++ DECEMBER 31, 1997+
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $22.32 $20.40
--------------------------------------
Income from investment operations:
Net investment income...................................... .40 .16
Net realized and unrealized gains.......................... 1.58 1.76
--------------------------------------
Total from investment operations............................ 1.98 1.92
--------------------------------------
Less distributions from:
Net investment income...................................... (.64) --
Net realized gains......................................... (.67) --
--------------------------------------
Total distributions......................................... (1.31) --
--------------------------------------
Net asset value, end of period.............................. $22.99 $22.32
======================================

Total Return*............................................... 8.99% 9.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $13,595 $9,665
Ratios to average net assets:
Expenses................................................... 1.02%** 1.03%**
Net investment income...................................... 3.22%** 1.97%**
Portfolio turnover rate..................................... 19.02% 45.27%
</TABLE>

TA-6 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 75.2%
APPLIANCES & HOUSEHOLD DURABLES .5%
Sony Corp. ................................................. Japan 42,000 $ 3,616,385
------------
AUTOMOBILES 4.7%
Autoliv Inc. ............................................... Sweden 129,000 4,124,817
Autoliv Inc., fgn. ......................................... Sweden 246,900 7,808,213
Fiat SpA.................................................... Italy 2,361,700 10,368,601
Ford Motor Co. ............................................. United States 84,000 4,956,000
General Motors Corp. ....................................... United States 40,000 2,672,500
Volvo AB, B................................................. Sweden 260,000 7,743,044
------------
37,673,175
------------
BANKING 10.7%
Bangkok Bank Public Co. Ltd., fgn. ......................... Thailand 3,634,600 4,468,066
Bankinter SA................................................ Spain 118,875 7,726,215
Banque Nationale de Paris BNP............................... France 303,200 24,773,536
Banque Nationale de Paris BNP, ADR, 144A.................... France 5,400 441,217
Canadian Imperial Bank of Commerce CIBC..................... Canada 140,000 4,503,077
Credit Suisse Group, reg. .................................. Switzerland 15,250 3,393,246
Den Norske Bank............................................. Norway 2,178,900 11,414,841
Foreningssparbanken AB, A................................... Sweden 113,800 3,424,745
HSBC Holdings Plc. ......................................... Hong Kong 234,400 5,732,494
Merita Ltd., A.............................................. Finland 2,250,000 14,845,665
National Australia Cap Sec Plc. ............................ Australia 159,874 4,586,385
------------
85,309,487
------------
BROADCASTING & PUBLISHING .8%
News Corp. Ltd., ADR........................................ Australia 160,000 5,140,000
South China Morning Post Ltd. .............................. Hong Kong 2,821,000 1,356,145
------------
6,496,145
------------
BUSINESS & PUBLIC SERVICES .4%
Waste Management Inc. ...................................... United States 100,000 3,500,000
------------
CHEMICALS 2.4%
Akzo Nobel NV............................................... Netherlands 24,700 5,490,778
DSM NV...................................................... Netherlands 25,000 2,566,119
Rhone-Poulenc SA, A......................................... France 201,800 11,381,707
------------
19,438,604
------------
DATA PROCESSING & REPRODUCTION 2.4%
*3Com Corp. ................................................ United States 320,800 9,844,550
*Bay Networks Inc. ......................................... United States 150,000 4,837,500
*NCR Corp. ................................................. United States 7,562 245,765
*Newbridge Networks Corp. .................................. Canada 180,000 4,308,750
------------
19,236,565
------------
ELECTRICAL & ELECTRONICS 5.9%
Alcatel Alsthom Cie Generale D'Electricite SA............... France 92,119 18,755,953
*DSC Communications Corp. .................................. United States 227,900 6,837,000
Motorola Inc. .............................................. United States 94,000 4,940,875
Philips Electronics NV...................................... Netherlands 199,100 16,736,850
------------
47,270,678
------------
ELECTRONIC COMPONENTS & INSTRUMENTS .8%
BICC Plc.................................................... United Kingdom 570,000 1,245,870
Intel Corp. ................................................ United States 72,000 5,337,000
------------
6,582,870
------------
</TABLE>

TA-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES 3.4%
*Northstar Energy Corp. .................................... Canada 621,800 $ 4,735,752
*Ranger Oil Ltd. ........................................... Canada 914,490 6,687,208
Rao Gazprom, ADR, 144A...................................... Russia 156,300 1,746,653
YPF Sociedad Anonima, ADR................................... Argentina 451,400 13,570,213
------------
26,739,826
------------
FINANCIAL SERVICES 3.6%
Associates First Capital Corp., A........................... United States 22,015 1,692,403
Axa-UAP..................................................... France 239,700 26,959,312
------------
28,651,715
------------
FOREST PRODUCTS & PAPER 1.4%
Assidomaen AB............................................... Sweden 90,000 2,618,215
Carter Holt Harvey Ltd. .................................... New Zealand 293,020 255,539
Enso OY, R.................................................. Finland 225,000 2,419,597
International Paper Co. .................................... United States 50,000 2,150,000
Stora Kopparbergs Bergslags AB, B........................... Sweden 225,000 3,554,904
------------
10,998,255
------------
HEALTH & PERSONAL CARE 2.7%
Aetna Inc. ................................................. United States 16,700 1,271,288
Medeva Plc.................................................. United Kingdom 4,572,675 13,046,475
Teva Pharmaceutical Industries Ltd., ADR.................... Israel 197,200 6,938,975
------------
21,256,738
------------
INDUSTRIAL COMPONENTS 2.6%
BTR Plc..................................................... United Kingdom 3,540,550 10,101,679
Goodyear Tire & Rubber Co. ................................. United States 60,000 3,866,250
Granges AB.................................................. Sweden 183,200 3,353,923
Madeco Manufacturera de Cobre SA, ADR....................... Chile 162,500 1,432,031
SKF AB, B................................................... Sweden 117,500 2,136,390
------------
20,890,273
------------
INSURANCE 5.5%
Allstate Corp. ............................................. United States 40,000 3,662,500
ING Groep NV................................................ Netherlands 125,000 8,185,036
Skandia Foersaekrings AB.................................... Sweden 600,000 8,576,910
Torchmark Corp. ............................................ United States 90,000 4,117,500
Zuerich Versicherung, new................................... Switzerland 29,900 19,081,751
------------
43,623,697
------------
MACHINERY & ENGINEERING .6%
*Gradall Industries Inc. ................................... United States 314,000 4,592,250
------------
MERCHANDISING .7%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 1,000,000 1,070,000
David Jones Ltd. ........................................... Australia 1,473,400 1,687,942
Sears Roebuck & Co. ........................................ United States 42,000 2,564,625
------------
5,322,567
------------
METALS & MINING 2.4%
British Steel Plc., ADR..................................... United Kingdom 589,300 13,406,575
Minorco SA, ADR............................................. Luxembourg 352,950 4,213,341
Reynolds Metals Co. ........................................ United States 22,000 1,230,625
------------
18,850,541
------------
MISC MATERIALS & COMMODITIES 1.4%
Agrium Inc. ................................................ Canada 517,000 6,527,125
Unitor ASA.................................................. Norway 286,000 4,211,637
------------
10,738,762
------------
</TABLE>

TA-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 1.5%
Alfa SA de CV, A............................................ Mexico 1,150,000 $ 4,773,537
Cheung Kong Holdings Ltd. .................................. Hong Kong 600,000 2,950,210
Hicom Holdings Bhd.......................................... Malaysia 2,874,600 727,747
Hutchison Whampoa Ltd. ..................................... Hong Kong 444,000 2,343,598
Jardine Matheson Holdings Ltd. ............................. Hong Kong 220,800 596,160
Jardine Strategic Holdings Ltd. ............................ Hong Kong 168,750 320,625
------------
11,711,877
------------
REAL ESTATE .1%
New World Development Co. Ltd. ............................. Hong Kong 303,543 587,609
------------
TELECOMMUNICATIONS 12.2%
AT&T Corp. ................................................. United States 121,000 6,912,125
Compania Anonima Nacional Telefonos de Venezuela, ADR....... Venezuela 248,230 6,205,750
Hong Kong Telecommunications Ltd. .......................... Hong Kong 6,600,000 12,393,207
Lucent Technologies Inc. ................................... United States 204,428 17,005,854
Nokia AB, A................................................. Finland 76,000 5,610,185
PT Indosat TBK, ADR......................................... Indonesia 159,400 1,773,325
SBC Communications Inc. .................................... Mexico 50,000 2,268,750
Telecom Italia SpA.......................................... Italy 477,000 3,485,021
Telecom Italia SpA, di Risp................................. Italy 1,200,000 5,838,823
Telecomunicacoes Brasileiras SA (Telebras).................. Brazil 22,228,000 1,768,093
Telefonica de Argentina SA, B, ADR.......................... Argentina 315,000 10,217,813
Telefonica del Peru SA, B, ADR.............................. Peru 131,800 2,693,663
Telefonica SA............................................... Spain 260,000 12,041,283
Telefonos de Mexico SA (Telmex), ADR, L..................... Mexico 180,900 8,694,506
------------
96,908,398
------------
TEXTILES & APPAREL .9%
*Fruit of the Loom Inc., A.................................. United States 160,000 5,310,000
Nike Inc., B................................................ United States 40,000 1,947,500
------------
7,257,500
------------
TRANSPORTATION 4.3%
Air New Zealand Ltd., B..................................... New Zealand 2,564,000 2,755,114
*Fritz Companies Inc. ...................................... United States 350,000 4,681,250
Great Eastern Shipping Co. Ltd. ............................ India 7,453,970 5,435,461
Hitachi Zosen Corp. ........................................ Japan 210,000 338,942
Koninklijke Nedlloyd Groep NV............................... Netherlands 50,000 1,015,141
Kvaerner ASA, B............................................. Norway 215,000 6,640,386
Mayne Nickless Ltd., A...................................... Australia 1,480,900 7,840,739
Qantas Airways Ltd., ADR, 144A.............................. Australia 376,000 5,640,000
------------
34,347,033
------------
UTILITIES ELECTRICAL & GAS 3.3%
BG Plc. .................................................... United Kingdom 779,629 4,510,568
*Centrica Plc. ............................................. United Kingdom 3,200,000 5,405,947
*CEZ AS..................................................... Czech Republic 7,580 209,507
Endesa SA, ADR.............................................. Spain 88,000 1,903,000
Endesa SA, br. ............................................. Spain 122,000 2,673,656
Gener SA, ADR............................................... Chile 105,600 1,927,200
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 2,001,500 6,199,313
Iberdrola SA................................................ Spain 85,000 1,382,520
*Kohinoor Energy Ltd. ...................................... Pakistan 1,467,000 159,093
Korea Electric Power Corp. ................................. South Korea 196,000 2,091,333
------------
26,462,137
------------
TOTAL COMMON STOCKS (COST $455,829,395)..................... 598,063,087
------------
</TABLE>

TA-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS 4.8%
Banco Bradesco SA, pfd. .................................... Brazil 767,000,000 $ 6,399,403
Cia Vale do Rio Doce, pfd., ADR............................. Brazil 278,500 5,538,215
Moebel Walther AG, pfd. .................................... Germany 35,205 1,657,853
News Corp. Ltd., pfd. ...................................... Australia 850,000 6,021,575
News Corp. Ltd., pfd., ADR.................................. Australia 80,000 2,260,000
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 36,000,000 6,692,028
Telecomunicacoes Brasileiras SA (Telebras), pfd. ........... Brazil 40,981,336 4,457,420
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR....... Brazil 45,600 4,978,950
------------
TOTAL PREFERRED STOCKS (COST $27,298,993)................... 38,005,444
------------
PRINCIPAL
AMOUNT**
--------
BONDS 19.2%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00........................................... Italy 6,805,000,000ITL 4,267,026
7.75%, 11/01/06........................................... Italy 9,770,000,000ITL 6,527,991
Essar Steel Ltd., FRN, 8.275%, 7/15/99...................... India 445,000 382,700
Federal Republic of Germany:
5.25%, 2/21/01............................................ Germany 4,775,000DEM 2,718,179
5.25%, 1/04/08............................................ Germany 9,280,000DEM 5,321,733
Government of Australia, 9.50%, 8/15/03..................... Australia 9,268,000AUD 6,784,362
Government of Brazil:
8.875%, 11/05/01.......................................... Brazil 2,675,000 2,670,988
8.00%, 4/15/14............................................ Brazil 10,540,562 7,824,900
10.125%, 5/15/27.......................................... Brazil 1,820,000 1,572,935
Government of Belgium, 6.25%, 3/28/07....................... Belgium 203,320,000BEF 5,978,296
Government of Canada:
10.50%, 7/01/00........................................... Canada 3,654,000CAD 2,725,945
10.50%, 3/01/01........................................... Canada 3,648,000CAD 2,795,382
10.00%, 5/01/02........................................... Canada 8,145,000CAD 6,419,903
Government of France, 5.50%, 4/25/07........................ France 25,970,000FRF 4,518,333
Government of New Zealand, 6.50%, 2/15/00................... New Zealand 6,180,000NZD 3,175,950
Kingdom of Denmark:
9.00%, 11/15/00........................................... Denmark 70,000DKK 11,211
8.00%, 5/15/03............................................ Denmark 18,210,000DKK 3,028,468
Kingdom of Sweden, 10.25%, 5/05/03.......................... Sweden 30,000,000SEK 4,663,845
Republic of Argentina:
10.95%, 11/01/99.......................................... Argentina 1,025,000 1,067,281
8.75%, 5/09/02............................................ Argentina 5,415,000 5,160,495
11.00%, 10/09/06.......................................... Argentina 550,000 584,375
11.375%, 1/30/17.......................................... Argentina 480,000 512,400
9.75%, 9/19/27............................................ Argentina 989,000 917,298
Republic of Panama, 8.875%, 9/30/27......................... Panama 960,000 907,800
Republic of Venezuela:
144A, 9.125%, 6/18/07..................................... Venezuela 1,540,000 1,436,050
9.25%, 9/15/27............................................ Venezuela 2,384,000 1,837,170
Treuhandanstalt, 7.50%, 9/09/04............................. Germany 14,785,000DEM 9,456,666
U.S. Treasury Bond, 6.375%, 8/15/02......................... United States 10,090,000 10,399,016
U.S. Treasury Notes:
7.25%, 8/15/04............................................ United States 8,171,000 8,896,182
6.125%, 8/15/07........................................... United States 8,275,000 8,616,352
6.125%, 11/15/27.......................................... United States 7,710,000 8,264,164
United Kingdom:
8.00%, 12/07/00........................................... United Kingdom 3,460,000GBP 5,911,930
stk., 7.00%, 11/06/01..................................... United Kingdom 1,125,000GBP 1,897,595
7.50%, 12/07/06........................................... United Kingdom 2,520,000GBP 4,623,774
</TABLE>

TA-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
United Mexican States:
9.75%, 2/06/01............................................ Mexico $ 2,895,000 $ 3,023,104
9.875%, 1/15/07........................................... Mexico 2,940,000 3,061,275
11.375%, 9/15/16.......................................... Mexico 800,000 892,200
6.25%, 12/31/19........................................... Mexico 5,050,000 4,182,031
------------
TOTAL BONDS (COST $156,307,511)............................. 153,035,305
------------
SHORT TERM INVESTMENT (COST $921,000) .1%
Nationsbank Corp., 5.875%, 7/01/98, Time Deposit............ United States 921,000 921,000
------------
TOTAL INVESTMENTS (COST $640,356,899) 99.3%................. 790,024,836
NET EQUITY IN FORWARD CONTRACTS............................. 16,041
OTHER ASSETS, LESS LIABILITIES .7%.......................... 5,853,094
------------
TOTAL NET ASSETS 100.0%..................................... $795,893,971
============
</TABLE>

CURRENCY ABBREVIATIONS:

<TABLE>
<S> <C>
AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
FRF -- French Franc
GBP -- British Pound
ITL -- Italian Lira
NZD -- New Zealand Dollar
SEK -- Swedish Krone
</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS, UNLESS OTHERWISE INDICATED.

