TEMPLETON VARIABLE PRODUCTS SERIES FUND, N-30D, 1999-03-10

TEMPLETON VARIABLE PRODUCTS SERIES FUND
N-30D, 1999-03-10

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ANNUAL
REPORT

December 31, 1998

[PICTURE OF WORLD MAP]

TIP

TEMPLETON

INVESTMENT

PLUS

- - TEMPLETON VARIABLE PRODUCTS SERIES FUND

- - THE PHOENIX EDGE SERIES FUND

[LOGO FRANKLIN TEMPLETON/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 increase or decrease. Generally,
investments offering the potential for higher returns are accompanied by a
higher degree of risk. Stocks and other equities, representing an ownership
interest in a company, have historically outperformed other asset classes over
the long term but tend to fluctuate more dramatically over the shorter term.
Securities of smaller companies, and companies involved in reorganization or
bankruptcy, may have greater price swings and greater credit and other risks.

Bonds and other debt obligations are affected by changes in interest rates and
the creditworthiness of their issuers, and changes in interest rates, with
prices declining as interest rates increase. High yield, lower-rated ("junk")
bonds generally have greater price swings and higher default risks than
investment grade bonds.

Foreign investing, especially in emerging market countries, has additional risks
such as changes in currency values, market price swings, and economic,
political, or social instability. These, and other risks pertaining to specific
portfolios, such as specialized industry or geographic sectors or use of complex
securities, are discussed in the prospectus. Your investment representative can
help you determine which portfolios may be right for you.

PAGE

TABLE OF CONTENTS

TEMPLETON VARIABLE PRODUCTS SERIES FUND
ANNUAL REPORT

<TABLE>
<CAPTION>
<S> <C>
Letter to Contract Owners .................................................... 2

Class 1 Portfolio Reports

Templeton Asset Allocation Fund ........................................... TA-1

Templeton Bond Fund ....................................................... TB-1

Templeton Developing Markets Fund ......................................... TD-1

Templeton International Fund .............................................. TI-1

Templeton Stock Fund ...................................................... TS-1

TEMPLETON VARIABLE PRODUCTS SERIES FUND
PROSPECTUS SUPPLEMENT ........................................................ PS-1
</TABLE>

Templeton Investment Plus (TIP) is an individual deferred variable annuity
contract issued by the Phoenix Home Life Mutual Insurance Company. On the
following pages, you will find a report on each of the portfolios available
within TIP.

- -------------------------------------------------------------------------------
PLEASE NOTE:
Templeton Variable Products Series Fund ("the Trust") currently consists of
eight separate investment portfolios, all 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. Please retain
this document, including the enclosed prospectus supplement on page PS-1, with
your current prospectus for reference.
- -------------------------------------------------------------------------------

TIP A98 2/99 PHOENIX

PAGE

LETTER TO CONTRACT OWNERS

Dear Contract Owner:

We are pleased to bring you the annual report of Templeton Variable Products
Series Fund for the 12 months ended December 31, 1998.

During the year under review, stock markets around the world gave new meaning to
the word "volatility." Some European and U.S. equity markets reached all-time
highs during the first part of the period, but by late summer, they suffered
major declines due largely to Asia's financial turmoil and Russia's economic
meltdown. However, they generally rallied in October and November, finishing the
year with significant gains. Conversely, many Latin American markets experienced
substantial losses in 1998, while Asian markets posted mixed results.

In the U.S., large-capitalization companies led the market, with the Dow
Jones(R) Industrial Average rising 18.1% and the Standard & Poor's(R) 500 Stock
Index posting a return of 28.6% for the reporting period. However, many
small-cap stocks did not fare as well, and the Russell 2000(R) Index declined
2.6%.*

Most European equity markets appreciated substantially in 1998 due, we think, to
falling interest rates, benign inflation, government tax incentives, and
increased management focus on shareholder value. Italian, Spanish, and French
markets, all of which increased more than 40%, were among the region's leaders.*

On the other hand, non-performing loans and slowing economies contributed to
falling share prices in some Asian developing nations such as Indonesia, which
declined 30.6% over the one-year period. Latin American stock markets also
dropped sharply in the wake of falling commodity prices, ripple effects of
Asia's

*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

financial crises, and investor concerns about the devaluation of the Brazilian
real. Measured in U.S. dollars, Mexico's Bolsa Index plunged 37.4% and Brazil's
Bovespa Index dropped 38.2%.*

Many bond markets were also subject to volatility throughout 1998, but
strengthened for the year as a whole. Benefiting from slowing economic growth
and benign inflation, U.S. bond prices rose in 1998, and European debt
securities performed well, as government efforts to meet European Monetary Union
membership standards helped lead to lower interest rates. However, fixed-income
markets in developing countries experienced severe declines due to factors such
as Asia's economic malaise. The Salomon Brothers World Government Bond Index,
representative of developing-market countries' government bonds, produced a
15.3% total return, while the J.P. Morgan Emerging Markets Bond Index Plus,
which tracks the performance of bond markets in developing markets, fell 14.4%.*

It is important to remember, of course, that all securities markets move up or
down, and bad years can be mixed with good 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 the Templeton Variable Products Series Fund
and look forward to serving your investment needs in the years to come.

Sincerely,

/s/CHARLES E. JOHNSON

Charles E. Johnson
President
Templeton Variable Products Series Fund

PAGE

This page intentionally left blank.

PAGE

TEMPLETON ASSET ALLOCATION FUND

Investment Goal: Templeton Asset Allocation Fund seeks a high level of total
return through a flexible policy of investing in stocks of companies in any
nation, debt obligations of companies and governments of any nation, and money
market instruments. The Fund's assets are allocated among different investments
among these three market segments depending upon worldwide market and economic
conditions.

During the 12 months under review, global financial markets experienced
unprecedented volatility and mixed results. Many investors learned the negative
implications of global corporate interdependence, as Japan failed to stimulate
its economy, Russia suspended its debt repayments and the Asian contagion
reinfected Latin America. However, European markets generally performed well, a
result we attribute to tight fiscal policies and EMU-driven interest rate
convergence, while U.S. securities markets rose considerably due largely to
benign inflation and low interest rates.

The Fund benefited from its high European exposure (39.6% of total net assets at
the end of the reporting period), as many European companies cut costs, reduced
debt burdens and repurchased shares. Our largest European country weighting was
France, whose equity market appreciated 42.8% during the year.(1) Europe's
financial sector performed especially well, with Banque National de Paris,
AXA-UAP, and Zurich Allied AG ranking among the Fund's top performers.

Although trading at historically high valuations, domestic equities were
considered by many investors as a "safe haven" from economic turmoil abroad, and
the unmanaged Standard & Poor's(R) 500 Stock Index posted a total return of
28.6% for the fiscal year.(2) Many of our U.S. holdings, including Lucent
Technologies Inc. and Ford Motor Co., performed well.

In Asia, bad corporate debts and political instability helped send many equity
markets tumbling. Although it continued to falter, Japan's economy showed some
signs of improvement. Small steps by the Japanese government, such as allowing
insolvent banks to fail, could bode well for future economic restructuring
throughout Japan. Our exposure to Asian stocks increased from 5.6% of total net
assets to 10.3%, and we expect that, if Japan offers investment opportunities,
our Asian exposure could continue to rise in the coming year.

PORTFOLIO BREAKDOWN
Templeton Asset Allocation Fund
Based on Total Net Assets
12/31/98

[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 December 31, 1998.]

[PIE CHART APPEARS HERE]

Stocks 87.1%
Fixed-Income Securities 9.1%
Short-Term Investments &
Other Net Assets 3.8%

GEOGRAPHIC DISTRIBUTION
Templeton Asset Allocation Fund
Based on Total Net Assets
12/31/98

[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 December 31, 1998.]

[BAR GRAPH APPEAR HERE]

Europe 39.6%
North America 21.1%
Asia 10.3%
Latin America 9.4%
Australia/New Zealand 5.6%
Middle East/Africa 1.1%
Fixed-Income Securities 9.1%
Short-Term Investments &
Other Net Assets 3.8%

1. Source: Bloomberg. Market return is measured in U.S. dollars and includes
reinvested dividends.

2. Source: Standard & Poor's. Market return is measured in U.S. dollars and
includes reinvested dividends. One cannot invest directly in an index.

TA-1

PAGE

TOP 10 EQUITY HOLDINGS
Templeton Asset Allocation Fund
12/31/98

[This chart lists the top 10 equity holdings, including industry and country, of
Templeton Variable Products Series Fund -Templeton Asset Allocation Fund, based
on total net assets as of December 31, 1998.]

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ------------------------------------------------------------

Lucent Technologies Inc.
Telecommunications, U.S. 3.2%

AXA-UAP
Financial Services, France 2.3%

Alcatel SA
Electrical & Electronics,
France 2.2%

Merita AS
Banking, Finland 2.2%

Zurich Allied AG
Insurance, Switzerland 2.1%

3Com Corp.
Data Processing &
Reproduction, U.S. 2.0%

Autoliv Inc.
Automobiles, Sweden 2.0%

ING Groep NV
Financial Services,
Netherlands 1.9%

Philips Electronics NV
Electrical & Electronics,
Netherlands 1.9%

YPF Sociedad Anonima, ADR
Energy Sources,
Argentina 1.8%

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

Latin American stock markets also performed poorly in 1998. Although many fell
in excess of 20% in U.S.-dollar terms, we believed the downturn in Latin
American equities to be short term, and viewed it as an opportunity to find
bargains throughout the region. For example, we initiated a position in Compania
Anonima Nacional Telefonos de Venezuela, ADR and established a position in Gener
SA, ADR.

With regard to fixed-income markets, slow economic growth and tame inflation in
the U.S. helped propel domestic bond prices higher in 1998. European debt
securities also fared well, as government efforts to meet European Monetary
Union membership standards contributed to lower interest rates. However, bond
prices in many developing-market countries experienced major declines which were
widely attributed to the Asian economic malaise.

Please remember, this discussion reflects our views, opinions and portfolio
holdings as of December 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which may affect our
strategies and the Fund's portfolio composition. Although past performance is
not predictive of future results, these insights may help you understand our
investment and management philosophy.

TA-2

PAGE

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

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/THOMAS J. DICKSON
Thomas J. Dickson
Portfolio Manager
Templeton Asset Allocation Fund

IMPORTANT NOTE:

Beginning January 1, 1999, the fixed income portion of the Fund's portfolio will
be managed by a team of Templeton Global Bond Managers, a division of Templeton
Investment Counsel, Inc.

TA-3

PAGE

TEMPLETON ASSET
ALLOCATION FUND
CLASS 1

PERFORMANCE SUMMARY AS OF 12/31/98
TOTAL RETURN INDEX COMPARISON
$10,000 INVESTMENT (1/1/89 - 12/31/98)

The J.P. Morgan Global Government Bond Index includes only actively traded
fixed-rated bonds with a remaining maturity of one year or longer and is an
aggregate of government securities issued in 13 countries, and includes
reinvested interest. The Morgan Stanley Capital International(R) (MSCI) World
Index includes approximately 1,500 companies representing the stock markets of
22 countries and includes reinvested dividends. The Consumer Price Index (CPI)
is a commonly used measure of inflation. The Fund's performance differs from an
index's because an index is not managed, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management expenses. Of course, one cannot invest directly
in an index, nor is an index representative of the Fund's portfolio. Sources for
the indices are MSCI, J.P. Morgan and Standard & Poor's Micropal.

[LINE GRAPH OF TOTAL RETURN INDEX COMPARISON]

<TABLE>
<CAPTION>
Total Return Index Comparison

Templeton Asset Allocation MSCI World JP Morgan CPI
Fund-Class I Index Global
Government Bond
Index
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/1/89 $10,000 $10,000 $10,000 $10,000
1/31/89 $10,272 $10,364 $9,901 $10,051
2/28/89 $10,156 $10,300 $9,885 $10,091
3/31/89 $10,263 $10,236 $9,801 $10,149
4/30/89 $10,487 $10,474 $9,962 $10,216
5/31/89 $10,487 $10,218 $9,855 $10,274
6/30/89 $10,429 $10,105 $10,079 $10,299
7/31/89 $10,994 $11,248 $10,480 $10,324
8/31/89 $11,091 $10,978 $10,170 $10,341
9/30/89 $11,043 $11,290 $10,331 $10,373
10/31/89 $10,672 $10,915 $10,464 $10,424
11/30/89 $10,857 $11,353 $10,557 $10,448
12/31/89 $11,325 $11,719 $10,680 $10,464
1/31/90 $11,043 $11,174 $10,521 $10,572
2/28/90 $11,062 $10,697 $10,407 $10,622
3/31/90 $11,221 $10,053 $10,343 $10,680
4/30/90 $10,831 $9,909 $10,303 $10,697
5/31/90 $11,500 $10,955 $10,632 $10,722
6/30/90 $11,590 $10,879 $10,825 $10,780
7/31/90 $11,760 $10,980 $11,143 $10,821
8/31/90 $10,901 $9,954 $11,056 $10,920
9/30/90 $10,022 $8,906 $11,159 $11,012
10/31/90 $9,932 $9,739 $11,600 $11,078
11/30/90 $10,222 $9,581 $11,804 $11,102
12/31/90 $10,421 $9,784 $11,936 $11,102
1/31/91 $10,921 $10,143 $12,206 $11,169
2/28/91 $11,620 $11,084 $12,218 $11,186
3/31/91 $11,480 $10,759 $11,837 $11,202
4/30/91 $11,614 $10,845 $11,980 $11,218
5/31/91 $11,934 $11,093 $11,990 $11,251
6/30/91 $11,428 $10,410 $11,830 $11,285
7/31/91 $12,089 $10,903 $12,080 $11,302
8/31/91 $12,368 $10,870 $12,331 $11,334
9/30/91 $12,471 $11,157 $12,780 $11,385
10/31/91 $12,564 $11,340 $12,907 $11,401
11/30/91 $12,254 $10,848 $13,117 $11,434
12/31/91 $13,307 $11,640 $13,780 $11,443
1/31/92 $13,194 $11,426 $13,510 $11,459
2/29/92 $13,555 $11,230 $13,471 $11,501
3/31/92 $13,391 $10,704 $13,346 $11,559
4/30/92 $13,732 $10,854 $13,457 $11,575
5/31/92 $14,308 $11,288 $13,839 $11,592
6/30/92 $14,265 $10,912 $14,217 $11,633
7/31/92 $14,436 $10,942 $14,530 $11,659
8/31/92 $14,265 $11,210 $14,917 $11,691
9/30/92 $14,212 $11,109 $14,902 $11,724
10/31/92 $14,105 $10,811 $14,530 $11,766
11/30/92 $14,212 $11,006 $14,272 $11,782
12/31/92 $14,382 $11,097 $14,407 $11,775
1/31/93 $14,574 $11,136 $14,652 $11,833
2/28/93 $14,915 $11,402 $14,888 $11,874
3/31/93 $15,224 $12,065 $15,116 $11,916
4/30/93 $15,520 $12,626 $15,392 $11,949
5/31/93 $15,783 $12,920 $15,489 $11,965
6/30/93 $15,914 $12,813 $15,502 $11,982
7/31/93 $16,167 $13,079 $15,509 $11,982
8/31/93 $16,934 $13,681 $15,968 $12,015
9/30/93 $16,945 $13,430 $16,136 $12,040
10/31/93 $17,515 $13,802 $16,128 $12,090
11/30/93 $17,175 $13,024 $16,010 $12,098
12/31/93 $18,139 $13,663 $16,174 $12,098
1/31/94 $19,016 $14,567 $16,327 $12,132
2/28/94 $18,304 $14,381 $16,148 $12,174
3/31/94 $17,501 $13,763 $16,074 $12,215
4/30/94 $17,658 $14,191 $16,061 $12,232
5/31/94 $17,781 $14,230 $15,928 $12,239
6/30/94 $17,299 $14,193 $16,117 $12,281
7/31/94 $17,994 $14,465 $16,269 $12,313
8/31/94 $18,499 $14,904 $16,227 $12,364
9/30/94 $18,118 $14,515 $16,307 $12,397
10/31/94 $18,308 $14,930 $16,551 $12,406
11/30/94 $17,725 $14,285 $16,343 $12,422
12/31/94 $17,602 $14,426 $16,381 $12,422
1/31/95 $17,411 $14,213 $16,712 $12,471
2/28/95 $17,804 $14,423 $17,143 $12,521
3/31/95 $18,080 $15,120 $18,015 $12,562
4/30/95 $18,667 $15,650 $18,302 $12,604
5/31/95 $19,358 $15,787 $18,813 $12,629
6/30/95 $19,704 $15,785 $18,931 $12,654
7/31/95 $20,441 $16,578 $19,020 $12,653
8/31/95 $20,268 $16,212 $18,492 $12,688
9/30/95 $20,936 $16,687 $18,908 $12,711
10/31/95 $20,521 $16,428 $19,093 $12,753
11/30/95 $21,155 $17,001 $19,306 $12,744
12/31/95 $21,569 $17,502 $19,545 $12,736
1/31/96 $22,122 $17,821 $19,344 $12,811
2/29/96 $22,306 $17,932 $19,232 $12,852
3/31/96 $22,513 $18,235 $19,202 $12,918
4/30/96 $23,060 $18,666 $19,131 $12,968
5/31/96 $23,377 $18,686 $19,150 $12,993
6/30/96 $23,340 $18,784 $19,318 $13,001
7/31/96 $22,732 $18,124 $19,673 $13,026
8/31/96 $23,291 $18,336 $19,755 $13,051
9/30/96 $23,754 $19,057 $19,864 $13,092
10/31/96 $24,046 $19,193 $20,258 $13,134
11/30/96 $25,469 $20,272 $20,547 $13,159
12/31/96 $25,639 $19,951 $20,404 $13,159
1/31/97 $26,612 $20,194 $19,894 $13,200
2/28/97 $26,875 $20,430 $19,756 $13,240
3/31/97 $26,597 $20,030 $19,606 $13,273
4/30/97 $26,889 $20,688 $19,496 $13,289
5/31/97 $28,413 $21,969 $19,956 $13,281
6/30/97 $29,566 $23,067 $20,183 $13,296
7/31/97 $31,302 $24,134 $20,109 $13,312
8/31/97 $29,831 $22,523 $20,084 $13,338
9/30/97 $31,898 $23,750 $20,530 $13,371
10/31/97 $29,499 $22,504 $20,965 $13,404
11/30/97 $29,592 $22,905 $20,713 $13,396
12/31/97 $29,619 $23,188 $20,690 $13,380
1/31/98 $29,446 $23,838 $20,898 $13,404
2/28/98 $31,209 $25,455 $21,053 $13,431
3/31/98 $33,075 $26,533 $20,895 $13,458
4/30/98 $33,692 $26,796 $21,216 $13,482
5/31/98 $32,724 $26,465 $21,308 $13,507
6/30/98 $32,331 $27,096 $21,367 $13,523
7/31/98 $32,878 $27,057 $21,425 $13,539
8/31/98 $26,943 $23,452 $22,017 $13,555
9/30/98 $26,423 $23,871 $23,167 $13,572
10/31/98 $29,482 $26,034 $23,686 $13,604
11/30/98 $31,208 $27,586 $23,418 $13,604
12/31/98 $31,517 $28,938 $23,859 $13,596
</TABLE>

[BEGIN CALL BOX]
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but does
not include any Contract fees, expenses or sales charges. If they had been
included, performance would be lower. These charges and deductions, particularly
for variable life policies, can have a significant effect on Contract values and
insurance benefits. See the Contract prospectus for a complete description of
these expenses, including sales charges. Past expense reductions by the
Investment Manager increased returns.
[END CALL BOX]

Past performance cannot predict or guarantee future results.

TA-4

PAGE

TEMPLETON ASSET
ALLOCATION FUND
CLASS 1

Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.

PERFORMANCE

Total return represents the cumulative or average annual change in value,
assuming reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results.

TEMPLETON ASSET ALLOCATION FUND - CLASS 1
PERIODS ENDED 12/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 6.41% 73.75% 215.17% 224.00%

Average Annual Total Return 6.41% 11.68% 12.17% 12.03%

Value of $10,000 Investment $10,641 $17,375 $31,517 $32,400

12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- -----------------------------------------------------------------------------------------------
One-Year Total Return - 2.96% 22.48% 18.93% 15.52% 6.41%
</TABLE>

Past performance cannot predict or guarantee future results.

TA-5

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.................... $22.35 $21.08 $18.72 $15.69 $16.55
--------------------------------------------------------------------
Income from investment operations:
Net investment income................................ .69 .67 .63 .57 .44
Net realized and unrealized gains (losses)........... .75 2.44 2.76 2.87 (.92)
--------------------------------------------------------------------
Total from investment operations...................... 1.44 3.11 3.39 3.44 (.48)
--------------------------------------------------------------------
Less distributions from:
Net investment income................................ (.66) (.63) (.58) (.41) (.31)
Net realized gains................................... (.67) (1.21) (.45) -- (.07)
--------------------------------------------------------------------
Total distributions................................... (1.33) (1.84) (1.03) (.41) (.38)
--------------------------------------------------------------------
Net asset value, end of year.......................... $22.46 $22.35 $21.08 $18.72 $15.69
--------------------------------------------------------------------
--------------------------------------------------------------------
Total Return*......................................... 6.41% 15.52% 18.93% 22.48% (2.96)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)....................... $692,163 $735,568 $556,027 $406,123 $288,172
Ratios to average net assets:
Expenses............................................. .78% .74% .64% .66% .75%
Net investment income................................ 2.88% 3.32% 3.56% 3.73% 4.02%
Portfolio turnover rate............................... 43.18% 45.27% 57.50% 43.02% 51.36%
</TABLE>

PAGE

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

<TABLE>
<CAPTION>
CLASS 2
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997+
-----------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $22.32 $20.40
-----------------------
Income from investment operations:
Net investment income...................................... .63 .16
Net realized and unrealized gains.......................... .74 1.76
-----------------------
Total from investment operations............................ 1.37 1.92
-----------------------
Less distributions from:
Net investment income...................................... (.64) --
Net realized gains......................................... (.67) --
-----------------------
Total distributions......................................... (1.31) --
-----------------------
Net asset value, end of year................................ $22.38 $22.32
-----------------------
-----------------------
Total Return*............................................... 6.10% 9.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $15,763 $9,665
Ratios to average net assets:
Expenses................................................... 1.03% 1.03%**
Net investment income...................................... 2.61% 1.97%**
Portfolio turnover rate..................................... 43.18% 45.27%
</TABLE>

*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE CONTRACT LEVEL FOR COST OF
INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY AND EXPENSE
RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE VARIABLE ANNUITY
CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING INVESTMENT VEHICLE. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
+FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
See Notes to Financial Statements.
TA-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 82.9%
AEROSPACE & MILITARY TECHNOLOGY .5%
Rolls-Royce Plc. ........................................... United Kingdom 770,000 $ 3,183,512
------------
APPLIANCES & HOUSEHOLD DURABLES 1.0%
Sony Corp. ................................................. Japan 92,400 6,741,596
------------
AUTOMOBILES 5.1%
Autoliv Inc. ............................................... Sweden 246,900 9,181,594
Autoliv Inc., SDR........................................... Sweden 129,000 4,631,128
Fiat SpA.................................................... Italy 2,361,700 8,201,074
Ford Motor Co. ............................................. United States 84,000 4,929,750
General Motors Corp. ....................................... United States 40,000 2,862,500
Volvo AB, B................................................. Sweden 260,000 5,966,098
------------
35,772,144
------------
BANKING 8.5%
*Bangkok Bank Public Co. Ltd., fgn. ........................ Thailand 3,634,600 7,502,271
Bankinter SA................................................ Spain 237,750 8,775,381
Banque Nationale de Paris................................... France 148,200 12,208,951
Canadian Imperial Bank of Commerce.......................... Canada 140,000 3,463,542
Credit Suisse Group......................................... Switzerland 15,250 2,387,150
Den Norske Bank............................................. Norway 2,178,900 7,521,337
Foreningssparbanken AB, A................................... Sweden 113,800 2,948,259
Merita AS................................................... Finland 2,453,000 15,599,518
------------
60,406,409
------------
BROADCASTING & PUBLISHING .2%
South China Morning Post Ltd. .............................. Hong Kong 2,821,000 1,447,414
------------
BUSINESS & PUBLIC SERVICES .6%
Laidlaw Inc. ............................................... Canada 65,600 660,100
Waste Management Inc. ...................................... United States 72,500 3,380,313
------------
4,040,413
------------
CHEMICALS 2.4%
Akzo Nobel NV............................................... Netherlands 98,800 4,501,199
DSM NV, Br. ................................................ Netherlands 25,000 2,377,844
Rhone-Poulenc SA, A......................................... France 201,800 10,389,474
------------
17,268,517
------------
DATA PROCESSING & REPRODUCTION 2.8%
*3Com Corp. ................................................ United States 320,800 14,375,850
*Newbridge Networks Corp. .................................. Canada 180,000 5,467,500
------------
19,843,350
------------
ELECTRICAL & ELECTRONICS 6.5%
Alcatel SA.................................................. France 92,119 11,279,474
Alcatel SA, ADR............................................. France 185,739 4,538,985
*Applied Materials Inc. .................................... United States 261,000 11,141,437
Motorola Inc. .............................................. United States 94,000 5,739,875
Philips Electronics NV...................................... Netherlands 199,100 13,367,400
------------
46,067,171
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 1.2%
Intel Corp. ................................................ United States 72,000 8,536,500
------------
ENERGY SOURCES 3.1%
Devon Energy Corp. ......................................... United States 141,148 4,331,479
*Ranger Oil Ltd. ........................................... Canada 1,153,490 5,118,612
YPF Sociedad Anonima, ADR................................... Argentina 451,400 12,610,988
------------
22,061,079
------------
</TABLE>

TA-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 4.2%
AXA-UAP..................................................... France 112,700 $ 16,341,520
ING Groep NV................................................ Netherlands 222,100 13,550,621
------------
29,892,141
------------
FOREST PRODUCTS & PAPER 1.2%
Assidomaen AB............................................... Sweden 90,000 1,421,205
Carter Holt Harvey Ltd. .................................... New Zealand 293,020 263,140
International Paper Co. .................................... United States 50,000 2,240,625
Stora Enso OY, R............................................ Finland 225,000 2,266,264
Stora Kopparbergs Bergslags AB, B........................... Sweden 225,000 2,498,211
------------
8,689,445
------------
HEALTH & PERSONAL CARE 3.5%
Aetna Inc. ................................................. United States 16,700 1,313,037
Medeva Plc. ................................................ United Kingdom 4,572,675 8,064,280
Ono Pharmaceutical Co Ltd. ................................. Japan 247,000 7,576,418
Teva Pharmaceutical Industries Ltd., ADR.................... Israel 197,200 8,023,575
------------
24,977,310
------------
INDUSTRIAL COMPONENTS 2.2%
BTR Plc. ................................................... United Kingdom 3,540,550 7,245,448
Goodyear Tire & Rubber Co. ................................. United States 60,000 3,026,250
Granges AB.................................................. Sweden 183,200 2,644,329
Madeco Manufacturera de Cobre SA, ADR....................... Chile 162,500 1,360,937
SKF AB, B................................................... Sweden 117,500 1,369,852
------------
15,646,816
------------
INSURANCE 5.1%
Allstate Corp. ............................................. United States 80,000 3,090,000
Exel Ltd. .................................................. Bermuda 138,800 10,410,000
Reinsurance Australia Corp. Ltd. ........................... Australia 2,860,000 4,387,208
Torchmark Corp. ............................................ United States 90,000 3,178,125
Zurich Allied AG............................................ Switzerland 20,400 15,105,060
------------
36,170,393
------------
MACHINERY & ENGINEERING .6%
*Gradall Industries Inc. ................................... United States 314,000 4,513,750
------------
MERCHANDISING .7%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 1,000,000 1,150,000
David Jones Ltd. ........................................... Australia 1,473,400 1,626,678
Sears Roebuck & Co. ........................................ United States 42,000 1,785,000
------------
4,561,678
------------
METALS & MINING 2.2%
British Steel Plc., ADR..................................... United Kingdom 589,300 8,618,512
Minorco SA, ADR............................................. Luxembourg 352,950 5,360,428
Reynolds Metals Co. ........................................ United States 22,000 1,159,125
------------
15,138,065
------------
MISC MATERIALS & COMMODITIES 1.0%
Agrium Inc. ................................................ Canada 517,000 4,491,437
Unitor ASA.................................................. Norway 286,000 2,777,792
------------
7,269,229
------------
</TABLE>

