TVPSF 12/98 - F SMALL CAP/Y2K/EURO
SUPPLEMENT DATED DECEMBER 11, 1998
TO THE PROSPECTUS DATED MAY 1, 1998
OF
TEMPLETON VARIABLE PRODUCTS SERIES FUND
I. THE SECTION "PORTFOLIO INVESTMENTS" UNDER "INVESTMENT OBJECTIVE AND
POLICIES - FRANKLIN SMALL CAP INVESTMENTS FUND" IS AMENDED AS FOLLOWS:
a) The first five sentences of the first paragraph are replaced with the
following:
PORTFOLIO INVESTMENTS. The Fund seeks to accomplish its objective by
investing primarily (normally at least 65% of its assets) in equity
securities of smaller capitalization growth companies ("small cap
companies"). Investments in small cap companies may involve greater risks
and greater volatility than investments in larger and more established
companies. A small cap company generally has a market capitalization of
less than $1.5 billion at the time of the Fund's investment and, in the
opinion of the Fund's Manager, is positioned for rapid growth in revenues,
earnings or assets. Market capitalization is defined as the total market
value of a company's outstanding common stock. The securities of small cap
companies are traded on U.S. or foreign stock exchanges and
over-the-counter.
b) The first two sentences of the second paragraph are deleted.
II. THE SECTION "FOREIGN SECURITIES" UNDER "EXPLANATION OF RISK FACTORS" IS
AMENDED BY DELETING THE FOURTH PARAGRAPH AND ADDING THE FOLLOWING TEXT
AT THE END OF THE SECTION:
EURO. On January 1, 1999, the European Monetary Union ("EMU") plans to
introduce a new single currency, the Euro, which will replace the national
currency for participating member countries. If a Fund holds investments in
countries with currencies replaced by the Euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
The process to establish the Euro may result in market volatility. It is
not possible to predict the impact of the Euro on the business or financial
condition of European issuers or on the Funds. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets. To
the extent a Fund holds non-U.S. dollar (Euro or other) denominated
securities, it will still be exposed to currency risk due to fluctuations
in those currencies versus the U.S. dollar.
Franklin Resources, Inc. ("Resources"), the parent company of the Funds'
Investment Managers, has created an interdepartmental team to handle all
Euro-related changes to enable the Franklin Templeton Group of Funds to
process transactions accurately and completely with minimal disruption to
business activities. While there can be no assurance that the Funds will
not be adversely affected, the Investment Managers and their affiliated
service providers are taking steps that they believe are reasonably
designed to address the Euro issue.
III. THE SECTION "YEAR 2000" UNDER "OTHER INFORMATION" IS REPLACED WITH THE
FOLLOWING:
YEAR 2000 PROBLEM. The Funds' business operations depend upon a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market
links. Many of the systems currently use a two digit date field to
represent the date, and unless these systems are changed or modified, they
may not be able to distinguish the Year 1900 from the Year 2000 (commonly
referred to as the Year 2000 problem). In addition, the fact that the Year
2000 is a non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the Funds' operations could be adversely
affected if the computer systems used by the Investment Managers, their
service providers and other third parties they do business with are not
Year 2000 ready. For example, the Funds' portfolio holdings and operational
areas could be impacted, including securities trade processing, interest
and dividend payments, securities pricing, shareholder account services,
reporting, custody functions and others. The Funds could experience
difficulties in effecting transactions if any of their foreign
subcustodians, or if foreign broker/dealers or foreign markets are not
ready for Year 2000.
PAGE
In evaluating current and potential portfolio positions, Year 2000 is only
one of the factors that the Funds' Investment Managers take into
consideration. The Investment Managers will rely upon public filings and
other statements made by companies regarding their Year 2000 readiness.
Issuers in countries outside of the U.S., and in particular in emerging
markets, may not be required to make the same level of disclosure regarding
Year 2000 readiness that is required in the U.S. The Investment Managers,
of course, cannot audit each company and their major suppliers to verify
their Year 2000 readiness. If a company any Fund is invested in is
adversely affected by Year 2000 problems, it is likely that the price of
its security will also be adversely affected. A decrease in the value of
one or more of a Fund's fund holdings will have a similar impact on the
price of the Fund's shares.
The Investment Managers and their affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the Funds' ability to reduce
the effects of the Year 2000 problem is also very much dependent upon the
efforts of third parties over which the Funds and their Investment Managers
may have no control.
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