See Notes to Financial Statements. TA-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $640,356,899).... $790,024,836
Cash....................................................... 411
Receivables:
Investment securities sold................................ 10,995
Fund shares sold.......................................... 422,729
Dividends and interest.................................... 6,209,948
Unrealized gain on forward exchange contracts (Note 6)..... 440,884
------------
Total assets........................................... 797,109,803
------------
Liabilities:
Payables:
Investment securities purchased........................... 110,396
Fund shares redeemed...................................... 4,595
To affiliates............................................. 457,270
Unrealized loss on forward exchange contracts (Note 6)..... 424,843
Accrued liabilities........................................ 218,728
------------
Total liabilities...................................... 1,215,832
------------
Net assets, at value........................................ $795,893,971
============
Net assets consist of:
Undistributed net investment income........................ $ 12,886,670
Net unrealized appreciation................................ 149,662,591
Accumulated net realized gain.............................. 44,814,438
Beneficial shares.......................................... 588,530,272
------------
Net assets, at value........................................ $795,893,971
============
CLASS 1:
Net asset value per share ($782,299,031 / 33,952,150 shares
outstanding).............................................. $23.04
============
CLASS 2:
Net asset value per share ($13,594,940 / 591,335 shares
outstanding).............................................. $22.99
============
</TABLE>

TA-12 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,178,525)
Dividends.................................................. $ 9,851,515
Interest................................................... 6,415,653
-----------
Total investment income............................... $16,267,168
Expenses:
Management fees (Note 3)................................... 2,359,636
Administrative fees (Note 3)............................... 372,769
Distribution fees - Class 2 (Note 3)....................... 14,921
Custodian fees............................................. 158,105
Reports to shareholders.................................... 110,600
Professional fees.......................................... 11,500
Trustees' fees and expenses................................ 12,000
Other...................................................... 4,184
-----------
Total expenses........................................ 3,043,715
-----------
Net investment income............................. 13,223,453
-----------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................... 45,584,638
Foreign currency transactions............................. 257,026
-----------
Net realized gain..................................... 45,841,664
Net unrealized appreciation (depreciation) on:
Investments............................................... 9,211,574
Translation of assets and liabilities denominated in
foreign currencies...................................... (677,500)
-----------
Net unrealized appreciation........................... 8,534,074
-----------
Net realized and unrealized gain............................ 54,375,738
-----------
Net increase in net assets resulting from operations........ $67,599,191
===========
</TABLE>

See Notes to Financial Statements. TA-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 13,223,453 $ 22,545,488
Net realized gain from investments and foreign currency
transactions............................................ 45,841,664 20,904,466
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign
currencies.............................................. 8,534,074 45,084,450
------------------------------------
Net increase in net assets resulting from operations... 67,599,191 88,534,404
Distributions to shareholders from:
Net investment income:
Class 1.................................................. (21,506,765) (17,068,780)
Class 2.................................................. (313,012) --
Net realized gains:
Class 1.................................................. (21,669,695) (32,390,362)
Class 2.................................................. (324,175) --
Fund share transactions (Note 2):
Class 1.................................................. 23,263,167 140,290,555
Class 2.................................................. 3,612,042 9,840,237
------------------------------------
Net increase in net assets............................. 50,660,753 189,206,054
Net assets:
Beginning of period........................................ 745,233,218 556,027,164
------------------------------------
End of period.............................................. $795,893,971 $745,233,218
====================================

Undistributed net investment income included in net assets:
End of period.............................................. $ 12,886,670 $ 21,482,994
===================================
</TABLE>

TA-14 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Asset Allocation Fund (the Fund) is a separate, diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The Fund
seeks a high level of total return through a flexible policy of investing in
stocks of companies in any nation, debt obligations of companies and governments
of any nation, and money market instruments. The following summarizes the Fund's
significant accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

e. INDEXED SECURITIES:

The Fund may invest in debt instruments in which the principal and/or interest
is dependent on other factors such as yield curves, currency exchange rates or
commodity prices. The Fund's objective in holding these securities, commonly
called indexed securities

TA-15

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

e. INDEXED SECURITIES (CONT.)

or structured notes, is to tailor the Fund's investments to the specific risk
and returns it wishes to assume while avoiding unwanted risk or change in the
Fund's exposure to a particular foreign exchange rate or the spread between two
foreign exchange rates.

f. FORWARD EXCHANGE CONTRACTS:

The Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.

g. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At June 30, 1998, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 848,459 $ 19,605,784 5,703,031 $125,783,146
Shares issued on reinvestment of distributions.............. 1,918,954 43,176,460 2,407,943 49,459,142
Shares redeemed............................................. (1,723,975) (39,519,077) (1,580,128) (34,951,733)
-------------------------------------------------------------
Net increase................................................ 1,043,438 $ 23,263,167 6,530,846 $140,290,555
=============================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 197,121 $ 4,518,568 453,139 $ 10,300,271
Shares issued on reinvestment of distributions.............. 28,357 637,187 -- --
Shares redeemed............................................. (67,253) (1,543,713) (20,029) (460,034)
-------------------------------------------------------------
Net increase................................................ 158,225 $ 3,612,042 433,110 $ 9,840,237
=============================================================
</TABLE>

*Effective date of Class 2 shares was May 1, 1997.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Templeton Funds Annuity Company (TFAC) and
Franklin/Templeton Distributors, Inc. (Distributors), the Fund's investment
manager, administrative manager and principal underwriter, respectively.

TA-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)

The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.65% First $200 million
0.585% Over $200 million, up to and including $1.3 billion
0.52% Over $1.3 billion
</TABLE>

The Fund pays its allocated share of an administrative fee to TFAC based on the
Trust's aggregate average daily net assets as follows:

The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.

Legal fees of $12,260 were paid to a law firm in which a partner is an officer
of the Fund.

4. INCOME TAXES

The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At June 30, 1998, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $208,901,493
Unrealized depreciation..................................... (59,233,556)
------------
Net unrealized appreciation................................. $149,667,937
============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1998 aggregated $153,908,006 and $145,323,189,
respectively.

6. OFF-BALANCE SHEET RISK

The Fund has been a party to financial instruments with off-balance-sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized in the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values and interest rates and contract positions
that are not exact offsets. The contract amount indicates the extent of the
Fund's involvement in such contracts.

A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.

TA-17

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (unaudited) (continued)

6. OFF-BALANCE SHEET RISK (CONT.)

As of June 30, 1998, the Fund had the following forward exchange contracts
outstanding:

IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY: EXCHANGE FOR DATE GAIN/(LOSS)
- ----------------- --------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
3,780,000 Australian Dollars.......................................... U.S. $ 2,327,422 7/13/98 U.S. $ 13,816
=========== ---------

CONTRACTS TO SELL:
- ------------------
14,270,000 German Marks................................................ U.S. $ 8,048,505 7/08/98 138,680
7,135,000 German Marks................................................ 3,976,038 7/13/98 19,872
860,000 New Zealand Dollars......................................... 450,898 7/23/98 5,178
22,500,000 German Marks................................................ 12,525,050 7/24/98 40,697
7,135,000 German Marks................................................ 3,971,722 7/27/98 12,041
----------- ---------
U.S. $28,972,213 216,468
===========
Net unrealized gain on offsetting forward exchange contracts........ 210,600
---------
Unrealized gain on forward exchange contracts..................... 440,884
---------
CONTRACTS TO SELL:
- ------------------
2,500,000 Australian Dollars.......................................... U.S. $ 1,501,150 7/10/98 (47,215)
6,300,000 Australian Dollars.......................................... 3,692,619 7/13/98 (209,444)
3,400,000 New Zealand Dollars......................................... 1,681,300 7/13/98 (82,062)
7,950,000 German Marks................................................ 4,392,265 7/17/98 (16,915)
6,823,000 Canadian Dollars............................................ 4,638,657 7/20/98 (3,314)
430,000 New Zealand Dollars......................................... 217,688 8/03/98 (5,009)
1,260,000 Australian Dollars.......................................... 762,174 8/04/98 (18,079)
----------- ---------
U.S. $16,885,853 (382,038)
===========
Net unrealized loss on offsetting forward exchange contracts........ (42,805)
---------
Unrealized loss on forward exchange contracts..................... (424,843)
---------
Net unrealized gain on forward exchange contracts............... U.S. $ 16,041
=========
</TABLE>

TA-18

PAGE

TEMPLETON DEVELOPING MARKETS FUND

TEMPLETON DEVELOPING
MARKETS FUND
Geographic Distribution
Based on Total Net Assets
6/30/98

[This chart shows in pie format the geographic distribution of Templeton
Variable Products Series Fund - Templeton Developing Markets Fund, based on
total net assets as of June 30, 1998.]

[PIE CHART APPEARS HERE]

<TABLE>
<S> <C>
Asia 35.7%
Latin America 20.6%
Europe 9.5%
Middle East/Africa 8.6%
New Zealand 0.2%
Short-Term Investments
& Other Net Assets 25.4%
</TABLE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: TEMPLETON DEVELOPING MARKETS FUND SEEKS LONG-TERM CAPITAL
APPRECIATION. THE FUND SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN
EQUITY SECURITIES OF ISSUERS IN COUNTRIES HAVING DEVELOPING MARKETS.
- -------------------------------------------------------------------------------

This semiannual report of Templeton Developing Markets Fund covers the six
months ended June 30, 1998. During this period, the economies of many Asian
countries suffered severely due to continuing currency crises in the region, and
most emerging stock markets around the world performed poorly. Within this
environment, the Fund's Class 2 shares provided a -23.50% six-month total
return, as discussed in the Performance Summary on page TD-4. Please keep in
mind that Fund performance does not reflect expenses associated with the
variable contract; had those expenses been included, performance would have been
lower. We understand that declines such as this are unsettling for many
investors, but we urge you not to lose heart. As you know, we have always
recommended that shareholders focus on the long term, and we remain optimistic
about the long-term prospects for developing markets.

In Asia, Thailand's stock market declined 19% during the reporting period, as
tight credit conditions and weak Asian demand hurt the country's export
sector.(1) The Korean stock market was adversely affected by increased corporate
bankruptcies and Hong Kong's Hang Seng Index fell 19% as rising unemployment and
falling property prices affected its economy.(2) China's Shanghai "B" and
Shenzhen "B" indices lost 29% and 18%, respectively,(2) as China's government
raised interest rates to avoid a currency devaluation, which could cause renewed
instability in other countries.

1. Market return is measured in U.S. dollars.

2. Market return is measured in U.S. dollars and includes reinvested dividends.
An index is an unmanaged group of securities that is used to measure market
performance. One cannot invest directly in an index. You will find a complete
listing of the Fund's portfolio holdings, including dollar value and number of
shares or principal amount, beginning on page TD-7 of this report.

TD-1

PAGE

TEMPLETON DEVELOPING
MARKETS FUND
Top 10 Holdings on 6/30/98

[This chart lists the top 10 equity holdings, including industry and country, of
Templeton Variable Products Series Fund - Templeton Developing Markets Fund,
based on total net assets as of June 30, 1998.]

<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Cemex SA, B,
Building Materials &
Components, Mexico 2.6%

Telefonica del Peru SA, B, ADR,
Telecommunications, Peru 1.8%

Investimentos Itau SA, pfd.,
Multi-Industry, Brazil 1.5%

Aracruz Celulose SA, ADR,
Forest Products & Paper,
Brazil 1.3%

Banco Bradesco SA,
Banking, Brazil 1.3%

CEZ AS,
Utilities Electrical & Gas,
Czech Republic 1.3%

Public Bank Bhd.,
Banking, Malaysia 1.2%

HSBC Holdings Plc.,
Banking, Hong Kong 1.2%

Hana Bank,
Banking, South Korea 1.1%

Hae In Corp. Ltd.,
Merchandising, South Korea 1.0%
</TABLE>

The "Asian contagion" also spread to other emerging markets, as many investors
failed to discriminate among regions and countries. In Brazil, uncertainties
over the breakup of Telecomunicacoes Brasileiras SA and worries about the budget
deficit contributed to a volatile Bovespa Index. And although Mexico's corporate
earnings were positive for the first quarter of 1998, many investors reacted
negatively to falling oil prices and were concerned over the currency crisis'
impact on Mexican exports. During the period under review, the Brazilian and
Mexican markets declined 8% and 26%, respectively.(3) Russia's was one of the
world's worst performing stock markets. Many investors were skeptical about the
government's plans to achieve fiscal reform and improve tax collection
practices, and additional Western aid appears necessary to achieve short-term
stabilization.

However, not all emerging stock markets fared poorly. The Greek stock market
climbed to an all-time high as the government's commitment to privatization, and
to meeting the requirements for eventual membership in the European Monetary
Union (EMU), contributed to increased market liquidity and healthy earnings
growth. Portugal's stock market also benefited from the success of the strict
fiscal policies implemented to join the EMU.

At the end of the period, the Fund owned investments in 33 countries, with
Brazil being our largest country holding (7.9% of total net assets). Our largest
regional holdings were Asia (35.7%), followed by Latin America (20.6%), Europe
(9.5%), and the Middle East/Africa (8.6%).

Looking forward, we believe there is good reason for optimism about the future
of emerging markets. Brazil's privatization program is still attracting foreign
investors, and the country's US$71 billion in foreign reserves could help
minimize any future pressure for an abrupt devaluation of the real.(4) And many
Mexican companies could soon begin to report solid corporate earnings growth.

Asia, of course, remains a problem, but we believe the discipline, hard work,
high savings, and emphasis on education which helped build many Asian economies
are still present in that region. Thailand is working to create a healthier
banking system by recapitalizing its banks, and Korea is eliminating foreign
investment restrictions to stimulate merger and acquisition activities and
allow companies to reduce their debt burdens. Hong Kong's long-term prospects
appear bright due to its good historical track record in crisis management, and
China's substantial

3. Market return is measured in U.S. dollars and includes reinvested dividends.
4. Icatu Securities. Brazilian Central Bank statistics for June 1998.

TD-2

PAGE

foreign reserves and current account surplus may be able to absorb temporary
export declines. Of course, there should be no illusions that Asia's deep-rooted
problems will be resolved easily; economic adjustments take time, and
difficulties are bound to arise along the way to recovery.

In conclusion, we believe the current emerging market crisis represents an
opportunity to purchase stocks at attractive prices. Our strategy will continue
to be to focus on identifying and buying high-quality companies at distressed
prices for long-term capital appreciation potential.

Please remember that this discussion reflects our views and opinions as of June
30, 1998, the end of the reporting period. However, it is not necessarily a
complete analysis of every material fact regarding any industry, security, or
investment. Keep in mind that market and economic conditions are changing
constantly, which may affect our strategies and portfolio holdings. Although
historic performance is no guarantee of future results, these insights may help
you understand our investment and management philosophy. Of course, investing in
emerging markets involves special considerations, which may include risks
related to market and currency volatility, adverse social, economic and
political developments and the relatively small size and lesser liquidity of
these markets. Investing in any emerging market means accepting a certain amount
of volatility and, in some cases, severe market corrections. While short-term
volatility can be disconcerting, declines of as much as 40% to 50% are not
unusual in emerging markets. In fact, the Hong Kong market has increased 785.85%
in the last 15 years, but has suffered six declines of more than 20% during that
time.(5) These special risks and other considerations are discussed in the
Fund's prospectus.

Thank you for investing in Templeton Developing Markets Fund. We appreciate your
support and welcome your comments.

Sincerely,

/s/ J. MARK MOBIUS

J. Mark Mobius, Ph.D.
President
Templeton Developing Markets Fund

TEMPLETON DEVELOPING
MARKETS FUND
Top 10 Countries
6/30/98

[This chart lists the top 10 countries represented in Templeton Variable
Products Series Fund - Templeton Developing Markets Fund, based on total net
assets as of June 30, 1998.]

<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Brazil 7.9%
South Africa 6.3%
Mexico 6.1%
South Korea 5.8%
Thailand 4.8%
Malaysia 4.1%
Hong Kong 4.1%
Singapore 3.8%
Poland 3.6%
Indonesia 3.0%
</TABLE>

5. Source: Bloomberg. Return is measured in local currency terms and is based on
quarterly percentage price change over 15 years ended June 30, 1998.

TD-3

PAGE

CLASS 2

Templeton Developing Markets Fund - Class 2 delivered a -23.50% total return
for the six-month period ended June 30, 1998. Total return of Class 2 shares
represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results. Past expense reductions by the manager increased returns.

NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY CONTRACT FEES, EXPENSES, OR SALES CHARGES. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. THESE CONTRACT CHARGES AND
DEDUCTIONS, PARTICULARLY FOR VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT
EFFECT ON CONTRACT VALUES AND INSURANCE BENEFITS. SEE THE CONTRACT PROSPECTUS
FOR A COMPLETE DESCRIPTION OF THESE CHARGES, INCLUDING SALES CHARGES.

TEMPLETON DEVELOPING MARKETS FUND - CLASS 2
Periods ended 6/30/98

<TABLE>
<CAPTION>
SINCE
SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR (3/4/96)* (5/1/97)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Annual Total Return -48.90% -25.17% -43.55%

Cumulative Total Return -48.90% -49.01% -48.59%

Value of $10,000 Investment $5,110 $5,099 $5,141
</TABLE>

*Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represents the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997, reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.

Past performance is not predictive of future results.

TD-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ------------------------
(UNAUDITED) 1997 1996+
-----------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $6.63 $9.43 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .04 .09 .05
Net realized and unrealized losses......................... (1.55) (2.82) (.62)
-----------------------------------------------
Total from investment operations............................ (1.51) (2.73) (.57)
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.10) (.04) --
Net realized gains......................................... (.05) (.03) --
-----------------------------------------------
Total distributions......................................... (.15) (.07) --
-----------------------------------------------
Net asset value, end of period.............................. $4.97 $6.63 $9.43
===============================================

Total Return*............................................... (23.40)% (29.22)% (5.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $156,251 $163,459 $72,245
Ratios to average net assets:
Expenses................................................... 1.70%** 1.58% 1.70%**
Expenses, excluding waiver and payments by affiliates...... 1.70%** 1.58% 1.78%**
Net investment income...................................... 1.73%** 1.63% 1.52%**
Portfolio turnover rate..................................... 16.15% 23.82% 9.95%
</TABLE>

*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE CONTRACT LEVEL FOR COST OF
INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY AND EXPENSE
RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE VARIABLE ANNUITY
CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING INVESTMENT VEHICLE. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
+FOR THE PERIOD MARCH 4, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996.