TA-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 3.1%
Alfa SA de CV, A............................................ Mexico 1,150,000 $ 3,238,372
Cheung Kong Holdings Ltd. .................................. Hong Kong 600,000 4,317,661
Hicom Holdings Bhd.......................................... Malaysia 2,264,600 751,655
Hutchison Whampoa Ltd. ..................................... Hong Kong 444,000 3,137,759
Jardine Matheson Holdings Ltd. ............................. Hong Kong 220,800 569,664
Jardine Strategic Holdings Ltd. ............................ Hong Kong 168,750 244,687
Swire Pacific Ltd., A....................................... Hong Kong 2,200,000 9,853,819
------------
22,113,617
------------
REAL ESTATE .1%
New World Development Co. Ltd. ............................. Hong Kong 303,543 764,024
------------
TELECOMMUNICATIONS 16.5%
AT&T Corp. ................................................. United States 121,000 9,105,250
*Cable & Wireless Optus Ltd. ............................... Australia 2,768,640 5,824,640
Compania Anonima Nacional Telefonos de Venezuela, ADR....... Venezuela 314,500 5,602,031
*Embratel Participacoes SA.................................. Brazil 22,228,000 193,167
Hong Kong Telecommunications Ltd. .......................... Hong Kong 6,600,000 11,543,451
Lucent Technologies Inc. ................................... United States 204,428 22,487,080
Northern Telecom, Ltd. ..................................... Canada 90,000 4,511,250
PT Indosat, ADR............................................. Indonesia 159,400 1,942,687
*Swisscom AG................................................ Switzerland 21,630 9,055,151
*Tele Celular Sul Participacoes SA.......................... Brazil 1,560,999 1,447
*Tele Leste Celular Participacoes SA........................ Brazil 22,228,000 8,830
*Tele Sudeste Celular Participacoes SA...................... Brazil 22,228,000 62,549
Telecom Italia SpA.......................................... Italy 477,000 4,069,830
Telecom Italia SpA, di Risp................................. Italy 1,200,000 7,541,563
Telecomunicacoes Brasileiras SA (Telebras).................. Brazil 22,228,000 1,840
*Telecomunicacoes Brasileiras SA (Telebras), ADR............ Brazil 45,600 3,314,550
Telefonica de Argentina SA, B, ADR.......................... Argentina 315,000 8,800,313
Telefonica Del Peru SA, B, ADR.............................. Peru 131,800 1,672,213
Telefonica SA............................................... Spain 260,000 11,578,345
*Telefonica SA, rts. ....................................... Spain 260,000 231,200
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 180,900 8,807,569
*Telesp Celular Participacoes SA............................ Brazil 22,228,000 95,664
*Telesp Participacoes SA.................................... Brazil 22,228,000 285,151
------------
116,735,771
------------
TEXTILES & APPAREL .5%
*Fruit of the Loom Inc., A.................................. United States 160,000 2,210,000
Nike Inc., B................................................ United States 40,000 1,622,500
------------
3,832,500
------------
TRANSPORTATION 5.3%
Air New Zealand Ltd., B..................................... New Zealand 2,564,000 4,036,217
*Fritz Companies Inc. ...................................... United States 350,000 3,784,375
Great Eastern Shipping Co. Ltd. ............................ India 7,453,970 4,043,039
Hitachi Zosen Corp. ........................................ Japan 210,000 290,426
Koninklijke Nedlloyd Groep NV............................... Netherlands 50,000 679,384
Kvaerner ASA, B............................................. Norway 215,000 3,527,366
Mayne Nickless Ltd., A...................................... Australia 1,730,400 6,421,114
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 580,000 6,851,343
Qantas Airways Ltd., 144A, ADR.............................. Australia 376,000 7,661,000
------------
37,294,264
------------
</TABLE>

TA-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 4.8%
BG Plc. .................................................... United Kingdom 779,629 $ 4,925,782
*Centrica Plc. ............................................. United Kingdom 3,200,000 6,428,750
Endesa SA, ADR.............................................. Spain 88,000 2,376,000
Endesa SA, Br. ............................................. Spain 122,000 3,237,363
Gener SA, ADR............................................... Chile 287,050 4,592,800
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 2,001,500 6,071,219
Iberdrola SA, Br. .......................................... Spain 85,000 1,592,675
Korea Electric Power Corp. ................................. South Korea 196,000 4,857,215
------------
34,081,804
------------
TOTAL COMMON STOCKS (COST $496,157,881)..................... 587,048,912
------------
PREFERRED STOCKS 4.2%
Banco Bradesco SA, pfd. .................................... Brazil 767,000,000 4,253,176
*Banco Bradesco SA, rts., pfd. ............................. Brazil 31,791,491 18,103
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 278,500 3,572,729
*Embratel Participacoes SA, pfd. ........................... Brazil 23,981,336 327,492
Moebel Walther AG, pfd. .................................... Germany 119,092 4,039,804
National Australia Cap Sec Plc., cvt., pfd. ................ Australia 159,874 4,456,488
News Corp. Ltd., pfd. ...................................... Australia 850,000 5,176,982
Petroleo Brasileiro SA, pfd. ............................... Brazil 36,000,000 4,081,937
SBC Communications Inc., cvt., pfd. ........................ Mexico 50,000 2,225,000
*Tele Leste Celular Participacoes SA, pfd. ................. Brazil 40,981,336 23,743
*Tele Sudeste Celular Participacoes SA, pfd. ............... Brazil 40,981,336 172,981
Telecomunicacoes Brasileiras SA (Telebras), pfd. ........... Brazil 40,981,336 4,749
*Telesp Celular Participacoes SA, pfd. ..................... Brazil 40,981,336 301,870
*Telesp Participacoes SA, pfd. ............................. Brazil 40,981,336 932,743
------------
TOTAL PREFERRED STOCKS (COST $36,843,679)................... 29,587,797
------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
BONDS 9.1%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00........................................... Italy 2,615,000,000ITL 1,741,280
7.75%, 11/01/06........................................... Italy 2,440,000,000ITL 1,845,232
Essar Steel Ltd., FRN, 8.40%, 7/20/99, Reg S................ India 445,000 322,625
Federal Republic of Germany, Series 118, 5.25%, 2/21/01..... Germany 1,390,000DEM 870,586
Government of Australia, 6.75%, 11/15/06.................... Australia 5,105,000AUD 3,497,435
Government of Canada:
7.25%, 6/01/03............................................ Canada 1,330,000CAD 949,210
7.50%, 12/01/03........................................... Canada 1,330,000CAD 966,978
10.25%, 2/01/04........................................... Canada 1,330,000CAD 1,074,763
9.00%, 12/01/04........................................... Canada 1,330,000CAD 1,049,124
8.75%, 12/01/05........................................... Canada 1,330,000CAD 1,061,238
7.00%, 12/01/06........................................... Canada 860,000CAD 637,010
10.25%, 3/15/14........................................... Canada 1,330,000CAD 1,338,616
8.00%, 6/01/23............................................ Canada 1,330,000CAD 1,196,004
9.00%, 6/01/25............................................ Canada 475,000CAD 473,936
Government of New Zealand, 6.50%, 2/15/00................... New Zealand 6,180,000NZD 3,315,129
Hypothekenbank In Essen AG, Series 502, 5.25%, 1/22/08...... Germany 9,455,000DEM 6,078,539
Kingdom of Belgium, 6.25%, 3/28/07.......................... Belgium 89,805,000BEF 3,031,078
Kingdom of Denmark:
9.00%, 11/15/00........................................... Denmark 70,000DKK 12,002
8.00%, 5/15/03............................................ Denmark 18,210,000DKK 3,322,692
Kingdom of Sweden, 10.25%, 5/05/03.......................... Sweden 20,000,000SEK 3,108,667
Republic of Argentina, 10.95%, 11/01/99..................... Argentina 1,025,000 1,045,500
Republic of Panama, 8.875%, 9/30/27......................... Panama 960,000 907,200
Republic of Peru, FRN, 4.00%, 3/07/17....................... Peru 1,560,000 986,700
Republic of Turkey, 9.875%, 2/23/05......................... Turkey 1,130,000 995,046
Republic of Venezuela, 144A, 9.125%, 6/18/07................ Venezuela 1,540,000 1,081,850
</TABLE>

TA-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
------- -------- -----
<S> <C> <C> <C>
BONDS (CONT.)
Treuhandanstalt, 7.50%, 9/09/04............................. Germany 1,000,000DEM $ 719,380
United Kingdom, 6.50%, 12/07/03............................. United Kingdom 2,795,000GBP 5,093,080
United Mexican States:
9.75%, 2/06/01............................................ Mexico 2,895,000 2,970,993
6.25%, 12/31/19........................................... Mexico 5,050,000 3,942,156
U.S. Treasury Bond, 5.25%, 11/15/28......................... United States 5,000,000 5,126,565
U.S. Treasury Note, 4.625%, 11/30/00........................ United States 5,890,000 5,895,525
------------
TOTAL BONDS (COST $63,725,935).............................. 64,656,139
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST
$596,727,495)............................................. 681,292,848
------------
(a)REPURCHASE AGREEMENT (COST $23,311,000) 3.3%
Morgan Stanley Inc., 4.65%, 1/04/99 (Maturity Value
$23,323,044) Collateralized by U.S. Treasury Notes &
Bonds..................................................... United States 23,311,000 23,311,000
------------
TOTAL INVESTMENTS (COST $620,038,495) 99.5%................. 704,603,848
NET EQUITY IN FORWARD CONTRACTS............................. (6,062)
OTHER ASSETS, LESS LIABILITIES .5%.......................... 3,327,597
------------
TOTAL NET ASSETS 100.0%..................................... $707,925,383
</TABLE>

CURRENCY ABBREVIATIONS:

AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
DEM -- Deutsche Mark
DKK -- Danish Krone
GBP -- British Pound
ITL -- Italian Lira
NZD -- New Zealand Dollar
SEK -- Swedish Krona

*NON INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
(a)AT DECEMBER 31, 1998, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See Notes to Financial Statements.
TA-12

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $596,727,495).... $681,292,848
Repurchase agreement, at value and cost.................... 23,311,000
Cash....................................................... 404,257
Receivables:
Investment securities sold................................ 1,634,628
Dividends and interest.................................... 4,288,909
Unrealized gain on forward exchange contracts (Note 6)..... 13,093
------------
Total assets........................................... 710,944,735
------------
Liabilities:
Payables:
Investment securities purchased........................... 648,495
Fund shares redeemed...................................... 1,666,453
To affiliates............................................. 419,752
Unrealized loss on forward exchange contracts (Note 6)..... 19,155
Accrued expenses........................................... 265,497
------------
Total liabilities...................................... 3,019,352
------------
Net assets, at value........................................ $707,925,383
============
Net assets consist of:
Undistributed net investment income........................ $ 21,118,700
Net unrealized appreciation................................ 84,587,550
Accumulated net realized gain.............................. 77,721,110
Beneficial shares.......................................... 524,498,023
------------
Net assets, at value........................................ $707,925,383
============
CLASS 1:
Net asset value per share ($692,162,661 / 30,821,329 shares
outstanding)............................................. $22.46
============
CLASS 2:
Net asset value per share ($15,762,722 / 704,340 shares
outstanding).............................................. $22.38
============
</TABLE>

See Notes to Financial Statements.
TA-13

PAGE

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,825,334)
Dividends.................................................. $ 16,501,479
Interest................................................... 10,800,065
------------
Total investment income............................... $ 27,301,544
Expenses:
Management fees (Note 3)................................... 4,500,289
Administrative fees (Note 3)............................... 715,727
Distribution fees - Class 2 (Note 3)....................... 32,593
Custodian fees............................................. 330,000
Reports to shareholders.................................... 201,000
Professional fees.......................................... 36,900
Trustees' fees and expenses................................ 19,000
Other...................................................... 10,552
------------
Total expenses........................................ 5,846,061
------------
Net investment income........................... 21,455,483
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 82,526,902
Foreign currency transactions............................. (3,778,566)
------------
Net realized gain..................................... 78,748,336
Net unrealized depreciation on:
Investments............................................... (55,891,009)
Translation of assets and liabilities denominated in
foreign currencies...................................... (649,958)
------------
Net unrealized depreciation........................... (56,540,967)
------------
Net realized and unrealized gain............................ 22,207,369
------------
Net increase in net assets resulting from operations........ $ 43,662,852
------------
------------
</TABLE>

See Notes to Financial Statements.
TA-14

PAGE

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 21,455,483 $ 22,545,488
Net realized gain from investments and foreign currency
transactions............................................. 78,748,336 20,904,466
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... (56,540,967) 45,084,450
------------------------------
Net increase in net assets resulting from operations... 43,662,852 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.................................................. (43,165,375) 140,290,555
Class 2.................................................. 6,008,335 9,840,237
------------------------------
Net increase (decrease) in net assets.................. (37,307,835) 189,206,054
Net assets:
Beginning of year.......................................... 745,233,218 556,027,164
------------------------------
End of year................................................ $707,925,383 $745,233,218
------------------------------
------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 21,118,700 $ 21,482,994
------------------------------
------------------------------
</TABLE>

See Notes to Financial Statements.
TA-15

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

a. SECURITY VALUATION:

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

b. FOREIGN CURRENCY TRANSLATION:

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

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

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

c. 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 comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.

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-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Notes to Financial Statements (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. FOREIGN EXCHANGE CONTRACTS:

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

g. ACCOUNTING ESTIMATES:

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

2. BENEFICIAL SHARES

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

At December 31, 1998, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR-ENDED-DECEMBER-31,
--------------------------------------------------------------
1998 1997
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 1,101,798 $ 24,979,341 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............................................. (5,108,135) (111,321,176) (1,580,128) (34,951,733)
--------------------------------------------------------------
Net increase (decrease)..................................... (2,087,383) $ (43,165,375) 6,530,846 $140,290,555
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR-ENDED-DECEMBER-31,
--------------------------------------------------------------
1998 1997*
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 359,493 $ 7,948,841 453,139 $ 10,300,271
Shares issued on reinvestment of distributions.............. 28,357 637,187 -- --
Shares redeemed............................................. (116,620) (2,577,693) (20,029) (460,034)
--------------------------------------------------------------
Net increase................................................ 271,230 $ 6,008,335 433,110 $ 9,840,237
--------------------------------------------------------------
--------------------------------------------------------------
*Effective date of Class 2 shares was May 1, 1997.
</TABLE>

TA-17

PAGE

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

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

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

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

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

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

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

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

Legal fees of $14,237 were paid to a law firm in which a partner is an officer
of the Fund.

4. INCOME TAXES

At December 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $620,041,046 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $172,790,405
Unrealized depreciation..................................... (88,227,603)
------------
Net unrealized appreciation................................. $ 84,562,802
------------
------------
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $313,373,692 and $384,649,580, 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.

TA-18

PAGE

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

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

As of December 31, 1998, the Fund had the following forward exchange contracts
outstanding:

<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
EXCHANGE FOR DATE GAIN/(LOSS
CONTRACTS TO SELL: --------------------------------------------
- ------------------
<C> <S> <C> <C> <C> <C> <C>
1,100,000 British Pound............................................... U.S. $1,841,400 1/29/99 U.S. $ 13,093
---------- --------
----------
Unrealized gain on forward exchange contracts.................... 13,093
--------
CONTRACTS TO SELL:
- ------------------
1,855,000 British Pound............................................... U.S. $3,064,460 1/25/99 (19,155)
---------- --------
----------
Unrealized loss on forward exchange contracts.................... (19,155)
--------
Net unrealized loss on forward exchange contracts.............. U.S. $ (6,062)
--------
--------
</TABLE>

TA-19

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
Templeton Variable Products Series Fund

We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Templeton Asset Allocation Fund, series of
Templeton Variable Products Series Fund (the Trust) as of December 31, 1998, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for the periods indicated in the accompanying financial
statements. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Templeton Asset Allocation Fund, series of Templeton Variable Products Series
Fund as of December 31, 1998, the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles.

McGladrey & Pullen, LLP

New York, New York
January 28, 1999

TA-20

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Templeton Asset
Allocation Fund hereby designates $77,305,831 as a capital gain dividend for the
fiscal year ended December 31, 1998.

Under Section 854(b)(2) of the Internal Revenue Code, the Templeton Asset
Allocation Fund hereby designates 4.41% of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
December 31, 1998.

TA-21

PAGE

This page intentionally left blank.

PAGE

TEMPLETON BOND FUND

Investment Goal: Templeton Bond Fund seeks high current income. The Fund seeks
to achieve its objective through a flexible policy of investing primarily in
debt securities of companies, governments and government agencies of various
nations throughout the world.

For global bond investors, the year under review was marked by falling raw
materials and commodities prices, rising bond prices in the world's major
developed markets, and periodic but persistent crises in developing-market
countries. The U.S. economy continued to expand for the sixth consecutive year,
and unemployment fell to levels not seen since the early 1970s. Inflation
remained tame, and the 10-year U.S. Treasury bond yield declined from 5.75% on
December 31, 1997 to 4.65% at the end of the fiscal year.(1)

During the reporting period, European economies began to emerge from a sluggish
growth environment. Those of Finland, Spain, and the Netherlands grew relatively
rapidly, as low, long-term interest rates finally began to stimulate economic
activity. By the end of the fiscal year, accelerating growth had spread to
Germany, France, and Italy. Many continental European markets also benefited
from a convergence in interest rates in countries seeking European Monetary
Union membership.

Japan, where banks generally were hamstrung by non-performing loans, presented a
different picture. The Japanese government struggled to restructure the economy,
but failed, in our view, and Japan remained in a recession throughout the fiscal
year. Reduced demand for products from other Asian markets and the yen's
persistent weakness put substantial pressure on the economies of the region's
developing-market countries.

During the second half of the reporting period, Russia experienced an economic
meltdown due largely to its precarious debt financing. To establish at least a
semblance of stability, the Russian government devalued the ruble and declared a
moratorium on debt service. In addition to having a negative impact on debt
instruments of other emerging-market countries, including those of Latin
America, Russia's problems also apparently affected developed economies that
were dependent on commodity exports or trade with emerging economies. For
example, Canada, Australia

GEOGRAPHIC DISTRIBUTION
Templeton Bond Fund
Based on Total Net Assets
12/31/98

[This chart shows in pie format the geographic distribution of Templeton Bond
Fund's portfolio holdings on December 31, 1998, based on total net assets.]

[Pie Chart Appears Here]

North America 43.4%
Europe 34.7%
Australia/New Zealand 7.7%
Latin America 7.7%
Asia 0.4%
Short-Term Investments &
Other Net Assets 6.1%

(1). Source: Bloomberg.

TB-1

PAGE

PORTFOLIO BREAKDOWN
Templeton Bond Fund
12/31/98

[The following table shows the portfolio breakdown of Templeton Bond
Fund's as of December 31, 1998, based on total net assets.]

% OF TOTAL
NET ASSETS
- -------------------------------------------------------
Government Bonds 83.5%
Corporate Bonds 10.4%
Short-Term Investments
& Other Net Assets 6.1%

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

and New Zealand experienced rising interest rates and moderate currency declines
relative to the U.S. dollar.

During the 12 months under review, we attempted to maximize the Fund's return by
allocating about 80-90% of total net assets to intermediate- and long-term bonds
in developed markets, and about 10-20% to what we believed to be the highest
quality and most liquid bonds available in developing markets. We increased our
North American allocation from 36.1% of total net assets to 43.4% and increased
our European exposure from 33.7% to 34.7%. Specifically, we augmented the Fund's
holdings in Germany, Belgium, and the United Kingdom, while decreasing our
positions in Italy and Sweden. This combination appeared to offer the
possibility of higher long-term returns with modestly higher short-term
volatility. However, our allocation to emerging-market bonds did hamper the
Fund's performance as these bonds generally underperformed higher-quality bonds
from developed markets.

In 1998, we reduced our use of foreign currency hedging because we felt the U.S.
dollar would fall in value against other currencies. Our hedging activities were
undertaken in an effort to minimize the loss of value which could arise from the
decline in the Fund's holdings of non-U.S. dollar denominated bonds. At the end
of the period, the Fund's net U.S. dollar exposure was 50.3%, down from 72.2% on
December 31, 1997.

Looking forward, we believe global economic growth may decline modestly and
global inflation may be quite benign in the near future. This would be an
excellent environment for high-quality bonds and contributes to our positive
intermediate-term outlook for the Fund. However, significant risks still exist
for global bond investors. If economic instability occurs in Latin America, U.S.
exports and economic growth could be depressed, which, in turn, may adversely
affect European economic performance.

TB-2

PAGE

It is important to remember that the Fund may invest in lower-rated "junk
bonds," which have higher credit risks. Foreign securities investments involve
special risks including changes in currency values, market price swings, and
economic, social, and political developments in the countries where the
portfolios are invested. Developing markets involve similar but heightened risks
related to their smaller size and lesser liquidity. These risks are discussed in
the prospectus.

We thank you for investing in the Templeton Bond Fund and welcome your comments
or suggestions.

Sincerely,

/s/THOMAS J. DICKSON

Thomas J. Dickson
Portfolio Manager
Templeton Bond Fund

IMPORTANT NOTE:

Beginning January 1, 1999, the Fund will be managed by a team of Templeton
Global Bond Managers, a division of Templeton Investment Counsel, Inc.

TB-3

PAGE

TEMPLETON BOND FUND
CLASS 1

PERFORMANCE SUMMARY AS OF 12/31/98

TOTAL RETURN INDEX COMPARISON
$10,000 INVESTMENT (1/1/89 - 12/31/98)

The J.P. Morgan Global Government Bond Index includes only actively traded
fixed-rated bonds with a remaining maturity of one year or longer. It is an
aggregate of government securities issued in 13 countries and includes
reinvested interest. The Consumer Price Index (CPI) is a commonly used measure
of inflation. The Fund's performance differs from an index's because an index is
not managed, does not contain cash (the Fund generally carries a certain
percentage of cash at any given time), and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index, nor is
an index representative of the Fund's portfolio. Sources for indices are J.P.
Morgan and Standard & Poor's Micropal.

[LINE GRAPH]

<TABLE>
<CAPTION>
Total Return Index Comparison
<S> <C> <C>
Templeton Bond Fund-Class I JP Morgan CPI
Global
Government Bond
Index
---------------------------------------------------------------
1/1/89 $10,000 $10,000 $10,000
1/31/89 $10,049 $9,901 $10,051
2/28/89 $10,020 $9,885 $10,091
3/31/89 $10,174 $9,801 $10,149
4/30/89 $10,234 $9,962 $10,216
5/31/89 $10,264 $9,855 $10,274
6/30/89 $10,364 $10,079 $10,299
7/31/89 $10,485 $10,480 $10,324
8/31/89 $10,505 $10,170 $10,341
9/30/89 $10,535 $10,331 $10,373
10/31/89 $10,635 $10,464 $10,424
11/30/89 $10,725 $10,557 $10,448
12/31/89 $10,765 $10,680 $10,464
1/31/90 $10,671 $10,521 $10,572
2/28/90 $10,682 $10,407 $10,622
3/31/90 $10,692 $10,343 $10,680
4/30/90 $10,588 $10,303 $10,697
5/31/90 $10,849 $10,632 $10,722
6/30/90 $10,995 $10,825 $10,780
7/31/90 $11,110 $11,143 $10,821
8/31/90 $10,985 $11,056 $10,920
9/30/90 $11,047 $11,159 $11,012
10/31/90 $11,183 $11,600 $11,078
11/30/90 $11,350 $11,804 $11,102
12/31/90 $11,446 $11,936 $11,102
1/31/91 $11,623 $12,206 $11,169
2/28/91 $11,679 $12,218 $11,186
3/31/91 $11,745 $11,837 $11,202
4/30/91 $11,834 $11,980 $11,218
5/31/91 $11,911 $11,990 $11,251
6/30/91 $11,845 $11,830 $11,285
7/31/91 $11,978 $12,080 $11,302
8/31/91 $12,299 $12,331 $11,334
9/30/91 $12,576 $12,780 $11,385
10/31/91 $12,753 $12,907 $11,401
11/30/91 $12,909 $13,117 $11,434
12/31/91 $13,262 $13,780 $11,443
1/31/92 $12,949 $13,510 $11,459
2/29/92 $12,973 $13,471 $11,501
3/31/92 $12,852 $13,346 $11,559
4/30/92 $12,900 $13,457 $11,575
5/31/92 $13,202 $13,839 $11,592
6/30/92 $13,516 $14,217 $11,633
7/31/92 $13,914 $14,530 $11,659
8/31/92 $14,035 $14,917 $11,691
9/30/92 $13,986 $14,902 $11,724
10/31/92 $13,878 $14,530 $11,766
11/30/92 $13,793 $14,272 $11,782
12/31/92 $13,996 $14,407 $11,775
1/31/93 $14,278 $14,652 $11,833
2/28/93 $14,650 $14,888 $11,874
3/31/93 $14,663 $15,116 $11,916
4/30/93 $14,727 $15,392 $11,949
5/31/93 $14,740 $15,489 $11,965
6/30/93 $14,971 $15,502 $11,982
7/31/93 $15,202 $15,509 $11,982
8/31/93 $15,446 $15,968 $12,015
9/30/93 $15,382 $16,136 $12,040
10/31/93 $15,536 $16,128 $12,090
11/30/93 $15,318 $16,010 $12,098
12/31/93 $15,600 $16,174 $12,098
1/31/94 $15,909 $16,327 $12,132
2/28/94 $15,408 $16,148 $12,174
3/31/94 $14,894 $16,074 $12,215
4/30/94 $14,825 $16,061 $12,232
5/31/94 $14,743 $15,928 $12,239
6/30/94 $14,661 $16,117 $12,281
7/31/94 $14,743 $16,269 $12,313
8/31/94 $14,771 $16,227 $12,364
9/30/94 $14,771 $16,307 $12,397
10/31/94 $14,948 $16,551 $12,406
11/30/94 $14,853 $16,343 $12,422
12/31/94 $14,839 $16,381 $12,422
1/31/95 $14,921 $16,712 $12,471
2/28/95 $15,201 $17,143 $12,521
3/31/95 $15,459 $18,015 $12,562
4/30/95 $15,761 $18,302 $12,604
5/31/95 $16,163 $18,813 $12,629
6/30/95 $16,220 $18,931 $12,654
7/31/95 $16,278 $19,020 $12,653
8/31/95 $16,163 $18,492 $12,688
9/30/95 $16,421 $18,908 $12,711
10/31/95 $16,694 $19,093 $12,753
11/30/95 $16,794 $19,306 $12,744
12/31/95 $17,053 $19,545 $12,736
1/31/96 $16,952 $19,344 $12,811
2/29/96 $16,867 $19,232 $12,852
3/31/96 $16,915 $19,202 $12,918
4/30/96 $17,011 $19,131 $12,968
5/31/96 $17,091 $19,150 $12,993
6/30/96 $17,300 $19,318 $13,001
7/31/96 $17,364 $19,673 $13,026
8/31/96 $17,589 $19,755 $13,051
9/30/96 $17,813 $19,864 $13,092
10/31/96 $18,182 $20,258 $13,134
11/30/96 $18,632 $20,547 $13,159
12/31/96 $18,664 $20,404 $13,159
1/31/97 $18,439 $19,894 $13,200
2/28/97 $18,388 $19,756 $13,240
3/31/97 $18,301 $19,606 $13,273
4/30/97 $18,422 $19,496 $13,289
5/31/97 $18,526 $19,956 $13,281
6/30/97 $18,734 $20,183 $13,296
7/31/97 $18,838 $20,109 $13,312
8/31/97 $18,786 $20,084 $13,338
9/30/97 $19,132 $20,530 $13,371
10/31/97 $18,993 $20,965 $13,404
11/30/97 $19,011 $20,713 $13,396
12/31/97 $19,132 $20,690 $13,380
1/31/98 $19,339 $20,898 $13,404
2/28/98 $19,512 $21,053 $13,431
3/31/98 $19,596 $20,895 $13,458
4/30/98 $19,652 $21,216 $13,482
5/31/98 $19,633 $21,308 $13,507
6/30/98 $19,633 $21,367 $13,523
7/31/98 $19,689 $21,425 $13,539
8/31/98 $18,929 $22,017 $13,555
9/30/98 $19,800 $23,167 $13,572
10/31/98 $20,244 $23,686 $13,604
11/30/98 $20,411 $23,418 $13,604
12/31/98 $20,504 $23,859 $13,596
</TABLE>

PERFORMANCE

TEMPLETON BOND FUND - CLASS 1
PERIODS ENDED 12/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return 7.17% 31.43% 105.04% 108.93%

Average Annual Total Return 7.17% 5.62% 7.45% 7.38%

Value of $10,000 Investment $10,717 $13,143 $20,504 $20,893
</TABLE>

[BEGIN CALL BOX]
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
[END CALL BOX]

Past performance cannot predict or guarantee of future results.