TD-5

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997+
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $6.62 $9.85
--------------------------------------
Income from investment operations:
Net investment income...................................... .04 .04
Net realized and unrealized losses......................... (1.56) (3.27)
--------------------------------------
Total from investment operations............................ (1.52) (3.23)
--------------------------------------
Less distributions from:
Net investment income...................................... (.09) --
Net realized gains......................................... (.05) --
--------------------------------------
Total distributions......................................... (.14) --
--------------------------------------
Net asset value, end of period.............................. $4.96 $6.62
======================================

Total Return*............................................... (23.50)% (32.79)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $12,234 $9,569
Ratios to average net assets:
Expenses................................................... 1.95%** 1.77%**
Net investment income...................................... 1.55%** 1.48%**
Portfolio turnover rate..................................... 16.15% 23.82%
</TABLE>

TD-6 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES 74.6%
ARGENTINA 2.9%
*Atanor Cia Nacional Para la Industria Quimica SA, D...... Chemicals 161,169 $ 143,455
*Buenos Aires Embotelladora SA, ADR....................... Beverages & Tobacco 29,000 290
Capex SA, A............................................... Utilities Electrical & Gas 25,000 92,509
Central Costanera SA, B................................... Utilities Electrical & Gas 26,860 77,902
Molinos Rio de Plata SA, B................................ Food & Household Products 62,018 135,833
Nobleza Piccardo Sdad Industrial Comercial y Financial.... Beverages & Tobacco 45,451 184,095
Quilmes Industrial SA..................................... Beverages & Tobacco 103,900 1,013,025
Renault Argentina SA...................................... Automobiles 10,472 20,841
Siderca SA, A............................................. Metals & Mining 14,000 23,802
Sociedad Comercial del Plata Cadelplata Come.............. Multi-Industry 513,950 565,402
Transportadora de Gas del Sur SA, B....................... Energy Sources 315,015 705,704
Transportadora de Gas del Sur SA, B, ADR.................. Energy Sources 28,400 326,600
YPF Sociedad Anonima, ADR................................. Energy Sources 53,934 1,621,391
------------
4,910,849
------------
BOTSWANA .3%
Sechaba Brewery Holding Ltd. ............................. Beverages & Tobacco 384,900 510,137
Sefalana Holding Co. Ltd. ................................ Food & Household Products 18,100 22,008
------------
532,145
------------
BRAZIL 7.9%
Aracruz Celulose SA, ADR.................................. Forest Products & Paper 196,800 2,250,900
Banco Bradesco SA......................................... Banking 166,249,544 1,329,594
Banco Bradesco SA, pfd. .................................. Banking 110,360,488 920,784
Banco do Brasil SA........................................ Banking 39,204,000 323,367
Banco do Brazil SA, pfd. ................................. Banking 13,743,000 153,281
Brasmotor SA, pfd. ....................................... Multi-Industry 1,613,000 147,828
Centrais Eletricas Brasileiras SA (Electrobras), pfd.,
B....................................................... Utilities Electrical & Gas 18,000,000 541,587
*Centrais Geradoras Do Sul Do Brasil SA (Gerasul),
pfd. ................................................... Utilities Electrical & Gas 18,000,000 25,990
Cia Energetica de Minas Gerais, ADR....................... Utilities Electrical & Gas 23,200 722,117
Cia Vale do Rio Doce, pfd., A............................. Metals & Mining 11,000 218,745
Companhia Siderurgica Nacional Sid Nacional CSN........... Metals & Mining 62,550,000 1,567,265
Copene-Petroquimica do Nordeste SA, A, pfd. .............. Chemicals 824,000 182,383
Duratex SA, pfd. ......................................... Forest Products & Paper 3,715,000 144,540
Investimentos Itau SA, pfd. .............................. Multi-Industry 3,985,000 2,515,174
*Mannesmann SA............................................ Machinery & Engineering 2,794,000 320,080
Telecomunicacoes Brasileiras SA (Telebras)................ Telecommunications 6,900,000 548,850
Telecomunicacoes Brasileiras SA (Telebras), pfd. ......... Telecommunications 8,708,000 947,144
Unibanco Uniao de Bamncos Brasileiros SA, unit............ Banking 7,000,000 413,972
------------
13,273,601
------------
CHILE 1.5%
Compania de Telecomunicaciones de Chile SA, ADR........... Telecommunications 36,164 734,581
Empresa Nacional de Electricidad SA, ADR.................. Electrical & Electronics 81,900 1,167,075
Enersis SA, ADR........................................... Utilities Electrical & Gas 21,300 520,519
Quinenco SA, ADR.......................................... Multi-Industry 11,000 99,000
------------
2,521,175
------------
CHINA .9%
Chiwan Wharf Holdings Ltd., B............................. Transportation 174,000 39,297
Guangshen Railway Co. Ltd., ADR........................... Transportation 23,400 159,413
Guangshen Railway Co. Ltd., H............................. Transportation 2,622,000 348,535
*Luoyang Glass Co. Ltd., H................................ Misc Materials & Commodities 835,000 38,794
Shandong Huaneng Power Development Co. Ltd., ADR.......... Utilities Electrical & Gas 17,500 94,063
*Shanghai Jin Jiang Tower Co. Ltd., B..................... Leisure & Tourism 18,240 2,572
Shanghai New Asia Group Co. Ltd., B....................... Food & Household Products 26,540 5,626
Shanghai Petrochemical Co. Ltd., H........................ Chemicals 4,404,000 494,474
*Shanghai Steel Tube Co. Ltd., B.......................... Machinery & Engineering 389,000 30,342
*Shanghai Tyre & Rubber Co. Ltd., B....................... Industrial Components 496,000 80,352
</TABLE>

TD-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CHINA (CONT.)
*Shanghai Vacuum Electron Devices Co. Ltd., B............. Appliances & Household Durables 207,000 $ 37,674
Shanghai Yaohua Pilkington Glass, B....................... Building Materials & Components 70,000 9,100
*Yanzhou Coal Mining Company Ltd. ........................ Energy Sources 512,000 97,793
------------
1,438,035
------------
CZECH REPUBLIC 2.2%
*CEZ AS................................................... Utilities Electrical & Gas 77,450 2,140,676
Elektrarny Opatovice AS................................... Energy Sources 250 31,991
*Komercni Banka AS........................................ Banking 7,950 266,750
Komercni Banka AS, GDR.................................... Banking 47,800 601,085
*Leciva AS................................................ Health & Personal Care 700 53,624
*SPT Telecom AS........................................... Telecommunications 41,100 567,991
Unipetrol................................................. Chemicals 15,862 34,704
------------
3,696,821
------------
GHANA .8%
Ashanti Goldfields Co. Ltd., GDR.......................... Metals & Mining 174,460 1,417,488
------------
GREECE
Hellenic Telecommunications Organizations................. Telecommunications 1,770 45,361
Hellenic Telecommunications Organizations, 144A........... Telecommunications 1,082 27,742
------------
73,103
------------
HONG KONG 4.1%
CDL Hotel International Ltd. ............................. Leisure & Tourism 58,000 17,216
Cheung Kong Holdings Ltd. ................................ Multi-Industry 182,000 894,897
Citic Pacific Ltd. ....................................... Multi-Industry 10,000 17,681
Cross Harbour Tunnel Co. Ltd. ............................ Transportation 58,000 69,613
Dairy Farm International Holdings Ltd. ................... Merchandising 463,370 495,806
Golden Resources Development International Ltd. .......... Food & Household Products 2,278,000 111,716
Goldlion Holdings Ltd. ................................... Textiles & Apparel 82,000 9,207
Hang Lung Development Co. Ltd. ........................... Real Estate 788,000 783,058
Hong Kong & Shanghai Hotels Ltd. ......................... Leisure & Tourism 972,000 486,088
Hong Kong Electric Holdings Ltd. ......................... Utilities Electrical & Gas 219,900 681,104
HSBC Holdings Plc. ....................................... Banking 83,200 2,034,742
IMC Holdings Ltd. ........................................ Transportation 393,000 44,633
Jardine Matheson Holdings Ltd. ........................... Multi-Industry 75,213 203,075
Joyce Boutique Holdings Ltd. ............................. Merchandising 1,960,000 31,619
Lai Sun Development Co. Ltd. ............................. Real Estate 284,000 35,552
Lai Sun Garment International Ltd. ....................... Multi-Industry 202,000 43,536
New World Development Co. Ltd. ........................... Real Estate 111,000 214,878
Semi-Tech Co. Ltd. ....................................... Appliances & Household Durables 223,834 11,127
Sun Hung Kai Properties Ltd. ............................. Real Estate 81,000 343,920
Tingyi (Cayman Islands) Holding Corp. .................... Food & Household Products 1,000 61
Wheelock and Company Ltd. ................................ Multi-Industry 469,000 276,911
*Wo Kee Hong Holdings Ltd. ............................... Merchandising 2,207,000 28,767
------------
6,835,207
------------
HUNGARY 1.3%
Borsodchem RT............................................. Chemicals 4,169 121,861
Borsodchem RT, GDR........................................ Chemicals 5,900 169,773
Borsodchem RT, GDR, 144A.................................. Chemicals 11,000 316,525
Egis RT................................................... Multi-Industry 5,620 197,797
Fotex First Hungarian American Photo Service Co. ......... Multi-Industry 45,385 36,510
Graboplast Textil Es Muborgyarto RT....................... Textiles & Apparel 1,550 39,249
Inter-Europa Bank RT...................................... Banking 3,056 187,176
*Inter-Europa Bank RT, new................................ Banking 639 35,487
Tiszai Vegyi Kombinat RT.................................. Chemicals 28,002 544,604
</TABLE>

TD-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
HUNGARY (CONT.)
Tiszai Vegyi Kombinat RT, GDR, 144A....................... Chemicals 21,000 $ 413,700
Tiszai Vegyi Kombinat RT, GDR, Reg S...................... Chemicals 8,000 157,600
------------
2,220,282
------------
INDIA 2.5%
*Andhra Valley Power Supply Co. Ltd. ..................... Utilities Electrical & Gas 28,950 55,850
*Arvind Mills Ltd. ....................................... Textiles & Apparel 119,500 119,571
Bajaj Auto Ltd. .......................................... Automobiles 1,650 22,273
*Bharat Petroleum Corporation, Ltd. ...................... Energy Sources 3,900 32,281
Bombay Dyeing & Manufacturing Co. Ltd. ................... Chemicals 270,300 446,513
*Cochin Refineries Ltd. .................................. Energy Sources 300 1,557
Grasim Industries Ltd. ................................... Multi-Industry 25,000 211,062
Great Eastern Shipping Co. Ltd. .......................... Transportation 117,000 85,317
Gujarat Ambuja Cements Ltd. .............................. Building Materials & Components 11,600 71,503
Gujarat Industries Power Ltd. ............................ Energy Equipment & Services 20,000 11,540
Gujarat Narmanda Valley Fertilizers Co. Ltd., ADR......... Chemicals 9,000 21,600
Hindustan Organic Chemicals Ltd. ......................... Chemicals 20,400 4,814
*Hindustan Petroleum Corporation Ltd. .................... Energy Sources 25,000 230,383
Hotel Leela Venture Ltd. ................................. Leisure & Tourism 150,250 157,430
India Cements Ltd., GDR................................... Building Materials & Components 109,590 144,659
Indian Aluminium Co. Ltd. ................................ Metals & Mining 29,000 51,396
*Indian Petrochemicals Corp. Ltd. ........................ Chemicals 194,600 236,505
Indian Rayon & Industries Ltd. ........................... Multi-Industry 1,125 5,442
Indian Rayon & Industries Ltd., GDR....................... Multi-Industry 28,670 91,742
Indo Gulf Fertilisers & Chemicals Corp. Ltd. ............. Chemicals 800 668
Indo Gulf Fertilisers & Chemicals Corp. Ltd., GDR......... Chemicals 7,150 5,184
Industrial Credit & Inv. Corp. of India (ICICI)........... Financial Services 246,500 450,244
Industrial Development Bank of India...................... Banking 77,800 118,788
Larsen & Toubro Ltd. ..................................... Multi-Industry 53,600 290,041
Madras Cements Ltd. ...................................... Building Materials & Components 65 5,484
Mahanagar Telephone Nigam Ltd. ........................... Telecommunications 30,300 127,564
National Aluminium Co. Ltd. .............................. Metals & Mining 279,800 138,662
Oriental Bank of Commerce................................. Banking 179,100 199,070
Reliance Industries Ltd., GDR............................. Chemicals 14,000 92,400
Steel Authority of India Ltd. ............................ Metals & Mining 800 170
Sterlite Industries Ltd. ................................. Metals & Mining 465 1,929
Tata Chemicals Ltd. ...................................... Chemicals 76,800 227,274
*Tata Engineering & Locomotive Co., GDR................... Machinery & Engineering 11,000 35,200
Tata Engineering & Locomotive Co. Telco................... Machinery & Engineering 80,900 317,873
Tata Hydro-Electric Power Co. ............................ Utilities Electrical & Gas 51,700 105,230
Tata Iron & Steel Co., Ltd. .............................. Metals & Mining 11,300 33,573
Thermax Ltd. ............................................. Energy Equipment & Services 7,400 22,999
Titan Industries Ltd. .................................... Recreation & Other Consumer Goods 69,600 66,028
------------
4,239,819
------------
INDONESIA 3.0%
Asia Pulp & Paper Co. Ltd., ADR........................... Forest Products & Paper 46,100 518,625
*PT Bank International Indonesia, fgn. ................... Banking 9,697,000 196,561
PT Barito Pacific Timber TBK.............................. Forest Products & Paper 1,774,000 29,966
PT BDNI Capital Corporation, fgn. ........................ Financial Services 9,000 122
PT Charoen Pokphand Indonesia............................. Food & Household Products 1,453,500 25,780
PT Ciputra Dev. .......................................... Real Estate 2,430,000 24,628
PT Gadjah Tunggal......................................... Automobiles 2,223,000 15,020
PT Gudang Garam........................................... Beverages & Tobacco 270,000 158,716
PT Indah Kiat Pulp & Paper Corp. ......................... Forest Products & Paper 2,124,750 405,569
*PT Indah Kiat Pulp & Paper Corp. TBK, wts. .............. Forest Products & Paper 146,800 17,160
PT Indocement Tunggal Prakarsa............................ Building Materials & Components 1,980,000 535,135
PT Indofoods Sukses Makmur................................ Food & Household Products 1,157,185 113,373
PT Indosat................................................ Telecommunications 193,000 224,297
</TABLE>

TD-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
INDONESIA (CONT.)
PT Jakarta International Hotel & Development.............. Real Estate 11,764,000 $ 337,818
PT Kalbe Farma............................................ Health & Personal Care 1,163,500 31,446
*PT Lippo Life Insurance TBK.............................. Insurance 4,738,500 88,046
*PT Modern Photo Film Co. ................................ Multi-Industry 1,526,500 85,092
PT Pakuwon Jati........................................... Real Estate 1,700,000 5,743
*PT Semen Cibinong, loc. ................................. Building Materials & Components 35,534,500 960,392
PT Semen Gresik........................................... Building Materials & Components 311,000 176,514
*PT Sinar Mas Agro Resources & Technology Corp. .......... Food & Household Products 482,800 45,670
PT Sumalindo Lestari Jaya TBK............................. Forest Products & Paper 146,000 3,206
*PT Surya Hidup Sapwa..................................... Food & Household Products 479,500 2,025
PT Tambang Timah (Persero)................................ Metals & Mining 1,159,500 519,033
PT Tancho Indonesia....................................... Health & Personal Care 63,000 4,257
PT Telekomunikasi Indonesia (Persero), B.................. Telecommunications 44,500 12,553
PT Tempo Scan Pacific..................................... Health & Personal Care 10,325,000 156,968
PT Tjiwi Kimia TBK........................................ Forest Products & Paper 1,346,454 168,307
*PT Tjiwi Kimia TBK, wts. ................................ Forest Products & Paper 79,645 4,359
PT Ultra Jaya Milk........................................ Food & Household Products 2,740,000 203,649
*PT United Tractors....................................... Machinery & Engineering 46,000 1,399
------------
5,071,429
------------
JORDAN .4%
Jordan Cement Factories Ltd. ............................. Building Materials & Components 17,000 49,494
*Zara Investment Holdings Company Ltd. ................... Leisure & Tourism 350,000 659,634
------------
709,128
------------
KAZAKHSTAN .4%
*Kazkommertsbank, ADR, 144A............................... Banking 33,460 719,390
------------
KENYA .4%
Kenya Airways Ltd. ....................................... Transportation 5,418,381 641,902
------------
MALAYSIA 4.1%
AMMB Holdings Bhd. ....................................... Financial Services 615,600 323,570
Berjaya Singer Bhd........................................ Appliances & Household Durables 71,000 17,632
Boustead Holdings Bhd. ................................... Food & Household Products 403,000 246,804
Cement Industries of Malaysia Bhd. ....................... Building Materials & Components 501,000 258,503
Edaran Otomobil Nasional Bhd. ............................ Automobiles 3,000 2,893
Federal Flour Mills Bhd. ................................. Food & Household Products 35,000 26,076
Genting Bhd. ............................................. Leisure & Tourism 220,200 398,192
Golden Hope Plantations Bhd. ............................. Misc Materials & Commodities 37,000 33,900
Hong Leong Industries Bhd. ............................... Multi-Industry 206,800 153,573
*Hong Leong Industries Bhd., wts. ........................ Multi-Industry 19,500 1,599
Hong Leong Properties Bhd. ............................... Real Estate 467,000 66,433
Island & Peninsula Bhd. .................................. Real Estate 447,000 186,452
Kian Joo Can Factory Bhd. ................................ Industrial Components 85,000 77,878
Leader Universal Holdings Bhd. ........................... Industrial Components 1,452,000 217,056
Malayawata Steel Bhd. .................................... Metals & Mining 563,000 138,459
Malaysian Airlines System Bhd. ........................... Transportation 246,000 81,259
Malaysian International Shipping Corp., fgn. ............. Transportation 76,000 110,862
MBF Capital Bhd. ......................................... Financial Services 2,591,000 434,176
Oriental Holdings Bhd. ................................... Automobiles 47,000 78,192
Perlis Plantations Bhd. .................................. Multi-Industry 146,000 126,727
Perusahaan Otomobil Nasional Bhd. ........................ Automobiles 141,000 90,090
Public Bank Bhd. ......................................... Banking 4,347,400 1,289,283
Public Bank Bhd., fgn. ................................... Banking 2,660,000 801,688
*Renong Bhd. ............................................. Multi-Industry 1,684,000 280,159
Resorts World Bhd. ....................................... Leisure & Tourism 572,000 628,890
Shangri La Hotels (Malaysia) Bhd. ........................ Leisure & Tourism 53,000 12,651
Tanjong Plc. ............................................. Recreation & Other Consumer Goods 238,000 329,958
</TABLE>

TD-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
MALAYSIA (CONT.)
Technology Resources Industries Bhd. ..................... Multi-Industry 437,000 $ 300,289
YTL Corp. Berhad.......................................... Construction & Housing 203,000 152,709
------------
6,865,953
------------
MEXICO 6.1%
Alfa SA de CV, A.......................................... Multi-Industry 166,500 691,125
*Altos Hornos de Mexico SA................................ Metals & Mining 297,700 314,728
Cemex SA, B............................................... Building Materials & Components 1,012,490 4,450,629
Coca Cola Femsa SA de CV, ADR............................. Beverages & Tobacco 6,300 109,463
Cydea SA de CV............................................ Multi-Industry 31,000 51,057
DESC SA de CV DESC, B..................................... Multi-Industry 59,000 300,712
*Grupo Financiero Banamex Accival SA, L................... Banking 645,000 1,062,319
Grupo Financiero Bancomer SA de CV, B..................... Banking 350,000 130,481
Grupo Financiero Bancomer SA de CV, L..................... Banking 3,751,000 916,253
*Grupo Financiero Serfin SA de CV, B...................... Banking 2,385,000 270,721
Panamerican Beverages Inc., A............................. Food & Household Products 13,500 424,406
Telefonos de Mexico SA (Telmex), ADR, L................... Telecommunications 27,600 1,326,525
Vitro SA De CV............................................ Food & Household Products 92,000 194,525
------------
10,242,944
------------
NEW ZEALAND .2%
Brierley Investments Ltd. ................................ Wholesale & International Trade 713,000 355,314
------------
PAKISTAN .9%
*Bank of Punjab........................................... Banking 124,823 18,681
*DG Khan Cement Co. ...................................... Building Materials & Components 2,258,000 225,286
Engro Chemical Pakistan Ltd. ............................. Chemicals 132,112 141,840
Fauji Fertilizer Co. Ltd. ................................ Chemicals 37,000 40,126
National Development Leasing Corp. ....................... Financial Services 3,558,250 308,708
*Pakistan Electron Ltd. .................................. Appliances & Household Durables 563,000 48,845
*Pakistan International Airlines Corp. ................... Transportation 774,600 58,803
Pakistan Telecommunications Corp. PTC..................... Telecommunications 1,000 34,500
Pakistan Telecommunications Corp., PTC, A................. Telecommunications 1,109,000 389,671
*Pakland Cement Co. Ltd. ................................. Building Materials & Components 1,397,800 127,335
*Union Bank Ltd. ......................................... Banking 1,287,000 195,402
------------
1,589,197
------------
PERU 1.8%
Banco Wiese Ltd., ADR..................................... Multi-Industry 14,500 49,844
Telefonica del Peru SA, B, ADR............................ Telecommunications 145,400 2,971,613
------------
3,021,457
------------
PHILIPPINES 2.9%
*A Soriano Corp. ......................................... Multi-Industry 6,456,500 173,412
Ayala Corp., B............................................ Multi-Industry 179,200 46,197
*Belle Corp. ............................................. Real Estate 48,777,000 1,239,895
*Digital Telecommunications Philippines Inc. ............. Telecommunications 10,360,000 322,974
Filinvest Development Corp. .............................. Real Estate 2,639,000 132,899
*Keppel Philippine Holdings Inc., B....................... Machinery & Engineering 19,425,186 465,832
*Metro Pacific Corp. MDI.................................. Multi-Industry 497,000 11,323
*Petron Corporation....................................... Energy Sources 959,000 101,189
*Philex Mining Corp., B................................... Metals & Mining 9,487,500 170,638
Philippine Commercial International Bank Inc. ............ Banking 280,460 1,022,300
*Philippine National Bank................................. Banking 701,931 833,227
RFM Corp. ................................................ Food & Household Products 1,587,636 228,437
*Southeast Asia Cement Holdings Inc. ..................... Building Materials & Components 15,454,000 129,710
------------
4,878,033
------------
</TABLE>

TD-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
POLAND 3.6%
Bank Handlowy W Warszawie SA.............................. Banking 7,000 $ 133,496
Bank Handlowy W Warszawie SA, 144A........................ Banking 25,000 476,771
Bank Przemyslowo-Handlowy SA.............................. Banking 1,000 71,695
Bank Rozwoju Eksportu SA (BRE)............................ Banking 24,482 663,478
*Bank Rozwoju Eksportu SA (BRE), rts. .................... Banking 4,896 1,404
Big Bank Gdanski SA, G.................................... Banking 538,150 717,636
Big Bank Gdanski SA, GDR.................................. Banking 23,966 464,940
Farm Food SA.............................................. Food & Household Products 4,811 35,182
*Gorazdze SA.............................................. Building Materials & Components 1,578 28,736
*Huta Olawa SA............................................ Metals & Mining 78,107 199,355
*Impexmetal SA, A......................................... Metals & Mining 93,892 702,776
Lentex SA................................................. Building Materials & Components 19,090 175,188
Przedsiebiorstwo Cukiernicze Jutrzenka SA................. Food & Household Products 71,000 566,045
*Przedsiebiorstwo Handlu Zagranicznego Universal SA....... Wholesale & International Trade 1,102,000 1,137,712
*Rolimpex SA.............................................. Wholesale & International Trade 39,117 67,308
Warta SA.................................................. Insurance 13,400 238,256
Wielkopolski Bank Kredytowy SA............................ Banking 38,500 298,107
------------
5,978,085
------------
RUSSIA 1.3%
Aeroflot.................................................. Transportation 4,800 328,800
*Arkhangelsk Telecom, pfd. ............................... Telecommunications 260,000 52,000
*Chelyabenergo............................................ Telecommunications 20,000 1,810
Irkutskenergo............................................. Utilities Electrical & Gas 680,800 66,718
*Kamaz.................................................... Automobiles 121,186 66,046
*Krasnoyarsk Aluminum Plant............................... Metals & Mining 5,748 68,976
Mosenergo................................................. Utilities Electrical & Gas 4,450,000 222,500
*Murmansk Sea Shipping.................................... Transportation 3,000 27,000
Norilsk Nickel............................................ Metals & Mining 31,700 65,778
Norilsk Nickel, pfd. ..................................... Metals & Mining 10,000 16,350
*Novorosissk Sea Shipping................................. Transportation 28,000 5,880
*Novorosissk Sea Shipping., pfd. ......................... Transportation 224,000 13,440
*Primorsk Sea Shipping.................................... Transportation 36,050 61,285
*Red October.............................................. Food & Household Products 3,000 16,425
*Rostelekom............................................... Telecommunications 153,000 346,545
Rostelekom, pfd. ......................................... Telecommunications 257,300 285,603
*Saint Petersburg City Telephone Network, pfd., A......... Telecommunications 53,000 12,985
Tsum Trade House.......................................... Merchandising 317,500 50,800
Unified Energy System..................................... Utilities Electrical & Gas 3,400,000 438,600
Unified Energy System, pfd. .............................. Utilities Electrical & Gas 200,000 12,400
*Uralmash Zavody.......................................... Machinery & Engineering 15,032 97,708
------------
2,257,649
------------
SINGAPORE 3.8%
Acer Computer International Ltd. ......................... Electrical & Electronics 195,000 68,250
*Acer Computer International Ltd., wts. .................. Electrical & Electronics 4,400 264
Acma Ltd. ................................................ Electrical & Electronics 294,000 177,496
City Developments Ltd. ................................... Construction & Housing 38,000 106,162
Cycle & Carriage Ltd. .................................... Automobiles 140,000 341,403
Delgro Corp. ............................................. Transportation 50,500 36,168
First Capital Corp. Ltd. ................................. Real Estate 504,000 171,530
Fraser and Neave Ltd. .................................... Beverages & Tobacco 136,000 365,457
Hai Sun Hup Group Ltd. ................................... Transportation 714,000 166,931
*Hai Sun Hup Group Ltd., wts. ............................ Transportation 82,600 3,422
Hinds Hotels International Ltd. .......................... Leisure & Tourism 32,000 19,888
Hong Leong Finance Ltd., fgn. ............................ Financial Services 541,000 441,894
Hour Glass Ltd. .......................................... Merchandising 1,389,000 246,641
*Inchcape Marketing Services Ltd. ........................ Broadcasting & Publishing 153,000 36,677
Inchcape Motores Ltd. .................................... Wholesale & International Trade 143,000 98,183
</TABLE>

TD-12

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SINGAPORE (CONT.)
Isetan (Singapore) Ltd. .................................. Merchandising 49,000 $ 46,259
Jurong Shipyard Ltd. ..................................... Machinery & Engineering 194,000 935,839
Keppel Corp., Ltd. ....................................... Transportation 187,000 281,136
MCL Land Ltd. ............................................ Real Estate 605,000 216,647
Metro Holdings Ltd. ...................................... Wholesale & International Trade 39,000 23,545
Natsteel Ltd. ............................................ Metals & Mining 776,000 753,264
*Osprey Maritime Ltd. .................................... Transportation 267,000 123,267
Osprey Maritime Ltd., conv., pfd. ........................ Transportation 69,660 24,739
*Overseas Union Enterprise Ltd. .......................... Leisure & Tourism 120,400 177,447
Overseas Union Trust, fgn. ............................... Financial Services 200,000 165,730
Robinson & Co., Ltd. ..................................... Merchandising 32,200 81,953
SBS Bus Service Ltd., fgn. ............................... Transportation 125,000 51,421
Sembawang Corp. Ltd. ..................................... Multi-Industry 497,000 585,398
Sembawang Resources Ltd. ................................. Building Materials & Components 8,000 4,711
Singapore Petroleum Company, fgn. ........................ Chemicals 133,000 47,627
Tibs Holdings Ltd. ....................................... Transportation 77,000 30,080
Times Publishing Ltd. .................................... Broadcasting & Publishing 26,000 43,090
United Industrial Corporation Ltd. ....................... Real Estate 1,565,000 449,260
United Overseas Land Ltd. ................................ Real Estate 109,000 58,710
*Van Der Horst Ltd. ...................................... Machinery & Engineering 141,000 25,037
WBL Corp. Ltd. ........................................... Multi-Industry 87,000 56,644
------------
6,462,170
------------
SLOVAK REPUBLIC .5%
Nafta Gbely AS............................................ Utilities Electrical & Gas 9,195 130,856
Plastika Nitra............................................ Industrial Components 21,229 181,269
Slovakofarma AS........................................... Health & Personal Care 1,029 99,520
Slovnaft AS............................................... Chemicals 11,000 216,030
Vychodoslovenske Zeleziarne AS............................ Metals & Mining 22,857 188,664
------------
816,339
------------
SLOVENIA .2%
Blagovno Trgovinski Center, GDR, 144A..................... Real Estate 50,000 312,500
Blagovno Trgovinski Center, GDR, Reg S.................... Real Estate 13,000 81,250
------------
393,750
------------
SOUTH AFRICA 6.3%
Aeci Ltd. ................................................ Chemicals 63,600 252,912
Alpha Ltd. ............................................... Building Materials & Components 21,900 161,003
Anglo American Industrial Corp. Ltd. ..................... Multi-Industry 51,279 848,224
Anglo-American Corp of South Africa Ltd. ................. Metals & Mining 28,000 935,673
Anglovaal Industried Ltd. ................................ Multi-Industry 168,840 183,368
Bonnita Holdings Ltd. .................................... Food & Household Products 80,000 34,085
BTR Dunlop Ltd. .......................................... Industrial Components 256,200 90,751
CG Smith Ltd. ............................................ Multi-Industry 132,000 359,499
De Beers/Centenary Linked Units, Reg. .................... Misc Materials & Commodities 40,600 706,854
*Del Monte Royal Foods Ltd. .............................. Food & Household Products 1,411,300 636,677
Edgars Stores Ltd. ....................................... Textiles & Apparel 14,309 125,518
Engen Ltd. ............................................... Energy Sources 207,300 568,040
Irvin & Johnson Ltd. ..................................... Food & Household Products 1,138,200 332,807
Kersaf Investments Ltd. .................................. Leisure & Tourism 190,700 860,301
Malbak Ltd. .............................................. Multi-Industry 104,075 69,557
McCarthy Retail Ltd. ..................................... Multi-Industry 302,692 278,163
McCarthy Retail Ltd., conv., zero coupon, 9/30/03......... Multi-Industry 11,833 13,345
Palabora Mining Co. Ltd. ................................. Metals & Mining 29,500 155,263
Polifin Ltd. ............................................. Chemicals 13,600 12,043
*Rainbow Chicken Ltd. .................................... Food & Household Products 3,101,585 207,291
Rembrandt Group Ltd. ..................................... Multi-Industry 66,600 411,729
Reunert Ltd. ............................................. Electrical & Electronics 172,000 192,548
</TABLE>

TD-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SOUTH AFRICA (CONT.)
*Sappi Ltd. .............................................. Forest Products & Paper 207,173 $ 770,192
Sasol Ltd. ............................................... Energy Sources 80,500 462,018
South African Breweries Ltd. ............................. Beverages & Tobacco 23,460 478,216
South African Iron & Steel Industrial Corp. Ltd. ......... Metals & Mining 2,591,390 484,938
Sun International (South Africa) Ltd. .................... Leisure & Tourism 1,465,600 487,309
Tongaat-Hulett Group Ltd. ................................ Multi-Industry 47,000 347,494
Toyota South Africa Limited............................... Automobiles 26,200 94,119
Voltex Holdings Ltd. ..................................... Electrical & Electronics 136,907 50,325
------------
10,610,262
------------
SOUTH KOREA 5.8%
Asia Cement Manufacturing Company Ltd. ................... Building Materials & Components 61,820 292,666
*Boram Bank Co. Ltd. ..................................... Banking 54,300 95,707
BYC Co. Ltd. ............................................. Textiles & Apparel 1,190 32,502
*Cho Hung Bank Co. Ltd. .................................. Banking 64,000 38,922
*Cho Hung Bank Co. Ltd., GDR.............................. Banking 94,000 58,750
*Cho Hung Bank Co. Ltd., GDR 144A......................... Banking 90,000 56,250
*Daegu Bank Co. Ltd. ..................................... Banking 123,966 130,918
Electronic Components &
Daewoo Electric Components Co. Ltd. ...................... Instruments 45,000 75,382
*Daewoo Electronics Co. .................................. Electrical & Electronics 78,200 205,040
Dongbu Steel Co. Ltd. .................................... Metals & Mining 10,000 20,029
Dongkuk Steel Mill Co. Ltd. .............................. Metals & Mining 17,700 61,879
Hae In Corp. Ltd. ........................................ Merchandising 430,000 1,725,637
Hana Bank................................................. Banking 420,126 1,514,657
Hana Bank, GDR............................................ Banking 88,073 312,659
*Hotel Shilla Co. ........................................ Leisure & Tourism 226,600 744,331
Kolon International Corp. ................................ Wholesale & International Trade 358,000 262,047
Korea Electric Power Corp. ............................... Utilities Electrical & Gas 80,500 858,940
*Kyong Nam Bank........................................... Banking 402,460 345,887
Kyung Dong Boiler Co. Ltd. ............................... Energy Equipment & Services 15,460 79,946
LG Electronics Inc. ...................................... Electrical & Electronics 18,000 147,487
LG Industrial Systems Ltd. ............................... Electrical & Electronics 15,000 36,599
Moon Bae Steel Co. Ltd. .................................. Metals & Mining 21,360 88,831
Saehan Precision Co. Ltd. ................................ Electrical & Electronics 73,113 782,780
Samsung Display Devices Ltd. ............................. Electrical & Electronics 16,765 457,893
Samsung Electronics Co. Ltd. ............................. Multi-Industry 13,888 429,891
*Samsung Heavy Industries Co. Ltd. ....................... Machinery & Engineering 66,000 329,279
Seah Steel Corp. ......................................... Metals & Mining 32,760 133,617
Shin Poong Paper Manufacturing Co. Ltd. .................. Forest Products & Paper 6,701 44,413
Shin Young Wocoal Inc. ................................... Textiles & Apparel 1,610 55,582
Ssangyong Oil Refining Co. Ltd. .......................... Energy Equipment & Services 15,270 103,431
*Tong Yang Merchant Bank.................................. Financial Services 67,798 166,408
------------
9,688,360
------------
SRI LANKA .2%
National Development Bank of Sri Lanka.................... Banking 118,000 225,535
Sampath Bank Ltd. ........................................ Banking 91,100 71,041
------------
296,576
------------
THAILAND 4.8%
Advanced Info Service Ltd., fgn. ......................... Telecommunications 31,900 135,745
Ayudhya Insurance Public Co. Ltd., fgn. .................. Insurance 3,900 14,199
Bangkok Bank Public Co. Ltd. ............................. Banking 1,249,687 1,285,139
Bangkok Insurance Public Co. Ltd. BKI..................... Insurance 32,000 147,518
Bangkok Insurance Public Co. Ltd. BKI, fgn. .............. Insurance 4,900 37,069
Bank of Ayudhya Public Co. Ltd., fgn. .................... Banking 2,218,000 288,392
Banpu Public Co. Ltd. .................................... Energy Sources 11,000 10,662
Banpu Public Co. Ltd., fgn. .............................. Energy Sources 2,000 3,262
*Charoen Pokphand Feedmill Public Co. Ltd. ............... Food & Household Products 351,300 257,454
</TABLE>