TB-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $11.06 $11.63 $11.88 $10.86 $12.15
---------------------------------------------------------------
Income from investment operations:
Net investment income..................................... .79 .80 .85 .80 .71
Net realized and unrealized gains (losses)................ (.03) (.53) .14 .76 (1.28)
---------------------------------------------------------------
Total from investment operations........................... .76 .27 .99 1.56 (.57)
---------------------------------------------------------------
Less distributions from:
Net investment income..................................... (.75) (.84) (1.24) (.54) (.55)
Net realized gains........................................ -- -- -- -- (.17)
---------------------------------------------------------------
Total distributions........................................ (.75) (.84) (1.24) (.54) (.72)
---------------------------------------------------------------
Net asset value, end of year............................... $11.07 $11.06 $11.63 $11.88 $10.86
---------------------------------------------------------------
---------------------------------------------------------------
Total Return*.............................................. 7.17% 2.51% 9.45% 14.92% (4.88)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $30,207 $31,826 $34,046 $32,910 $29,343
Ratios to average net assets:
Expenses.................................................. .73% .68% .68% .78% .90%
Net investment income..................................... 6.83% 6.90% 7.35% 7.14% 6.80%
Portfolio turnover rate.................................... 89.86% 154.23% 141.19% 188.11% 203.91%
</TABLE>

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT* VALUE
<S> <C> <C>
LONG TERM SECURITIES 93.9%
ARGENTINA 1.2%
Republic of Argentina, 10.95%, 11/01/99..................... $ 350,000 $ 357,000
-----------
AUSTRALIA 4.0%
Government of Australia, 6.75%, 11/15/06.................... 1,785,000AUD 1,222,903
-----------
BELGIUM 3.8%
Kingdom of Belgium, 6.25%, 3/28/07.......................... 33,820,000BEF 1,141,485
-----------
BRAZIL .3%
Government of Brazil, FRN, 6.188%, 4/15/09.................. 170,000 94,031
-----------
CANADA 7.4%
Government of Canada:
9.00%, 12/01/04........................................... 1,850,000CAD 1,459,308
10.25%, 3/15/14........................................... 415,000CAD 417,688
9.00%, 6/01/25............................................ 345,000CAD 344,227
-----------
2,221,223
-----------
DENMARK 2.1%
Kingdom of Denmark:
9.00%, 11/15/00........................................... 880,000DKK 150,877
8.00%, 5/15/03............................................ 2,570,000DKK 468,936
-----------
619,813
-----------
GERMANY 8.7%
Hypothekenbank In Essen AG, 5.25%, 1/22/08, Series 502...... 1,830,000DEM 1,176,491
Treuhandanstalt, 7.50%, 9/09/04............................. 2,000,000DEM 1,438,761
-----------
2,615,252
-----------
INDIA .1%
Essar Steel Ltd., FRN, 8.40%, 7/20/99, Reg S................ 50,000 36,250
-----------
ITALY 6.9%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00........................................... 1,185,000,000ITL 789,070
7.75%, 11/01/06........................................... 1,700,000,000ITL 1,285,612
-----------
2,074,682
-----------
MEXICO 4.5%
United Mexican States:
9.75%, 2/06/01............................................ 530,000 543,913
11.375%, 9/15/16.......................................... 175,000 182,000
6.25%, 12/31/19........................................... 800,000 624,500
-----------
1,350,413
-----------
NEW ZEALAND 3.7%
Government of New Zealand:
6.50%, 2/15/00............................................ 1,015,000NZD 544,475
7.00%, 7/15/09............................................ 990,000NZD 586,854
-----------
1,131,329
-----------
NORWAY 2.0%
Statkraft SF, 7.50% 11/10/99................................ 1,000,000DEM 617,195
-----------
PANAMA .5%
Republic of Panama, 8.875%, 9/30/27......................... 170,000 160,650
-----------
PERU .5%
Republic of Peru, FRN, 4.00%, 3/07/17....................... 235,000 148,637
-----------
SWEDEN 3.0%
Sweden Kingdom, 10.25%, 5/05/03............................. 5,900,000SEK 917,057
-----------
TURKEY .3%
Republic of Turkey, 9.875%, 2/23/05......................... 100,000 88,057
-----------
</TABLE>

TB-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
UNITED KINGDOM 8.2%
United Kingdom:
6.50%, 12/07/03........................................... 820,000GBP $ 1,494,213
7.50%, 12/07/06........................................... 500,000GBP 996,589
-----------
2,490,802
-----------
UNITED STATES 36.0%
Fannie Mae, 6.875%, 6/07/02................................. 475,000GBP 831,847
Ford Motor Credit Corp., 8.21%, 3/16/99..................... 1,300,000 1,307,194
U.S. Treasury Bond, 5.25%, 11/15/28......................... 4,395,000 4,506,251
U.S. Treasury Notes:
4.625%, 11/30/00.......................................... 2,550,000 2,552,392
7.25%, 8/15/04............................................ 1,072,000 1,206,000
6.125%, 11/15/27.......................................... 412,000 461,569
-----------
10,865,253
-----------
VENEZUELA .7%
Republic of Venezuela, 144A, 9.125%, 6/18/07................ 300,000 210,750
-----------
TOTAL LONG TERM SECURITIES (COST $27,810,904)............... 28,362,782
-----------
SHORT TERM INVESTMENTS 4.5%
Federal Farm Credit Banks, 5.04% to 5.09% with maturities to
1/28/99................................................... 425,000 423,664
Federal Home Loan Bank, 5.05%, 1/22/99...................... 270,000 269,293
Federal Home Loan Mortgage Corp., 5.04% to 5.147% with
maturities to 2/24/99..................................... 611,000 607,539
U.S. Treasury Bills, 4.37%, 3/04/99......................... 60,000 59,573
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,359,364).............. 1,360,069
-----------
TOTAL INVESTMENTS (COST $29,170,268) 98.4%.................. 29,722,851
NET EQUITY IN FORWARD CONTRACTS............................. (1,035)
OTHER ASSETS, LESS LIABILITIES 1.6%......................... 485,071
-----------
TOTAL NET ASSETS 100.0%..................................... $30,206,887
-----------
-----------
</TABLE>

CURRENCY ABBREVIATIONS:

AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
GBP -- British Pound
ITL -- Italian Lira
NZD -- New Zealand Dollar
SEK -- Swedish Krone

*SECURITIES TRADED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
See Notes to Financial Statements.
TB-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $29,170,268)..... $29,722,851
Cash....................................................... 29,771
Receivables:
Fund shares sold.......................................... 39
Interest.................................................. 495,437
Unrealized gain on forward exchange contracts (Note 6)..... 2,321
-----------
Total assets........................................... 30,250,419
-----------
Liabilities:
Payables:
Fund shares redeemed...................................... 1,189
To affiliates............................................. 15,307
Unrealized loss on forward exchange contracts (Note 6)..... 3,356
Accrued expenses........................................... 23,680
-----------
Total liabilities...................................... 43,532
-----------
Net assets, at value........................................ $30,206,887
-----------
Net assets consist of:
Undistributed net investment income........................ $ 1,116,147
Net unrealized appreciation................................ 557,346
Accumulated net realized loss.............................. (2,227,746)
Beneficial shares.......................................... 30,761,140
-----------
Net assets, at value........................................ $30,206,887
-----------
CLASS 1:
Net asset value per share ($30,206,887 / 2,728,741 shares
outstanding).............................................. $11.07
-----------
</TABLE>

See Notes to Financial Statements.
TB-8

PAGE

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Interest Income............................................. $ 2,301,159
Expenses:
Management fees (Note 3)................................... $ 152,272
Administrative fees (Note 3)............................... 29,088
Custodian fees............................................. 10,000
Reports to shareholders.................................... 11,600
Registration and filing fees............................... 1,900
Professional fees.......................................... 17,300
Other...................................................... 271
---------
Total expenses........................................ 222,431
-----------
Net investment income........................... 2,078,728
-----------
Realized and unrealized losses:
Net realized loss from:
Investments............................................... (534,364)
Foreign currency transactions............................. (470,084)
---------
Net realized loss..................................... (1,004,448)
Net unrealized appreciation on:
Investments............................................... 993,306
Translation of assets and liabilities denominated in
foreign currencies....................................... 21,110
---------
Net unrealized appreciation........................... 1,014,416
-----------
Net realized and unrealized gain............................ 9,968
-----------
Net increase in net assets resulting from operations........ $ 2,088,696
-----------
-----------
</TABLE>

See Notes to Financial Statements.
TB-9

PAGE

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,078,728 $ 2,268,900
Net realized gain (loss) from investments and foreign
currency transactions.................................... (1,004,448) 28,170
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 1,014,416 (1,501,377)
----------------------------
Net increase in net assets resulting from operations... 2,088,696 795,693
Distributions to shareholders from:
Net investment income - Class 1........................... (2,063,703) (2,415,770)
Fund share transactions - Class 1 (Note 2)................. (1,644,280) (599,630)
----------------------------
Net decrease in net assets............................. (1,619,287) (2,219,707)
Net assets:
Beginning of year.......................................... 31,826,174 34,045,881
----------------------------
End of year................................................ $30,206,887 $31,826,174
----------------------------
----------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 1,116,147 $ 2,029,360
----------------------------
----------------------------
</TABLE>

See Notes to Financial Statements.
TB-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Bond Fund (the Fund) is a separate, diversified series of Templeton
Variable Products Series Fund (the Trust), which is an open-end investment
company registered under the Investment Company Act of 1940. The Fund seeks high
current income through a flexible policy of investing primarily in debt
securities of companies, governments and government agencies of various nations
throughout the world. The following summarizes the Fund's significant accounting
policies.

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

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:

TB-11

PAGE

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

e. INDEXED SECURITIES (CONT.)
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. FOREIGN EXCHANGE CONTRACTS:

g. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 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>
YEAR-ENDED-DECEMBER 31,
-------------------------------------------------------
1998 1997
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 371,187 $ 3,983,652 419,880 $ 4,620,322
Shares issued on reinvestment of distributions.............. 195,983 2,063,703 225,352 2,415,770
Shares redeemed............................................. (716,054) (7,691,635) (695,358) (7,635,722)
-------------------------------------------------------
Net decrease................................................ (148,884) $(1,644,280) (50,126) $ (599,630)
-------------------------------------------------------
-------------------------------------------------------
</TABLE>

As of December 31, 1998, there were no transactions in the Fund's Class 2
shares.

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>
0.50% First $200 million
0.45% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion
</TABLE>

TB-12

PAGE

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

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:

Legal fees of $544 were paid to a law firm in which a partner is an officer of
the Fund.

4. INCOME TAXES

At December 31, 1998, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:

Capital loss carryovers expiring in:

The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At December 31, 1998, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $1,154,978
Unrealized depreciation..................................... (602,395)
----------
Net unrealized appreciation................................. $ 552,583
----------
----------
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $25,606,779 and $29,168,557, respectively.

6. OFF-BALANCE SHEET RISK

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.

TB-13

PAGE

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

6. OFF-BALANCE SHEET RISK (CONT.)
As of December 31, 1998, the Fund had the following forward exchange contracts
outstanding:

<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE GAIN/(LOSS)
- ------------------ ---------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
195,000 British Pound............................................... U.S. $326,430 1/29/99 U.S. $ 2,321
-------- -------
--------
Unrealized gain on forward exchange contracts................... 2,321
-------
CONTRACTS TO SELL:
- ------------------
325,000 British Pound............................................... U.S. $536,900 1/25/99 (3,356)
-------- -------
--------
Unrealized loss on forward exchange contracts................... (3,356)
-------
Net unrealized loss on forward exchange contracts............ U.S. $(1,035)
-------
-------
</TABLE>

TB-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
Templeton Variable Products Series Fund

We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Templeton Bond Fund, series of Templeton
Variable Products Series Fund (the Trust) as of December 31, 1998, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Templeton Bond Fund, series of Templeton Variable Products Series Fund as of
December 31, 1998, the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

New York, New York
January 28, 1999

TB-15

PAGE

This page intentionally left blank.

PAGE

TEMPLETON DEVELOPING MARKETS FUND

Investment Goal: Templeton Developing Markets Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily in
equity securities of issuers in countries having developing markets.

This annual report of Templeton Developing Markets Fund covers the 12 months
ended December 31, 1998. During this period, Asia's financial turmoil, coupled
with Russia's economic meltdown, contributed to major stock market declines in
developing countries.

In early 1998, signs of economic stability surfaced in Asia, as the
International Monetary Fund (IMF) introduced aid packages to many nations,
allowing them to restructure their long-term debt. After receiving the promise
of IMF aid, the Indonesian government started implementing the reforms required
to ensure the aid's arrival. However, when food and fuel subsidies were removed,
soaring prices sent many Indonesians protesting in the streets, and President
Suharto was forced to resign in May. Shortly after, the Japanese yen began to
fall against the U.S. dollar, reducing Japan's demand for regional imports. But
the U.S. and Japanese governments intervened to stabilize the yen in June, and
many long-suffering Asian stock markets rebounded.

Emerging markets were subjected to another crisis in late summer when Russia's
central bank suspended repayment of foreign debt and devalued the ruble.
Political chaos ensued, and Russian banks purchased U.S. dollars to the point
that ruble trading was temporarily halted. Initially, Russia's catastrophe had a
negative effect on the world's economy, especially emerging market equities, and
contributed to a major U.S. stock market correction, but it did have at least
one positive effect. It prompted the international banking community to address
complaints regarding the economies of Malaysia and Brazil.

Latin America also had its share of problems. Commodity prices, the driving
force of many Latin American economies, generally continued to decline during
the first half of 1998 due in part to lack of demand from Asia. Some Asian
countries' currency devaluations added to the region's woes as the risk grew of
cheaper Asian exports

GEOGRAPHIC DISTRIBUTION
Templeton Developing Markets Fund
Based on Total Net Assets
12/31/98

[This chart shows in pie format the geographic distribution of Templeton
Developing Markets Fund's portfolio holdings on December 31, 1998, based on
total net assets.]

Asia 52.8%
Latin America 29.5%
Middle East/Africa 9.4%
Europe 6.3%
New Zealand 0.1%
Short-Term Investments &
Other Net Assets 1.9%

TD-1

PAGE

TOP 10 COUNTRIES
REPRESENTED IN THE FUND
Templeton Developing Markets Fund
12/31/98

[This table shows the top 10 country allocations for Templeton Developing
Markets Fund's as of December 31, 1998, based on total net assets.]

% OF TOTAL
COUNTRY NET ASSETS
- --------------------------------------------------
South Korea 11.8%
Brazil 10.8%
Singapore 9.1%
Mexico 7.6%
Thailand 7.5%
South Africa 7.5%
Hong Kong 6.0%
Argentina 4.3%
Indonesia 4.3%
Philippines 3.8%

being substituted for Latin American export products, and most Latin American
stock markets experienced significant losses. However, the Asian crisis
apparently gave Latin American governments a glimpse of the possible future if
reforms were not undertaken. Some privatization efforts were accelerated during
the period, and in certain cases reforms were introduced to boost government
income to compensate for dwindling tax revenues. Towards the period's end, most
major Latin American markets, in our opinion, were striking a precarious balance
between negative factors abroad and more positive events at home.

On December 31, 1998, the Fund owned investments in 33 countries, with South
Korea being our largest country holding (11.8% of total net assets). Our largest
regional holdings were Asia (52.8%), followed by Latin America (29.5%), Middle
East/Africa (9.4%), and Europe (6.3%). Only 1.9% of the Fund's total net assets
were held in short-term investments and other net assets, down from 24.9% on
December 31, 1997. This reflected a major restructuring of the Fund's holdings
during the first half of the year, and the exceptional buying opportunities that
we found later in the year.

Looking forward, we are optimistic about developing markets' long-term prospects
if their governments institute needed reforms. In the past, investors have
generally tolerated unfair business practices and abuse of minority shareholder
rights in emerging markets. But after the economic and political turmoil of 1997
and 1998, many investors in foreign securities are not prepared to endure such
conditions. In our opinion, governments that institute reforms that create fair
and equitable markets may gain a substantial increase of investment within their
borders. Although short-term corrections remain potential risks, we believe
competition between foreign and domestic investors may increase demand and drive
equity prices higher in the long term.

TD-2

PAGE

Top 10 Holdings
Templeton Developing Markets Fund
12/31/98

[This following table shows the top 10 investment holdings of Templeton
Developing Markets Fund's on December 31, 1998, based on total net assets.]

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -----------------------------------------------------------------
Hana Bank
Banking, South Korea 2.9%

Telecomunicacoes
Brasileiras SA (Telebras)
Telecommunications, Brazil 2.6%

Cemex SA, B
Building Materials
& Components, Mexico 2.1%

Telefonos de Mexico SA
(Telmex), L, ADR
Telecommunications, Mexico 1.8%

Thai Farmers Bank
Public Co. Ltd.
Banking, Thailand 1.7%

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

Public Bank Bhd.
Banking, Malaysia 1.4%

Korea Electric Power Corp.
Utilities Electrical & Gas,
South Korea 1.4%

Compania De
Telecomunicaciones
De Chile SA, ADR
Telecommunications, Chile 1.4%

Belle Corp.
Real Estate, Philippines 1.4%

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

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. For example, while the Hong Kong equity
market has increased 1,049% in the last 15 years, it has suffered five quarterly
declines of more than 20% during that time.(1) These special risks and other
considerations are discussed in the Fund's prospectus.

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

Sincerely,

/s/J. MARK MOBIUS

Dr. J. Mark Mobius
Portfolio Manager
Templeton Developing Markets Fund

(1). Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1998. Market return is measured in local currency.

TD-3

PAGE

TEMPLETON DEVELOPING
MARKETS FUND
CLASS 1

PERFORMANCE SUMMARY AS OF 12/31/98

TOTAL RETURN INDEX COMPARISON

$10,000 INVESTMENT (3/4/96 - 12/31/98)

The Morgan Stanley Capital International (MSCI) World Index includes
approximately 1,500 companies representing the stock markets of 22 countries
including some developed countries, such as the U.S., Canada, United Kingdom and
Japan, in which the Fund is not allowed to invest. The International Finance
Corporation's (IFC) Investable Composite Index was designed to reflect the
performance of emerging market investments and includes approximately 2,000
companies that foreigners can buy in 30 countries. The MSCI Emerging Markets
Free Index covers 27 emerging markets and takes into account local market
restrictions on share ownership by foreigners. The Consumer Price Index (CPI) is
a commonly used measure of inflation. Indices include reinvested dividends. The
Fund's performance differs from an index's because an index is not managed, does
not contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. Sources for indices are MSCI and Standard & Poor's Micropal.

EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but does
not include any Contract fees, expenses or sales charges. If they had been
included, performance would be lower. These charges and deductions, particularly
for variable life policies, can have a significant effect on Contract values and
insurance benefits. See the Contract prospectus for a complete description of
these expenses, including sales charges. Past expense reductions by the
Investment Manager increased returns.

INDEX CHANGE: We are replacing the MSCI World Index with the MSCI Emerging
Markets Free Index because we believe the composition of this index provides for
a more appropriate comparison to the Fund's current and past portfolio. As
previously noted, the MSCI World Index includes the stock markets of a number of
developed countries in which the Fund does not invest.

[The following line graph hypothetically compares the performane of Templeton
Developing Markets Fund Class 1 shares to that of the MSCI World Index, the IFC
Investable Composite Index, the MSCI Emerging Markets Free Index and the
Consumer Price Index (CPI), based on a $10,000 investment from 3/4/96 -
12/31/98.]

[LINE GRAPH]

<TABLE>
<CAPTION>
Total Return Index Comparison
<S> <C> <C> <C> <C> <C>
Templeton Developing Markets MSCI World Index IFC Investable MSCI Emerging CPI
Fund-Class I Composite Index Markets Free
Index
--------------------------------------------------------------------------------------------------------
3/4/96 $10,000 $10,000 $10,000 $10,000 $10,000
3/31/96 $10,020 $10,169 $10,144 $9,974 $10,052
4/30/96 $9,980 $10,409 $10,550 $10,373 $10,091
5/31/96 $10,010 $10,420 $10,461 $10,326 $10,110
6/30/96 $9,800 $10,475 $10,584 $10,391 $10,116
7/31/96 $9,250 $10,107 $9,889 $9,681 $10,136
8/31/96 $9,250 $10,225 $10,195 $9,928 $10,155
9/30/96 $9,370 $10,627 $10,346 $10,014 $10,187
10/31/96 $9,140 $10,703 $10,123 $9,747 $10,219
11/30/96 $9,460 $11,305 $10,273 $9,911 $10,239
12/31/96 $9,430 $11,126 $10,318 $9,955 $10,239
1/31/97 $10,110 $11,261 $11,047 $10,635 $10,271
2/28/97 $10,349 $11,393 $11,587 $11,090 $10,302
3/31/97 $10,138 $11,170 $11,302 $10,799 $10,327
4/30/97 $9,896 $11,537 $11,109 $10,818 $10,340
5/31/97 $9,816 $12,251 $11,487 $11,127 $10,334
6/30/97 $9,987 $12,864 $11,983 $11,723 $10,346
7/31/97 $10,369 $13,458 $12,104 $11,898 $10,358
8/31/97 $9,373 $12,560 $10,558 $10,384 $10,378
9/30/97 $9,614 $13,244 $10,893 $10,672 $10,404
10/31/97 $7,873 $12,549 $9,110 $8,920 $10,430
11/30/97 $7,077 $12,773 $8,674 $8,595 $10,424
12/31/97 $6,675 $12,931 $8,797 $8,802 $10,411
1/31/98 $6,262 $13,293 $8,218 $8,112 $10,430
2/28/98 $6,977 $14,195 $9,056 $8,958 $10,451
3/31/98 $7,139 $14,796 $9,411 $9,347 $10,472
4/30/98 $6,902 $14,943 $9,436 $9,245 $10,491
5/31/98 $5,822 $14,758 $8,259 $7,978 $10,510
6/30/98 $5,113 $15,110 $7,417 $7,141 $10,522
7/31/98 $5,143 $15,088 $7,710 $7,368 $10,535
8/31/98 $3,950 $13,078 $5,543 $5,238 $10,547
9/30/98 $4,166 $13,312 $5,806 $5,570 $10,560
10/31/98 $4,763 $14,518 $6,478 $6,156 $10,585
11/30/98 $5,370 $15,383 $6,965 $6,668 $10,585
12/31/98 $5,277 $16,137 $6,859 $6,572 $10,579

</TABLE>

Past performance cannot predict or guarantee future results.

TD-4

PAGE

TEMPLETON DEVELOPING
MARKETS FUND
CLASS 1

PERFORMANCE

TEMPLETON DEVELOPING MARKETS FUND - CLASS 1
PERIODS ENDED 12/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (3/4/96)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return -20.94% -47.23%

Average Annual Total Return -20.94% -20.25%

Value of $10,000 Investment $7,906 $5,277

12/31/97 12/31/98
- ---------------------------------------------------------------------------------
One-Year Total Return -29.22% -20.94%
</TABLE>

Past performance cannot predict or guarantee future results.

TD-5

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996+
-------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $6.63 $9.43 $10.00
-------------------------------------
Income from investment operations:
Net investment income...................................... .07 .09 .05
Net realized and unrealized losses......................... (1.42) (2.82) (.62)
-------------------------------------
Total from investment operations............................ (1.35) (2.73) (.57)
-------------------------------------
Less distributions from:
Net investment income...................................... (.09) (.04) --
Net realized gains......................................... (.06) (.03) --
-------------------------------------
Total distributions......................................... (.15) (.07) --
-------------------------------------
Net asset value, end of year................................ $5.13 $6.63 $9.43
-------------------------------------
-------------------------------------
Total Return*............................................... (20.94)% (29.22)% (5.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $180,684 $163,459 $72,245
Ratios to average net assets:
Expenses................................................... 1.66% 1.58% 1.70%**
Expenses, excluding waiver and payments by affiliate....... 1.66% 1.58% 1.78%**
Net investment income...................................... 1.67% 1.63% 1.52%**
Portfolio turnover rate..................................... 23.22% 23.82% 9.95%
</TABLE>

*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE CONTRACT LEVEL FOR COST OF
INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY AND EXPENSE
RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE VARIABLE ANNUITY
CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING INVESTMENT VEHICLE. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
+FOR THE PERIOD MARCH 4, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996.
TD-6

PAGE

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

<TABLE>
<CAPTION>
CLASS 2
-------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997+
-------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $6.62 $9.85
-------------------------
Income from investment operations:
Net investment income...................................... .07 .04
Net realized and unrealized losses......................... (1.42) (3.27)
-------------------------
Total from investment operations............................ (1.35) (3.23)
-------------------------
Less distributions from:
Net investment income...................................... (.09) --
Net realized gains......................................... (.06) --
-------------------------
Total distributions......................................... (.15) --
-------------------------
Net asset value, end of year................................ $5.12 $6.62
-------------------------
-------------------------
Total Return*............................................... (21.03)% (32.79)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $17,287 $9,569
Ratios to average net assets:
Expenses................................................... 1.91% 1.77%**
Net investment income...................................... 1.44% 1.48%**
Portfolio turnover rate..................................... 23.22% 23.82%
</TABLE>

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES 98.1%
ARGENTINA 4.3%
Aluar Aluminio Argentino SA, B........................ Misc Materials & Commodities 8,400 $ 21,019
Astra Cia Argentina de Petroleo SA.................... Energy Sources 70,000 82,674
*Atanor Cia Nacional Para la Industria Quimica SA,
D................................................... Chemicals 161,169 91,949
Banco de Galicia y Buenos Aires SA, B................. Banking 81,205 357,624
Banco Frances SA...................................... Banking 36,000 255,830
*Buenos Aires Embotelladora SA (BAESA), B, ADR........ Beverages & Tobacco 29,000 290
*Capex SA, A.......................................... Utilities Electrical & Gas 25,000 143,379
Central Costanera SA, B............................... Utilities Electrical & Gas 35,860 87,936
Juan Minetti SA....................................... Building Materials & Components 15,300 42,113
Molinos Rio de la Plata SA, B......................... Food & Household Products 62,018 145,874
Nobleza Piccardo Sdad Industrial Comercial y
Financial........................................... Beverages & Tobacco 53,451 181,897
Perez Companc SA, B................................... Energy Sources 129,000 546,162
Quilmes Industrial SA, ADR............................ Beverages & Tobacco 107,500 1,001,094
Siderca SA, A......................................... Metals & Mining 276,000 314,923
*Sociedad Comercial del Plata Cadelplata Come......... Multi-Industry 513,950 362,661
Telecom Argentina Stet-France SA, ADR................. Telecommunications 18,800 517,000
Telefonica de Argentina SA, B, ADR.................... Telecommunications 31,830 889,251
Transportadora de Gas del Sur SA, B................... Utilities Electrical & Gas 321,515 637,173
Transportadora de Gas del Sur SA, B, ADR.............. Utilities Electrical & Gas 82,800 838,350
YPF Sociedad Anonima, ADR............................. Energy Sources 71,834 2,006,862
------------
8,524,061
------------
BOTSWANA .2%
Sechaba Brewery Holding Ltd. ......................... Beverages & Tobacco 326,700 377,723
------------
BRAZIL 10.8%
Aracruz Celulose SA, ADR.............................. Forest Products & Paper 267,200 2,137,600
Banco Bradesco SA BBD................................. Banking 156,249,544 817,295
Banco Bradesco SA BBD, pfd. .......................... Banking 178,686,488 990,854
*Banco Bradesco SA BBD, pfd., rts. ................... Banking 7,406,401 4,217
*Banco Bradesco SA BBD, rts. ......................... Banking 6,890,900 1,757
Banco do Brasil SA.................................... Banking 39,204,000 217,394
Banco do Brazil SA, pfd. ............................. Banking 13,743,000 92,132
Brasmotor SA, pfd. ................................... Multi-Industry 1,613,000 160,199
Centrais Eletricas Brasileiras SA (Electrobras)....... Utilities Electrical & Gas 31,898,000 549,123
Centrais Eletricas Brasileiras SA (Electrobras), ADR,
pfd. ............................................... Utilities Electrical & Gas 17,300 166,091
Centrais Eletricas Brasileiras SA (Electrobras), B,
pfd. ............................................... Utilities Electrical & Gas 99,568,000 1,911,837
*Centrais Geradoras Do Sul Do Brasil SA, B, pfd. ..... Utilities Electrical & Gas 161,900,000 200,993
Cia Cervejaria Brahma, pfd. .......................... Beverages & Tobacco 458,000 200,144
Cia Energetica de Minas Gerais Cemig, ADR, pfd. ...... Utilities Electrical & Gas 31,150 592,965
Cia Energetica de Minas Gerais Cemig, Br., pfd. ...... Utilities Electrical & Gas 44,619,000 849,358
Cia Vale do Rio Doce, A, pfd. ........................ Metals & Mining 78,800 1,010,883
*Companhia Energetica do Ceara, pfd. ................. Utilities Electrical & Gas 26,333,000 65,383
Companhia Paranaense De Energia-Copel, ADR............ Utilities Electrical & Gas 15,000 106,875
Companhia Siderurgica Nacional Sid Nacional CSN....... Metals & Mining 66,679,000 1,490,034
Copene-Petroquimica do Nordeste SA, A, pfd. .......... Chemicals 1,176,000 134,318
Duratex SA, pfd. ..................................... Forest Products & Paper 13,429,000 366,776
Investimentos Itau SA, pfd. .......................... Multi-Industry 5,271,000 2,922,880
*Mannesmann SA........................................ Machinery & Engineering 2,794,000 173,433
Petroleo Brasileiro SA, pfd. ......................... Energy Sources 3,772,000 427,696
Souza Cruz SA......................................... Beverages & Tobacco 42,000 271,136
*Telecomunicacoes Brasileiras SA (Telebras) unit...... Telecommunications 21,802,000 974,391
*Telecomunicacoes Brasileiras SA (Telebras) unit,
pfd. ............................................... Telecommunications 54,633,000 4,006,194
*Telecomunicacoes Brasileiras SA (Telebras), ADR...... Telecommunications 1,480 107,578
Unibanco Uniao de Bamncos Brasileiros SA, unit........ Banking 7,111,000 247,186
Vale do Rio Doce, ADR, A, pfd. ....................... Metals & Mining 9,950 127,643
------------
21,324,365
------------
</TABLE>

TD-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CHILE 3.2%
Cia Cervecerias Unidas SA, ADR........................ Beverages & Tobacco 7,500 $ 144,375
Compania De Telecomunicaciones De Chile SA, ADR....... Telecommunications 132,064 2,732,074
Empresa Nacional de Electricidad SA, ADR.............. Electrical & Electronics 149,800 1,703,975
Enersis SA, ADR....................................... Utilities Electrical & Gas 53,100 1,370,644
Madeco Manufacturera de Cobre SA, ADR................. Industrial Components 5,600 46,900
Masisa SA, ADR........................................ Forest Products & Paper 3,500 22,313
Quinenco SA, ADR...................................... Multi-Industry 30,900 247,200
Sociedad Quimica y Minera de Chile SA, ADR............ Chemicals 1,000 33,688
------------
6,301,169
------------
CHINA .7%
Beijing Datang Power Generation Co. Ltd., H........... Multi-Industry 5,000 1,501
China Resources Enterprises Ltd. ..................... Multi-Industry 184,000 287,379
Chiwan Wharf Holdings Ltd., B......................... Transportation 174,000 17,968
Guangshen Railway Co. Ltd., H......................... Transportation 2,636,000 306,225
Guangshen Railway Co. Ltd., H, ADR.................... Transportation 23,400 140,400
*Luoyang Glass Co. Ltd., H............................ Misc Materials & Commodities 835,000 26,729
Shandong Huaneng Power Development Co. Ltd., ADR...... Utilities Electrical & Gas 22,500 102,656
*Shanghai Jin Jiang Tower Co. Ltd., B................. Leisure & Tourism 18,240 1,605
*Shanghai New Asia Group Co. Ltd., B.................. Food & Household Products 34,502 4,416
Shanghai Petrochemical Co. Ltd., H.................... Chemicals 4,404,000 397,922
*Shanghai Tyre & Rubber Co. Ltd., B................... Industrial Components 545,600 54,560
*Shanghai Vacuum Electron Devices Co. Ltd., B......... Appliances & Household Durables 70,400 8,166
Yanzhou Coal Mining Company Ltd. ..................... Energy Sources 512,000 85,914
------------
1,435,441
------------
CROATIA
Pliva D D, GDR, Reg S................................. Health & Personal Care 4,600 76,360
------------
CZECH REPUBLIC 1.8%
*CEZ AS............................................... Utilities Electrical & Gas 94,900 2,097,337
*Komercni Banka AS.................................... Banking 7,950 97,684
*Komercni Banka AS, GDR............................... Banking 47,800 198,370
*SPT Telecom AS....................................... Telecommunications 71,540 1,091,050
Tabak AS.............................................. Beverages & Tobacco 260 72,638
Unipetrol............................................. Chemicals 15,862 28,522
------------
3,585,601
------------
GHANA .8%
Ashanti Goldfields Co. Ltd., GDR, Reg S............... Metals & Mining 175,959 1,649,616
------------
HONG KONG 6.0%
CDL Hotel International Ltd. ......................... Leisure & Tourism 60,447 15,527
Cheung Kong Holdings Ltd. ............................ Multi-Industry 176,000 1,266,514
China Overseas Land & Investment Ltd. ................ Real Estate 691,000 92,761
Citic Pacific Ltd. ................................... Multi-Industry 489,000 1,054,090
Cross Harbour Tunnel Co. Ltd. ........................ Transportation 61,000 54,329
Dairy Farm International Holdings Ltd. ............... Merchandising 504,370 580,026
Dickson Concepts (International) Ltd. ................ Merchandising 9,000 6,970
Golden Resources Development International Ltd. ...... Food & Household Products 2,278,000 117,616
Goldlion Holdings Ltd. ............................... Textiles & Apparel 152,000 11,576
Hang Lung Development Co. Ltd. ....................... Real Estate 758,000 812,082
Hong Kong & Shanghai Hotels Ltd. ..................... Leisure & Tourism 966,000 685,792
Hong Kong Electric Holdings Ltd. ..................... Utilities Electrical & Gas 219,900 667,030
HSBC Holdings PLC..................................... Banking 73,848 1,839,706
Hutchison Whampoa Ltd. ............................... Multi-Industry 55,000 388,686
IMC Holdings Ltd. .................................... Transportation 393,000 38,046
Jardine Matheson Holdings Ltd. ....................... Multi-Industry 259,385 669,213
Jardine Strategic Holdings Ltd. ...................... Multi-Industry 33,000 47,850
Lai Sun Development Co. Ltd. ......................... Real Estate 274,000 34,660
</TABLE>