TD-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND (CONT.)
*Chareon Pokphand Feedmill Public Co. Ltd., fgn. ......... Food & Household Products 146,700 $ 123,117
*Hana Microelectronics Co. Ltd., fgn. .................... Electrical & Electronics 86,200 220,085
Industrial Finance Corp. of Thailand...................... Financial Services 265,403 52,704
Industrial Finance Corp. of Thailand, fgn. ............... Financial Services 1,072,497 220,584
*Italian-Thai Development Public Co. Ltd. ................ Construction & Housing 20,000 10,165
*Italian-Thai Development Public Co. Ltd., fgn. .......... Construction & Housing 81,100 41,221
*Jasmine International Public Co. Ltd., fgn. ............. Telecommunications 711,000 231,117
Kian Gwan (Thailand) Public Co. Ltd., fgn. ............... Real Estate 45,400 53,128
*Land and House Public Co. Ltd. .......................... Real Estate 484,978 85,989
*Land and House Public Co. Ltd., fgn. .................... Real Estate 184,278 43,565
*Phatra Thanakit Public Co. Ltd., fgn. ................... Financial Services 952,525 85,570
Regional Container Lines Public Co. Ltd. ................. Transportation 349 272
Regional Container Lines Public Co. Ltd., fgn. ........... Transportation 231,451 218,866
Saha Pathanapibul Public Co. Ltd., fgn. .................. Food & Household Products 430,500 360,022
Saha Union Public Co. Ltd. ............................... Multi-Industry 560,100 321,098
Saha Union Public Co. Ltd., fgn. ......................... Multi-Industry 27,200 16,558
*Sanyo Universal Electric Public Co Ltd., fgn. ........... Appliances & Household Durables 109,800 20,766
*Serm Suk Public Co. Ltd. ................................ Food & Household Products 31,100 147,045
*Serm Suk Public Co. Ltd., fgn. .......................... Food & Household Products 4,900 34,752
*SG Asia Credit Public Co. Ltd. .......................... Financial Services 7,000 1,390
Shinawatra Computer & Comm. Public Co. Ltd. .............. Electrical & Electronics 900 2,532
*Siam Cement Public Co. Ltd. ............................. Building Materials & Components 22,750 96,809
*Siam Cement Public Co. Ltd., fgn. ....................... Building Materials & Components 83,950 404,865
Siam Commercial Bank Ltd. ................................ Banking 396,204 121,765
Siam Commercial Bank Ltd., fgn. .......................... Banking 566,500 180,798
Siam Makro Public Company Ltd., fgn. ..................... Merchandising 176,900 242,558
*Sino-Thai Engineering & Construction Public Co., fgn. ... Construction & Housing 416,700 46,300
Thai Airways International Public Co. Ltd., fgn. ......... Transportation 474,000 395,000
*Thai Engine Manufacturing Public Company Ltd., fgn. ..... Machinery & Engineering 83,000 28,942
Thai Farmers Bank Public Co. Ltd. ........................ Banking 1,352,008 974,874
*Thai Investments and Securities Ltd. .................... Financial Services 259,300 30,650
Thai Military Bank Ltd., fgn. ............................ Banking 755,300 92,850
*Thai Petrochemical Industry Public Co. Ltd., fgn. ....... Chemicals 795,120 56,391
Thai Plastic and Chemical Co. Ltd., fgn. ................. Chemicals 2,200 4,083
Thai Rayon Public Co. Ltd. ............................... Textiles & Apparel 34,900 47,441
Thai Rayon Public Co. Ltd., fgn. ......................... Textiles & Apparel 100 136
*Thai Telephone & Telecommunication Public Co. Ltd. ...... Telecommunications 37,000 4,286
*Thai Telephone & Telecommunication Public Co. Ltd.,
fgn. ................................................... Telecommunications 916,500 114,833
Thai Wacoal Public Co. Ltd. .............................. Textiles & Apparel 31,100 75,728
*Thai Wah Public Co. Ltd., fgn. .......................... Multi-Industry 1,071,950 50,683
*Tipco Asphalt Public Co. Ltd., fgn. ..................... Building Materials & Components 97,400 110,525
*Total Access Communication Public Co. Ltd. .............. Telecommunications 364,200 389,694
*United Communications Industries, fgn. .................. Telecommunications 307,500 145,390
------------
8,084,587
------------
TURKEY 2.7%
Akbank.................................................... Banking 7,064,777 228,067
Alarko Sanayii ve Ticaret SA.............................. Appliances & Household Durables 1,550,250 97,473
*Anadolu Anonim Turk Sigorta Sirketi, br. ................ Insurance 17,000 290
Borusan AS................................................ Industrial Components 24,821,000 1,024,891
*Cimentas Izmir Cimento Fabrikasi Turk AS................. Building Materials & Components 1,077,500 60,670
Erciyas Biracilik......................................... Food & Household Products 3,216,000 488,919
*Eregli Demir ve Celik Fabrikalari AS..................... Metals & Mining 3,452,000 537,755
Izocam Ticaret ve Sanayii AS, br. ........................ Building Materials & Components 68,336,000 1,077,369
Kartonsan................................................. Forest Products & Paper 2,662,000 207,344
*Netas Northern Electric Telekomunic Asyon AS............. Electrical & Electronics 216,000 57,568
Tat Konserve Sanayii AS................................... Food & Household Products 2,235,297 74,678
*Tofas Turk Otomobil Fabrikasi AS......................... Automobiles 1,347,500 56,905
</TABLE>

TD-15

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

*NON-INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS.
(a)AT JUNE 30, 1998, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN ENTERED
INTO ON THAT DATE.

TD-16 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $273,691,228).... $ 164,462,228
Repurchase agreements, at value and cost................... 9,137,000
Cash....................................................... 219,637
Receivables:
Investment securities sold................................ 1,303,860
Fund shares sold.......................................... 241,545
Dividends and interest.................................... 662,420
-------------
Total assets........................................... 176,026,690
-------------
Liabilities:
Payables:
Investment securities purchased........................... 7,280,119
Fund shares redeemed...................................... 6,429
To affiliates............................................. 197,069
Accrued liabilities........................................ 58,628
-------------
Total liabilities...................................... 7,542,245
-------------
Net assets, at value........................................ $ 168,484,445
=============
Net assets consist of:
Undistributed net investment income........................ $ 1,561,932
Net unrealized depreciation................................ (109,229,000)
Accumulated net realized loss.............................. (17,348,971)
Beneficial shares.......................................... 293,500,484
-------------
Net assets, at value........................................ $ 168,484,445
=============
CLASS 1:
Net asset value per share ($156,250,735 / 31,453,309 shares
outstanding)............................................. $4.97
=============
CLASS 2:
Net asset value per share ($12,233,710 / 2,468,059 shares
outstanding).............................................. $4.96
=============
</TABLE>

See Notes to Financial Statements. TD-17

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $191,318)
Dividends.................................................. $ 2,125,055
Interest................................................... 1,136,841
------------
Total investment income................................ $ 3,261,896
Expenses:
Management fees (Note 3)................................... 1,187,245
Administrative fees (Note 3)............................... 90,242
Distribution fees - Class 2 (Note 3)....................... 15,937
Custodian fees............................................. 285,070
Reports to shareholders.................................... 31,500
Registration and filing fees............................... 1,000
Professional fees.......................................... 11,500
Trustees' fees and expenses................................ 3,300
Other...................................................... 2,935
------------
Total expenses........................................ 1,628,729
------------
Net investment income............................. 1,633,167
------------
Realized and unrealized losses:
Net realized loss from:
Investments............................................... (11,279,700)
Foreign currency transactions............................. (285,673)
------------
Net realized loss..................................... (11,565,373)
Net unrealized depreciation on investments............ (40,260,534)
------------
Net realized and unrealized loss............................ (51,825,907)
------------
Net decrease in net assets resulting from operations........ $(50,192,740)
============
</TABLE>

TD-18 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,633,167 $ 2,418,652
Net realized loss from investments and foreign currency (11,565,373) (3,846,233)
transactions.............................................
Net unrealized depreciation on investments................ (40,260,534) (67,576,957)
---------------------------------------
Net decrease in net assets resulting from operations... (50,192,740) (69,004,538)
Distributions to shareholders from:
Net investment income:
Class 1.................................................. (2,577,815) (397,958)
Class 2.................................................. (175,034) --
Net realized gains:
Class 1.................................................. (1,492,419) (298,468)
Class 2.................................................. (107,443) --
Fund share transactions (Note 2):
Class 1.................................................. 43,463,171 157,129,181
Class 2.................................................. 6,538,472 13,354,870
---------------------------------------
Net increase (decrease) in net assets.................. (4,543,808) 100,783,087
Net assets:
Beginning of period........................................ 173,028,253 72,245,166
---------------------------------------
End of period.............................................. $168,484,445 $173,028,253
======================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 1,561,932 $ 2,681,614
======================================
</TABLE>

See Notes to Financial Statements. TD-19

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Developing Markets Fund (the Fund) is a separate, diversified series
of Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers in countries having developing markets. The following summarizes the
Fund's significant accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

TD-20

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

e. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1997, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 6,758,153 $42,851,826 17,460,410 $161,550,248
Shares issued on reinvestment of distributions.............. 591,604 4,070,234 66,963 696,426
Shares redeemed............................................. (536,822) (3,458,889) (547,862) (5,117,493)
------------------------------------------------------------
Net increase................................................ 6,812,935 $43,463,171 16,979,511 $157,129,181
============================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 2,201,418 $13,913,731 1,574,880 $ 14,398,499
Shares issued on reinvestment of distributions.............. 41,058 282,477 -- --
Shares redeemed............................................. (1,219,201) (7,657,736) (130,096) (1,043,629)
------------------------------------------------------------
Net increase................................................ 1,023,275 $ 6,538,472 1,444,784 $ 13,354,870
=============================================================
*Effective date of Class 2 shares was May 1, 1997.
</TABLE>

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Templeton Asset
Management Ltd. (TAML), Templeton Funds Annuity Company (TFAC) and
Franklin/Templeton Distributors, Inc. (Distributors), the Fund's investment
manager, administrative manager and principal underwriter, respectively.

The Fund pays an investment management fee to TAML of 1.25% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to TFAC based on the Trust's aggregate average daily net
assets as follows:

TD-21

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)

The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.

Legal fees of $5,411 were paid to a law firm in which a partner is an officer of
the Fund.

4. INCOME TAXES

At June 30, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $287,174,347 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 3,231,146
Unrealized depreciation..................................... (116,806,265)
-------------
Net unrealized depreciation................................. $(113,575,119)
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1998 aggregated $72,033,023 and $23,832,172 respectively.

TD-22

PAGE

TEMPLETON INTERNATIONAL FUND

TEMPLETON INTERNATIONAL FUND
Geographic Distribution
Based on Total Net Assets
6/30/98

[This chart shows in pie format the geographic distribution of Templeton
Variable Products Series Fund - Templeton International Fund, based on total net
assets as of June 30, 1998.]

<TABLE>
<S> <C>
Europe 60.6%
Latin America 8.8%
Asia 7.7%
North America 4.0%
Australia/New Zealand 3.6%
Middle East/Africa 1.9%
Short-Term Investments
& Other Net Assets 13.4%
</TABLE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: TEMPLETON INTERNATIONAL FUND SEEKS LONG-TERM CAPITAL
GROWTH THROUGH A FLEXIBLE POLICY OF INVESTING IN STOCKS AND DEBT OBLIGATIONS OF
COMPANIES AND GOVERNMENTS OUTSIDE THE UNITED STATES.
- -------------------------------------------------------------------------------

The first half of 1998 was marked by a dramatic divergence in the performance of
global stock markets. While Asian-Pacific markets suffered significant declines
as several countries experienced economic contractions, European markets,
benefiting from tight fiscal policies, lower interest rates and export-led
recoveries, continued to rally.

During the reporting period, many European companies responded to global
competition by aggressively reducing costs, selling unproductive assets, and
improving returns on invested capital. The Fund owned stocks of several banking,
insurance, and financial services companies, such as Axa-UAP, Skandia
Foersaekrings AB, Banque Nationale de Paris BNP, and Zuerich Versicherung, new,
which benefited from declines in interest rates during the period. Restructuring
and cost-cutting moves boosted the value of our investment in Philips
Electronics NV and Courtaulds Plc. At the end of the reporting period, the Fund
had 60.6% of total net assets invested in European holdings.

If Europe was the shining star of international equity markets, Asia, according
to many investors, was the black hole. The currency crisis, which started with
the devaluation of the Thai baht on July 2, 1997, continued to plague the
region. While social unrest in Indonesia and a plunge in value of its currency
captured headlines, we felt that the real issues for investors were South Korean
and Japanese currency declines and continued speculation that the weak yen could
lead to a devaluation in China and the end of the Hong Kong dollar's peg to the
U.S. dollar. Although the yen strengthened in late June after intervention by
the U.S. and Japan, we remain concerned that the Japanese economy will take some
time to

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page TI-7 of
this report.

TI-1

PAGE

TEMPLETON
INTERNATIONAL FUND
Top 10 Holdings on 6/30/98

[This chart lists the top 10 equity holdings, including industry and country, of
Templeton Variable Products Series Fund - Templeton International Fund, based on
total net assets as of June 30, 1998.]

<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Bank Austria AG, pfd., 144A,
Banking, Austria 2.8%

Zuerich Versicherungs, new,
Insurance, Switzerland 2.1%

Axa - UAP,
Financial Services, France 2.1%

Merita Ltd., A,
Banking, Finland 2.0%

Philips Electronics NV,
Electrical & Electronics,
Netherlands 1.7%

SCOR SA, Insurance,
France 1.4%

Rhone-Poulenc SA, A,
Chemicals, France 1.4%

Banque Nationale de Paris BNP,
Banking, France 1.4%

Volkswagen AG,
Automobiles, Germany 1.4%

Thames Water Group Plc.,
Utilities Electrical & Gas,
United Kingdom 1.3%
</TABLE>

recover. Since Japan represents a significant export market for Southeast Asia,
its struggles contributed to negative economic growth in the area. We took a
very cautious approach to the region and focused on higher quality companies,
with an emphasis on Hong Kong utilities. In spite of modest purchases, the
Fund's Asia weighting was just 7.7% of total net assets on June 30, 1998. While
our low weighting mitigated the damage to the Fund's performance, the value of
several of our Asian holdings, such as New Asia Realty and Trust Co. Ltd., A,
Hong Kong Electric Holdings Ltd., and New Zealand's Fletcher Challenge Ltd.
Forestry Division were down significantly during the period.

Latin American markets also turned in poor performance as jittery investors
pulled out of the region. The economic contraction in Asia negatively affected
the price of numerous commodities, hurting oil-producing countries, such as
Mexico and Venezuela, and base-metal exporters such as Chile and Brazil. In
addition, the unusual weather patterns attributed to El Nino affected crop
yields in Peru and Chile. Although our analysts identified a handful of bargains
in the region and we selectively added to our Latin American holdings, the
Fund's performance was hurt by Mexico's Alfa SA de CV, A, Cifra SA de CV, and
Telefonos de Mexico SA (Telmex), L, ADR, and by Argentina's Telefonica de
Argentina SA, B, ADR.

During the six months under review, we continued to scour the globe looking for
out-of-favor securities trading at depressed levels relative to long-term
"normalized" earnings. To us, normalized represents what a company can earn in
the middle of a typical economic cycle and requires us to forecast earnings and
cash flow out five years. We then purchase stocks that we feel are cheap on a
five-year basis and, on average, hold them for the same period. We believe that
over the long term, a bottom-up, value-based contrarian approach produces
superior returns.

This value-based approach resulted in our overweighting European securities,
underweighting Japan, and maintaining a 12.4% exposure to emerging markets.
Consistent with our low-turnover approach, we made no major changes to our
industry or country weightings during the period. Our European exposure
increased slightly from 59.3% to 60.6%, as strong price appreciation offset the
sale of individual holdings. Asian investments declined slightly from 8.1% to
7.7%, while Latin American exposure dropped from 10.5% to 8.8%, both primarily
due to poor price performance. Holdings in Australia and New Zealand declined
from 4.5% to 3.6% due to poor performance and asset sales.

TI-2

PAGE

New securities purchased during the period were not focused in a particular
region or sector. The most significant additions were companies struggling with
near-term earnings shortfalls, such as Israel's Teva Pharmaceutical and Canada's
telecommunication equipment provider, Newbridge Networks, and those hurt by the
British pound's strength, such as the United Kingdom's building material
manufacturer, Caradon Plc.

Looking forward, we remain positively disposed towards international markets in
the long term, but are concerned with short-term valuations. By purchasing
out-of-favor securities trading at low valuations and maintaining a diversified
Fund, we are attempting to reduce volatility while positioning the Fund for
strong, long-term performance.

We thank you for your support and look forward to serving your investment needs
in the future.

Sincerely,

/s/PETER A. NORI

Peter A. Nori
Portfolio Manager
Templeton International Fund

TI-3

PAGE

CLASS 2

Templeton International Fund - Class 2 delivered a 14.26% total return for the
six-month period ended June 30, 1998. Total return of Class 2 shares represents
the cumulative or average annual change in value, assuming reinvestment of
dividends and capital gains. Average returns smooth out variations in returns,
which can be significant; they are not the same as year-by-year results. Past
expense reductions by the manager increased returns.

NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY CONTRACT FEES, EXPENSES, OR SALES CHARGES. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. THESE CONTRACT CHARGES AND
DEDUCTIONS, PARTICULARLY FOR VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT
EFFECT ON CONTRACT VALUES AND INSURANCE BENEFITS. SEE THE CONTRACT PROSPECTUS
FOR A COMPLETE DESCRIPTION OF THESE CHARGES, INCLUDING SALES CHARGES.

TEMPLETON INTERNATIONAL FUND - CLASS 2
Periods ended 6/30/98

<TABLE>
<CAPTION>
SINCE
SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR 5-YEAR* (5/1/92)* (5/1/97)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return 13.64% 19.00% 22.26% 21.20%

Cumulative Total Return 13.64% 138.64% 245.40% 25.07%

Value of $10,000 Investment $11,364 $23,864 $34,540 $12,507

<CAPTION>
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return 23.94% 11.42% 18.83% 27.97% 13.64%
</TABLE>

Past performance is not predictive of future results.

TI-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ---------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the
period)
Net asset value, beginning of period.......... $20.18 $18.40 $15.13 $13.22 $13.83 $9.39
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income........................ .31 .49 .43 .23 .12 .10
Net realized and unrealized gains (losses)... 2.55 2.01 3.15 1.83 (.42) 4.34
--------------------------------------------------------------------------------
Total from investment operations.............. 2.86 2.50 3.58 2.06 (.30) 4.44
--------------------------------------------------------------------------------
Less distributions from:
Net investment income........................ (.49) (.51) (.24) (.10) (.08) --
Net realized gains........................... (.89) (.21) (.07) (.05) (.23) --
--------------------------------------------------------------------------------
Total distributions........................... (1.38) (.72) (.31) (.15) (.31) --
--------------------------------------------------------------------------------
Net asset value, end of period................ $21.66 $20.18 $18.40 $15.13 $13.22 $13.83
================================================================================

Total Return*................................. 14.40% 13.95% 24.04% 15.78% (2.22)% 47.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)............. $1,070,584 $938,410 $682,984 $353,141 $150,090 $43,877
Ratios to average net assets:
Expenses..................................... .87%** .81% .65% .71% .83% .95%
Net investment income........................ 2.94%** 2.70% 3.23% 2.36% 1.89% 1.62%
Portfolio turnover rate....................... 13.85% 16.63% 9.46% 5.19% 6.32% 15.65%
</TABLE>

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED)++ DECEMBER 31, 1997+
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $20.14 $18.40
--------------------------------------
Income from investment operations:
Net investment income...................................... .30 .07
Net realized and unrealized gains.......................... 2.52 1.67
--------------------------------------
Total from investment operations............................ 2.82 1.74
--------------------------------------
Less distributions from:
Net investment income...................................... (.48) --
Net realized gains......................................... (.89) --
--------------------------------------
Total distributions......................................... (1.37) --
--------------------------------------
Net asset value, end of period.............................. $21.59 $20.14
======================================

Total Return*............................................... 14.26% 9.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $30,025 $17,606
Ratios to average net assets:
Expenses................................................... 1.12%** 1.13%**
Net investment income...................................... 2.78%** 1.14%**
Portfolio turnover rate..................................... 13.85% 16.63%
</TABLE>

TI-6 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 80.1%
AEROSPACE & MILITARY TECHNOLOGY .2%
Hong Kong Aircraft Engineering Co. Ltd. .................... Hong Kong 1,069,000 $ 1,655,525
--------------
AUTOMOBILES 5.0%
Autoliv Inc. ............................................... Sweden 358,450 11,461,554
Autoliv Inc., fgn. ......................................... Sweden 48,550 1,535,394
Fiat SpA.................................................... Italy 3,052,500 13,401,429
Volkswagen AG............................................... Germany 15,600 14,995,014
Volvo AB, B................................................. Sweden 455,000 13,550,327
--------------
54,943,718
--------------
BANKING 13.0%
Argentaria Corporacion Bancaria de Espana SA................ Spain 542,400 12,187,968
Banco Popular Espanol SA.................................... Spain 64,000 5,468,156
Bangkok Bank Public Co. Ltd., fgn. ......................... Thailand 2,763,800 3,397,579
*Bank Austria AG, rts. ..................................... Austria 340,000 3,096,118
Banque Nationale de Paris BNP............................... France 188,986 15,441,463
Canadian Imperial Bank of Commerce CIBC..................... Canada 320,000 10,292,748
Credicorp Ltd. ............................................. Peru 292,160 4,291,100
Credit Commercial de France CCF............................. France 51,200 4,310,420
*Daegu Bank Co. Ltd......................................... South Korea 42,000 44,355
Den Norske Bank............................................. Norway 1,880,000 9,848,961
Foreningssparbanken AB, A................................... Sweden 152,000 4,574,352
HSBC Holdings Plc. ......................................... Hong Kong 35,800 8,755,259
*Mandamus AB................................................ Sweden 7,600 47,650
Merita Ltd., A.............................................. Finland 3,400,000 22,433,450
National Bank of Canada..................................... Canada 440,000 8,602,224
National Westminster Bank Plc. ............................. United Kingdom 787,342 14,108,942
*Shinhan Bank Co. Ltd....................................... South Korea 32,130 106,710
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 99,500 2,935,250
Unidanmark AS, A............................................ Denmark 150,000 13,479,715
--------------
143,422,420
--------------
BROADCASTING & PUBLISHING .4%
News Corp. Ltd., ADR........................................ Australia 125,200 4,022,050
--------------
BUILDING MATERIALS & COMPONENTS .9%
Caradon Plc. ............................................... United Kingdom 3,170,730 9,840,087
--------------
BUSINESS & PUBLIC SERVICES .6%
*TNT Post Group NV.......................................... Netherlands 263,235 6,729,043
--------------
CHEMICALS 3.6%
Courtaulds Plc. ............................................ United Kingdom 1,880,000 13,974,372
European Vinyls Corporation Evc International NV............ Netherlands 42,900 748,673
Kemira OY, 144A............................................. Finland 873,632 9,060,442
Rhone-Poulenc SA, A......................................... France 279,800 15,780,979
--------------
39,564,466
--------------
DATA PROCESSING & REPRODUCTION 1.0%
*Newbridge Networks Corp. .................................. Canada 465,000 11,130,938
--------------
ELECTRICAL & ELECTRONICS 3.0%
ABB AG, br. ................................................ Switzerland 4,000 5,907,173
Alcatel Alsthom Cie Generale D'Electricite SA............... France 36,000 7,329,805
Philips Electronics NV...................................... Netherlands 218,000 18,325,632
Tadiran Ltd., ADR........................................... Israel 28,240 935,450
--------------
32,498,060
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS .5%
BICC Plc. .................................................. United Kingdom 2,280,000 4,983,482
--------------
</TABLE>

TI-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES 2.6%
Societe Elf Aquitaine SA.................................... France 87,200 $ 12,259,345
Total SA, B................................................. France 70,000 9,100,232
YPF Sociedad Anonima, ADR................................... Argentina 228,600 6,872,288
--------------
28,231,865
--------------
FINANCIAL SERVICES 2.1%
Axa-UAP..................................................... France 208,300 23,427,721
--------------
FOOD & HOUSEHOLD PRODUCTS 2.3%
Illovo Sugar Limited........................................ South Africa 3,005,800 3,716,444
Northern Foods Plc. ........................................ United Kingdom 2,245,907 8,169,115
Tate & Lyle Plc. ........................................... United Kingdom 1,666,027 13,231,702
--------------
25,117,261
--------------
FOREST PRODUCTS & PAPER 4.1%
Asia Pulp & Paper Co. Ltd., ADR............................. Indonesia 369,600 4,158,000
Assidomaen AB............................................... Sweden 135,100 3,930,231
Cartiere Burgo SpA.......................................... Italy 434,800 3,460,201
Enso OY, R.................................................. Finland 400,000 4,301,506
Fletcher Challenge Ltd. Forestry Division................... New Zealand 6,166,000 3,456,834
Metsa Serla OY, B........................................... Finland 402,250 3,885,800
Munksjo AB.................................................. Sweden 70,000 684,648
Norske Skogindustrier AS, A................................. Norway 176,400 5,448,205
*Sappi Ltd. ................................................ South Africa 422,354 1,570,155
Stora Kopparbergs Bergslags AB, B........................... Sweden 300,000 4,739,871
UPM-Kymmene Corp. .......................................... Finland 351,000 9,340,466
--------------
44,975,917
--------------
HEALTH & PERSONAL CARE 2.6%
Medeva Plc. ................................................ United Kingdom 3,190,000 9,101,512
Novartis AG................................................. Switzerland 2,606 4,336,461
Nycomed Amersham Plc. ...................................... United Kingdom 891,355 6,621,126
Teva Pharmaceutical Industries Ltd., ADR.................... Israel 250,000 8,796,875
--------------
28,855,974
--------------
INDUSTRIAL COMPONENTS 1.4%
BTR Plc. ................................................... United Kingdom 2,474,063 7,058,843
Madeco Manufacturera de Cobre SA, ADR....................... Chile 190,000 1,674,375
SKF AB, B................................................... Sweden 193,900 3,525,499
Yamato Kogyo Co. Ltd. ...................................... Japan 420,000 3,086,789
--------------
15,345,506
--------------
INSURANCE 8.6%
GIO Australia Holdings Ltd. ................................ Australia 3,280,000 8,417,027
ING Groep NV................................................ Netherlands 177,736 11,638,204
National Mutual Asia Ltd. .................................. Hong Kong 11,930,000 7,621,183
Partnerre Ltd. ............................................. Bermuda 269,000 13,719,000
SCOR SA..................................................... France 250,000 15,857,592
Skandia Foersaekrings AB.................................... Sweden 962,900 13,764,511
Zuerich Versicherung, new................................... Switzerland 37,000 23,612,869
--------------
94,630,386
--------------
MERCHANDISING 3.9%
*Cifra SA de CV............................................. Mexico 2,757,632 4,142,893
Dairy Farm International Holdings Ltd. ..................... Hong Kong 839,000 897,730
David Jones Ltd. ........................................... Australia 2,225,500 2,549,555
Koninklijke Bijenkorf Beheer KBB NV......................... Netherlands 80,300 5,625,184
Safeway Plc. ............................................... United Kingdom 2,197,408 14,427,204
Storehouse Plc. ............................................ United Kingdom 3,420,633 14,325,406
Takashimaya Co. Ltd. ....................................... Japan 199,000 1,499,831
--------------
43,467,803
--------------
</TABLE>

TI-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING 3.3%
Angang New Steel Company Ltd., H, 144A...................... China 22,414,000 $ 2,082,709
Anglo American Platinum Corp. Ltd. ......................... South Africa.. 518,809 5,591,175
Boehler Uddeholm AG......................................... Austria 27,210 1,797,716
Boehler Uddeholm AG, 144A................................... Austria 33,800 2,233,105
British Steel Plc. ......................................... United Kingdom 4,090,000 9,024,969
+Chongqing Iron & Steel Ltd., H............................. China 25,564,000 2,375,407
Companhia Siderurgica Nacional Sid Nacional CSN............. Brazil 12,700,000 318,214
*Ispat International NV..................................... Netherlands 160,900 3,016,875
Pechiney SA, A.............................................. France 136,212 5,485,879
Pohang Iron & Steel Co. Ltd. ............................... South Korea 85,000 2,840,412
WMC Ltd. ................................................... Australia 428,000 1,288,087
--------------
36,054,548
--------------
MULTI-INDUSTRY 3.0%
Alfa SA de CV, A............................................ Mexico 1,868,500 7,755,959
Broken Hill Proprietary Co. Ltd. ........................... Australia 1,017,543 8,601,032
Cheung Kong Holdings Ltd. .................................. Hong Kong 850,000 4,179,465
Elementis Plc. ............................................. United Kingdom 2,052,331 5,273,450
Hutchison Whampoa Ltd. ..................................... Hong Kong 600,000 3,167,024
Jardine Matheson Holdings Ltd. ............................. Hong Kong 604,761 1,632,855
Jardine Strategic Holdings Ltd. ............................ Hong Kong 225,000 427,500
*Saab AB, B................................................. Sweden 71,500 753,113
Swire Pacific Ltd., A....................................... Hong Kong 400,000 1,509,950
--------------
33,300,348
--------------
REAL ESTATE .3%
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 2,670,000 3,411,326
--------------
TELECOMMUNICATIONS 9.0%
British Telecommunications Plc. ............................ United Kingdom 995,403 12,373,198
Hong Kong Telecommunications Ltd. .......................... Hong Kong 5,261,786 9,880,364
Koninklijke Ptt Nederland NV................................ Netherlands 263,235 10,132,386
PT Indosat TBK, ADR......................................... Indonesia 56,600 629,675
SBC Communications Inc. .................................... Mexico 120,000 5,445,000
Tele Danmark AS, B.......................................... Denmark 123,750 11,876,545
Telecom Italia SpA, di Risp................................. Italy 2,832,750 13,783,272
Telefonica de Argentina SA, B, ADR.......................... Argentina 299,800 9,724,763
Telefonica del Peru SA, B................................... Peru 3,000,000 6,174,519
Telefonica del Peru SA, B, ADR.............................. Peru 29,000 592,688
Telefonica SA, ADR.......................................... Spain 70,000 9,734,375
Telefonos de Mexico SA (Telmex), ADR, L..................... Mexico 191,300 9,194,356
--------------
99,541,141
--------------
TRANSPORTATION 1.5%
Hitachi Zosen Corp. ........................................ Japan 3,342,000 5,394,012
Koninklijke Nedlloyd Groep NV............................... Netherlands 216,300 4,391,500
Qantas Airways Ltd., ADR, 144A.............................. Australia 231,900 3,478,500
Singapore Airlines Ltd., fgn. .............................. Singapore 736,500 3,443,830
--------------
16,707,842
--------------
UTILITIES ELECTRICAL & GAS 7.0%
BG Plc...................................................... United Kingdom 2,395,588 13,859,748
*Centrica Plc. ............................................. United Kingdom 1,870,000 3,159,100
Cia Sevillana de Electricidad SA............................ Spain 323,029 3,566,000
Evn Energie-Versorgung Niederoesterreich AG................. Austria 48,600 7,272,778
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 3,006,000 9,310,585
Iberdrola SA................................................ Spain 626,500 10,189,986
Korea Electric Power Corp. ................................. South Korea 269,000 2,870,248
National Grid Group Plc. ................................... United Kingdom 953,785 6,457,074
National Power Plc. ........................................ United Kingdom 516,000 4,864,351
</TABLE>

TI-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS (CONT.)
Shandong Huaneng Power Development Co. Ltd., ADR............ China 100,000 $ 537,500
Thames Water Group Plc. .................................... United Kingdom 815,315 14,691,831
--------------
76,779,201
--------------
WHOLESALE & INTERNATIONAL TRADE .2%
Brierley Investments Ltd. .................................. New Zealand 5,029,000 2,506,133
--------------
TOTAL COMMON STOCKS (COST $677,483,989)..................... 881,142,761
--------------
PREFERRED STOCKS 6.5%
Banco Bradesco SA, pfd. .................................... Brazil 896,769,450 7,482,125
Bank Austria AG, pfd., 144A................................. Austria 340,000 27,603,748
Cia Vale do Rio Doce, pfd., ADR............................. Brazil 335,000 6,661,767
Ericsson Telecomunicacoes SA, pfd........................... Brazil 172,898,000 3,288,739
*Lojas Americanas SA, pfd. ................................. Brazil 312,058,451 1,734,857
News Corp. Ltd., pfd., ADR.................................. Australia 221,100 6,246,075
Telecomunicacoes Brasileiras SA (Telebras), pfd. ........... Brazil 4,866,533 529,319
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR....... Brazil 116,100 12,676,669
*Telecomunicacoes de Minas Gerais Celular Telemig, pfd. .... Brazil 1,705,000 51,595
Telecomunicacoes de Minas Gerais SA, pfd., B................ Brazil 1,705,000 118,669
Usinas Siderugicas de Minas Gerais, pfd., ADR............... Brazil 970,000 4,948,124
--------------
TOTAL PREFERRED STOCKS (COST $58,361,883)................... 71,341,687
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $86,222,356) 7.8%
U.S. Treasury Bills, 4.93% to 5.14% with maturities to
12/17/98.................................................. United States $87,411,000 86,255,625
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$822,068,228)............................................. 1,038,740,073
--------------
(a)REPURCHASE AGREEMENT 4.5%
Dresdner Bank AG, 5.65%, 7/01/98 (Maturity Value
$50,007,847)
(COST $50,000,000) Collateralized by U.S. Treasury Notes.... United States 50,000,000 50,000,000
--------------
TOTAL INVESTMENTS (COST $872,068,228) 98.9%................. 1,088,740,073
OTHER ASSETS, LESS LIABILITIES 1.1%......................... 11,868,365
--------------
TOTAL NET ASSETS 100.0%..................................... $1,100,608,438
==============
</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS.
(a)AT JUNE 30, 1998, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN ENTERED
INTO ON THAT DATE.
+THE INVESTMENT COMPANY ACT OF 1940 DEFINES "AFFILIATED COMPANIES" AS
INVESTMENTS IN PORTFOLIO COMPANIES IN WHICH THE FUND OWNS 5% OR MORE OF THE
OUTSTANDING VOTING SECURITIES. INVESTMENTS IN AFFILIATED COMPANIES AT JUNE 30,
1998 WERE $2,375,407.