TD-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
HONG KONG (CONT.)
Lai Sun Garment International Ltd. ................... Multi-Industry 202,000 $ 36,764
New World Development Co. Ltd. ....................... Real Estate 868,000 2,184,775
Ng Fung Hong Ltd. .................................... Food & Household Products 45,000 40,369
*Semi-Tech Co. Ltd. .................................. Appliances & Household Durables 280,217 11,574
Sun Hung Kai Properties Ltd. ......................... Real Estate 127,617 930,699
Wheelock and Company Ltd. ............................ Multi-Industry 484,890 388,050
------------
11,974,705
------------
HUNGARY 2.0%
Borsodchem RT......................................... Chemicals 12,969 337,334
Borsodchem RT, GDR, 144A.............................. Chemicals 11,000 286,275
Borsodchem RT, GDR, Reg S............................. Chemicals 8,900 231,623
*Danubius Hotel and SpA RT............................ Leisure & Tourism 7,400 155,015
Egis RT............................................... Multi-Industry 6,720 152,944
Fotex First Hungarian American Photo Service Co. ..... Multi-Industry 45,385 23,821
Gedeon Richter Ltd. .................................. Health & Personal Care 23,110 984,855
Graboplast Textil Es Muborgyarto RT................... Textiles & Apparel 7,300 55,777
Inter-Europa Bank RT.................................. Banking 3,695 178,490
Mol Magyar Olay-Es Gazipari RT........................ Energy Sources 16,520 453,102
OTP Bank.............................................. Banking 600 30,070
Pannonplast Plastic Industries Plc. .................. Industrial Components 1,060 30,009
Tiszai Vegyi Kombinat RT.............................. Chemicals 43,962 592,163
Tiszai Vegyi Kombinat RT, GDR, 144A................... Chemicals 21,000 284,550
Tiszai Vegyi Kombinat RT, GDR, Reg S.................. Chemicals 9,600 130,080
Zwack Unicum Ltd. .................................... Beverages & Tobacco 100 2,578
------------
3,928,686
------------
INDIA 2.1%
Andhra Valley Power Supply Co. Ltd. .................. Utilities Electrical & Gas 28,950 50,412
Arvind Mills Ltd. .................................... Textiles & Apparel 119,500 108,684
Bajaj Auto Ltd. ...................................... Automobiles 11,550 141,670
*Bharat Petroleum Corp. Ltd. ......................... Energy Sources 29,400 161,333
Bombay Dyeing & Manufacturing Co. Ltd. ............... Chemicals 270,300 368,595
Cummins India Ltd. ................................... Machinery & Engineering 5,000 36,180
Grasim Industries Ltd. ............................... Multi-Industry 25,000 106,068
Great Eastern Shipping Co. Ltd. ...................... Transportation 117,000 63,461
Gujarat Ambuja Cements Ltd. .......................... Building Materials & Components 1,200 7,345
Gujarat Ambuja Cements Ltd., GDR, Reg S............... Building Materials & Components 10,400 68,640
Gujarat Industries Power Ltd. ........................ Energy Equipment & Services 20,000 11,648
Gujarat Narmada Valley Fertilizers Co. Ltd., GDR...... Chemicals 9,000 19,350
Hindalco Industries Inc., GDR, Reg S.................. Metals & Mining 5,000 58,625
Hindustan Organic Chemicals Ltd. ..................... Chemicals 20,400 3,792
Hindustan Petroleum Corporation Ltd. ................. Energy Sources 38,100 210,778
*Hotel Leela Venture Ltd. ............................ Leisure & Tourism 2,000 1,831
ICICI Ltd. ........................................... Financial Services 246,500 272,914
India Cements Ltd., GDR............................... Building Materials & Components 109,590 82,192
Indian Aluminium Co. Ltd. ............................ Metals & Mining 29,000 62,031
Indian Petrochemicals Corp. Ltd. ..................... Chemicals 194,600 262,390
*Indian Rayon & Industries Ltd. ...................... Multi-Industry 1,120 2,965
Indian Rayon & Industries Ltd., GDR................... Multi-Industry 28,669 72,389
Indo Gulf Corp. Ltd. ................................. Chemicals 800 526
Indo Gulf Corp. Ltd., GDR............................. Chemicals 7,150 4,469
Industrial Development Bank of India.................. Banking 77,800 66,731
Larsen and Toubro Ltd. ............................... Multi-Industry 53,600 202,437
Larsen and Toubro Ltd., GDR, Reg S.................... Multi-Industry 5,000 38,375
Madras Cements Ltd. .................................. Building Materials & Components 65 6,211
Mahanagar Telephone Nigam Ltd. ....................... Telecommunications 55,300 238,397
National Aluminium Co. Ltd. .......................... Metals & Mining 305,800 135,643
Oriental Bank of Commerce............................. Banking 179,100 157,411
</TABLE>

TD-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
INDIA (CONT.)
Reliance Industries Ltd., GDR......................... Chemicals 18,300 $ 102,480
Satyam Computers Services Ltd. ....................... Data Processing & Reproduction 2,800 47,934
Steel Authority of India Ltd. ........................ Metals & Mining 400 53
Sterlite Industries Ltd. ............................. Metals & Mining 465 1,588
Tata Chemicals Ltd. .................................. Chemicals 69,800 166,385
Tata Engineering & Locomotive Co. Telco............... Machinery & Engineering 95,500 366,303
Tata Engineering & Locomotive Co. Telco, GDR.......... Machinery & Engineering 24,400 97,600
*Tata Hydro-Electric Power Company.................... Utilities Electrical & Gas 51,700 96,840
Tata Iron & Steel Co., Ltd. .......................... Metals & Mining 11,300 31,217
Thermax Ltd. ......................................... Energy Equipment & Services 7,400 24,901
Titan Industries Ltd. ................................ Recreation & Other Consumer Goods 69,600 155,590
Videsh Sanchar Nigam Ltd., GDR........................ Telecommunications 7,600 93,100
------------
4,207,484
------------
INDONESIA 4.3%
*Asia Pulp & Paper Co. Ltd., ADR...................... Forest Products & Paper 102,700 840,856
*PT Barito Pacific Timber TBK......................... Forest Products & Paper 1,774,000 78,101
*PT BDNI Capital Corp., fgn. ......................... Financial Services 9,000 198
*PT Charoen Pokphand Indonesia........................ Food & Household Products 1,453,500 27,425
*PT Ciputra Development............................... Real Estate 2,430,000 38,208
PT Gudang Garamm...................................... Beverages & Tobacco 320,000 468,931
*PT Indah Kiat Pulp & Paper Corp. TBK................. Forest Products & Paper 2,259,250 618,097
*PT Indah Kiat Pulp & Paper Corp. TBK, wts. .......... Forest Products & Paper 146,800 19,943
*PT Indocement Tunggal Prakarsa....................... Building Materials & Components 1,743,500 696,303
*PT Indofoods Sukses Makmurr.......................... Food & Household Products 1,210,685 616,764
PT Indosat............................................ Telecommunications 232,000 304,226
*PT Jakarta International Hotel & Development......... Real Estate 11,764,000 332,943
*PT Kalbe Farma....................................... Health & Personal Care 1,163,500 58,541
PT Lippo Life Insurance............................... Insurance 4,738,500 193,712
*PT Modern Photo Film Co. ............................ Multi-Industry 1,526,500 98,406
*PT Pakuwon Jati...................................... Real Estate 1,700,000 16,038
*PT Semen Cibinong.................................... Building Materials & Components 35,534,500 1,340,925
PT Semen Gresik (Persero)............................. Building Materials & Components 415,000 433,270
*PT Sinar Mas Agro Resources & Technology Corp. ...... Food & Household Products 482,800 103,240
*PT Sumalindo Lestari Jaya............................ Forest Products & Paper 146,000 7,346
PT Tancho Indonesia................................... Health & Personal Care 63,000 10,005
PT Telekomunikasi Indonesia (Persero), B.............. Telecommunications 658,500 223,642
*PT Tempo Scan Pacific................................ Health & Personal Care 10,325,000 551,965
PT Timah.............................................. Metals & Mining 1,289,500 871,832
*PT Tjiwi Kimia TBK................................... Forest Products & Paper 1,346,454 351,433
*PT Tjiwi Kimia TBK, wts. ............................ Forest Products & Paper 79,645 9,317
*PT Ultra Jaya Milk................................... Food & Household Products 2,740,000 215,409
*PT United Tractors................................... Machinery & Engineering 46,000 2,893
------------
8,529,969
------------
JORDAN .4%
Jordan Cement Factories Ltd. ......................... Building Materials & Components 17,000 74,017
*Zara Investment Holdings Company Ltd. ............... Leisure & Tourism 350,000 747,191
------------
821,208
------------
KAZAKHSTAN .1%
*Kazkommertsbank, ADR, 144A........................... Banking 33,460 117,110
------------
KENYA .4%
Kenya Airways Ltd. ................................... Transportation 5,418,381 714,849
------------
MALAYSIA 3.8%
AMMB Holdings Bhd. ................................... Financial Services 453,600 426,895
Boustead Holdings Bhd. ............................... Food & Household Products 403,000 252,285
Cement Industries of Malaysia Bhd. ................... Building Materials & Components 495,000 232,929
</TABLE>

TD-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
MALAYSIA (CONT.)
Cosway Corporation Bhd. .............................. Appliances & Household Durables 70,000 $ 22,205
Edaran Otomobil Nasional Bhd. ........................ Automobiles 3,000 3,781
Federal Flour Mills Bhd. ............................. Food & Household Products 35,000 27,351
Genting Bhd. ......................................... Leisure & Tourism 263,600 456,846
Golden Hope Plantations Bhd. ......................... Misc Materials & Commodities 37,000 31,868
Hong Leong Industries Bhd. ........................... Multi-Industry 206,800 103,829
*Hong Leong Industries Bhd., wts. .................... Multi-Industry 19,500 2,048
Hong Leong Properties Bhd. ........................... Real Estate 467,000 77,502
Island & Peninsula Bhd. .............................. Real Estate 447,000 285,464
Kian Joo Can Factory Bhd. ............................ Industrial Components 85,000 99,995
*Leader Universal Holdings Bhd. ...................... Industrial Components 1,452,000 320,277
Malayawata Steel Bhd. ................................ Metals & Mining 563,000 115,906
Malaysian Airlines System Bhd. ....................... Transportation 246,000 107,490
Malaysian International Shipping Corp., fgn. ......... Transportation 76,000 79,828
*MBF Capital Bhd. .................................... Financial Services 490,000 88,010
Oriental Holdings Bhd. ............................... Automobiles 47,000 57,760
Perlis Plantations Bhd. .............................. Multi-Industry 146,000 119,616
Perusahaan Otomobil Nasional Bhd. .................... Automobiles 141,000 170,317
Public Bank Bhd. ..................................... Banking 4,347,400 1,826,543
Public Bank Bhd., fgn. ............................... Banking 2,660,000 1,033,769
Renong Bhd. .......................................... Multi-Industry 1,334,000 257,818
Resorts World Bhd. ................................... Leisure & Tourism 596,000 548,391
Shangri La Hotels (Malaysia) Bhd. .................... Leisure & Tourism 53,000 14,140
Tanjong Plc. ......................................... Recreation & Other Consumer Goods 241,000 273,389
Technology Resources Industries Bhd. ................. Multi-Industry 437,000 181,768
YTL Corp. Bhd. ....................................... Construction & Housing 203,000 210,665
------------
7,428,685
------------
MEXICO 7.6%
Alfa SA de CV, A...................................... Multi-Industry 236,500 665,978
*Altos Hornos de Mexico SA............................ Metals & Mining 297,700 267,298
Cemex SA.............................................. Building Materials & Components 616,990 1,331,925
Cemex SA, B........................................... Building Materials & Components 1,147,500 2,883,253
*Cifra SA de CV, C.................................... Merchandising 233,500 288,038
*Cifra SA de CV, V.................................... Merchandising 404,500 490,799
Coca Cola Femsa SA de CV, L, ADR...................... Beverages & Tobacco 60,700 804,275
Cydea SA de CV, A..................................... Multi-Industry 31,000 28,210
DESC SA de CV DESC, B................................. Multi-Industry 295,000 252,942
*Grupo Financiero Banamex Accival SA de CV, B......... Banking 1,082,500 1,422,902
*Grupo Financiero Banamex Accival SA de CV, L......... Banking 1,020,000 1,175,733
Grupo Financiero Bancomer SA de CV, B................. Banking 350,000 75,025
Grupo Financiero Bancomer SA de CV, L................. Banking 3,751,000 530,981
*Grupo Financiero Serfin SA de CV, B.................. Banking 2,385,000 212,214
*Grupo Industrial Maseca SA de CV, B.................. Food & Household Products 109,000 88,170
Hylsamex SA de CV, partn. ctf., B..................... Metals & Mining 5,000 6,218
Panamerican Beverages Inc., A......................... Food & Household Products 30,000 654,375
Telefonos de Mexico SA (Telmex), L, ADR............... Telecommunications 75,100 3,656,431
Vitro SA De CV........................................ Food & Household Products 157,500 230,915
------------
15,065,682
------------
NEW ZEALAND .1%
Brierley Investments Ltd. ............................ Multi-Industry 713,000 161,956
------------
PAKISTAN .8%
*Bank of Punjab....................................... Banking 124,822 25,466
*DG Khan Cement Co. .................................. Building Materials & Components 2,258,000 163,393
Engro Chemical Pakistan Ltd. ......................... Chemicals 132,112 238,864
Fauji Fertilizer Co. Ltd. ............................ Chemicals 37,000 34,062
National Development Leasing Corp. ................... Financial Services 3,558,291 257,484
</TABLE>

TD-12

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
PAKISTAN (CONT.)
*Pakistan Electron Ltd. .............................. Appliances & Household Durables 556,500 $ 39,151
*Pakistan International Airlines Corp., A............. Transportation 774,600 63,058
Pakistan Telecommunications Corp., A.................. Telecommunications 1,109,000 423,538
Pakistan Telecommunications Corp., GDR................ Telecommunications 1,000 34,500
*Pakland Cement Co. Ltd. ............................. Building Materials & Components 1,397,800 118,005
*Union Bank Ltd. ..................................... Banking 1,287,000 284,563
------------
1,682,084
------------
PERU 1.0%
Banco Wiese Ltd., ADR................................. Multi-Industry 14,500 27,188
Telefonica Del Peru SA, B, ADR........................ Telecommunications 154,200 1,956,413
------------
1,983,601
------------
PHILIPPINES 3.8%
*A Soriano Corp. ..................................... Multi-Industry 6,456,500 137,761
Ayala Corp. .......................................... Multi-Industry 368,200 130,148
Bank of Philippine Islands............................ Banking 45,000 95,437
*Belle Corp. ......................................... Real Estate 48,777,000 2,683,362
*Digital Telecommunications Philippines Inc. ......... Telecommunications 15,191,000 370,988
*Filinvest Development Corp. ......................... Real Estate 2,639,000 86,836
*Keppel Philippine Holdings Inc., B................... Machinery & Engineering 19,425,186 349,553
Manila Electric Co., B................................ Utilities Electrical & Gas 40 129
*Metro Pacific Corp. MDI.............................. Multi-Industry 497,000 18,142
*Petron Corp. ........................................ Energy Sources 1,389,000 151,754
*Philex Mining Corp., B............................... Metals & Mining 9,487,500 75,607
Philippine Commercial International Bank Inc. ........ Banking 283,060 1,178,810
Philippine Long Distance Telephone Co., ADR........... Telecommunications 20,100 521,344
*Philippine National Bank............................. Banking 701,931 1,082,670
RFM Corp. ............................................ Food & Household Products 1,587,636 244,880
San Miguel Corp., B................................... Food & Household Products 103,000 198,586
*Southeast Asia Cement Holdings Inc. ................. Building Materials & Components 16,381,240 202,134
------------
7,528,141
------------
POLAND 1.5%
Bank Handlowy W Warszawie SA, GDR, Reg S.............. Banking 6,700 86,765
Bank Przemyslowo-Handlowy SA.......................... Banking 3,550 210,370
Bank Rozwoju Eksportu SA.............................. Banking 5,748 132,646
Bank Slaski SA W Katowicach........................... Banking 3,200 165,926
Big Bank Gdanski SA, G................................ Banking 658,950 591,365
Big Bank Gdanski SA, GDR, Reg S....................... Banking 23,966 324,739
Farm Food SA.......................................... Food & Household Products 4,811 16,037
Gorazdze SA........................................... Building Materials & Components 1,578 26,525
Huta Olawa SA......................................... Metals & Mining 78,107 117,939
*Impexmetal SA........................................ Metals & Mining 93,892 358,448
Lentex SA............................................. Building Materials & Components 19,090 70,704
Przedsiebiorstwo Cukiernicze Jutrzenka SA............. Food & Household Products 71,000 279,145
*Rolimpex SA.......................................... Wholesale & International Trade 39,117 63,523
Warta SA.............................................. Insurance 14,709 301,723
Wielkopolski Bank Kredytowy SA........................ Banking 38,500 242,407
------------
2,988,262
------------
RUSSIA .5%
Aeroflot-Russia International Airlines................ Transportation 4,800 115,200
*Arkhangelsk Telecom, pfd. ........................... Telecommunications 260,000 9,074
*Chelyabenergo........................................ Utilities Electrical & Gas 20,000 800
Irkutskenergo......................................... Utilities Electrical & Gas 680,800 30,466
Irkutskenergo, ADR.................................... Utilities Electrical & Gas 7,000 15,663
*JSC Gorkovsky Augomobile Plant....................... Automobiles 1,270 23,178
*Kamaz, B............................................. Automobiles 121,186 27,255
</TABLE>

TD-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
RUSSIA (CONT.)
Krasnoyarsk Aluminum Plant............................ Metals & Mining 5,748 $ 20,118
Lukoil Holdings, ADR.................................. Energy Sources 3,320 53,784
Mosenergo............................................. Utilities Electrical & Gas 5,937,200 118,744
Mosenergo, ADR........................................ Utilities Electrical & Gas 3,000 5,625
*Murmansk Sea Shipping................................ Transportation 3,000 357
Norilsk Nickel........................................ Metals & Mining 31,700 16,880
Norilsk Nickel, pfd. ................................. Metals & Mining 10,000 3,250
*Novorosissk Sea Shipping............................. Transportation 28,000 2,100
Novorosissk Sea Shipping., pfd. ...................... Transportation 224,000 3,651
Primorsk Sea Shipping................................. Transportation 36,050 21,540
Red October........................................... Food & Household Products 3,000 19,650
Rostelecom............................................ Telecommunications 153,000 111,690
Rostelecom, ADR....................................... Telecommunications 11,600 48,575
Rostelecom, pfd. ..................................... Telecommunications 257,300 74,617
Saint Petersburg City Telephone Network, pfd., A...... Telecommunications 53,000 8,745
Tsum Trade House...................................... Merchandising 317,500 47,625
Unified Energy Systems................................ Utilities Electrical & Gas 3,400,000 103,700
Unified Energy Systems, ADR........................... Utilities Electrical & Gas 11,000 33,759
Unified Energy Systems, pfd. ......................... Utilities Electrical & Gas 200,000 2,750
*Uralmash Zavody...................................... Machinery & Engineering 15,032 8,621
*Vimpel Communications, ADR........................... Telecommunications 5,200 67,275
------------
994,692
------------
SINGAPORE 9.1%
Acer Computer International Ltd. ..................... Electrical & Electronics 195,000 97,500
Acma Ltd. ............................................ Electrical & Electronics 294,000 129,182
City Developments Ltd. ............................... Real Estate 277,000 1,200,333
Cycle & Carriage Ltd. ................................ Automobiles 186,000 636,909
Delgro Corp. ......................................... Transportation 50,500 65,497
First Capital Corp. Ltd. ............................. Real Estate 504,000 336,000
Fraser and Neave Ltd. ................................ Beverages & Tobacco 412,000 1,203,539
Hai Sun Hup Group Ltd. ............................... Transportation 714,000 179,582
*Hai Sun Hup Group Ltd., wts. ........................ Transportation 82,600 6,007
Hind Hotels International Ltd. ....................... Leisure & Tourism 32,000 21,915
Hong Leong Finance Ltd., fgn. ........................ Financial Services 541,000 1,036,097
Hour Glass Ltd. ...................................... Merchandising 1,199,000 199,833
*Inchcape Marketing Services Ltd. .................... Broadcasting & Publishing 153,000 83,455
Inchcape Motors Ltd. ................................. Wholesale & International Trade 143,000 165,533
Isetan (Singapore) Ltd. .............................. Merchandising 49,000 44,545
Jurong Shipyard Ltd. ................................. Machinery & Engineering 194,000 852,424
Keppel Corp., Ltd. ................................... Transportation 745,000 1,995,697
MCL Land Ltd. ........................................ Real Estate 605,000 436,333
Metro Holdings Ltd. .................................. Wholesale & International Trade 39,000 36,636
Natsteel Ltd. ........................................ Metals & Mining 1,229,000 1,348,176
*Neptune Orient Lines Ltd. ........................... Transportation 317,000 101,824
*Osprey Maritime Ltd. ................................ Transportation 267,000 82,527
Osprey Maritime Ltd., 2.50%, cvt., pfd. .............. Transportation 69,660 21,109
Overseas Chinese Banking Corp. Ltd., fgn. ............ Banking 335,000 2,273,939
Overseas Union Enterprise Ltd. ....................... Leisure & Tourism 120,400 239,341
Overseas Union Trust, fgn. ........................... Financial Services 200,000 218,182
Robinson & Co., Ltd. ................................. Merchandising 20,200 45,297
Sembawang Resources Ltd. ............................. Building Materials & Components 8,000 6,255
*Sembcorp Industries Ltd. ............................ Multi-Industry 1,367,925 1,558,605
Singapore Petroleum Company, fgn. .................... Chemicals 133,000 54,812
Tibs Holdings Ltd. ................................... Transportation 71,500 44,200
Times Publishing Ltd. ................................ Broadcasting & Publishing 26,000 40,655
United Industrial Corporation Ltd. ................... Real Estate 1,565,000 626,000
</TABLE>

TD-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
SHARES/
INDUSTRY PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SINGAPORE (CONT.)
United Overseas Bank Ltd., fgn. ...................... Banking 391,000 $ 2,511,879
United Overseas Land Ltd. ............................ Real Estate 109,000 73,988
WBL Corp. Ltd. ....................................... Multi-Industry 87,000 55,891
------------
18,029,697
------------
SLOVAK REPUBLIC .2%
Nafta Gbely AS........................................ Utilities Electrical & Gas 6,695 58,178
Slovakofarma AS....................................... Health & Personal Care 629 30,404
Slovnaft AS........................................... Chemicals 11,000 197,149
Vychodoslovenske Zeleziarne AS........................ Metals & Mining 22,857 111,104
------------
396,835
------------
SLOVENIA .2%
Blagovno Trgovinski Center, GDR, 144A................. Real Estate 50,000 271,250
Blagovno Trgovinski Center, GDR, Reg S................ Real Estate 13,000 70,525
------------
341,775
------------
SOUTH AFRICA 7.5%
Aeci Ltd. ............................................ Chemicals 63,600 81,085
*Allied Electronics Ltd., pfd. ....................... Electrical & Electronics 12,882 10,730
Amalgamated Banks of South Africa Ltd. ............... Banking 35,800 169,788
Anglo American Industrial Corp. Ltd. ................. Multi-Industry 71,779 1,092,044
Anglo American Corp of South Africa Ltd. ............. Metals & Mining 44,400 1,251,374
Anglogold Ltd. ....................................... Metals & Mining 500 19,481
Anglovaal Industried Ltd. ............................ Multi-Industry 168,840 213,821
Barlow Ltd. .......................................... Multi-Industry 173,000 664,621
CG Smith Ltd. ........................................ Multi-Industry 344,800 782,471
De Beers/Centenary Linked Units....................... Misc Materials & Commodities 102,500 1,306,787
*Del Monte Royal Foods Ltd. .......................... Food & Household Products 1,411,300 374,252
Dunlop Africa Ltd. ................................... Industrial Components 256,200 78,392
Edgars Stores Ltd. ................................... Textiles & Apparel 14,794 44,638
Irvin & Johnson Ltd. ................................. Food & Household Products 1,138,200 386,962
Iscor Ltd. ........................................... Metals & Mining 2,859,390 515,227
Kersaf Investments Ltd. .............................. Leisure & Tourism 204,367 623,584
Liberty Life Association of Africa Ltd. .............. Insurance 63,500 874,336
Malbak Ltd. .......................................... Multi-Industry 104,075 46,883
McCarthy Retail Ltd. ................................. Multi-Industry 302,692 47,852
**McCarthy Retail Ltd., zero cpn., cvt., 9/30/03...... Multi-Industry 11,833ZAR 6,839
Nedcor Ltd. .......................................... Financial Services 2,800 47,692
Palabora Mining Co. Ltd. ............................. Metals & Mining 29,500 162,977
Polifin Ltd. ......................................... Chemicals 13,600 11,559
Power Technologies Ltd. .............................. Utilities Electrical & Gas 12,882 7,883
*Rainbow Chicken Ltd. ................................ Food & Household Products 533,285 23,570
Rembrandt Group Ltd. ................................. Multi-Industry 185,100 1,132,736
Reunert Ltd. ......................................... Electrical & Electronics 160,500 223,722
Sappi Ltd. ........................................... Forest Products & Paper 253,173 979,080
Sasol Ltd. ........................................... Energy Sources 250,500 947,452
South African Breweries Ltd. ......................... Beverages & Tobacco 99,379 1,674,125
Sun International (South Africa) Ltd. ................ Leisure & Tourism 1,718,937 283,434
Tongaat-Hulett Group Ltd. ............................ Multi-Industry 92,402 604,730
Toyota South Africa Limited........................... Automobiles 26,200 60,125
Voltex Holdings Ltd. ................................. Electrical & Electronics 27,381 9,309
------------
14,759,561
------------
SOUTH KOREA 11.8%
Asia Cement Manufacturing Co. Ltd. ................... Building Materials & Components 61,820 699,170
*Boram Bank Co. Ltd. ................................. Banking 54,300 135,694
BYC Co. Ltd. ......................................... Textiles & Apparel 1,190 45,522
Cheil Jedang Corp. ................................... Food & Household Products 1,300 59,135
</TABLE>