TI-10 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $822,068,228).... $1,038,740,073
Repurchase agreement, at value and cost.................... 50,000,000
Receivables:
Investment securities sold................................ 9,168,590
Fund shares sold.......................................... 2,555,873
Dividends and interest.................................... 4,131,608
--------------
Total assets........................................... 1,104,596,144
--------------
Liabilities:
Payables:
Investment securities purchased........................... 2,944,474
To affiliates............................................. 704,652
Funds advanced by custodian................................ 14,426
Accrued liabilities........................................ 324,154
--------------
Total liabilities...................................... 3,987,706
--------------
Net assets, at value........................................ $1,100,608,438
==============
Net assets consist of:
Undistributed net investment income........................ $ 14,751,800
Net unrealized appreciation................................ 216,671,845
Accumulated net realized gain.............................. 62,121,755
Beneficial shares.......................................... 807,063,038
--------------
Net assets, at value........................................ $1,100,608,438
==============
CLASS 1:
Net asset value per share ($1,070,583,745 / 49,437,462
shares outstanding)....................................... $21.66
==============
CLASS 2:
Net asset value per share ($30,024,693 / 1,390,563 shares
outstanding).............................................. $21.59
==============
</TABLE>

See Notes to Financial Statements. TI-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $2,359,344)
Dividends.................................................. $16,924,004
Interest................................................... 3,143,891
-----------
Total investment income............................... $ 20,067,895
Expenses:
Management fees (Note 3)................................... 3,629,611
Administrative fees (Note 3)............................... 503,100
Distribution fees - Class 2 (Note 3)....................... 30,775
Custodian fees............................................. 249,497
Reports to shareholders.................................... 165,000
Registration and filing fees............................... 4,000
Professional fees.......................................... 10,500
Trustees' fees and expenses................................ 13,000
Other...................................................... 1,153
-----------
Total expenses........................................ 4,606,636
------------
Net investment income.............................. 15,461,259
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 63,248,897
Foreign currency transactions............................. (589,820)
-----------
Net realized gain..................................... 62,659,077
Net unrealized appreciation on investments............ 59,176,655
------------
Net realized and unrealized gain............................ 121,835,732
------------
Net increase in net assets resulting from operations........ $137,296,991
============
</TABLE>

TI-12 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 15,461,259 $ 22,938,035
Net realized gain from investments and foreign currency
transactions............................................ 62,659,077 44,773,859
Net unrealized appreciation on investments................ 59,176,655 33,944,248
-------------------------------------
Net increase in net assets resulting from operations... 137,296,991 101,656,142
Distributions to shareholders from:
Net investment income:
Class 1.................................................. (22,916,242) (19,635,324)
Class 2.................................................. (505,990) --
Net realized gains:
Class 1.................................................. (40,971,463) (7,892,630)
Class 2.................................................. (929,242) --
Fund share transactions (Note 2):
Class 1.................................................. 61,627,466 180,999,255
Class 2.................................................. 10,990,063 17,905,036
-------------------------------------
Net increase in net assets............................. 144,591,583 273,032,479
Net assets:
Beginning of period........................................ 956,016,855 682,984,376
-------------------------------------
End of period.............................................. $1,100,608,438 $956,016,855
=====================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 14,751,800 $ 22,712,773
=====================================
</TABLE>

See Notes to Financial Statements. TI-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton International Fund (the Fund) is a separate, diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The Fund
seeks long-term capital growth through a flexible policy of investing in stock
and debt obligations of companies and governments outside the United States. The
following summarizes the Fund's significant accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

TI-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

e. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At June 30, 1998, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 4,046,924 $ 87,843,035 13,166,780 $ 258,892,155
Shares issued on reinvestment of distributions.............. 3,071,524 63,887,704 1,502,617 27,527,954
Shares redeemed............................................. (4,182,517) (90,103,273) (5,280,097) (105,420,854)
--------------------------------------------------------------
Net increase................................................ 2,935,931 $ 61,627,466 9,389,300 $ 180,999,255
==============================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 718,720 $ 15,318,319 1,240,830 $ 25,401,552
Shares issued on reinvestment of distributions.............. 69,168 1,435,233 -- --
Shares redeemed............................................. (271,655) (5,763,489) (366,500) (7,496,516)
--------------------------------------------------------------
Net increase................................................ 516,233 $ 10,990,063 874,330 $ 17,905,036
==============================================================
*Effective date of Class 2 shares was May 1, 1997.
</TABLE>

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>

TI-15

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)

The Fund pays its allocated share of an administrative fee to TFAC based on the
Trust's aggregate average daily net assets as follows:

The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.

Legal fees of $13,399 were paid to a law firm in which a partner is an officer
of the Fund.

4. INCOME TAXES

The cost of securities for federal income tax purposes is the same as that shown
in the Statement of Investments. At June 30, 1998, the net unrealized
appreciation based on the cost of investments for income tax purposes was as
follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $308,387,727
Unrealized depreciation..................................... (91,715,882)
------------
Net unrealized appreciation................................. $216,671,845
============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1998 aggregated $129,462,384 and $138,639,419,
respectively.

TI-16

PAGE

TEMPLETON STOCK FUND

TEMPLETON STOCK FUND
Geographic Distribution
Based on Total Net Assets
6/30/98

[This chart shows in pie format the geographic distribution of Templeton
Variable Products Series Fund - Templeton Stock Fund, based on total net assets
as of June 30, 1998.]

<TABLE>
<S> <C>
Europe 57.2%
North America 19.6%
Latin America 8.0%
Asia 6.8%
Australia/New Zealand 5.7%
Middle East/Africa 0.5%
Short-Term Investments
& Other Net Assets 2.2%
</TABLE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: TEMPLETON STOCK FUND SEEKS CAPITAL GROWTH THROUGH A POLICY
OF INVESTING PRIMARILY IN COMMON STOCKS ISSUED BY COMPANIES, LARGE AND SMALL, IN
VARIOUS NATIONS THROUGHOUT THE WORLD.
- -------------------------------------------------------------------------------

Moderate economic growth and mild inflation in the U.S. combined with
significant corporate restructuring in European countries led to strong gains in
many equity markets during the reporting period. In Asia, however, currencies
were unstable, with some weakening substantially, and many equity markets there
fell. Latin American markets performed well during the early part of the period,
but eventually suffered from the ongoing instability in Asia. By the end of the
period, most Latin American equity markets had fallen significantly. Within this
environment, the Fund's Class 2 shares delivered a 10.47% total return for the
six months ended June 30, 1998, as discussed in the Performance Summary on page
TS-5. Please keep in mind that Fund performance does not reflect expenses
associated with the variable contract; had those expenses been included,
performance would have been lower.

NORTH AMERICA

The U.S. stock market continued its upward surge, with the Standard & Poor's 500
Stock Index returning 16.8% during the six months under review. Two of our U.S.
holdings, Ford Motor Co. and Home Depot Inc., rose 82.9% and 41.0%,
respectively, and we sold some shares in Intel Corp. for a considerable profit.
However, finding relatively cheap U.S. stocks became more difficult during the
period so the Fund was underweight in U.S. holdings versus the Morgan Stanley
Capital International (MSCI) World Index.*

* The MSCI World Index includes approximately 1,500 companies representing the
stock markets of 23 countries, including the U.S., Canada, the United Kingdom,
and Japan.

You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page TS-8 of
this report.

TS-1

PAGE

TEMPLETON STOCK FUND
Top 10 Holdings on 6/30/98

[This chart lists the top 10 holdings, inlcuding industry and country, of
Templeton Variable Products Series Fund - Templeton Stock Fund, based on total
net assets as of June 30, 1998.]

<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Zuerich Versicherung, new,
Insurance, Switzerland 2.3%

Banque Nationale de Paris BNP,
Banking, France 2.0%

ING Groep NV,
Insurance, Netherlands 1.9%

News Corp. Ltd.,
Broadcasting & Publishing,
Australia 1.9%

Telecom Italia SpA,
Telecommunications, Italy 1.8%

Akzo Nobel NV,
Chemicals, Netherlands 1.8%

Rhone-Poulenc SA, A,
Chemicals, France 1.8%

Nokia AB, A,
Telecommunications, Finland 1.7%

Societe Elf Aquitaine SA,
Energy Sources, France 1.7%

Total SA, B,
Energy Sources, France 1.6%
</TABLE>

EUROPE

Europe continued to progress toward a single currency. During the past three
years, European countries, with the exception of the United Kingdom, have been
conducting the fiscal tightening necessary to meet membership requirements of
the European Economic Union. The economies of many European countries,
especially Germany and France, were slowed by these actions. We began increasing
our exposure to European stocks as these slowdowns presented buying
opportunities. As a result of such policy initiatives in various countries,
interest rates throughout Europe fell, translating into strong gains in many
stock markets there. Among the Fund's largest holdings, the stock price of
Zuerich Versicherung, new, the Swiss insurance company, rose 35.3% during the
period. And shares of Alcatel Alsthom Cie Generale D'Electricite SA, the French
telecommunications equipment manufacturer, appreciated 55.4%. During the period,
we realized substantial gains on the sale of Novartis AG, the large Swiss
pharmaceutical company. As you know, we only sell shares when we find what we
think are better bargains. In this case, we found and purchased shares in the
Norwegian-based energy company Norsk Hydro AS. As a result of such transactions,
we continue to be overweight in Europe versus the MSCI World Index.

ASIA

Asia's markets remained a difficult environment for investors as concerns
persisted over debt repayment capabilities, potential currency devaluations, and
ongoing bankruptcies in the region. Since our methodology led us to be
underweight in Asia compared to the MSCI World Index (especially in Japan,
where we still feel most share prices are overvalued), our exposure to Asian
equities was only 6.8% of total net assets at the end of the reporting period. A
further breakdown shows that 3.5% of total net assets were invested in Hong Kong
equities and 0.1% in Singapore, with less than 0.1% in Indonesia or Thailand.

TS-2

PAGE

LATIN AMERICA

Latin American stock markets rebounded early in the period and appeared to be
more resilient than most experts predicted. Compared to their Asian
counterparts, the banking systems in both Argentina and Brazil remained healthy
and consumer demand continued to be strong in these two countries. However,
during the latter part of the period, even Latin American markets appeared to be
affected by the Asian currency crisis and stock prices there fell significantly.
Taking advantage of this decline, we added to our position in YPF Sociedad
Anonima, ADR, Argentina's largest oil and gas company. We felt that given the
strong fundamentals of this company, its stock price could improve if Asia
recovers and Latin America continues its economic expansion. Bargains such as
this, which became available to us in Latin America during the reporting period,
resulted in the Fund's being overweighted in this region versus the MSCI World
Index.

External factors such as the Asian crisis often adversely affect all emerging
markets because investors tend to lose confidence in all such markets. And
should Latin American companies with strong internal fundamentals become cheaper
due to outside influences such as the Asian crisis, their stocks may become
investment opportunities for the Fund. Looking forward, we shall continue to
scour the globe in search of out-of-favor securities trading at depressed levels
relative to their long-term "normalized" earnings. To us, normalized represents
what a company could earn in the middle of a typical economic cycle and requires
us to estimate earnings and cash flow for the next five years. We believe that
such an approach should produce superior returns over the long term.

TEMPLETON STOCK FUND
Top 10 Countries
6/30/98

[This chart lists the top 10 countries represented in of Templeton Variable
Products Series Fund - Templeton Stock Fund, based on total net assets as of
June 30, 1998.]

<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
<S> <C>
United States 15.8%
France 12.1%
United Kingdom 8.3%
Netherlands 7.5%
Switzerland 5.7%
Sweden 5.6%
Spain 4.9%
Australia 4.9%
Hong Kong 3.5%
Brazil 3.3%
</TABLE>

TS-3

PAGE

Sincerely,

/s/MARK R. BEVERIDGE

Mark R. Beveridge, CFA, CIC
Portfolio Manager
Templeton Stock Fund

TS-4

PAGE

CLASS 2

Templeton Stock Fund - Class 2 delivered a 10.47% total return for the six-month
period ended June 30, 1998. Total return of Class 2 shares represents the
cumulative or average annual change in value, assuming reinvestment of dividends
and capital gains. Average returns smooth out variations in returns, which can
be significant; they are not the same as year-by-year results. Past expense
reductions by the manager increased returns.

NOTE: PERFORMANCE REFLECTS THE FUND'S CLASS 2 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY CONTRACT FEES, EXPENSES, OR SALES CHARGES. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. THESE CONTRACT CHARGES AND
DEDUCTIONS, PARTICULARLY FOR VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT
EFFECT ON CONTRACT VALUES AND INSURANCE BENEFITS. SEE THE CONTRACT PROSPECTUS
FOR A COMPLETE DESCRIPTION OF THESE CHARGES, INCLUDING SALES CHARGES.

TEMPLETON STOCK FUND - CLASS 2
Periods ended 6/30/98

<TABLE>
<CAPTION>
SINCE
SINCE CLASS 2
INCEPTION INCEPTION
1-YEAR 5-YEAR* (8/24/88)* (5/1/97)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return 7.54% 17.07% 13.71% 15.53%

Cumulative Total Return 7.54% 119.88% 254.65% 18.29%

Value of $10,000 Investment $10,754 $21,988 $35,465 $11,829

<CAPTION>
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return 15.27% 15.07% 21.32% 27.06% 7.54%
</TABLE>

* Because Class 2 shares were not offered until May 1, 1997, performance shown
for periods prior to that date represent the historical results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997, reflect
Class 2's higher annual fees and expenses resulting from its rule 12b-1 plan.
Maximum annual plan expenses are 0.25%.

Past performance is not predictive of future results.

TS-5

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 ----------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 1
(For a share outstanding throughout the
period)
Net asset value, beginning of period..... $23.19 $22.88 $20.83 $16.94 $17.53 $13.33
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income................... .27 .47 .41 .40 .26 .23
Net realized and unrealized gains
(losses).............................. 2.11 2.11 3.88 3.80 (.64) 4.23
-------------------------------------------------------------------------------------
Total from investment operations......... 2.38 2.58 4.29 4.20 (.38) 4.46
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income................... (.49) (.40) (.40) (.27) (.21) (.25)
Net realized gains...................... (2.06) (1.87) (1.84) (.04) -- (.01)
-------------------------------------------------------------------------------------
Total distributions...................... (2.55) (2.27) (2.24) (.31) (.21) (.26)
-------------------------------------------------------------------------------------
Net asset value, end of period........... $23.02 $23.19 $22.88 $20.83 $16.94 $17.53
=====================================================================================

Total Return*............................ 10.63% 11.88% 22.48% 25.24% (2.20)% 34.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........ $775,037 $732,248 $644,366 $498,777 $378,849 $298,392
Ratios to average net assets:
Expenses................................ .89%** .81% .65% .66% .73% .73%
Net investment income................... 2.23%** 2.05% 2.06% 2.18% 1.81% 1.88%
Portfolio turnover rate.................. 14.91% 25.82% 23.40% 33.93% 5.10% 4.88%
</TABLE>

TS-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED)++ DECEMBER 31, 1997+
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE - CLASS 2
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $23.15 $21.62
--------------------------------------
Income from investment operations:
Net investment income...................................... .24 .06
Net realized and unrealized gains.......................... 2.10 1.47
--------------------------------------
Total from investment operations............................ 2.34 1.53
--------------------------------------
Less distributions from:
Net investment income...................................... (.47) --
Net realized gains......................................... (2.06) --
--------------------------------------
Total distributions......................................... (2.53) --
--------------------------------------
Net asset value, end of period.............................. $22.96 $23.15
======================================

Total Return*............................................... 10.47% 7.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $23,303 $16,414
Ratios to average net assets:
Expenses................................................... 1.14%** 1.14%**
Net investment income...................................... 2.09%** .75%**
Portfolio turnover rate..................................... 14.91% 25.82%
</TABLE>

See Notes to Financial Statements. TS-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 94.7%
AEROSPACE & MILITARY TECHNOLOGY
Raytheon Co., A............................................. United States 255 $ 14,694
------------
APPLIANCES & HOUSEHOLD DURABLES .8%
Sony Corp................................................... Japan 71,700 6,173,686
------------
AUTOMOBILES 2.9%
Fiat SpA.................................................... Italy 1,452,780 6,378,158
Ford Motor Co............................................... United States 130,000 7,670,000
General Motors Corp......................................... United States 4,000 267,250
Volvo AB, B................................................. Sweden 299,100 8,907,478
------------
23,222,886
------------
BANKING 8.7%
Banco Bradesco SA, ADR...................................... Brazil 987,100 8,235,790
Banque Nationale de Paris BNP............................... France 183,554 14,997,631
Banque Nationale de Paris BNP, ADR, 144A.................... France 11,300 923,288
Credit Suisse Group, reg.................................... Switzerland 40,000 8,900,316
Deutsche Bank AG............................................ Germany 131,300 11,118,673
HSBC Holdings Plc........................................... Hong Kong 481,804 11,783,013
Nortel Inversora SA, ADR.................................... Argentina 143,700 3,574,538
*Philippine National Bank................................... Philippines 1,776,212 2,108,453
Unidanmark AS, A............................................ Denmark 88,300 7,935,059
------------
69,576,761
------------
BROADCASTING & PUBLISHING 1.3%
News Corp. Ltd.............................................. Australia 96,920 791,032
News Corp. Ltd., ADR........................................ Australia 260,000 8,352,500
Television Broadcasts Ltd................................... Hong Kong 334,000 883,643
------------
10,027,175
------------
BUILDING MATERIALS & COMPONENTS 1.9%
Cie de Saint Gobain......................................... France 53,900 9,993,698
Pioneer International Ltd................................... Australia 2,310,600 5,508,719
------------
15,502,417
------------
BUSINESS & PUBLIC SERVICES 2.5%
Lex Service Plc............................................. United Kingdom 588,500 4,880,110
SGS Societe Generale de Surveillance Holdings Ltd., br...... Switzerland 4,800 8,136,076
Waste Management Inc........................................ United States 208,300 7,290,500
------------
20,306,686
------------
CHEMICALS 3.6%
Akzo Nobel NV............................................... Netherlands 65,800 14,627,254
Rhone-Poulenc SA, A......................................... France 254,302 14,342,868
------------
28,970,122
------------
DATA PROCESSING & REPRODUCTION 2.1%
*3Com Corp.................................................. United States 144,400 4,431,275
*Bay Networks Inc........................................... United States 223,100 7,194,975
*Newbridge Networks Corp.................................... Canada 215,300 5,153,744
------------
16,779,994
------------
ELECTRICAL & ELECTRONICS 5.5%
ABB AB, A................................................... Sweden 759,500 10,761,702
Alcatel Alsthom Cie Generale D'Electricite SA............... France 60,635 12,345,631
Hitachi Ltd................................................. Japan 274,000 1,786,720
Motorola Inc................................................ United States 127,500 6,701,719
Philips Electronics NV...................................... Netherlands 146,800 12,340,380
------------
43,936,152
------------
</TABLE>