TD-15

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SOUTH KOREA (CONT.)
*Cho Hung Bank Co. Ltd. .............................. Banking 64,000 $ 63,867
Cho Hung Bank Co. Ltd., GDR 144A...................... Banking 90,000 85,500
*Cho Hung Bank Co. Ltd., GDR, Reg S................... Banking 94,000 89,300
*Daegu Bank Co. Ltd. ................................. Banking 143,655 513,694
Electronic Components &
Daewoo Electric Components Co. Ltd. .................. Instruments 45,000 187,110
*Daewoo Electronics Co. .............................. Electrical & Electronics 78,200 367,426
Dongbu Steel Co. Ltd. ................................ Metals & Mining 10,000 60,707
Dongkuk Steel Mill Co. Ltd. .......................... Metals & Mining 17,700 125,114
Hae In Co. Ltd. ...................................... Merchandising 430,000 2,503,118
Hana Bank............................................. Banking 420,126 4,646,716
Hana Bank, GDR, Reg S................................. Banking 88,073 1,107,518
*Hotel Shilla Co. .................................... Leisure & Tourism 326,107 1,925,455
Kolon International Corp. ............................ Wholesale & International Trade 358,000 1,220,624
Korea Electric Power Corp. ........................... Utilities Electrical & Gas 115,200 2,854,852
*Kyong Nam Bank....................................... Banking 402,460 1,104,464
Kyung Dong Boiler Co. Ltd. ........................... Energy Equipment & Services 15,460 154,279
LG Electronics Inc. .................................. Electrical & Electronics 20,976 254,677
LG Industrial Systems Ltd. ........................... Electrical & Electronics 15,000 86,694
Moon Bae Steel Co. Ltd. .............................. Metals & Mining 21,360 195,393
Saehan Precision Co. Ltd. ............................ Electrical & Electronics 73,112 1,155,200
Samsung Display Devices Ltd. ......................... Electrical & Electronics 17,267 851,504
Samsung Electronics Co. Ltd. ......................... Electrical & Electronics 15,225 1,021,753
*Samsung Heavy Industries Co. Ltd. ................... Machinery & Engineering 142,477 810,430
Seah Steel Corp. ..................................... Metals & Mining 32,760 280,605
Shin Poong Paper Manufacturing Co. Ltd. .............. Forest Products & Paper 6,701 55,447
Shin Young Wocoal Inc. ............................... Textiles & Apparel 1,610 59,178
Ssangyong Oil Refining Co. Ltd. ...................... Chemicals 15,270 292,067
*Tong Yang Merchant Bank.............................. Financial Services 67,797 385,639
------------
23,397,852
------------
SRI LANKA .1%
National Development Bank of Sri Lanka................ Banking 118,000 220,722
Sampath Bank Ltd. .................................... Banking 91,100 65,566
------------
286,288
------------
THAILAND 7.5%
Advanced Info Service Public Co. Ltd., fgn. .......... Telecommunications 31,900 189,635
Ayudhya Insurance Public Co. Ltd., fgn. .............. Insurance 3,900 13,685
*Bangkok Bank Public Co. Ltd. ........................ Banking 1,249,687 1,788,461
*Bangkok Bank Public Co. Ltd., fgn. .................. Banking 25,000 51,603
*Bangkok Expressway Public Co. Ltd., fgn. ............ Transportation 129,000 129,586
Bangkok Insurance Public Co. Ltd. .................... Insurance 32,000 118,894
Bangkok Insurance Public Co. Ltd., fgn. .............. Insurance 4,900 23,634
BEC World Public Co Ltd., fgn. ....................... Telecommunications 23,000 126,600
*Charoen Pokphand Feedmill Public Co. Ltd. ........... Food & Household Products 351,300 427,825
*Charoen Pokphand Feedmill Public Co. Ltd., fgn. ..... Food & Household Products 146,700 179,666
*Hana Microelectronics Co. Ltd., fgn. ................ Electrical & Electronics 86,200 208,768
Industrial Finance Corp. of Thailand, fgn. ........... Financial Services 1,486,500 613,665
*Italian-Thai Development Public Co. Ltd., fgn. ...... Construction & Housing 101,100 203,118
*Jasmine International Public Co. Ltd., fgn. ......... Telecommunications 678,000 169,803
*Land and House Public Co. Ltd. ...................... Real Estate 484,978 306,990
*Land and House Public Co. Ltd., fgn. ................ Real Estate 184,278 124,255
*Regional Container Lines Public Co. Ltd. ............ Transportation 349 183
Regional Container Lines Public Co. Ltd., fgn. ....... Transportation 231,451 114,659
Saha Pathanapibul Public Co. Ltd., fgn. .............. Food & Household Products 430,500 438,379
*Saha Union Public Co. Ltd. .......................... Multi-Industry 560,100 227,370
Saha Union Public Co. Ltd., fgn. ..................... Multi-Industry 27,200 11,416
*Sanyo Universal Electric Public Co Ltd., fgn. ....... Appliances & Household Durables 109,800 20,398
*Serm Suk Public Co. Ltd. ............................ Food & Household Products 31,100 158,774
</TABLE>

TD-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND (CONT.)
*Serm Suk Public Co. Ltd., fgn. ...................... Food & Household Products 4,900 $ 27,241
*SG Asia Credit Public Co. Ltd. ...................... Financial Services 7,000 2,312
*SG Asia Credit Public Co. Ltd., fgn. ................ Financial Services 1,000 330
*Shinawatra Computer & Comm. Public Co. Ltd. ......... Electrical & Electronics 900 2,972
*Shinawatra Computer & Comm. Public Co. Ltd., fgn. ... Electrical & Electronics 5,700 19,609
*Siam Cement Public Co. Ltd. ......................... Building Materials & Components 22,750 350,626
*Siam Cement Public Co. Ltd., fgn. ................... Building Materials & Components 84,950 1,926,484
*Siam Commercial Bank Ltd., fgn. ..................... Banking 915,497 548,013
*Siam Commercial Bank Ltd., loc. ..................... Banking 47,204 22,735
Siam Makro Public Company Ltd., fgn. ................. Merchandising 307,900 601,649
*Thai Airways International Public Co. Ltd., fgn. .... Transportation 516,000 667,456
*Thai Engine Manufacturing Public Company Ltd. ....... Machinery & Engineering 83,000 20,787
*Thai Farmers Bank Public Co. Ltd. ................... Banking 1,322,008 1,946,537
*Thai Farmers Bank Public Co. Ltd., fgn. ............. Banking 772,025 1,359,835
*Thai Military Bank Ltd., fgn. ....................... Banking 755,300 201,635
*Thai Petrochemical Industry Public Co. Ltd., fgn. ... Chemicals 795,120 131,298
*Thai Plastic and Chemical Co. Ltd., fgn. ............ Chemicals 2,200 3,875
Thai Rayon Public Co. Ltd. ........................... Textiles & Apparel 34,900 34,338
Thai Rayon Public Co. Ltd., fgn. ..................... Textiles & Apparel 100 98
*Thai Telephone & Telecommunication Public Co.
Ltd.,fgn. .......................................... Telecommunications 866,500 128,777
Thai Wacoal Public Co. Ltd., fgn. .................... Textiles & Apparel 31,100 36,805
*Tipco Asphalt Public Co. Ltd., fgn. ................. Building Materials & Components 97,400 158,156
*Total Access Communication Public Co. Ltd. .......... Telecommunications 481,200 827,664
*United Communications Industries, fgn. .............. Telecommunications 307,500 165,027
------------
14,831,626
------------
TURKEY 2.8%
Akbank................................................ Banking 88,530,776 1,796,439
Alarko Sanayii ve Ticaret SA.......................... Appliances & Household Durables 1,550,249 70,041
*Alcatel Teletas...................................... Telecommunications 1,603,000 67,342
*Anadolu Anonim Turk Sigorta Sirketi, Br. ............ Insurance 17,000 197
Arcelik AS, Br. ...................................... Appliances & Household Durables 11,012,000 317,721
Beko Elektronik AS.................................... Appliances & Household Durables 1,204,000 15,842
Borusan AS............................................ Industrial Components 24,821,000 676,793
Erciyas Biracilik..................................... Food & Household Products 3,216,000 214,128
*Eregli Demir ve Celik Fabrikalari AS................. Metals & Mining 3,452,000 142,283
Haci Omer Sabanci Holding AS, ADR, 144A............... Multi-Industry 47,900 179,625
Izocam Ticaret ve Sanayii AS, Br. .................... Building Materials & Components 68,336,000 649,994
Kartonsan Karton San VE TIC AS........................ Forest Products & Paper 3,034,000 105,815
*Netas Northern Electric Telekomunic Asyon AS......... Electrical & Electronics 2,226,200 40,938
Petkim Petrokimya Holding AS.......................... Chemicals 222,000 100,301
Tat Konserve Sanayii AS............................... Food & Household Products 2,235,296 79,731
*Tofas Turk Otomobil Fabrikasi AS..................... Automobiles 19,267,500 174,104
Turk Demir Dokum, Br. ................................ Appliances & Household Durables 31,943,996 354,483
*Turkiye Garanti Bankasi AS........................... Banking 18,279,108 452,052
*Turkiye Is Bankasi AS, C............................. Banking 3,047,000 79,218
------------
5,517,047
------------
VENEZUELA 2.6%
Ceramica Carabobo CA, A, ADR.......................... Building Materials & Components 7,364 6,196
Compania Anonima Nacional Telefonos de Venezuela,
ADR................................................. Telecommunications 109,600 1,952,250
Electricidad de Caracas SAICA SACA.................... Utilities Electrical & Gas 6,077,363 2,623,632
Mavesa SA, ADR........................................ Food & Household Products 102,100 382,875
Siderurgica Venezolana Sivensa Saica Services, A,
ADR................................................. Metals & Mining 15,900 74,429
Venezolana de Cementos-Vencemos SA, #1................ Building Materials & Components 94,000 61,611
Venezolana de Cementos-Vencemos SA, #2................ Building Materials & Components 10,400 6,909
------------
5,107,902
------------
</TABLE>

TD-17

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
ZIMBABWE .1%
Delta Corp. .......................................... Multi-Industry 238,250 $ 51,856
*TA Holdings.......................................... Multi-Industry 5,428,000 94,806
Zimbabwe Sun Ltd. .................................... Multi-Industry 1,354,854 76,453
------------
223,115
------------
TOTAL LONG TERM SECURITIES (COST $283,337,523)........ 194,293,148
------------
PRINCIPAL
AMOUNT**
-----------
SHORT TERM INVESTMENTS 2.1%
Den Danske Bank, 4.50%, 1/04/99, Time Deposit......... $ 1,188,000 1,188,000
Fannie Mae, 5.53%, 3/11/99............................ 1,000,000 1,001,530
Federal Farm Credit Banks, 4.90%, 3/01/99............. 1,950,000 1,949,665
Federal Home Loan Mortgage Corp., 4.92%, 2/17/99...... 60,000 59,628
------------
TOTAL SHORT TERM INVESTMENTS (COST $4,196,336)........ 4,198,823
------------
TOTAL INVESTMENTS (COST $287,533,859) 100.2%.......... 198,491,971
OTHER ASSETS, LESS LIABILITIES (.2%).................. (521,229)
------------
TOTAL NET ASSETS 100.0%............................... $197,970,742
------------
------------
</TABLE>

CURRENCY ABBREVIATION:

<TABLE>
<S> <C>
ZAR -- South African Rand
</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
See Notes to Financial Statements.
TD-18

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $287,533,859).... $198,491,971
Receivables:
Investment securities sold................................ 253,451
Fund shares sold.......................................... 53,381
Dividends and interest.................................... 757,200
------------
Total assets........................................... 199,556,003
------------
Liabilities:
Payables:
Investment securities purchased........................... 72,137
Fund shares redeemed...................................... 1,076,302
To affiliates............................................. 244,136
Funds advanced by custodian................................ 108,629
Accrued expenses........................................... 84,057
------------
Total liabilities...................................... 1,585,261
------------
Net assets, at value........................................ $197,970,742
============
Net assets consist of:
Undistributed net investment income........................ $ 2,509,738
Net unrealized depreciation................................ (89,041,888)
Accumulated net realized loss.............................. (30,182,087)
Beneficial shares.......................................... 314,684,979
------------
Net assets, at value........................................ $197,970,742
============
CLASS 1:
Net asset value per share ($180,683,971 / 35,201,636 shares
outstanding)............................................. $5.13
============
CLASS 2:
Net asset value per share ($17,286,771 / 3,379,025 shares
outstanding).............................................. $5.12
============
</TABLE>

See Notes to Financial Statements.
TD-19

PAGE

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $422,818)
Dividends.................................................. $ 4,090,258
Interest................................................... 1,927,642
------------
Total investment income............................... $ 6,017,900
Expenses:
Management fees (Note 3)................................... 2,255,183
Administrative fees (Note 3)............................... 172,848
Distribution fees - Class 2 (Note 3)....................... 33,388
Custodian fees............................................. 476,000
Reports to shareholders.................................... 55,574
Registration and filing fees............................... 2,500
Professional fees.......................................... 29,100
Trustees' fees and expenses................................ 5,000
------------
Total expenses........................................ 3,029,593
------------
Net investment income........................... 2,988,307
------------
Realized and unrealized losses:
Net realized loss from:
Investments............................................... (24,377,039)
Foreign currency transactions............................. (428,784)
------------
Net realized loss..................................... (24,805,823)
Net unrealized depreciation on investments............ (20,073,422)
------------
Net realized and unrealized loss............................ (44,879,245)
------------
Net decrease in net assets resulting from operations........ $(41,890,938)
------------
------------
</TABLE>

See Notes to Financial Statements.
TD-20

PAGE

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,988,307 $ 2,418,652
Net realized loss from investments and foreign currency (24,805,823) (3,846,233)
transactions.............................................
Net unrealized depreciation on investments................ (20,073,422) (67,576,957)
------------------------------
Net decrease in net assets resulting from operations... (41,890,938) (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.................................................. 60,604,424 157,129,181
Class 2.................................................. 10,581,714 13,354,870
------------------------------
Net increase in net assets............................. 24,942,489 100,783,087
Net assets:
Beginning of year.......................................... 173,028,253 72,245,166
------------------------------
End of year................................................ $197,970,742 $173,028,253
------------------------------
------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 2,509,738 $ 2,681,614
------------------------------
------------------------------
</TABLE>

See Notes to Financial Statements.
TD-21

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

Certain countries in which the Fund invests have imposed restrictions on the
repatriation of their currencies. Other countries have previously instituted
currency exchange controls in the past during periods of serious imbalance in
their balance of payments or upon the occurrence of other destabilizing events.
Exchange control regulations may restrict the Fund's ability to convert
investment income, capital, or the proceeds of securities into U.S. dollars. As
of December 31, 1998, the Fund has investments with a value of approximately $7
million in countries with restrictions on the repatriation of their currencies
or formal exchange controls currently in place.

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-22

PAGE

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.

e. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1998, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR-ENDED-DECEMBER-31,
-------------------------------------------------------------
1998 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 11,021,993 $ 62,483,672 17,460,410 $161,550,248
Shares issued on reinvestment of distributions.............. 591,604 4,070,234 66,963 696,426
Shares redeemed............................................. (1,052,335) (5,949,482) (547,862) (5,117,493)
-------------------------------------------------------------
Net increase................................................ 10,561,262 $ 60,604,424 16,979,511 $157,129,181
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR-ENDED-DECEMBER-31,
-------------------------------------------------------------
1998 1997*
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 4,365,526 $ 23,618,013 1,574,880 $ 14,398,499
Shares issued on reinvestment of distributions.............. 41,058 282,477 -- --
Shares redeemed............................................. (2,472,343) (13,318,776) (130,096) (1,043,629)
-------------------------------------------------------------
Net increase................................................ 1,934,241 $ 10,581,714 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 Assets
Management Ltd. (TAML), Franklin Templeton Services, Inc. (FT Services) and
Franklin/Templeton Distributors, Inc. (Distributors), the Fund's investment
manager, administrative manager and principal underwriter, respectively.

TD-23

PAGE

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

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

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

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 $9,087 were paid to a law firm in which a partner is an officer of
the Fund.

4. INCOME TAXES

At December 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $293,955,327 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 12,171,870
Unrealized depreciation..................................... (107,635,226)
-------------
Net unrealized depreciation................................. $ (95,463,356)
-------------
-------------
</TABLE>

Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of passive foreign investment
companies, wash sales and losses realized subsequent to October 31 on the sales
of securities and foreign currencies.

At December 31, 1998, the Fund had tax basis capital losses of $22,600,000 which
may be carried over to offset future capital gains. Such losses expire December
31, 2006.

At December 31, 1998, the Fund had deferred capital and currency losses
occurring subsequent to October 31, 1998 of $1,500,000. For tax purposes, such
losses will be reflected in the year ending December 31, 1999.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $143,995,562 and $34,177,876, respectively.

TD-24

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
Templeton Variable Products Series Fund

We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Templeton Developing Markets Fund, series
of Templeton Variable Products Series Fund (the Trust) as of December 31, 1998,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended and
the financial highlights for periods indicated in the accompanying financial
statements. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Templeton Developing Markets Fund, series of Templeton Variable Products Series
Fund as of December 31, 1998, the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

New York, New York
January 28, 1999

TD-25

PAGE

This page intentionally left blank.

PAGE

TEMPLETON INTERNATIONAL FUND

Investment Goal: 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.

Tremendous volatility and a dramatic regional divergence in stock market
performance marked 1998. While many European markets turned in 20%+ returns,
many stock markets in Asia and Latin America suffered substantial stock declines
as several countries experienced economic contractions. The economic slowdown in
Asia negatively impacted the price of numerous raw materials, from oil to
metals, helping to drag down growth in countries dependent on exports of those
materials, particularly Mexico, Brazil, Chile and Russia. While some of our Hong
Kong investments performed well, Latin America continued to lag and negatively
affected the Fund's 1998 performance. Our exposure to Latin America and cyclical
industries were the main reasons behind the poor short-term performance of the
Fund versus the MSCI EAFE Index.

During the reporting period, Europe continued to outperform most world markets
due largely, we think, to tight fiscal policies, export-led economic recoveries
(aided by the strong US dollar) and lower interest rates as governments moved
towards meeting the January 1999 European Union convergence criteria. Many
European companies responded to global competition by aggressively reducing
costs, selling off unproductive assets and improving returns on invested
capital. Reflecting the trends discussed above, the ten most significant
contributors to the Fund's performance this year are all European holdings.
Beneficiaries of lower interest rates included banks and financial services
companies (AXA-UAP, Skandia, Julius Baer Holding and Zurich Allied AG). We took
advantage of this strength and reduced our holdings of financial stocks we
believed to be fully valued. We redeployed some of the funds into the UK, which
we believe offers some of the best value in the world on a normalized basis.

While Europe turned in strong performance, the majority of emerging markets
continued to struggle, held back by a number of factors including dependence on
commodity exports, political instability or economic worries. Our
emerging-market exposure hurt performance in 1998 but we continue to find
compelling value and are focusing on companies which we feel have strong balance
sheets, solid management teams and healthy growth prospects. Our investments in
these markets are concentrated among the telecommunications providers such as
Telefonos de Mexico SA (Telmex),

GEOGRAPHIC DISTRIBUTION
Templeton International Fund
Based on Total Net Assets
12/31/98

[This chart shows in pie format the geographic distribution of Templeton
International Fund's portfolio holdings on December 31, 1998, based on total
net assets.]

Europe 58.6%
Asia 12.5%
Latin America 9.2%
North America 5.9%
Australia/New Zealand 4.4%
Middle East/Africa 1.2%
Short-Term Investments &
Other Net Assets 8.2%

TI-1

PAGE

TOP 10 HOLDINGS
Templeton International Fund
12/31/98

[This chart shows the top 10 holdings of Templeton International Fund
on December 31, 1998, based on total net assets.]

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ------------------------------------------------------------
AXA-UAP
Financial Services, France 3.0%

Zurich Allied AG
Insurance, Switzerland 2.7%

Merita AS
Banking, Finland 2.1%

Telecom Italia SpA, di Risp
Telecommunications, Italy 1.7%

Bank Austria AG, 144A
Banking, Austria 1.7%

Newbridge Networks Corp.
Data Processing &
Reproduction, Canada 1.7%

Scor SA
Insurance, France 1.6%

Alcatel SA
Electrical & Electronics,
France 1.5%

Banque Nationale de Paris
Banking, France 1.5%

National Westminster Bank Plc.
Banking, United Kingdom 1.5%

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

Telefonica de Argentina SA and Telecomunicacoes Brasileiras SA (Telebras), Oil
and Gas (YPF Sociedad Anonima, Perez Companc SA) and consumer goods (Panamerican
Beverages Inc.). Our Asian holdings are dominated by Hong Kong, trailed by small
positions in Japan and South Korea. We remained significantly underweighted in
Japanese stocks due to high valuations and our belief the Japanese economy may
take some time to recover. During the year, many Asian countries implemented
economic and stock market reforms, which appeared to have stabilized the region,
and in the case of South Korea, led to an apparent recovery. However, we took a
cautious approach to the region and focused on higher quality stocks. At the end
of the reporting period the Fund's Asian weighting was just over 12% of total
assets.

During the 12 months under review, we continued to scour the globe looking for
out-of-favor securities trading at what we felt were 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 for five years. We purchase stocks we feel are
cheap on a five-year basis and, on average, hold them for the same period.
Consistent with our low-turnover approach, we made only slight adjustments to
our country weightings during the reporting period. Our European exposure
declined from 59.3% of total net assets to 58.6%, while our Asian position
increased from 8.1% to 12.5% and our Latin American holdings fell from 10.5% to
9.2%.

Our security purchases in 1998 were not focused in a particular region or
sector. We invested primarily in shares of companies struggling with near-term
earnings shortfalls such as retailer Safeway Plc. and automotive component
supplier Autoliv Inc. We also bought stock in Shell Transport & Trading Co. Plc.
which owns approximately 40% of the Royal Dutch/Shell Group of companies, and
added to our holdings of Newbridge Networks Corp.

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.

TI-2

PAGE

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. Small-company securities may
have greater price swings than mid- or large-company securities. These risks are
discussed in the prospectus.

We thank you for investing in Templeton International Fund and welcome your
comments or suggestions.

Sincerely,

/s/PETER A. NORI

Peter A. Nori
Portfolio Manager
Templeton International Fund

TI-3

PAGE

TEMPLETON
INTERNATIONAL FUND
CLASS 1

PERFORMANCE SUMMARY AS OF 12/31/98

TOTAL RETURN INDEX COMPARISON

$10,000 INVESTMENT (5/1/92 - 12/31/98)

The Morgan Stanley Capital International(R) Europe, Australasia (MSCI EAFE)
Index includes approximately 1,000 companies representing the stock markets of
21 countries, and includes reinvested dividends. The Consumer Price Index (CPI)
is a commonly used measure of inflation. The Fund's performance differs from an
index's because an index is not managed, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management expenses. Of course one cannot invest directly in
an index, nor is an index representative of the Fund's portfolio. Sources for
indices are Standard & Poor's Micropal and MSCI.

The following line graph hypothetically compares the performance of Templeton
International Fund Class 1 shares to that of the MSCI EAFE Index and the
Consumer Price Index (CPI), based on a $10,000 investment from 5/1/92 -
12/31/98.

[LINE GRAPH]

<TABLE>
<CAPTION>
Total Return Index Comparison

<S> <C> <C> <C>
Templeton International
Fund-Class I MSCI EAFE Index CPI
-----------------------------------------------------------------------
5/1/92 $10,000 $10,000 $10,000
5/31/92 $9,960 $10,649 $10,013
6/30/92 $9,720 $10,147 $10,049
7/31/92 $9,570 $9,891 $10,071
8/31/92 $9,470 $10,514 $10,099
9/30/92 $9,270 $10,310 $10,127
10/31/92 $9,170 $9,773 $10,163
11/30/92 $9,250 $9,868 $10,177
12/31/92 $9,390 $9,921 $10,171
1/31/93 $9,440 $9,923 $10,221
2/28/93 $9,740 $10,226 $10,257
3/31/93 $10,040 $11,120 $10,293
4/30/93 $10,370 $12,178 $10,321
5/31/93 $10,640 $12,439 $10,336
6/30/93 $10,580 $12,248 $10,350
7/31/93 $10,770 $12,679 $10,350
8/31/93 $11,610 $13,366 $10,379
9/30/93 $11,570 $13,069 $10,400
10/31/93 $12,460 $13,475 $10,443
11/30/93 $12,510 $12,300 $10,450
12/31/93 $13,830 $13,190 $10,450
1/31/94 $14,610 $14,308 $10,479
2/28/94 $14,040 $14,272 $10,515
3/31/94 $13,328 $13,660 $10,551
4/30/94 $13,461 $14,242 $10,566
5/31/94 $13,543 $14,164 $10,572
6/30/94 $13,113 $14,367 $10,608
7/31/94 $13,880 $14,509 $10,636
8/31/94 $14,402 $14,855 $10,680
9/30/94 $14,105 $14,390 $10,708
10/31/94 $14,290 $14,873 $10,716
11/30/94 $13,666 $14,162 $10,730
12/31/94 $13,522 $14,253 $10,730
1/31/95 $13,164 $13,710 $10,772
2/28/95 $13,338 $13,674 $10,815
3/31/95 $13,338 $14,530 $10,851
4/30/95 $13,990 $15,080 $10,887
5/31/95 $14,425 $14,905 $10,909
6/30/95 $14,611 $14,647 $10,930
7/31/95 $15,335 $15,563 $10,930
8/31/95 $14,953 $14,973 $10,959
9/30/95 $15,335 $15,269 $10,980
10/31/95 $14,963 $14,863 $11,016
11/30/95 $15,232 $15,280 $11,008
12/31/95 $15,656 $15,900 $11,001
1/31/96 $16,122 $15,969 $11,066
2/29/96 $16,349 $16,027 $11,102
3/31/96 $16,391 $16,371 $11,159
4/30/96 $16,993 $16,851 $11,202
5/31/96 $17,225 $16,546 $11,223
6/30/96 $17,362 $16,642 $11,230
7/31/96 $16,740 $16,160 $11,252
8/31/96 $17,331 $16,200 $11,273
9/30/96 $17,668 $16,634 $11,309
10/31/96 $18,017 $16,468 $11,345
11/30/96 $18,967 $17,128 $11,366
12/31/96 $19,421 $16,911 $11,366
1/31/97 $19,684 $16,323 $11,402
2/28/97 $19,926 $16,594 $11,436
3/31/97 $20,080 $16,658 $11,465
4/30/97 $20,080 $16,751 $11,479
5/31/97 $20,968 $17,845 $11,472
6/30/97 $22,218 $18,833 $11,485
7/31/97 $23,183 $19,141 $11,499
8/31/97 $22,076 $17,716 $11,521
9/30/97 $23,896 $18,712 $11,550
10/31/97 $21,999 $17,278 $11,579
11/30/97 $21,889 $17,106 $11,572
12/31/97 $22,131 $17,260 $11,558
1/31/98 $22,295 $18,053 $11,579
2/28/98 $23,995 $19,215 $11,602
3/31/98 $25,610 $19,811 $11,625
4/30/98 $25,961 $19,973 $11,646
5/31/98 $25,622 $19,880 $11,667
6/30/98 $25,318 $20,035 $11,681
7/31/98 $25,540 $20,243 $11,695
8/31/98 $21,845 $17,739 $11,709
9/30/98 $21,131 $17,200 $11,723
10/31/98 $22,815 $18,998 $11,751
11/30/98 $24,113 $19,976 $11,751
12/31/98 $24,195 $20,769 $11,744
</TABLE>

[BEGIN CALL BOX]
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but does
not include any Contract fees, expenses, or sales charges. If they had been
included, performance would be lower. These charges and deductions, particularly
for variable life policies, can have a significant effect on Contract values and
insurance benefits. See the Contract prospectus for a complete description of
these expenses, including sales charges.
[END CALL BOX]

PERFORMANCE

TEMPLETON INTERNATIONAL FUND - CLASS 1
PERIODS ENDED 12/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (5/1/92)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 9.33% 74.95% 141.95%

Average Annual Total Return 9.33% 11.84% 14.17%

Value of $10,000 Investment $10,933 $17,495 $24,195

12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------------------------------------------------------------------------------------------
One-Year Total Return -2.22% 15.78% 24.04% 13.95% 9.33%
</TABLE>

TI-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.................... $20.18 $18.40 $15.13 $13.22 $13.83
--------------------------------------------------------------------
Income from investment operations:
Net investment income................................ .60 .49 .43 .23 .12
Net realized and unrealized gains (losses)........... 1.29 2.01 3.15 1.83 (.42)
--------------------------------------------------------------------
Total from investment operations...................... 1.89 2.50 3.58 2.06 (.30)
--------------------------------------------------------------------
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 year.......................... $20.69 $20.18 $18.40 $15.13 $13.22
--------------------------------------------------------------------
--------------------------------------------------------------------
Total Return*......................................... 9.33% 13.95% 24.04% 15.78% (2.22)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)....................... $980,470 $938,410 $682,984 $353,141 $150,090
Ratios to average net assets:
Expenses............................................. .86% .81% .65% .71% .83%
Net investment income................................ 2.81% 2.70% 3.23% 2.36% 1.89%
Portfolio turnover rate............................... 29.56% 16.63% 9.46% 5.19% 6.32%
</TABLE>

PAGE

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

<TABLE>
<CAPTION>
CLASS 2
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997+
-----------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $20.14 $18.40
-----------------------
Income from investment operations:
Net investment income...................................... .59 .07
Net realized and unrealized gains.......................... 1.25 1.67
-----------------------
Total from investment operations............................ 1.84 1.74
-----------------------
Less distributions from:
Net investment income...................................... (.48) --
Net realized gains......................................... (.89) --
-----------------------
Total distributions......................................... (1.37) --
-----------------------
Net asset value, end of year................................ $20.61 $20.14
-----------------------
-----------------------
Total Return*............................................... 9.08% 9.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $39,886 $17,606
Ratios to average net assets:
Expenses................................................... 1.11% 1.13%**
Net investment income...................................... 2.69% 1.14%**
Portfolio turnover rate..................................... 29.56% 16.63%
</TABLE>

*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE CONTRACT LEVEL FOR COSTS 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, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
See Notes to Financial Statements.
TI-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 89.8%
AEROSPACE & MILITARY TECHNOLOGY .1%
Hong Kong Aircraft Engineering Co. Ltd. .................... Hong Kong 1,069,000 $ 1,462,635
--------------
APPLIANCES & HOUSEHOLD DURABLES 1.3%
Sony Corp. ................................................. Japan 175,100 12,775,470
--------------
AUTOMOBILES 4.8%
Autoliv Inc. ............................................... Sweden 48,550 1,805,453
Autoliv Inc., SDR........................................... Sweden 358,450 12,868,434
Fiat SpA.................................................... Italy 2,552,500 8,863,632
Volkswagen AG............................................... Germany 156,000 12,625,360
Volvo AB, B................................................. Sweden 547,000 12,551,753
--------------
48,714,632
--------------
BANKING 12.2%
Banco Popular Espanol SA.................................... Spain 64,000 4,832,897
*Bangkok Bank Public Co. Ltd., fgn. ........................ Thailand 2,763,800 5,704,830
Bank Austria AG, 144A....................................... Austria 340,000 17,298,266
Banque Nationale de Paris................................... France 188,986 15,568,966
Credicorp Ltd. ............................................. Peru 292,160 2,629,440
Den Norske Bank............................................. Norway 1,880,000 6,489,566
Foreningssparbanken AB, A................................... Sweden 152,000 3,937,921
HSBC Holdings Plc., ADR..................................... Hong Kong 35,800 8,918,519
Merita AS................................................... Finland 3,400,000 21,621,835
National Bank of Canada..................................... Canada 440,000 7,104,167
National Westminster Bank Plc. ............................. United Kingdom 787,342 15,169,155
*Shinhan Bank Co. Ltd. ..................................... South Korea 35,343 270,400
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 99,500 1,436,531
Unidanmark AS, A............................................ Denmark 150,000 13,551,732
--------------
124,534,225
--------------
BUILDING MATERIALS & COMPONENTS .5%
Caradon Plc. ............................................... United Kingdom 3,170,730 5,380,825
--------------
BUSINESS & PUBLIC SERVICES .8%
TNT Post Group NV........................................... Netherlands 263,235 8,486,022
--------------
CHEMICALS 2.5%
Akzo Nobel NV............................................... Netherlands 68,000 3,097,991
Kemira OY................................................... Finland 1,088,632 7,847,507
Rhone-Poulenc SA, A......................................... France 279,800 14,405,227
--------------
25,350,725
--------------
DATA PROCESSING & REPRODUCTION 1.7%
*Newbridge Networks Corp. .................................. Canada 564,260 17,139,398
--------------
ELECTRICAL & ELECTRONICS 3.4%
ABB AG, Br. ................................................ Switzerland 4,000 4,688,751
Alcatel SA.................................................. France 127,875 15,657,603
Philips Electronics NV...................................... Netherlands 218,000 14,636,330
--------------
34,982,684
--------------
ENERGY SOURCES 4.3%
Perez Companc SA, B......................................... Argentina 1,975,000 8,361,776
Shell Transport & Trading Co. Plc. ......................... United Kingdom 1,874,973 11,479,745
Societe Elf Aquitaine SA, Br. .............................. France 87,200 10,083,993
Total SA, B................................................. France 70,000 7,092,478
YPF Sociedad Anonima, ADR................................... Argentina 228,600 6,386,513
--------------
43,404,505
--------------
FINANCIAL SERVICES 4.0%
AXA-UAP..................................................... France 208,300 30,203,537
ING Groep NV................................................ Netherlands 177,736 10,843,913
--------------
41,047,450
--------------
</TABLE>

TI-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 2.4%
Illovo Sugar Ltd. .......................................... South Africa 3,005,800 $ 3,193,447
Northern Foods Plc. ........................................ United Kingdom 2,245,907 5,249,978
Panamerican Beverages Inc., A............................... Mexico 258,900 5,647,256
Tate & Lyle Plc. ........................................... United Kingdom 1,763,000 9,826,221
--------------
23,916,902
--------------
FOREST PRODUCTS & PAPER 3.6%
*Asia Pulp & Paper Co. Ltd., ADR............................ Indonesia 369,600 3,026,100
Assidomaen AB............................................... Sweden 135,100 2,133,386
Cartiere Burgo SpA.......................................... Italy 434,800 2,812,983
Fletcher Challenge Ltd. Forestry Division................... New Zealand 4,619,765 1,537,449
Metsa Serla OY, B........................................... Finland 380,750 3,045,459
Norske Skogindustrier ASA, A................................ Norway 176,400 5,116,734
Sappi Ltd. ................................................. South Africa 412,354 1,594,671
Stora Enso OY, R............................................ Finland 400,000 4,028,913
Stora Kopparbergs Bergslags AB, B........................... Sweden 300,000 3,330,948
UPM-Kymmene Corp. .......................................... Finland 351,000 9,843,583
--------------
36,470,226
--------------
HEALTH & PERSONAL CARE 2.4%
Medeva Plc. ................................................ United Kingdom 3,190,000 5,625,821
Novartis AG................................................. Switzerland 2,606 5,122,825
Teva Pharmaceutical Industries Ltd., ADR.................... Israel 335,200 13,638,450
--------------
24,387,096
--------------
INDUSTRIAL COMPONENTS 1.1%
BTR Plc. ................................................... United Kingdom 2,474,062 5,062,967
Madeco Manufacturera de Cobre SA, ADR....................... Chile 190,000 1,591,250
SKF AB, B................................................... Sweden 193,900 2,260,548
Yamato Kogyo Co. Ltd. ...................................... Japan 420,000 2,435,106
--------------
11,349,871
--------------
INSURANCE 8.7%
Ace Ltd. ................................................... Bermuda 320,545 11,038,768
Exel Ltd. .................................................. Bermuda 170,450 12,783,750
National Mutual Asia Ltd. .................................. Hong Kong 11,930,000 8,931,427
Partnerre Ltd. ............................................. Bermuda 269,000 12,306,750
SCOR SA..................................................... France 250,000 16,536,286
Zurich Allied AG............................................ Switzerland 37,000 27,396,432
--------------
88,993,413
--------------
MERCHANDISING 2.3%
David Jones Ltd. ........................................... Australia 2,225,500 2,457,019
Safeway Plc. ............................................... United Kingdom 2,197,408 10,958,706
Storehouse.................................................. United Kingdom 3,498,781 7,974,927
Takashimaya Co. Ltd. ....................................... Japan 292,984 2,470,104
--------------
23,860,756
--------------
METALS & MINING 3.9%
Angang New Steel Company Ltd., H, 144A...................... China 22,414,000 1,533,372
Anglo American Platinum Corp. Ltd. ......................... South Africa 518,809 7,117,060
Boehler-Uddeholm AG......................................... Austria 27,210 1,267,110
Boehler-Uddeholm AG, 144A................................... Austria 33,800 1,573,991
British Steel Plc. ......................................... United Kingdom 4,090,000 6,243,366
+Chongqing Iron & Steel Ltd., H............................. China 25,564,000 1,253,906
Ispat International NV...................................... Netherlands 227,600 1,763,900
Pechiney SA, A.............................................. France 136,212 4,450,018
Pohang Iron & Steel Co. Ltd. ............................... South Korea 85,000 5,414,111
WMC Ltd. ................................................... Australia 2,870,000 8,660,750
--------------
39,277,584
--------------
</TABLE>

TI-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 5.5%
Alfa SA de CV, A............................................ Mexico 2,550,000 $ 7,180,738
Broken Hill Proprietary Co. Ltd. ........................... Australia 1,210,543 8,923,948
Cheung Kong Holdings Ltd. .................................. Hong Kong 850,000 6,116,687
Elementis Plc. ............................................. United Kingdom 2,052,331 2,851,171
Hutchison Whampoa Ltd. ..................................... Hong Kong 1,350,000 9,540,482
Next Plc. .................................................. United Kingdom 1,515,000 12,300,474
*Saab AB, B................................................. Sweden 703,550 7,377,649
Swire Pacific Ltd., A....................................... Hong Kong 400,000 1,791,603
--------------
56,082,752
--------------
REAL ESTATE .3%
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 2,670,000 2,826,035
--------------
TELECOMMUNICATIONS 11.2%
British Telecommunications Plc. ............................ United Kingdom 995,403 15,012,608
*Cable & Wireless Optus Ltd. ............................... Australia 3,417,600 7,189,917
Compania De Telecomunicaciones De Chile SA, ADR............. Chile 422,400 8,738,400
Hong Kong Telecommunications Ltd. .......................... Hong Kong 5,427,349 9,492,475
Koninklijke KPN NV.......................................... Netherlands 263,235 13,184,894
Telecom Italia SpA, di Risp................................. Italy 2,832,750 17,802,803
*Telecomunicacoes Brasileiras SA (Telebras), ADR............ Brazil 156,170 11,351,607
Telefonica de Argentina SA, B, ADR.......................... Argentina 299,800 8,375,663
Telefonica del Peru SA, B................................... Peru 3,000,000 3,773,764
Telefonica del Peru SA, B, ADR.............................. Peru 29,000 367,938
Telefonica SA, ADR.......................................... Spain 71,400 9,665,775
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 191,300 9,313,919
--------------
114,269,763
--------------
TRANSPORTATION 3.5%
Hitachi Zosen Corp. ........................................ Japan 3,342,000 4,621,915
Koninklijke Nedlloyd Groep NV............................... Netherlands 216,300 2,939,015
Mayne Nickless Ltd., A...................................... Australia 2,414,474 8,959,554
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 792,650 9,363,306
Qantas Airways Ltd., ADR, 144A.............................. Australia 231,900 4,724,963
Singapore Airlines Ltd., fgn. .............................. Singapore 736,500 5,401,000
--------------
36,009,753
--------------
UTILITIES ELECTRICAL & GAS 9.3%
BG Plc. .................................................... United Kingdom 2,020,588 12,766,297
*Centrica Plc. ............................................. United Kingdom 1,870,000 3,756,801
*Evn AG..................................................... Austria 48,600 6,884,558
Gener SA, ADR............................................... Chile 2,700 43,200
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 4,062,365 12,322,512
Iberdrola SA, Br. .......................................... Spain 754,500 14,137,335
Korea Electric Power Corp. ................................. South Korea 269,000 6,666,279
National Grid Group Plc. ................................... United Kingdom 953,785 7,585,213
National Power Plc. ........................................ United Kingdom 516,000 4,558,622
Shandong Huaneng Power Development Co. Ltd., ADR............ China 100,000 456,250
Thames Water Group Plc. .................................... United Kingdom 747,372 14,461,253
VEBA AG..................................................... Germany 183,000 10,844,200
--------------
94,482,520
--------------
TOTAL COMMON STOCKS (COST $775,613,097)..................... 915,205,242
--------------
PREFERRED STOCKS 2.0%
Banco Bradesco SA BBD pfd. ................................. Brazil 896,769,450 4,972,775
*Banco Bradesco SA BBD pfd., rts. .......................... Brazil 37,170,324 21,165
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 335,000 4,297,538
Lojas Americanas SA, pfd. .................................. Brazil 312,058,451 1,510,898
News Corp. Ltd., ADR, pfd. ................................. Australia 95,900 2,367,531
SBC Communications Inc., cvt., pfd. ........................ Mexico 120,000 5,340,000
</TABLE>

TI-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
*Tele Leste Celular Participacoes SA, pfd. ................. Brazil 4,866,533 $ 2,819
*Tele Sudeste Celular Participacoes SA, pfd. ............... Brazil 4,866,533 20,542
*Telecomunicacoes De Minas Gerais Celular Telemig, pfd. .... Brazil 1,705,000 33,444
*Telesp Celular Participacoes SA, pfd. ..................... Brazil 4,866,533 35,847
*Telesp Participacoes SA, pfd. ............................. Brazil 4,866,533 110,763
Usinas Siderugicas de Minas Gerais, Sponsored ADR........... Brazil 970,000 2,143,513
--------------
TOTAL PREFERRED STOCKS (COST $40,138,146)................... 20,856,835
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $52,513,238) 5.1%
Federal Farm Credit Banks, 4.90%, 3/01/99................... United States $50,000,000 49,991,400
U.S. Treasury Bills, 4.60%, 1/21/99......................... United States 2,520,000 2,514,792
--------------
TOTAL SHORT TERM INVESTMENTS................................ 52,506,192
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST
$868,264,481)............................................. 988,568,269
--------------
(a)REPURCHASE AGREEMENT (COST $40,646,000) 4.0%
Barclays Bank Plc., 4.75%, 1/04/99 (Maturity Value
$40,667,452) Collateralized by U.S. Treasury Notes and
Bonds..................................................... United States 40,646,000 40,646,000
--------------
TOTAL INVESTMENTS (COST $908,910,481) 100.9%................ 1,029,214,269
OTHER ASSETS, LESS LIABILITIES (.9%)........................ (8,858,105)
--------------
TOTAL NET ASSETS 100.0%..................................... $1,020,356,164
--------------
--------------
</TABLE>

*NON INCOME PRODUCING.
**SECURITIES TRADED IN U.S. DOLLARS.
(a)AT DECEMBER 31, 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 DECEMBER
31, 1998 WERE $1,253,906.
See Notes to Financial Statements.
TI-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $868,264,481).... $ 988,568,269
Repurchase agreement, at value and cost.................... 40,646,000
Cash....................................................... 127,428
Receivables:
Investment securities sold................................ 1,168,587
Fund shares sold.......................................... 990,335
Dividends and interest.................................... 5,054,569
--------------
Total assets........................................... 1,036,555,188
--------------
Liabilities:
Payables:
Investment securities purchased........................... 9,924,373
Fund shares redeemed...................................... 5,337,290
To affiliates............................................. 655,969
Accrued expenses........................................... 281,392
--------------
Total liabilities...................................... 16,199,024
--------------
Net assets, at value........................................ $1,020,356,164
==============
Net assets consist of:
Undistributed net investment income........................ $ 28,186,871
Net unrealized appreciation................................ 120,303,788
Accumulated net realized gain.............................. 95,341,431
Beneficial shares.......................................... 776,524,074
--------------
Net assets, at value........................................ $1,020,356,164
==============
CLASS 1:
Net asset value per share ($980,469,840 / 47,399,690 shares
outstanding)............................................. $20.69
==============
CLASS 2:
Net asset value per share ($39,886,324 / 1,935,511 shares
outstanding).............................................. $20.61
==============
</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 YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $3,722,358)
Dividends.................................................. $31,386,965
Interest................................................... 6,412,315
-----------
Total investment income............................... $ 37,799,280
Expenses:
Management fees (Note 3)................................... 7,098,752
Administrative fees (Note 3)............................... 986,271
Distribution fees - Class 2 (Note 3)....................... 74,364
Custodian fees............................................. 437,000
Reports to shareholders.................................... 217,800
Registration and filing fees............................... 6,000
Professional fees.......................................... 29,000
Trustees' fees and expenses................................ 22,000
Other...................................................... 31,763
-----------
Total expenses........................................ 8,902,950
------------
Net investment income........................... 28,896,330
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 96,938,963
Foreign currency transactions............................. (1,060,210)
-----------
Net realized gain..................................... 95,878,753
Net unrealized depreciation on investments............ (37,191,402)
------------
Net realized and unrealized gain............................ 58,687,351
------------
Net increase in net assets resulting from operations........ $ 87,583,681
------------
------------
</TABLE>

See Notes to Financial Statements.
TI-12

PAGE

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 28,896,330 $ 22,938,035
Net realized gain from investments and foreign currency
transactions............................................. 95,878,753 44,773,859
Net unrealized appreciation (depreciation) on
investments.............................................. (37,191,402) 33,944,248
--------------------------------
Net increase in net assets resulting from operations... 87,583,681 101,656,142
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.................................................. 22,012,097 180,999,255
Class 2.................................................. 20,066,468 17,905,036
--------------------------------
Net increase in net assets............................. 64,339,309 273,032,479
Net assets:
Beginning of year.......................................... 956,016,855 682,984,376
--------------------------------
End of year................................................ $1,020,356,164 $956,016,855
--------------------------------
--------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 28,186,871 $ 22,712,773
--------------------------------
--------------------------------
</TABLE>

See Notes to Financial Statements.
TI-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

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 (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1998, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 6,749,923 $ 142,271,216 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............................................. (8,923,288) (184,146,823) (5,280,097) (105,420,854)
---------------------------------------------------------------
Net increase................................................ 898,159 $ 22,012,097 9,389,300 $ 180,999,255
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997*
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 8,195,067 $ 161,830,748 1,240,830 $ 25,401,552
Shares issued on reinvestment of distributions.............. 69,167 1,435,233 -- --
Shares redeemed............................................. (7,203,053) (143,199,513) (366,500) (7,496,516)
--------------------------------------------------------------
Net increase................................................ 1,061,181 $ 20,066,468 874,330 $ 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 (continued)

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 $16,119 were paid to a law firm in which a partner is an officer
of the Fund.

4. INCOME TAXES

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 250,688,336
Unrealized depreciation..................................... (130,384,548)
-------------
Net unrealized appreciation................................. $ 120,303,788
-------------
-------------
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $305,520,400 and $268,478,009, respectively.

TI-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
Templeton Variable Products Series Fund

We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Templeton International Fund, series of
Templeton Variable Products Series Fund (the Trust) as of December 31, 1998, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for the periods indicated in the accompanying financial
statements. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Templeton International Fund, series of Templeton Variable Products Series Fund
as of December 31, 1998, the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles.

McGladrey & Pullen, LLP

New York, New York
January 28, 1999

TI-17

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Templeton
International Fund hereby designates $95,248,601 as a capital gain dividend for
the fiscal year ended December 31, 1998.

Under Section 854(b)(2) of the Internal Revenue Code, the Templeton
International Fund hereby designates 1.17% of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
December 31, 1998.

TI-18

PAGE

TEMPLETON STOCK FUND

Investment Goal: Templeton Stock Fund seeks capital growth through a policy of
investing primarily in common stocks issued by companies, large and small, in
various nations throughout the world.

During the 12 months under review, global stock markets experienced severe
volatility and provided mixed results. Although benign inflation and low
interest rates contributed to a considerable rise in U.S. and European stock
markets, Asia's financial turmoil and Russia's economic meltdown helped lead to
disappointing performances in many emerging markets.

NORTH AMERICA

The U.S. equity market surged upward during the reporting period, as the
Standard & Poor's(R) 500 Stock Index delivered a return of more than 20% for the
fourth consecutive year.(1) Within this environment, finding U.S. stocks that
meet our value criteria proved difficult, and at the end of the reporting
period, the Fund was underweighted in domestic holdings compared to the Morgan
Stanley Capital International(R) (MSCI) World Index.(2) However, two of our
holdings, Ford Motor Co. and Home Depot Inc., rose 81.9% and 107.9%,
respectively, and we sold our American Express shares at a significant profit.

EUROPE

During the past three years, Europe continued to progress toward a single
currency, as a number of European countries tightened fiscal policy to meet
membership requirements of the European Economic Union. Italy and Spain reduced
inflation and public debt, the French and German economies slowed, and interest
rates throughout Europe fell. Although many European stock markets performed
well in 1998, our value style of investing made it difficult to find bargain
stocks there. However, we initiated a position in Firstbus Plc., a U.K.
transportation company. During the period our holdings of Astra AB, A&B and
Telefonica SA rose considerably, and we sold shares of Lex Service Plc., a major
auto retailer, at a substantial profit.

GEOGRAPHIC DISTRIBUTION
Templeton Stock Fund
Based on Total Net Assets
12/31/98

[This chart shows in pie format the geographich distribution of Templeton Stock
Fund's portfolio holdings on December 31, 1998, based on total net assets.]

[Pie Chart Appears Here]

Europe 49.4%
North America 28.0%
Latin America 9.4%
Asia 7.5%
Australia/New Zealand 4.9%
Middle East/Africa 0.7%
Short-Term Investments &
Other Net Assets 0.1%

TOP TEN COUNTRIES
REPRESENTED IN THE FUND
Templeton Stock Fund
12/31/98

[This chart shows in table format the top 10 countries represented in Templeton
Stock Fund as of December 31, 1998, based on total net assets.]

% OF TOTAL
COUNTRY NET ASSETS
- -------------------------------------------------------
United States 21.6%
United Kingdom 10.6%
France 9.8%
Netherlands 6.3%
Sweden 5.4%
Hong Kong 4.5%
Australia 4.0%
Spain 4.0%
Brazil 3.9%
Switzerland 3.9%

(1). Source: Standard & Poor's Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.

(2). The MSCI World Index includes approximately 1,500 companies representing
the stock markets of 22 countries, including the U.S., Canada, the United
Kingdom, and Japan.

TS-1

PAGE

TOP 10 HOLDINGS
Templeton Stock Fund
12/31/98

[The following chart shows in table format the top 10 holdings of in Templeton
Stock Fund as of December 31, 1998, based on total net assets.]

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -----------------------------------------------------------------
Intel Corp.
Electronic Components &
Instruments, U.S. 2.7%

Zurich Allied AG
Insurance, Switzerland 2.5%

AXA-UAP
Financial Services, France 2.5%

Iberdrola SA, Br.
Utilities Electric & Gas, Spain 2.0%

Rhone-Poulenc SA, A
Chemicals, France 1.9%

ING Groep NV
Financial Services,
Netherlands 1.9%

Safeway Plc.
Merchandising,
United Kingdom 1.8%

Motorola Inc.
Electrical & Electronics, U.S. 1.8%

Fannie Mae
Financial Services, U.S. 1.8%

Antec Corp.
Electrical & Electronics, U.S. 1.7%

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

ASIA

Although many Asian stock markets rallied toward the end of the reporting
period, this region continued to be a difficult environment for investors for
many reasons, including concerns about debt repayments, currency devaluations
and corporate bankruptcies. Compared to the MSCI World Index, we were
underweighted in Asia (especially in Japan, where we felt most share prices were
overvalued), and on December 31, 1998, our Asian exposure represented only 7.5%
of total net assets.

LATIN AMERICA

Throughout the year, Asia's economic malaise and Russia's financial collapse
were among the events that negatively impacted Latin American equity markets,
where we were overweighted compared to the Morgan Stanley Capital
International(R) (MSCI) World Index.(2) Because of its heavy debt refinancing
schedule and overvalued currency, Brazil, in particular, was placed in an
extremely vulnerable position. Apparently, believing that the Brazilian
government would be forced to devalue the real (its currency) to make exports
more competitive, a number of investors withdrew money from Brazil, and its
stock market plummeted 38.2% during the reporting period.(3) Many investors
seemed to think that most emerging-market economies were at risk, and other
South American equity markets also plunged. Taking advantage of price declines,
we initiated a position in Perez Companc SA, B, one of Argentina's largest oil
and gas companies.

Looking forward, we are optimistic about international equity markets' long-term
prospects, but believe significant risks still exist for global investors. Many
nations now depend on exports to the U.S., and if consumer demand slackens
there, the global economy could be hurt.

Please remember, this discussion reflects our views, opinions and portfolio
holdings as of December 31, 1998, the end of the reporting period. However,
market and economic

(2). The MSCI World Index includes approximately 1,500 companies representing
the stock markets of 22 countries, including the U.S., Canada, the United
Kingdom, and Japan.

(3). Source: Bloomberg. Market return is measured in U.S. dollars and includes
reinvested dividends.

TS-2

PAGE

conditions are changing constantly, which may affect our strategies and the
Fund's portfolio composition. Although past performance is not predictive of
future results, these insights may help you understand our investment and
management philosophy.

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

We thank you for investing in Templeton Stock Fund and welcome your comments or
suggestions.

Sincerely,

/s/MARK R. BEVERIDGE

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

TS-3

PAGE

Templeton Stock Fund
Class 1

PERFORMANCE SUMMARY AS OF 12/31/98

TOTAL RETURN INDEX COMPARISON

$10,000 INVESTMENT (1/1/89 - 12/31/98)

The MSCI World Index includes approximately 1,500 companies representing the
stock markets of 22 countries, and includes reinvested dividends. The Consumer
Price Index (CPI) is a commonly used measure of inflation. The Fund's
performance differs from an index's because an index is not managed, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. Sources for indices are Standard & Poor's Micropal and MSCI.

[The following line graph hypothetically compares the performance of Templeton
Stock Fund Class 1 shares to that of the MSCI EAFE Index and the Consumer Price
Index (CPI), based on a $10,000 investment from 1/1/89 -12/31/98.]

[LINE GRAPH]

<TABLE>
<CAPTION>
Total Return Index Comparison
<S> <C> <C> <C>
Templeton Stock Fund-Class I MSCI World Index CPI
-----------------------------------------------------------------------
1/1/89 $10,000 $10,000 $10,000
1/31/89 $10,467 $10,364 $10,051
2/28/89 $10,282 $10,300 $10,091
3/31/89 $10,478 $10,236 $10,149
4/30/89 $10,721 $10,474 $10,216
5/31/89 $10,692 $10,218 $10,274
6/30/89 $10,526 $10,105 $10,299
7/31/89 $11,219 $11,248 $10,324
8/31/89 $11,502 $10,978 $10,341
9/30/89 $11,473 $11,290 $10,373
10/31/89 $10,809 $10,915 $10,424
11/30/89 $10,985 $11,353 $10,448
12/31/89 $11,463 $11,719 $10,464
1/31/90 $11,043 $11,174 $10,572
2/28/90 $11,112 $10,697 $10,622
3/31/90 $11,309 $10,053 $10,680
4/30/90 $10,882 $9,909 $10,697
5/31/90 $11,706 $10,955 $10,722
6/30/90 $11,716 $10,879 $10,780
7/31/90 $11,716 $10,980 $10,821
8/31/90 $10,872 $9,954 $10,920
9/30/90 $9,878 $8,906 $11,012
10/31/90 $9,749 $9,739 $11,078
11/30/90 $10,047 $9,581 $11,102
12/31/90 $10,216 $9,784 $11,102
1/31/91 $10,772 $10,143 $11,169
2/28/91 $11,498 $11,084 $11,186
3/31/91 $11,418 $10,759 $11,202
4/30/91 $11,429 $10,845 $11,218
5/31/91 $11,797 $11,093 $11,251
6/30/91 $11,194 $10,410 $11,285
7/31/91 $11,868 $10,903 $11,302
8/31/91 $12,042 $10,870 $11,334
9/30/91 $12,144 $11,157 $11,385
10/31/91 $12,298 $11,340 $11,401
11/30/91 $11,960 $10,848 $11,434
12/31/91 $13,003 $11,640 $11,443
1/31/92 $13,044 $11,426 $11,459
2/29/92 $13,463 $11,230 $11,501
3/31/92 $13,187 $10,704 $11,559
4/30/92 $13,626 $10,854 $11,575
5/31/92 $14,128 $11,288 $11,592
6/30/92 $13,783 $10,912 $11,633
7/31/92 $13,814 $10,942 $11,659
8/31/92 $13,522 $11,210 $11,691
9/30/92 $13,532 $11,109 $11,724
10/31/92 $13,407 $10,811 $11,766
11/30/92 $13,647 $11,006 $11,782
12/31/92 $13,929 $11,097 $11,775
1/31/93 $14,117 $11,136 $11,833
2/28/93 $14,441 $11,402 $11,874
3/31/93 $14,907 $12,065 $11,916
4/30/93 $15,141 $12,626 $11,949
5/31/93 $15,621 $12,920 $11,965
6/30/93 $15,706 $12,813 $11,982
7/31/93 $15,940 $13,079 $11,982
8/31/93 $16,983 $13,681 $12,015
9/30/93 $17,111 $13,430 $12,040
10/31/93 $17,835 $13,802 $12,090
11/30/93 $17,388 $13,024 $12,098
12/31/93 $18,666 $13,663 $12,098
1/31/94 $19,699 $14,567 $12,132
2/28/94 $18,996 $14,381 $12,174
3/31/94 $18,115 $13,763 $12,215
4/30/94 $18,395 $14,191 $12,232
5/31/94 $18,643 $14,230 $12,239
6/30/94 $18,104 $14,193 $12,281
7/31/94 $19,020 $14,465 $12,313
8/31/94 $19,710 $14,904 $12,364
9/30/94 $19,106 $14,515 $12,397
10/31/94 $19,300 $14,930 $12,406
11/30/94 $18,481 $14,285 $12,422
12/31/94 $18,255 $14,426 $12,422
1/31/95 $18,029 $14,213 $12,471
2/28/95 $18,573 $14,423 $12,521
3/31/95 $18,902 $15,120 $12,562
4/30/95 $19,626 $15,650 $12,604
5/31/95 $20,361 $15,787 $12,629
6/30/95 $20,833 $15,785 $12,654
7/31/95 $21,864 $16,578 $12,653
8/31/95 $21,634 $16,212 $12,688
9/30/95 $22,248 $16,687 $12,711
10/31/95 $21,743 $16,428 $12,753
11/30/95 $22,259 $17,001 $12,744
12/31/95 $22,862 $17,502 $12,736
1/31/96 $23,312 $17,821 $12,811
2/29/96 $23,695 $17,932 $12,852
3/31/96 $24,197 $18,235 $12,918
4/30/96 $24,723 $18,666 $12,968
5/31/96 $25,090 $18,686 $12,993
6/30/96 $25,273 $18,784 $13,001
7/31/96 $24,197 $18,124 $13,026
8/31/96 $25,041 $18,336 $13,051
9/30/96 $25,640 $19,057 $13,092
10/31/96 $26,032 $19,193 $13,134
11/30/96 $27,414 $20,272 $13,159
12/31/96 $27,989 $19,951 $13,159
1/31/97 $29,163 $20,194 $13,200
2/28/97 $29,059 $20,430 $13,240
3/31/97 $29,208 $20,030 $13,273
4/30/97 $29,046 $20,688 $13,289
5/31/97 $30,464 $21,969 $13,281
6/30/97 $32,111 $23,067 $13,296
7/31/97 $33,637 $24,134 $13,312
8/31/97 $31,733 $22,523 $13,338
9/30/97 $34,447 $23,750 $13,371
10/31/97 $31,382 $22,504 $13,404
11/30/97 $31,058 $22,905 $13,396
12/31/97 $31,314 $23,188 $13,380
1/31/98 $30,963 $23,838 $13,404
2/28/98 $33,083 $25,455 $13,431
3/31/98 $35,275 $26,533 $13,458
4/30/98 $35,546 $26,796 $13,482
5/31/98 $35,049 $26,465 $13,507
6/30/98 $34,643 $27,096 $13,523
7/31/98 $34,582 $27,057 $13,539
8/31/98 $28,111 $23,452 $13,555
9/30/98 $27,359 $23,871 $13,572
10/31/98 $29,872 $26,034 $13,604
11/30/98 $31,859 $27,586 $13,604
12/31/98 $32,177 $28,938 $13,596
</TABLE>

PERFORMANCE

TEMPLETON STOCK FUND - CLASS 1
PERIODS ENDED 12/31/98

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 1.26% 69.96% 221.77% 225.64%

Average Annual Total Return 1.26% 11.18% 12.39% 12.08%

Value of $10,000 Investment $10,126 $16,996 $32,177 $32,564

12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ------------------------------------------------------------------------------------------------
One-Year Total Return -2.20% 25.24% 22.48% 11.88% 1.26%
</TABLE>

Past performance cannot predict or guarantee future results.