TS-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 1.4%
BICC Plc.................................................... United Kingdom 38,000 $ 83,058
Intel Corp.................................................. United States 155,000 11,489,375
------------
11,572,433
------------
ENERGY SOURCES 7.0%
Norsk Hydro AS.............................................. Norway 205,900 9,056,004
Perez Companc SA, B......................................... Argentina 268,300 1,347,001
*Ranger Oil Ltd............................................. Canada 774,600 5,664,263
Repsol SA................................................... Spain 117,100 6,448,187
Societe Elf Aquitaine SA.................................... France 95,120 13,372,808
Total SA, B................................................. France 99,997 12,999,941
Transportadora de Gas del Sur SA, ADR, B.................... Argentina 91,700 1,054,550
YPF Sociedad Anonima, ADR................................... Argentina 208,300 6,262,019
------------
56,204,773
------------
FINANCIAL SERVICES 3.9%
Associates First Capital Corp., A........................... United States 34,071 2,619,208
Axa-UAP..................................................... France 113,891 12,809,441
Fannie Mae.................................................. United States 204,800 12,441,600
Industrial Credit & Inv. Corp. of India, GDR, 144A.......... India 321,700 3,261,234
------------
31,131,483
------------
FOOD & HOUSEHOLD PRODUCTS 1.1%
Oshawa Group Ltd............................................ Canada 476,000 8,577,743
------------
FOREST PRODUCTS & PAPER 3.1%
*Asia Pacific Resources International Hldgs. Ltd., A........ Indonesia 35,000 63,438
Assidomaen AB............................................... Sweden 150,000 4,363,691
Carter Holt Harvey Ltd...................................... New Zealand 1,283,352 1,119,197
Enso OY, R.................................................. Finland 475,300 5,111,265
Fletcher Challenge Ltd. Forestry Division................... New Zealand 5,344,852 2,996,475
Georgia Pacific Corp........................................ United States 119,300 7,031,244
Stora Kopparbergs Bergslags AB, B........................... Sweden 240,000 3,791,897
------------
24,477,207
------------
HEALTH & PERSONAL CARE 4.5%
Astra AB, A................................................. Sweden 110,066 2,249,653
Astra AB, B................................................. Sweden 348,267 6,943,592
Medeva Plc.................................................. United Kingdom 3,069,000 8,756,282
Novartis AG................................................. Switzerland 2,486 4,136,777
Nycomed Amersham Plc........................................ United Kingdom 1,266,123 9,404,964
Teva Pharmaceutical Industries Ltd., ADR.................... Israel 119,300 4,197,869
------------
35,689,137
------------
INDUSTRIAL COMPONENTS 3.8%
BTR Plc..................................................... United Kingdom 1,432,438 4,086,943
Exide Corp.................................................. United States 269,500 4,530,969
Goodyear Tire & Rubber Co................................... United States 110,000 7,088,125
Granges AB.................................................. Sweden 421,725 7,720,705
Madeco Manufacturera de Cobre SA, ADR....................... Chile 258,500 2,278,031
Yamato Kogyo Co. Ltd........................................ Japan 598,000 4,394,999
------------
30,099,772
------------
</TABLE>

TS-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE 9.7%
GIO Australia Holdings Ltd.................................. Australia 3,126,915 $ 8,024,185
HIH Winterthur International Holdings Ltd................... Australia 1,918,765 3,386,349
ING Groep NV................................................ Netherlands 233,537 15,292,070
Muenchener Rueckversicherungs-Gesellschaft.................. Germany 12,976 4,629,664
Partnerre Ltd............................................... Bermuda 215,000 10,965,000
Reliastar Financial Corp.................................... United States 227,400 10,915,200
Torchmark Corp.............................................. United States 126,000 5,764,500
Zuerich Versicherung, new................................... Switzerland 29,000 18,507,384
------------
77,484,352
------------
LEISURE & TOURISM 1.3%
Kuoni Reisen Holding AG, B.................................. Switzerland 1,185 5,882,813
Toei Co. Ltd................................................ Japan 1,402,500 4,416,129
------------
10,298,942
------------
MACHINERY & ENGINEERING .7%
New Holland NV.............................................. Netherlands 288,200 5,655,925
------------
MERCHANDISING 3.7%
Home Depot Inc.............................................. United States 57,100 4,742,869
House of Fraser Plc......................................... United Kingdom 1,216,800 3,563,059
Macintosh Retail Group NV................................... Netherlands 116,120 3,407,907
Safeway Plc................................................. United Kingdom 1,234,300 8,103,865
Storehouse Plc.............................................. United Kingdom 2,297,000 9,619,698
------------
29,437,398
------------
METALS & MINING 3.9%
Boehler Uddeholm AG......................................... Austria 88,000 5,814,001
Chongqing Iron & Steel Ltd., H.............................. China 18,927,000 1,758,697
Eramet SA................................................... France 127,200 5,040,873
Industrias Penoles SA....................................... Mexico 221,400 702,192
*Ispat International NV..................................... Netherlands 136,900 2,566,875
Reynolds Metals Co.......................................... United States 142,600 7,976,688
WMC Ltd..................................................... Australia 2,423,584 7,293,894
------------
31,153,220
------------
MULTI-INDUSTRY 2.8%
Alfa SA de CV, A............................................ Mexico 64,000 265,658
DESC SA de CV DESC, B....................................... Mexico 892,900 4,550,948
DESC SA de CV DESC, C....................................... Mexico 180 881
Hicom Holdings Bhd.......................................... Malaysia 3,826,800 968,810
Hutchison Whampoa Ltd....................................... Hong Kong 891,100 4,703,558
Inchcape Plc................................................ United Kingdom 1,619,100 5,159,811
Jardine Matheson Holdings Ltd............................... Hong Kong 587,055 1,585,049
Jardine Strategic Holdings Ltd.............................. Hong Kong 48 91
La Cemento Nacional SA, GDR................................. Ecuador 1,000 160,000
La Cemento Nacional SA, GDR, 144A........................... Ecuador 4,900 784,000
*Metro Pacific Corp. MDI.................................... Philippines 39,839,136 907,606
Swire Pacific Ltd., B....................................... Hong Kong 5,117,500 3,071,055
------------
22,157,467
------------
REAL ESTATE 1.7%
National Health Investors Inc............................... United States 208,500 6,906,563
Summit Properties Inc....................................... United States 346,700 6,565,631
------------
13,472,194
------------
</TABLE>

TS-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 6.4%
*Jasmine International Public Co. Ltd., fgn................. Thailand 98,000 $ 31,856
Nokia AB, A................................................. Finland 184,400 13,612,081
Telecom Italia SpA.......................................... Italy 1,970,700 14,398,178
Telecom Italia SpA, di Risp................................. Italy 50,500 245,717
Telefonica de Argentina SA, B, ADR.......................... Argentina 136,400 4,424,475
Telefonica SA............................................... Spain 158,100 7,322,026
Telefonica SA, ADR.......................................... Spain 1,200 166,875
Telefonos de Mexico SA (Telmex), ADR, L..................... Mexico 225,800 10,852,513
------------
51,053,721
------------
TEXTILES & APPAREL .8%
Dawson International Plc.................................... United Kingdom 3,450,000 2,475,223
*Fruit of the Loom Inc., A.................................. United States 125,000 4,148,438
------------
6,623,661
------------
TRANSPORTATION 3.1%
Air New Zealand Ltd., B..................................... New Zealand 2,099,100 2,255,562
Helikopter Services Group ASA............................... Norway 601,600 6,115,176
Koninklijke Nedlloyd Groep NV............................... Netherlands 291,500 5,918,273
Peninsular & Oriental Steam Navigation Co................... United Kingdom 706,700 10,246,643
------------
24,535,654
------------
UTILITIES ELECTRICAL & GAS 6.4%
Cia Sevillana de Electricidad SA............................ Spain 275,921 3,045,963
Endesa SA, ADR.............................................. Spain 14,400 311,400
Endesa SA, br............................................... Spain 460,000 10,080,998
Evn Energie-Versorgung Niederoesterreich AG................. Austria 65,520 9,804,782
Hong Kong Electric Holdings Ltd............................. Hong Kong 2,021,500 6,261,260
Iberdrola SA................................................ Spain 706,000 11,483,049
VEBA AG..................................................... Germany 144,000 9,812,742
------------
50,800,194
------------
WHOLESALE & INTERNATIONAL TRADE .1%
Inchcape Motores Ltd........................................ Singapore 1,067,000 732,595
------------
TOTAL COMMON STOCKS (COST $562,779,092)..................... 755,668,444
------------
PREFERRED STOCKS 3.1%
Banco Itau SA, pfd.......................................... Brazil 7,017,500 4,004,453
Embotelladora Andina SA, pfd., ADR, B....................... Chile 69,800 1,090,625
News Corp. Ltd., pfd........................................ Australia 294,809 2,088,488
News Corp. Ltd., pfd., ADR.................................. Australia 130,000 3,672,500
Telecomunicacoes Brasileiras SA (Telebras), pfd............. Brazil 88,209,044 9,594,240
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR....... Brazil 1,000 109,188
Usinas Siderugicas de Minas Gerais, pfd., ADR............... Brazil 883,100 4,504,833
------------
TOTAL PREFERRED STOCKS (COST $19,865,183)................... 25,064,327
------------
</TABLE>

TS-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1998 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $16,354,470) 2.0%
U.S. Treasury Bills, 4.91% to 5.13%, with maturities to
12/17/98.................................................. United States $16,656,000 $ 16,360,388
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$598,998,745)............................................. 797,093,159
------------
(a)REPURCHASE AGREEMENT 1.3%
Bank of America, 5.65%, 7/01/98 (Maturity Value $10,001,569)
(COST $10,000,000) Collateralized by U.S. Treasury Note... United States 10,000,000 10,000,000
------------
TOTAL INVESTMENTS (COST $608,998,745) 101.1%................ 807,093,159
OTHER ASSETS, LESS LIABILITIES (1.1%)....................... (8,752,802)
------------
TOTAL NET ASSETS 100.0%..................................... $798,340,357
============
</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS.
(a)AT JUNE 30, 1998, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN ENTERED
INTO ON THAT DATE.

TS-12 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $598,998,745).... $797,093,159
Repurchase agreement, at value and cost.................... 10,000,000
Receivables:
Investment securities sold................................ 441,263
Fund shares sold.......................................... 31,796
Dividends and interest.................................... 2,644,908
------------
Total assets........................................... 810,211,126
------------
Liabilities:
Payables:
Investment securities purchased........................... 10,593,222
Fund shares redeemed...................................... 230,518
To affiliates............................................. 525,293
Funds advanced by custodian................................ 123,734
Accrued liabilities........................................ 398,002
------------
Total liabilities...................................... 11,870,769
------------
Net assets, at value........................................ $798,340,357
============
Net assets consist of:
Undistributed net investment income........................ $ 8,321,622
Net unrealized appreciation................................ 198,094,414
Accumulated net realized gain.............................. 29,497,065
Beneficial shares.......................................... 562,427,256
------------
Net assets, at value........................................ $798,340,357
============
CLASS 1:
Net asset value per share ($775,036,987 / 33,667,958 shares
outstanding).............................................. $23.02
============
CLASS 2:
Net asset value per share ($23,303,370 / 1,015,024 shares
outstanding).............................................. $22.96
============
</TABLE>

See Notes to Financial Statements. TS-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,415,468)
Dividends.................................................. $11,703,995
Interest................................................... 498,645
-----------
Total investment income............................... $12,202,640
Expenses:
Management fees (Note 4)................................... 2,712,054
Administrative fees (Note 4)............................... 371,141
Distribution fees - Class 2 (Note 4)....................... 24,920
Custodian fees............................................. 199,714
Reports to shareholders.................................... 149,494
Professional fees.......................................... 16,000
Trustees' fees and expenses................................ 9,400
Other...................................................... 6,027
-----------
Total expenses........................................ 3,488,750
-----------
Net investment income................................ 8,713,890
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 29,990,876
Foreign currency transactions............................. (151,902)
-----------
Net realized gain........................................ 29,838,974
Net unrealized appreciation on investments............... 43,416,191
-----------
Net realized and unrealized gain............................ 73,255,165
-----------
Net increase in net assets resulting from operations........ $81,969,055
===========
</TABLE>

TS-14 See Notes to Financial Statements.

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 8,713,890 $ 15,090,974
Net realized gain from investments and foreign currency
transactions............................................ 29,838,974 64,659,885
Net unrealized appreciation (depreciation) on
investments............................................. 43,416,191 (2,630,723)
------------------------------------
Net increase in net assets resulting from operations... 81,969,055 77,120,136
------------------------------------
Distributions to shareholders from:
Net investment income:
Class 1.................................................. (15,083,722) (11,299,102)
Class 2.................................................. (357,002) --
Net realized gains:
Class 1.................................................. (63,413,199) (53,491,951)
Class 2.................................................. (1,560,085) --
Fund share transactions (Note 3):
Class 1.................................................. 41,043,802 75,008,241
Class 2.................................................. 7,079,529 16,958,890
------------------------------------
Net increase in net assets............................. 49,678,378 104,296,214
------------------------------------
Net assets:
Beginning of period........................................ 748,661,979 644,365,765
------------------------------------
End of period.............................................. $798,340,357 $748,661,979
====================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 8,321,622 $ 15,048,456
====================================
</TABLE>

See Notes to Financial Statements. TS-15

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Stock Fund (the Fund) is a separate, diversified series of Templeton
Variable Products Series Fund (the Trust), which is an open-end investment
company registered under the Investment Company Act of 1940. The Fund seeks
capital growth through a policy of investing primarily in common stocks issued
by companies, large and small, in various nations throughout the world. The
following summarizes the Fund's significant accounting policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

TS-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

e. ACCOUNTING ESTIMATES:

2. MERGER OF TEMPLETON VARIABLE ANNUITY FUND

On May 8, 1998, the Fund acquired all of the net assets of Templeton Variable
Annuity Fund (Variable Annuity Fund) pursuant to a plan of reorganization
approved by Variable Annuity Fund's shareholders. The merger was accomplished by
a tax-free exchange of 699,965 Class 1 shares of the Fund (valued at $23.84 per
share) for the net assets of the Variable Annuity Fund which aggregated
$16,687,175, including $4,980,981 of unrealized appreciation. The combined net
assets of the Fund immediately after the merger were $839,071,006.

3. BENEFICIAL SHARES

At June 30, 1998, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 640,546 $ 9,892,138 4,159,792 $ 96,416,712
Shares issued on reinvestment of distributions.............. 3,523,201 78,496,921 2,970,704 64,791,053
Shares issued on merger..................................... 699,965 16,687,175 -- --
Shares redeemed............................................. (2,773,579) (64,032,432) (3,715,179) (86,199,524)
-------------------------------------------------------------
Net increase................................................ 2,090,133 $ 41,043,802 3,415,317 $ 75,008,241
=============================================================

</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 382,633 $ 8,947,542 780,245 $ 18,686,201
Shares issued on reinvestment of distributions.............. 86,200 1,917,088 -- --
Shares redeemed............................................. (162,804) (3,785,101) (71,250) (1,727,311)
-------------------------------------------------------------
Net increase................................................ 306,029 $ 7,079,529 708,995 $ 16,958,890
=============================================================

*Effective date of Class 2 shares was May 1, 1997.
</TABLE>

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

TS-17

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (unaudited) (continued)

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)

The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:

The Fund pays its allocated share of an administrative fee to TFAC based on the
Trust's aggregate average daily net assets as follows:

The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.

Legal fees of $11,732 were paid to a law firm in which a partner is an officer
of the Fund.

5. INCOME TAXES

<TABLE>
<S> <C>
Unrealized appreciation..................................... $263,300,329
Unrealized depreciation..................................... (65,205,915)
------------
Net unrealized appreciation................................. $198,094,414
============
</TABLE>

6. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended June 30, 1998 aggregated $113,826,904 and $133,796,213, respectively.

TS-18

PAGE

This page intentionally left blank.

PAGE
This page intentionally left blank.

PAGE

[LOGO](R)
FRANKLIN(R) TEMPLETON(R)
100 Fountain Parkway
St. Petersburg, Florida 33716-1205

TEMPLETON VARIABLE PRODUCTS SERIES FUND

INVESTMENT MANAGERS
Templeton Investment Counsel, Inc. ("TICI")
Templeton Asset Management Ltd., Singapore

DISTRIBUTOR
Franklin Templeton Distributors, Inc.

Templeton Variable Products Series Fund Shares are currently sold only to
Insurance Company Separate Accounts ("Separate Accounts") to serve as the
investment vehicles for both Variable Annuity and Variable Life Insurance
contracts (the "Contracts"). This report must be preceeded or accompanied by the
current prospectus for the applicable contract, which includes the Separate
Account and the Templeton Variable Products Series Fund prospectuses, which
contain more detailed information, including sales charges, risks and
advantages. Please read the prospectuses carefully before investing or sending
money. These reports and prospectuses do not constitute an offering in any
jurisdiction in which such offering may not lawfully be made.

To ensure the highest quality of service, telephone calls to or from our service
department may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.

OL 2510 S 8/98 [LOGO] PRINTED ON RECYCLED PAPER