TS-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.................... $23.19 $22.88 $20.83 $16.94 $17.53
--------------------------------------------------------------------
Income from investment operations:
Net investment income................................ .39 .47 .41 .40 .26
Net realized and unrealized gains (losses)........... .04 2.11 3.88 3.80 (.64)
--------------------------------------------------------------------
Total from investment operations...................... .43 2.58 4.29 4.20 (.38)
--------------------------------------------------------------------
Less distributions from:
Net investment income................................ (.49) (.40) (.40) (.27) (.21)
Net realized gains................................... (2.06) (1.87) (1.84) (.04) --
--------------------------------------------------------------------
Total distributions................................... (2.55) (2.27) (2.24) (.31) (.21)
--------------------------------------------------------------------
Net asset value, end of year.......................... $21.07 $23.19 $22.88 $20.83 $16.94
--------------------------------------------------------------------
--------------------------------------------------------------------
Total Return*......................................... 1.26% 11.88% 22.48% 25.24% (2.20)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)....................... $646,865 $732,248 $644,366 $498,777 $378,849
Ratios to average net assets:
Expenses............................................. .89% .81% .65% .66% .73%
Net investment income................................ 1.65% 2.05% 2.06% 2.18% 1.81%
Portfolio turnover rate............................... 37.27% 25.82% 23.40% 33.93% 5.10%
</TABLE>

PAGE

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

<TABLE>
<CAPTION>
CLASS 2
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997+
-----------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $23.15 $21.62
-----------------------
Income from investment operations:
Net investment income...................................... .40 .06
Net realized and unrealized gains (losses)................. (.03) 1.47
-----------------------
Total from investment operations............................ .37 1.53
-----------------------
Less distributions from:
Net investment income...................................... (.47) --
Net realized gains......................................... (2.06) --
-----------------------
Total distributions......................................... (2.53) --
-----------------------
Net asset value, end of year................................ $20.99 $23.15
-----------------------
-----------------------
Total Return*............................................... .99% 7.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $25,593 $16,414
Ratios to average net assets:
Expenses................................................... 1.14% 1.14%**
Net investment income...................................... 1.37% .75%**
Portfolio turnover rate..................................... 37.27% 25.82%
</TABLE>

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 96.6%
AEROSPACE & MILITARY TECHNOLOGY 1.0%
Boeing Co................................................... United States 202,800 $ 6,616,350
Raytheon Co., A............................................. United States 255 13,180
------------
6,629,530
------------
APPLIANCES & HOUSEHOLD DURABLES 1.1%
Sony Corp................................................... Japan 101,500 7,405,541
------------
AUTOMOBILES 2.9%
Fiat SpA.................................................... Italy 1,452,780 5,044,822
Ford Motor Co............................................... United States 130,000 7,629,375
Volvo AB, B................................................. Sweden 299,100 6,863,308
------------
19,537,505
------------
BANKING 6.3%
Australia & New Zealand Banking Group Ltd. ................. Australia 603,200 3,951,310
Banco Bradesco SA, ADR...................................... Brazil 987,100 5,473,677
Banque Nationale de Paris................................... France 83,454 6,875,073
Deutsche Bank AG, Br. ...................................... Germany 111,900 6,602,745
HSBC Holdings Plc. ......................................... Hong Kong 267,804 6,671,551
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 3,165,100 5,574,966
Unidanmark AS, A............................................ Denmark 76,800 6,938,487
------------
42,087,809
------------
BROADCASTING & PUBLISHING .9%
News Corp. Ltd., ADR........................................ Australia 124,900 3,302,044
Television Broadcasts Ltd. ................................. Hong Kong 1,136,000 2,932,654
------------
6,234,698
------------
BUSINESS & PUBLIC SERVICES 1.6%
Lex Service Plc. ........................................... United Kingdom 582,100 3,699,562
Waste Management Inc. ...................................... United States 151,018 7,041,191
------------
10,740,753
------------
CHEMICALS 3.4%
Akzo Nobel NV............................................... Netherlands 216,900 9,881,681
Rhone-Poulenc SA, A......................................... France 254,302 13,092,488
------------
22,974,169
------------
DATA PROCESSING & REPRODUCTION 3.0%
*3Com Corp. ................................................ United States 239,800 10,746,037
*Newbridge Networks Corp. .................................. Canada 304,700 9,255,263
------------
20,001,300
------------
ELECTRICAL & ELECTRONICS 6.9%
ABB AB, A................................................... Sweden 621,300 6,630,123
Alcatel SA.................................................. France 52,735 6,457,116
*Antec Corp. ............................................... United States 571,700 11,505,462
Motorola Inc. .............................................. United States 195,300 11,925,506
Philips Electronics NV...................................... Netherlands 146,800 9,856,024
------------
46,374,231
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.7%
Intel Corp. ................................................ United States 155,000 18,377,187
------------
</TABLE>

TS-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES 6.0%
Norsk Hydro AS.............................................. Norway 205,900 $ 6,904,771
Perez Companc SA, B......................................... Argentina 461,600 1,954,327
Repsol SA................................................... Spain 117,100 6,255,997
Societe Elf Aquitaine SA, Br. .............................. France 84,420 9,762,508
Total SA, B................................................. France 92,597 9,382,031
YPF Sociedad Anonima, ADR................................... Argentina 208,300 5,819,381
------------
40,079,015
------------
FINANCIAL SERVICES 7.2%
AXA-UAP..................................................... France 113,891 16,514,215
Fannie Mae.................................................. United States 160,200 11,854,800
ICICI Ltd., GDR, 144A....................................... India 321,700 2,139,305
ING Groep NV................................................ Netherlands 207,537 12,662,112
Morgan Stanley Dean Witter & Co............................. United States 68,900 4,891,900
*Waddell & Reed Financial Inc............................... United States 7,169 169,816
------------
48,232,148
------------
FOOD & HOUSEHOLD PRODUCTS 1.2%
Archer-Daniels Midland Co................................... United States 482,370 8,290,734
------------
FOREST PRODUCTS & PAPER 2.7%
Assidomaen AB............................................... Sweden 55,400 874,830
Carter Holt Harvey Ltd. .................................... New Zealand 1,283,352 1,152,484
Fletcher Challenge Ltd. Forestry Division................... New Zealand 5,344,852 1,778,756
Georgia Pacific Corp. ...................................... United States 119,300 6,986,506
Stora Enso OY, R............................................ Finland 475,300 4,787,356
Stora Kopparbergs Bergslags AB, B........................... Sweden 240,000 2,664,759
------------
18,244,691
------------
HEALTH & PERSONAL CARE 6.1%
Astra AB, A................................................. Sweden 110,066 2,247,270
Astra AB, B................................................. Sweden 348,267 7,089,252
Medeva Plc. ................................................ United Kingdom 3,069,000 5,412,428
Novartis AG................................................. Switzerland 2,486 4,886,931
Nycomed Amersham Plc. ...................................... United Kingdom 879,923 6,121,000
*Skyepharma Plc. ........................................... United Kingdom 7,974,500 10,415,078
Teva Pharmaceutical Industries Ltd., ADR.................... Israel 119,300 4,854,019
------------
41,025,978
------------
INDUSTRIAL COMPONENTS 3.3%
BTR Plc. ................................................... United Kingdom 3,381,537 6,920,041
Goodyear Tire & Rubber Co................................... United States 110,000 5,548,125
Granges AB.................................................. Sweden 421,725 6,087,225
Yamato Kogyo Co. Ltd. ...................................... Japan 598,000 3,467,128
------------
22,022,519
------------
INSURANCE 9.4%
Ace Ltd. ................................................... Bermuda 196,100 6,753,194
Exel Ltd. .................................................. Bermuda 81,800 6,135,000
HIH Insurance Ltd. ......................................... Australia 2,558,865 3,390,077
Muenchener Rueckversicherungs-Gesellschaft.................. Germany 519 253,954
Muenchener Rueckversicherungs-Gesellschaft, Br. ............ Germany 12,976 4,269,241
*Muenchener Rueckversicherungs-Gesellschaft, wts. .......... Germany 519 24,305
National Mutual Asia Ltd. .................................. Hong Kong 3,820,000 2,859,853
Partnerre Ltd. ............................................. Bermuda 160,400 7,338,300
Reliastar Financial Corp.................................... United States 227,400 10,488,825
Torchmark Corp.............................................. United States 126,000 4,449,375
</TABLE>

TS-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
Waddell & Reed Financial Inc................................ United States 30,857 $ 717,425
Zurich Allied AG............................................ Switzerland 22,700 16,808,082
------------
63,487,631
------------
LEISURE & TOURISM .7%
Kuoni Reisen Holding AG, B.................................. Switzerland 1,185 4,702,039
------------
MACHINERY & ENGINEERING .6%
New Holland NV.............................................. Netherlands 288,200 3,944,737
------------
MERCHANDISING 3.6%
Home Depot Inc.............................................. United States 114,200 6,987,612
Safeway Plc. ............................................... United Kingdom 2,398,120 11,959,678
Storehouse.................................................. United Kingdom 2,297,000 5,235,654
------------
24,182,944
------------
METALS & MINING 1.9%
Eramet SA................................................... France 127,200 3,823,150
Ispat International NV...................................... Netherlands 253,300 1,963,075
WMC Ltd. ................................................... Australia 2,426,584 7,322,661
------------
13,108,886
------------
MULTI-INDUSTRY 4.0%
Alfa SA de CV, A............................................ Mexico 1,562,000 4,398,554
Cheung Kong Holdings Ltd. .................................. Hong Kong 905,000 6,512,472
DESC SA de CV DESC, B....................................... Mexico 4,464,500 3,828,004
DESC SA de CV DESC, C....................................... Mexico 900 850
Hicom Holdings Bhd. ........................................ Malaysia 3,806,800 1,263,535
Hutchison Whampoa Ltd. ..................................... Hong Kong 891,100 6,297,425
Inchcape Plc. .............................................. United Kingdom 1,619,100 3,461,515
La Cemento Nacional SA, GDR, 144A........................... Ecuador 2,650 286,200
La Cemento Nacional SA, GDR, Reg S.......................... Ecuador 1,000 108,000
Swire Pacific Ltd., B....................................... Hong Kong 609,000 404,834
------------
26,561,389
------------
REAL ESTATE 1.7%
National Health Investors Inc. ............................. United States 208,500 5,147,344
Summit Properties Inc. ..................................... United States 346,700 5,980,575
------------
11,127,919
------------
TELECOMMUNICATIONS 6.9%
Compania De Telecomunicaciones De Chile SA, ADR............. Chile 130,300 2,695,581
Hong Kong Telecommunications Ltd. .......................... Hong Kong 2,782,800 4,867,139
Nortel Inversora SA, ADR.................................... Argentina 143,700 2,371,050
Northern Telecom, Ltd. ..................................... Canada 133,860 6,709,733
Rostelecom, ADR............................................. Russia 253,100 1,059,856
Telecom Italia SpA.......................................... Italy 848,000 7,235,253
*Telecomunicacoes Brasileiras SA (Telebras), ADR............ Brazil 46,400 3,372,700
Telefonica SA............................................... Spain 158,100 7,040,525
*Telefonica SA, rts......................................... Spain 158,100 140,587
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 225,800 10,993,638
------------
46,486,062
------------
TRANSPORTATION 6.2%
Air New Zealand Ltd., B..................................... New Zealand 2,099,100 3,304,377
ASG AB, B................................................... Sweden 188,900 3,577,210
British Airways Plc. ....................................... United Kingdom 1,031,000 6,981,399
Canadian National Railway Co. .............................. Canada 126,400 6,562,760
Firstbus Plc. .............................................. United Kingdom 658,400 4,365,234
</TABLE>

TS-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1998 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION (CONT.)
Helikopter Services Group ASA............................... Norway 478,600 $ 2,261,399
Koninklijke Nedlloyd Groep NV............................... Netherlands 291,500 3,960,809
Mayne Nickless Ltd., A...................................... Australia 1,011,799 3,754,552
Peninsular & Oriental Steam Navigation Co. ................ United Kingdom 581,100 6,864,337
------------
41,632,077
------------
UTILITIES ELECTRICAL & GAS 5.3%
Centrais Eletricas Brasileiras SA (Eletrobras), ADR......... Brazil 571,500 4,919,181
*Evn AG..................................................... Austria 65,520 9,281,404
Iberdrola SA, Br. .......................................... Spain 706,000 13,228,574
VEBA AG..................................................... Germany 144,000 8,533,141
------------
35,962,300
------------
TOTAL COMMON STOCKS (COST $539,788,357)..................... 649,453,792
------------
PREFERRED STOCKS 3.3%
Banco Itau SA, pfd. ........................................ Brazil 7,017,500 3,426,654
Embotelladora Andina SA, B, ADR, pfd. ...................... Chile 336,600 4,375,800
*Embratel Participacoes SA, pfd. ........................... Brazil 88,209,044 1,204,593
News Corp. Ltd., pfd. ...................................... Australia 294,809 1,795,554
News Corp. Ltd., pfd., ADR.................................. Australia 130,000 3,209,375
Petroleo Brasileiro SA, pfd. ............................... Brazil 22,799,900 2,585,215
*Tele Celular Sul Participacoes SA, pfd. ................... Brazil 88,209,044 148,931
*Tele Centro Oeste Celular Participacoes SA, pfd. .......... Brazil 88,209,044 92,717
*Tele Centro Sul Participacoes SA, pfd. .................... Brazil 88,209,044 765,829
*Tele Leste Celular Participacoes SA, pfd. ................. Brazil 88,209,044 51,104
*Tele Nordeste Celular Participacoes SA, pfd. .............. Brazil 88,209,044 80,306
*Tele Norte Celular Participacoes SA, pfd. ................. Brazil 88,209,044 40,883
*Tele Norte Leste Participacoes SA, pfd. ................... Brazil 88,209,044 1,102,385
*Tele Sudeste Celular Participacoes SA, pfd. ............... Brazil 88,209,044 372,329
Telecomunicacoes Brasileiras SA (Telebras), pfd. ........... Brazil 88,209,044 10,221
*Telemig Celular Participacoes SA, pfd. .................... Brazil 88,209,044 97,828
*Telesp Celular Participacoes SA, pfd. ..................... Brazil 88,209,044 649,750
*Telesp Participacoes SA, pfd. ............................. Brazil 88,209,044 2,007,655
------------
TOTAL PREFERRED STOCKS (COST $24,401,180)................... 22,017,129
------------
TOTAL INVESTMENTS (COST $564,189,537) 99.9%................. 671,470,921
OTHER ASSETS, LESS LIABILITIES .1%.......................... 987,091
------------
TOTAL NET ASSETS 100.0%..................................... $672,458,012
------------
------------
</TABLE>

*NON INCOME PRODUCING
See Notes to Financial Statements.
TS-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $564,189,537).... $671,470,921
Receivables:
Investment securities sold................................ 2,538,017
Dividends................................................. 2,476,926
Other assets............................................... 90,682
------------
Total assets........................................... 676,576,546
------------
Liabilities:
Payables:
Investment securities purchased........................... 473,911
Fund shares redeemed...................................... 501,264
To affiliates............................................. 456,315
Funds advanced by custodian................................ 2,382,010
Accrued expenses........................................... 305,034
------------
Total liabilities...................................... 4,118,534
------------
Net assets, at value........................................ $672,458,012
============
Net assets consist of:
Undistributed net investment income........................ $ 11,403,074
Net unrealized appreciation................................ 107,281,384
Accumulated net realized gain.............................. 47,461,381
Beneficial shares.......................................... 506,312,173
------------
Net assets, at value........................................ $672,458,012
============
CLASS 1:
Net asset value per share ($646,865,387 / 30,699,638 shares
outstanding).............................................. $21.07
============
CLASS 2:
Net asset value per share ($25,592,625 / 1,219,406 shares
outstanding).............................................. $20.99
============
</TABLE>

See Notes to Financial Statements.
TS-11

PAGE

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $2,092,812)
Dividends.................................................. $18,051,815
Interest................................................... 569,286
-----------
Total investment income............................... $ 18,621,101
Expenses:
Management fees (Note 4)................................... 5,100,755
Administrative fees (Note 4)............................... 702,686
Distribution fees - Class 2 (Note 4)....................... 53,988
Custodian fees............................................. 445,000
Reports to shareholders.................................... 204,000
Professional fees.......................................... 53,600
Trustees' fees and expenses................................ 18,000
Other...................................................... 13,396
-----------
Total expenses........................................ 6,591,425
------------
Net investment income........................... 12,029,676
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 47,606,776
Foreign currency transactions............................. (37,819)
-----------
Net realized gain..................................... 47,568,957
Net unrealized depreciation on investments............ (47,396,839)
------------
Net realized and unrealized gain............................ 172,118
------------
Net increase in net assets resulting from operations........ $ 12,201,794
------------
------------
</TABLE>

See Notes to Financial Statements.
TS-12

PAGE

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 12,029,676 $ 15,090,974
Net realized gain from investments and foreign currency 47,568,957 64,659,885
transactions.............................................
Net unrealized depreciation on investments................ (47,396,839) (2,630,723)
------------------------------
Net increase in net assets resulting from operations... 12,201,794 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.................................................. (1,560,086) --
Fund share transactions (Note 3):
Class 1.................................................. (19,220,136) 75,008,241
Class 2.................................................. 11,228,384 16,958,890
------------------------------
Net increase (decrease) in net assets.................. (76,203,967) 104,296,214
Net assets:
Beginning of year.......................................... 748,661,979 644,365,765
------------------------------
End of year................................................ $672,458,012 $748,661,979
------------------------------
------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 11,403,074 $ 15,048,456
------------------------------
------------------------------
</TABLE>

See Notes to Financial Statements.
TS-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

a. SECURITY VALUATION:

b. FOREIGN CURRENCY TRANSLATION:

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-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (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 December 31, 1998, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Shares sold................................................. 2,562,174 $ 50,875,104 4,159,792 $ 96,416,712
Shares issued on reinvestment of distributions.............. 3,523,201 78,496,920 2,970,704 64,791,053
Shares redeemed............................................. (6,963,562) (148,592,160) (3,715,179) (86,199,524)
--------------------------------------------------------------
Net increase (decrease)..................................... (878,187) $ (19,220,136) 3,415,317 $ 75,008,241
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 2 SHARES:
Shares sold................................................. 641,741 $ 14,204,072 780,245 $ 18,686,201
Shares issued on reinvestment of distributions.............. 86,200 1,917,088 -- --
Shares redeemed............................................. (217,530) (4,892,776) (71,250) (1,727,311)
--------------------------------------------------------------
Net increase (decrease)..................................... 510,411 $ 11,228,384 708,995 $ 16,958,890
--------------------------------------------------------------
--------------------------------------------------------------
*Effective date of Class 2 shares was May 1, 1997.
</TABLE>

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

TS-15

PAGE

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

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays 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 FT Services based
on the Trust's aggregate average daily net assets as follows:

The Fund reimburses Distributors up to .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 $19,008 were paid to a law firm in which a partner is an officer
of the Fund.

5. INCOME TAXES

<TABLE>
<S> <C>
Unrealized appreciation..................................... $188,552,791
Unrealized depreciation..................................... (81,271,407)
------------
Net unrealized appreciation................................. $107,281,384
------------
------------
</TABLE>

6. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1998 aggregated $278,627,327 and $334,663,934, respectively.

TS-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
Templeton Variable Products Series Fund

We have audited the accompanying statement of assets and liabilities, including
the Statement of Investments, of the Templeton Stock Fund, series of Templeton
Variable Products Series Fund (the Trust) as of December 31, 1998, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for the periods indicated in the accompanying financial
statements. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Templeton Stock Fund, series of Templeton Variable Products Series Fund as of
December 31, 1998, the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

New York, New York
January 28, 1999

TS-17

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Templeton Stock
Fund hereby designates $51,870,821 as a capital gain dividend for the fiscal
year ended December 31, 1998.

Under Section 854(b)(2) of the Internal Revenue Code, the Templeton Stock Fund
hereby designates 9.97% of the ordinary income dividends as income qualifying
for the dividends received deduction for the fiscal year ended December 31,
1998.

TS-18

PAGE

SUPPLEMENT DATED NOVEMBER 17, 1998
TO THE PROSPECTUS DATED MAY 1, 1998
OF
TEMPLETON VARIABLE PRODUCTS SERIES FUND

I. 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.

II. 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.

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.

PS-1

PAGE

This page intentionally left blank.

PAGE
PHOENIX

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT

DECEMBER 31, 1998

[PHOENIX LOGO]

PAGE

This page intentionally left blank.

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in Templeton Asset Allocation Fund
(identified cost $71,673,716)............................. $130,035,498
------------
Liabilities:
Accrued expenses due related parties....................... 150,575
------------
Net assets.................................................. $129,884,923
------------
------------
Accumulation units outstanding.............................. 47,107,034
------------
Net asset value per unit.................................... $ 2.757230
------------
------------
</TABLE>

See Notes to Financial Statements.
1

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $8,970,853
Expenses:
Mortality and expense risk and administrative charges...... 1,973,538
----------
Net investment income.................................. 6,997,315
Realized and unrealized gain (loss) on investments:
Net realized gain from share transactions.................. $ 7,849,541
Net change in unrealized depreciation...................... (7,722,622)
-----------
Net realized and unrealized gain........................... 126,919
----------
Net increase in net assets from operations................. $7,124,234
----------
----------
</TABLE>

See Notes to Financial Statements.
2

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,997,315 $ 2,285,272
Net realized gain......................................... 7,849,541 11,071,721
Net change in unrealized appreciation (depreciation)...... (7,722,622) 7,612,843
----------------------------
Net increase in net assets from operations............. 7,124,234 20,969,836
----------------------------
Accumulation unit transactions:
Participant deposits....................................... 1,675,291 3,930,220
Participant transfers...................................... (3,786,832) 407,760
Participant withdrawals.................................... (29,620,547) (22,580,766)
----------------------------
Net decrease from participant transactions............. (31,732,088) (18,242,786)
----------------------------
Total increase (decrease) in net assets............... (24,607,854) 2,727,050
Net assets:
Beginning of year.......................................... 154,492,777 151,765,727
----------------------------
End of year................................................ $129,884,923 $154,492,777
----------------------------
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 603,185 1,577,821
Participant transfers...................................... (1,488,554) 162,761
Participant withdrawals.................................... (10,823,974) (8,767,140)
</TABLE>

See Notes to Financial Statements.
3

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUBACCOUNT
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in Templeton Bond Fund
(identified cost $15,038,650)............................. $15,011,196
-----------
Liabilities:
Accrued expenses due related parties....................... 17,546
-----------
Net assets.................................................. $14,993,650
-----------
-----------
Accumulation units outstanding.............................. 8,388,486
-----------
Net asset value per unit.................................... $ 1.787408
-----------
-----------
</TABLE>

See Notes to Financial Statements.
4

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUBACCOUNT
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $1,069,569
Expenses:
Mortality and expense risk and administrative charges...... 213,086
----------
Net investment income.................................. 856,483
Realized and unrealized gain (loss) on investments:
Net realized loss from share transactions.................. $(203,459)
Net change in unrealized appreciation...................... 182,377
---------
Net realized and unrealized loss........................... (21,082)
----------
Net increase in net assets from operations................. $ 835,401
----------
----------
</TABLE>

See Notes to Financial Statements.
5

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUBACCOUNT
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 856,483 $ 1,136,030
Net realized loss......................................... (203,459) (67,960)
Net change in unrealized appreciation (depreciation)...... 182,377 (903,671)
--------------------------
Net increase in net assets from operations............. 835,401 164,399
--------------------------
Accumulation unit transactions:
Participant deposits....................................... 220,095 465,157
Participant transfers...................................... 396,127 (1,122,404)
Participant withdrawals.................................... (3,267,481) (2,556,768)
--------------------------
Net decrease from participant transactions............. (2,651,259) (3,214,015)
--------------------------
Total decrease in net assets.......................... (1,815,858) (3,049,616)
Net assets:
Beginning of year.......................................... 16,809,508 19,859,124
--------------------------
End of year................................................ $14,993,650 $16,809,508
--------------------------
--------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 127,603 281,655
Participant transfers...................................... 217,397 (681,695)
Participant withdrawals.................................... (1,897,539) (1,533,467)
</TABLE>

See Notes to Financial Statements.
6

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in Templeton Developing Markets Fund
(identified cost $3,601,213).............................. $1,978,667
----------
Liabilities:
Accrued expenses due related parties....................... 2,470
----------
Net assets.................................................. $1,976,197
----------
----------
Accumulation units outstanding.............................. 3,597,186
----------
Net asset value per unit.................................... $ 0.549373
----------
----------
</TABLE>

See Notes to Financial Statements.
7

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $ 69,201
Expenses:
Mortality and expense risk and administrative charges...... 33,210
---------
Net investment income.................................. 35,991
Realized and unrealized loss on investments:
Net realized loss from share transactions.................. $(107,888)
Net change in unrealized depreciation...................... (566,093)
---------
Net realized and unrealized loss........................... (673,981)
---------
Net decrease in net assets from operations................. $(637,990)
---------
---------
</TABLE>

See Notes to Financial Statements.
8

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss).............................. $ 35,991 $ (28,184)
Net realized loss......................................... (107,888) (82,215)
Net change in unrealized depreciation..................... (566,093) (1,063,555)
-------------------------
Net decrease in net assets from operations............. (637,990) (1,173,954)
-------------------------
Accumulation unit transactions:
Participant deposits....................................... 68,677 391,326
Participant transfers...................................... 189,045 3,234,401
Participant withdrawals.................................... (540,042) (604,972)
-------------------------
Net increase (decrease) from participant
transactions.......................................... (282,320) 3,020,755
-------------------------
Total increase (decrease) in net assets............... (920,310) 1,846,801
Net assets:
Beginning of year.......................................... 2,896,507 1,049,706
-------------------------
End of year................................................ $1,976,197 $ 2,896,507
-------------------------
-------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 121,399 369,492
Participant transfers...................................... 329,287 3,272,202
Participant withdrawals.................................... (963,652) (571,262)
</TABLE>

See Notes to Financial Statements.
9

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in Templeton International Fund
(identified cost $56,723,707)............................. $98,362,357
-----------
Liabilities:
Accrued expenses due related parties....................... 114,079
-----------
Net assets.................................................. $98,248,278
-----------
-----------
Accumulation units outstanding.............................. 44,494,957
-----------
Net asset value per unit.................................... $ 2.208077
-----------
-----------
</TABLE>

See Notes to Financial Statements.
10

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $8,054,626
Expenses:
Mortality and expense risk and administrative charges...... 1,593,906
----------
Net investment income.................................. 6,460,720
Realized and unrealized gain (loss) on investments:
Net realized gain from share transactions.................. $ 8,040,545
Net change in unrealized depreciation...................... (5,557,587)
-----------
Net realized and unrealized gain........................... 2,482,958
----------
Net increase in net assets from operations................. $8,943,678
----------
----------
</TABLE>

See Notes to Financial Statements.
11

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
--------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,460,720 $ 1,418,694
Net realized gain......................................... 8,040,545 2,923,309
Net change in unrealized appreciation (depreciation)...... (5,557,587) 9,740,704
----------------------------
Net increase in net assets from operations............. 8,943,678 14,082,707
----------------------------
Accumulation unit transactions:
Participant deposits....................................... 876,359 2,753,458
Participant transfers...................................... (9,349,207) (3,562,548)
Participant withdrawals.................................... (21,941,519) (8,032,795)
----------------------------
Net decrease from participant transactions............. (30,414,367) (8,841,885)
----------------------------
Total increase/decrease in net assets................. (21,470,689) 5,240,822
Net assets:
Beginning of year.......................................... 119,718,967 114,478,145
----------------------------
End of year................................................ $ 98,248,278 $119,718,967
----------------------------
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 394,221 1,425,162
Participant transfers...................................... (4,428,086) (1,853,141)
Participant withdrawals.................................... (9,941,501) (3,950,023)
</TABLE>

See Notes to Financial Statements.
12

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUBACCOUNT
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in Templeton Stock Fund
(identified cost $140,149,483)............................ $253,961,790
------------
Liabilities:
Accrued expenses due related parties....................... 292,518
------------
Net assets.................................................. $253,669,272
------------
------------
Accumulation units outstanding.............................. 92,618,154
------------
Net asset value per unit.................................... $ 2.738872
------------
------------
</TABLE>

See Notes to Financial Statements.
13

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUBACCOUNT
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $ 34,406,027
Expenses:
Mortality and expense risk and administrative charges...... 4,071,693
------------
Net investment income.................................. 30,334,334
Realized and unrealized gain (loss) on investments:
Net realized gain from share transactions.................. $ 9,294,906
Net change in unrealized depreciation...................... (38,962,419)
------------
Net realized and unrealized loss........................... (29,667,513)
------------
Net increase in net assets from operations................. $ 666,821
------------
------------
</TABLE>

See Notes to Financial Statements.
14

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUBACCOUNT
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 30,334,334 $ 876,792
Net realized gain......................................... 9,294,906 30,280,889
Net change in unrealized appreciation (depreciation)...... (38,962,419) 2,806,597
----------------------------
Net increase in net assets from operations............. 666,821 33,964,278
----------------------------
Accumulation unit transactions:
Participant deposits....................................... 2,412,559 7,580,284
Participant transfers...................................... (5,549,061) (5,102,553)
Participant withdrawals.................................... (64,448,902) (44,832,757)
----------------------------
Net decrease from participant transactions............. (67,585,404) (42,355,026)
----------------------------
Total decrease in net assets.......................... (66,918,583) (8,390,748)
Net assets:
Beginning of year.......................................... 320,587,855 328,978,603
----------------------------
End of year................................................ $253,669,272 $320,587,855
----------------------------
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 845,333 2,844,151
Participant transfers...................................... (2,090,025) (2,030,310)
Participant withdrawals.................................... (23,038,725) (16,304,248)
</TABLE>

See Notes to Financial Statements.
15

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
PHOENIX MONEY MARKET SUBACCOUNT
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<S> <C>
Assets:
Investments in Phoenix Money Market Fund
(identified cost $17,366,581)............................. $17,366,581
-----------
Liabilities:
Accrued expenses due related parties....................... 21,728
-----------
Net assets.................................................. $17,344,853
-----------
-----------
Accumulation units outstanding.............................. 12,123,331
-----------
Net asset value per unit.................................... $ 1.430699
-----------
-----------
</TABLE>

See Notes to Financial Statements.
16

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
PHOENIX MONEY MARKET SUBACCOUNT
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Investment income:
Dividends.................................................. $858,456
Expenses:
Mortality and expense risk and administrative charges...... 241,826
--------
Net investment income.................................. $616,630
--------
--------
</TABLE>

See Notes to Financial Statements.
17

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
PHOENIX MONEY MARKET SUBACCOUNT
Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 616,630 $ 496,669
---------------------------
Accumulation unit transactions:
Participant deposits....................................... 136,420 2,074,466
Participant transfers...................................... 18,481,404 6,474,682
Participant withdrawals.................................... (17,730,587) (7,336,371)
---------------------------
Net increase from participant transactions............. 887,237 1,212,777
---------------------------
Total increase in net assets.......................... 1,503,867 1,709,446
Net assets:
Beginning of year.......................................... 15,840,986 14,131,540
---------------------------
End of year................................................ $ 17,344,853 $15,840,986
---------------------------
---------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 93,105 1,536,859
Participant transfers...................................... 13,159,426 4,731,704
Participant withdrawals.................................... (12,593,026) (5,401,708)
</TABLE>

See Notes to Financial Statements.
18

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements

1. ORGANIZATION

Phoenix Home Life Variable Accumulation Account (the "Account") is a separate
investment account of Phoenix Home Life Mutual Insurance Company registered as a
unit investment trust. The Account currently has six Subaccounts to which
Templeton Investment Plus contract values may be allocated and include the
Templeton Stock, Templeton International, Templeton Developing Markets,
Templeton Asset Allocation, Templeton Bond and Phoenix Money Market which invest
solely in designated portfolios of the Templeton Variable Products Series Fund
and the Phoenix Edge Series Fund (the Funds). Each series of the Funds have
distinct investment objectives. Templeton Stock Fund is a capital growth common
stock fund; the Templeton International Fund invests in stocks and debt
obligations of companies and governments outside the United States; and the
Templeton Developing Markets Fund seeks long-term capital appreciation by
investing in equity securities of issuers in countries having developing
markets; the Templeton Asset Allocation Fund invests in stocks and debt
obligations of companies and governments and money market instruments seeking
high total return; the Templeton Bond Fund seeks high current income through
investing in debt securities, rated and unrated, in any category of companies,
government and government agencies, and in debt securities which are convertible
into common stock of such companies; and the Phoenix Money Market Series seeks
current income, stability of principal and liquidity by investing in high
quality money market instruments. Shares of the Phoenix Money Market Series were
substituted for shares of the Templeton Money Market Fund on October 6, 1998.

2. SIGNIFICANT ACCOUNTING POLICIES

a. VALUATION OF INVESTMENTS:

Investments are made exclusively in the Funds and are valued at the net asset
value per share of the Series.

b. INVESTMENT TRANSACTIONS AND RELATED INCOME:

Investment transactions are recorded on the trade date. Realized gains and
losses on sales of investments are determined on the last-in, first-out (LIFO)
cost basis of the investment sold. Dividends from the Fund are recorded on the
ex-dividend date.

c. INCOME TAXES:

The Account is not a separate entity from Phoenix and under current federal
income tax law, income arising from the Account is not taxed since reserves are
established equivalent to such income. Therefore, no provision for related
federal or state income taxes is required.

3. PURCHASES AND SALES OF SHARES OF TEMPLETON VARIABLE PRODUCTS SERIES FUND

Purchases and sales of the Fund for the period ended December 31, 1998
aggregated the following:

<TABLE>
<CAPTION>
PURCHASES SALES
----------------------------
<S> <C> <C>
Templeton Asset Allocation Fund............................. $ 11,978,637 $ 36,743,242
Templeton Bond Fund......................................... 3,693,531 5,490,471
Templeton Developing Markets Fund........................... 5,014,642 5,261,797
Templeton International Fund................................ 20,115,083 44,095,124
Templeton Stock Fund........................................ 45,166,756 82,500,634
Phoenix Money Market Series................................. 103,940,461 102,358,243
</TABLE>

4. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS

Phoenix provides all administrative services to the account.

Phoenix assumes the risk that annuitants as a class may live longer than
expected and that its expenses may be higher than its deductions for such
expenses. In return for the assumption of these mortality and expense risks,
Phoenix charges each subaccount the daily equivalent of 0.40% on an annual basis
of the current value of the subaccount's net assets for the mortality risks
assumed and the daily equivalent of .085% on an annual basis for the expense
risks assumed.

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements (continued)

4. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS (CONT.)

The fees charged for mortality and expense risks assumed by Phoenix for the
Templeton Stock, the Templeton International, the Templeton Developing Markets,
the Templeton Asset Allocation, the Templeton Bond and the Phoenix Money Market
Subaccounts aggregated $3,701,169, $1,448,860, $30,188, $1,793,946, $193,695 and
$150,734, and $69,104 respectively, for the period ended December 31, 1998.

As compensation for administrative services provided to the Account, Phoenix
additionally receives $35 per year from each annuity contract prior to the
contract's date of maturity. This cost-based charge is deducted from the
Subaccount holding the assets of the participant or on a pro-rata basis from two
or more Subaccounts in relation to their values under the contract. Upon a full
surrender of a contract, the entire annual administrative charge of $35 is
deducted regardless of when the surrender occurs. Phoenix received $449,095 for
administrative services provided for the period ended December 31, 1998.

Phoenix also charges each Subaccount the daily equivalent of 0.125% on an annual
basis of the current value of the Subaccount's net assets to cover its variable
costs of administration, such as printing and distribution of participant
mailings. The variable costs of administrative services provided by Phoenix for
the Templeton Stock, Templeton International, Templeton Developing Markets,
Templeton Asset Allocation, Templeton Bond and Phoenix Money Market Subaccounts
aggregated $370,524, $145,046, $3,022, $179,592, $19,391 and $15,090, and $6,918
respectively, for the period ended December 31, 1998.

Franklin Templeton Funds Distributors, Inc. is the principal underwriter and
distributor for the Templeton subaccounts of the Account. Phoenix Equity
Planning Corporation ("PEPCO") is the principal underwriter and W.S. Griffith
and Company, Inc ("WSG") is the distributor for the Phoenix Money Market
Subaccount. Phoenix reimburses Franklin Templeton Funds Distributors, Inc. and
PEPCO for expenses incurred as underwriter. On surrender of a contract,
surrender charges, which vary from 0-6% depending upon the duration of each
contract deposit, are deducted from the proceeds and are paid to Phoenix as
reimbursement for services provided. The surrender charges deducted and paid to
Phoenix were $1,024,276 for the period ended December 31, 1998.

Templeton Investment Counsel, Inc. (TICI) serves as investment manager of the
Templeton Stock, Templeton International, Templeton Asset Allocation and
Templeton Bond Fund; Templeton Asset Management Ltd. (TAML) serves as investment
manager of the Templeton Developing Markets Fund; and Phoenix Investment
Counsel, Inc. (PIC) is the investment advisor to the Phoenix Money Market
Series. The investment managers furnish the Funds with investment research and
advice and supervise the investment programs for the Funds in accordance with
each Series' investment objective, policies and restrictions. Templeton Stock
Fund and Templeton International Fund each pays an investment management fee,
equal on an annual basis to 0.75% of its average daily net assets up to $200
million, 0.675% of such assets from $200 million up to $1.3 billion, and 0.60%
of such assets in excess of $1.3 billion. Templeton Asset Allocation Fund pays
an investment management fee, equal on an annual basis to 0.65% of its average
daily net assets up to $200 million, 0.585% of such assets from $200 million up
to $1.3 billion, and 0.52% of such assets in excess of $1.3 billion. Templeton
Bond Fund pays an investment management fee, equal on an annual basis to 0.50%
of its average daily net assets up to $200 million, 0.45% of such assets from
$200 million up to $1.3 billion, and 0.40% of such assets in excess of $1.3
billion. Templeton Developing Markets Fund pays an investment management fee,
equal on an annual basis to 1.25% of its average daily net assets during the
year. Phoenix Money Market Series pays a monthly investment management fee equal
on annual basis to 0.40% of its average daily net assets up to $250 million,
0.35% of such net assets from $250 million up to $500 million and 0.30% of such
net assets in excess of $500 million.

Each Fund pays its allocated share of an administrative fee to Franklin
Templeton Services, Inc. (FT Services), equal on an annual basis to 0.15% of the
combined average daily net assets of the Funds up to $200 million, reduced to
0.135% of such assets in excess of $200 million, 0.10% of such assets in excess
of $700 million, 0.075% of such assets in excess of $1.2 billion. FT Services
provides certain administrative facilities and services for the Funds.

5. DISTRIBUTION OF NET INCOME

The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of withdrawals of amounts in the form of surrenders, death
benefits, transfers or annuity payments in excess of net purchase payments.

PAGE

PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements (continued)

6. DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Internal Revenue Code (the Code),
a variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account on which the contract is based are not adequately
diversified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor test
or diversification requirements set forth in regulations issued by the Secretary
of Treasury.

The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. Phoenix believes that the Account satisfies the current requirements of
the regulations, and it intends that the Account will continue to meet such
requirements.

PAGE

REPORT OF INDEPENDENT ACCOUNTANTS

[PRICEWATERHOUSECOOPERS LOGO]

TO THE BOARD OF DIRECTORS OF PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY AND
PARTICIPANTS OF PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT:

In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the subaccounts:
Templeton Asset Allocation, Templeton Bond, Templeton Developing Markets,
Templeton International, Templeton Stock and Phoenix Money Market (constituting
the Phoenix Home Life Variable Accumulation Account, hereafter referred to as
the "Account") at December 31, 1998, and the results of each of their operations
and the changes in each of their net assets for each of the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Account's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments at
December 31, 1998 by correspondence with fund custodian or transfer agent,
provide a reasonable basis for the opinion expressed above.

[PriceWaterhouseCoopers Signature]

PricewaterhouseCoopers LLP
Hartford, Connecticut
February 17, 1999

PAGE

PHOENIX

THE PHOENIX EDGE SERIES FUND

DECEMBER 31, 1998

[PHOENIX LOGO]

PAGE
THIS PAGE LEFT INTENTIONALLY BLANK.

PAGE

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Phoenix Money Market Series ............................................. 2

Notes to Financial Statements ........................................... 7
</TABLE>

Not FDIC Insured No Bank Guarantee May Lose Value

PAGE

MONEY MARKET SERIES

INVESTOR PROFILE

Phoenix Money Market Series is appropriate for investors seeking competitive
money market yields with minimal risk to principal. Investors should note that
an investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investor's investment at $10.00 per share, it is
possible to lose money by investing in the Fund.

INVESTMENT ADVISER'S REPORT

The Phoenix Money Market Series seven-day current yield was 4.05%(1). The
primary factors that affected performance were the growing global economic
crises and unstable markets. Safety and liquidity concerns caused an inflow of
cash into the Fund. A very evident liquidity crisis prompted the Federal Reserve
to lower rates on September 29, 1998 and then twice more on October 15 and
November 17, resulting in a total decrease of 75 basis points within a very
short time.

The Fund's weighted average maturity at the time of this writing is 42 days.
At the November, 1998 meeting of the Federal Reserve Board, a neutral bias was
adopted due to stable financial markets and above-trend growth. The Fund is
continuously monitored and adjusted to reflect current market conditions.

OUTLOOK

The domestic fundamentals in the economy remain moderately strong, with
historically low inflation. The breadth of the liquidity crisis and its impact
on the financial markets will be a focus going forward, in our opinion. The
market will continue to question the real strength in the domestic economy and
whether we will see further deterioration in the financial markets, which could
prompt the Federal Reserve to lower rates once again.

[MONTHLY YIELD COMPARISON LINE GRAPH]

The above graph covers the period from January 1, 1998 to December 31, 1998. The
results are not indicative of the rate of return which may be realized from an
investment made in the Money Market Series today.

(*) Average monthly yield of First Tier Money Market Funds as reported by IBC's
Money Market Insight.
(1) Current yield is a seven-day annualized yield computed by dividing the
average net income earned per share during the seven days preceding the
date of calculation by the average daily net asset value per share for the
same period multiplied by 365.

PAGE
MONEY MARKET SERIES

SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998

<TABLE>
<CAPTION>
FACE
VALUE INTEREST RESET
(000) DESCRIPTION RATE DATE VALUE
----- ----------- ---- ---- -----
<S> <C> <C> <C>
FEDERAL AGENCY SECURITIES -- VARIABLE(b) -- 14.4%
$ 3,500 FFCB (final maturity 4/1/99) ...................................... 4.81% 1/4/99 $ 3,500,000
4,500 FFCB (final maturity 7/24/00) ..................................... 5.04 1/4/99 4,500,857
2,000 FHLB (final maturity 1/22/99) ..................................... 4.90 1/22/99 1,994,283
2,500 FHLB (final maturity 11/17/99) .................................... 5.12 2/17/99 2,500,387
2,000 FNMA (final maturity 4/9/99) ...................................... 5.10 1/9/99 1,999,732
3,500 FNMA (final maturity 9/17/99) ..................................... 5.04 3/17/99 3,498,510
217 SBA (final maturity 1/25/21) ...................................... 5.25 1/1/99 217,014
241 SBA (final maturity 5/25/21) ...................................... 5.75 1/1/99 241,021
1,871 SBA (final maturity 10/25/22) ..................................... 5.75 1/1/99 1,872,189
2,206 SBA (final maturity 2/25/23) ...................................... 5.75 1/1/99 2,206,442
1,976 SBA (final maturity 2/25/23) ...................................... 5.75 1/1/99 1,976,085
2,951 SBA (final maturity 9/25/23) ...................................... 5.63 1/1/99 2,949,263
1,000 SLMA (final maturity 2/22/99) ..................................... 4.84 1/5/99 1,000,000
------------
TOTAL FEDERAL AGENCY SECURITIES -- VARIABLE ...................................................................... 28,455,783
------------
</TABLE>

<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING MATURITY
(000) DESCRIPTION (Unaudited) DATE VALUE
----- ----------- ----------- ---- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 80.3%
1,350 Greenwich Funding Corp. .................................... A-1+ 5.50 1/4/99 1,349,381
6,030 Receivables Capital Corp. .................................. A-1+ 5.50 1/4/99 6,027,236
955 Marsh & McLennan Cos., Inc. ................................ A-1+ 6.00 1/6/99 954,204
2,450 SBC Communications, Inc. ................................... A-1+ 5.95 1/6/99 2,447,975
2,000 Coca-Cola Co. .............................................. A-1+ 5.50 1/7/99 1,998,167
1,450 Sara Lee Corp. ............................................. A-1+ 5.50 1/7/99 1,448,671
1,702 General Electric Capital Corp. ............................. A-1+ 5.45 1/8/99 1,700,196
1,580 Preferred Receivables Funding Corp. ........................ A-1 5.25 1/8/99 1,578,387
2,500 Corporate Asset Funding Co., Inc. .......................... A-1+ 5.33 1/11/99 2,496,299
739 Greenwich Funding Corp. .................................... A-1+ 5.55 1/11/99 737,861
2,500 Corporate Asset Funding Co., Inc. .......................... A-1+ 5.15 1/12/99 2,496,066
2,790 Potomac Electric Power Co. ................................. A-1 5.23 1/12/99 2,785,541
4,290 Citigroup, Inc. ............................................ A-1+ 5.20 1/14/99 4,281,944
1,329 Greenwich Funding Corp. .................................... A-1+ 5.25 1/14/99 1,326,480
1,650 Greenwich Funding Corp. .................................... A-1+ 5.36 1/14/99 1,646,806
1,105 Pitney Bowes, Inc. ......................................... A-1+ 4.95 1/14/99 1,103,025
458 Receivables Capital Corp. .................................. A-1+ 5.45 1/14/99 457,099
2,057 Receivables Capital Corp. .................................. A-1+ 5.40 1/19/99 2,051,446
2,500 Potomac Electric Power Co. ................................. A-1 5.30 1/20/99 2,493,007
3,500 Corporate Receivables Corp. ................................ A-1+ 5.22 1/21/99 3,489,850
3,000 Lexington Parker Capital Co. LLC ........................... A-1 5.26 1/22/99 2,990,795
935 Potomac Electric Power Co. ................................. A-1 5.50 1/26/99 931,429
3,000 AlliedSignal, Inc. ......................................... A-1 5.50 1/27/99 2,988,083
2,500 Lexington Parker Capital Co. LLC ........................... A-1 5.42 1/27/99 2,490,214
705 Vermont American Corp. ..................................... A-1+ 5.45 1/27/99 702,225
2,000 CXC, Inc. .................................................. A-1+ 5.44 1/28/99 1,991,840
1,685 Wisconsin Electric Power Co. ............................... A-1+ 5.40 1/28/99 1,678,176
3,000 Associates Corporation of North America .................... A-1+ 5.04 1/29/99 2,988,240
2,500 Merrill Lynch & Co. ........................................ A-1+ 5.10 1/29/99 2,490,083
3,200 Wisconsin Electric Power Co. ............................... A-1+ 5.50 1/29/99 3,186,311
940 General Electric Capital Corp. ............................. A-1+ 5.43 2/1/99 935,605
2,760 Greenwich Asset Funding Corp. .............................. A-1+ 5.55 2/1/99 2,746,810
2,500 Preferred Receivables Funding Corp. ........................ A-1 5.32 2/1/99 2,488,547
1,370 Preferred Receivables Funding Corp. ........................ A-1 5.40 2/2/99 1,363,424
465 Preferred Receivables Funding Corp. ........................ A-1 5.40 2/2/99 462,768
2,500 Vermont American Corp. ..................................... A-1+ 5.27 2/3/99 2,487,923
570 Preferred Receivables Funding Corp. ........................ A-1 5.33 2/4/99 567,131
1,295 Coca-Cola Co. .............................................. A-1+ 5.12 2/5/99 1,288,554
3,500 Ford Motor Credit Co. ...................................... A-1+ 5.15 2/5/99 3,482,476
1,000 Wisconsin Electric Power Co. ............................... A-1+ 5.25 2/5/99 994,896
2,000 Marsh & McLennan Cos., Inc. ................................ A-1+ 5.50 2/8/99 1,988,389
2,500 Corporate Receivables Corp. ................................ A-1+ 5.15 2/10/99 2,485,695
1,000 Merrill Lynch & Co. ........................................ A-1+ 5.20 2/10/99 994,222
3,700 Heinz (H.J.) Co. ........................................... A-1 5.22 2/12/99 3,677,467
</TABLE>

See Notes to Financial Statements

PAGE

MONEY MARKET SERIES

<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING INTEREST MATURITY
(000) DESCRIPTION (Unaudited) RATE DATE VALUE
----- ----------- ----------- ---- ---- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
$ 2,500 Lexington Parker Capital Co. LLC .................. A-1 5.35% 2/12/99 $ 2,484,396
3,000 Preferred Receivables Funding Corp. ............... A-1 5.35 2/16/99 2,979,492
2,500 Beta Finance, Inc. ................................ A-1+ 5.27 2/18/99 2,482,433
2,500 Goldman Sachs & Co. ............................... A-1+ 5.08 2/24/99 2,480,950
2,000 Goldman Sachs & Co. ............................... A-1+ 5.18 2/24/99 1,984,460
2,500 Marsh & McLennan Cos., Inc. ....................... A-1+ 5.23 2/25/99 2,480,024
3,000 Goldman Sachs & Co. ............................... A-1+ 5.24 2/26/99 2,975,547
1,700 Marsh & McLennan Cos., Inc. ....................... A-1+ 5.30 2/26/99 1,685,984
1,000 Coca-Cola Co. ..................................... A-1+ 5.02 3/1/99 991,773
2,500 General Electric Capital Corp. .................... A-1+ 5.13 3/4/99 2,500,000
2,000 Deutsche Bank Financial Corp. ..................... A-1+ 5.70 3/5/99 1,999,457
3,000 Dupont (E.I) de Nemours & Co. ..................... A-1+ 5.05 3/9/99 2,971,804
2,500 Colgate-Palmolive Co. ............................. A-1 5.05 3/12/99 2,475,451
1,250 Enterprise Funding Corp. .......................... A-1 5.22 3/15/99 1,236,769
2,500 Beta Finance, Inc. ................................ A-1+ 5.73 3/16/99 2,500,123
2,500 Schering Corp. .................................... A-1+ 5.02 3/16/99 2,474,203
788 Enterprise Funding Corp. .......................... A-1 5.12 3/19/99 779,371
3,000 Chase Manhattan Bank .............................. A-1+ 5.22 3/22/99 3,000,235
1,500 Coca-Cola Co. ..................................... A-1+ 5.00 3/22/99 1,483,333
4,070 Greenwich Funding Corp. ........................... A-1+ 5.15 3/25/99 4,021,674
2,500 Marsh & McLennan Cos., Inc. ....................... A-1+ 5.19 3/25/99 2,470,085
2,500 Colgate-Palmolive Co. ............................. A-1 5.00 4/5/99 2,467,361
2,500 Beta Finance, Inc. ................................ A-1+ 5.00 4/6/99 2,467,014
1,300 Corporate Asset Funding Co., Inc. ................. A-1+ 5.45 4/15/99 1,279,532
2,500 Asset Securitization Cooperative .................. A-1+ 5.08 4/16/99 2,462,958
3,000 Chase Manhattan Bank .............................. A-1+ 4.86 4/21/99 3,000,000
2,500 Private Export Funding Corp. ...................... A-1+ 4.68 5/6/99 2,459,375
1,360 Beta Finance, Inc. ................................ A-1+ 5.01 5/17/99 1,334,260
2,845 Greenwich Asset Funding Corp. ..................... A-1+ 5.10 5/18/99 2,789,783
------------
TOTAL COMMERCIAL PAPER ........................................................................................ 157,988,791
------------
MEDIUM-TERM NOTES -- 4.4%
575 General Electric Capital Corp. .................... A-1+ 8.10 1/26/99 575,855
2,000 Associates Corporation of North America ........... A-1+ 6.25 3/15/99 2,002,175
1,500 General Electric Capital Corp. .................... A-1+ 5.98 3/19/99 1,500,768
2,500 General Electric Capital Corp.(b) ................. A-1+ 5.14 6/4/99 2,505,525
1,500 Associates Corporation of North America ........... A-1+ 5.65 6/15/99 1,498,891
600 Associates Corporation of North America ........... A-1+ 6.75 10/15/99 608,296
------------
TOTAL MEDIUM-TERM NOTES ....................................................................................... 8,691,510
------------
TOTAL INVESTMENTS -- 99.1%
(Identified cost $195,136,084) .............................................................................. 195,136,084(a)
Cash and receivables, less liabilities -- 0.9% .............................................................. 1,675,137
------------
NET ASSETS -- 100.0% .......................................................................................... $196,811,221
============

</TABLE>

(a) Federal Income Tax information: At December 31, 1998, the aggregate cost of
securities was the same for book and tax purposes.
(b) Variable rate demand notes. The interest rates shown reflect the rates
currently in effect.

See Notes to Financial Statements

PAGE

MONEY MARKET SERIES

<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<S> <C>
ASSETS
Investment securities at value (Identified cost $195,136,084) .................. $195,136,084
Cash ........................................................................... 27,357
Receivables
Fund shares sold ............................................................. 2,426,087
Interest ..................................................................... 549,742
Prepaid expenses ............................................................... 3,418
------------
Total assets ............................................................... 198,142,688
LIABILITIES
Payables
Fund shares repurchased ...................................................... 1,161,522
Investment advisory fee ...................................................... 74,750
Financial agent fee .......................................................... 16,912
Trustees' fee ................................................................ 5,060
Accrued expenses ............................................................. 73,223
Total liabilities .......................................................... 1,331,467
------------
NET ASSETS ..................................................................... $196,811,221
------------

NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest ............................. $196,811,221
------------
NET ASSETS ..................................................................... $196,811,221
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 19,681,144
============
Net asset value and offering price per share ................................... $ 10.00
============

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998

INVESTMENT INCOME
Interest ..................................................................... $ 7,835,760
Total investment income .................................................... 7,835,760
------------
EXPENSES
Investment advisory fee ...................................................... 564,665
Financial agent fee .......................................................... 123,865
Custodian .................................................................... 30,083
Printing ..................................................................... 22,780
Professional ................................................................. 20,755
Trustees ..................................................................... 12,172
Miscellaneous ................................................................ 6,246
------------
Total expenses ............................................................. 780,566
------------
NET INVESTMENT INCOME .......................................................... 7,055,194
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................... $ 7,055,194
============
</TABLE>

See Notes to Financial Statements

PAGE

MONEY MARKET SERIES

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ................................................. $ 7,055,194 $ 6,261,529
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... 7,055,194 6,261,529
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................................................ (7,055,197) (6,261,529)
------------- -------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS .................... (7,055,197) (6,261,529)
------------- -------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (47,209,211 and 35,987,251 shares, respectively) 472,092,185 359,872,496
Net asset value of shares issued from reinvestment of distributions
(705,519 and 626,153 shares, respectively) ................................. 7,055,197 6,261,528
Cost of shares repurchased (40,894,255 and 37,088,873 shares, respectively) .. (408,942,852) (370,888,736)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS .................... 70,204,530 (4,754,712)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS ........................................ 70,204,527 (4,754,712)
NET ASSETS
Beginning of period .......................................................... 126,606,694 131,361,406
------------- -------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $0
AND $3, RESPECTIVELY) ...................................................... $ 196,811,221 $ 126,606,694
============= =============
</TABLE>

FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) ....... 0.50 0.50 0.50 0.56 0.38(1)
-------- -------- -------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS . 0.50 0.50 0.50 0.56 0.38
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Dividends from net investment income (0.50) (0.50) (0.50) (0.56) (0.38)
-------- -------- -------- -------- -------
TOTAL DISTRIBUTIONS .............. (0.50) (0.50) (0.50) (0.56) (0.38)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD ....... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== =======

Total return ......................... 5.09% 4.99% 4.98% 5.55% 3.77%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $196,811 $126,607 $131,361 $102,943 $94,586
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses ................. 0.55% 0.55% 0.55% 0.53%(2) 0.55%
Net investment income .............. 4.99% 5.07% 4.89% 5.57% 3.85%
</TABLE>

(1) Includes reimbursement of operating expenses by investment adviser of
$0.003 per share.
(2) The ratio of operating expenses to average net assets excludes the effect
of expense offsets for custodian fees; if expense offsets were included,
the ratio would not significantly differ.

See Notes to Financial Statements

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998

NOTE 1 -- ORGANIZATION

The Phoenix Edge Series Fund (the "Fund") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is comprised of
the Money Market, Growth, Multi-Sector Fixed Income, Strategic Allocation,
International, Balanced, Real Estate Securities ("Real Estate"), Strategic
Theme, Aberdeen New Asia, Research Enhanced Index ("Enhanced Index"), Engemann
Nifty Fifty, Seneca Mid-Cap Growth, Growth and Income, Value Equity and Schafer
Mid-Cap Value Series. The Fund was established as part of the December 8, 1986
reorganization of the Phoenix Home Life Variable Accumulation Account (the
"Account") from a management investment company to a unit investment trust under
the Investment Company Act of 1940. The Fund is organized with Series which are
available only to the subaccounts of the Phoenix Home Life Variable Accumulation
Account, Phoenix Home Life Variable Universal Life Account, PHL Variable
Accumulation Account, Phoenix Life and Annuity Variable Universal Life Account,
and Phoenix Home Life Separate Accounts B, C, and D.

Each Series has distinct investment objectives. The Money Market Series seeks to
provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term growth
of capital, with income as a secondary consideration. The Multi-Sector Fixed
Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks to realize as high a level of total rate
of return over an extended period of time as is considered consistent with
prudent investment risk by investing in three market segments; stocks, bonds and
money market instruments. The International Series seeks as its investment
objective a high total return consistent with reasonable risk by investing
primarily in an internationally diversified portfolio of equity securities. The
Balanced Series seeks to provide reasonable income, long-term growth and
conservation of capital. The Real Estate Series seeks to achieve capital
appreciation and income with approximately equal emphasis through investments in
real estate investment trusts and companies that operate, manage, develop or
invest in real estate. The Strategic Theme Series seeks long-term appreciation
of capital by investing in securities that the adviser believes are well
positioned to benefit from cultural, demographic, regulatory, social or
technological changes worldwide. The Aberdeen New Asia Series seeks to provide
long-term capital appreciation by investing primarily in diversified equity
securities of issuers organized and principally operating in Asia, excluding
Japan. The Enhanced Index Series seeks high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the Standard &
Poor's 500 Composite Stock Price Index. The Engemann Nifty Fifty Series seeks to
achieve long-term capital appreciation investing in approximately 50 different
securities which offer the potential for long term growth of capital. The Seneca
Mid-Cap Growth Series seeks capital appreciation primarily through investments
in equity securities of companies that have the potential for above average
market appreciation. The Growth and Income Series seeks as its investment
objective, dividend growth, current income and capital appreciation by investing
in common stocks. The Value Equity Series seeks to achieve long-term capital
appreciation and income by investing in a diversified portfolio of common stocks
which meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. The Schafer Mid-Cap Value
Series seeks to achieve long-term capital appreciation with current income as
the secondary investment objective by investing in common stocks of established
companies having a strong financial position and a low stock market valuation at
the time of purchase which are believed to offer the possibility of increase in
value.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.

A. SECURITY VALUATION

Equity securities are valued at the last sale price, or if there had been no
sale that day, at the last bid price. Debt securities are valued on the basis of
broker quotations or valuations provided by a pricing service which utilizes
information with respect to recent sales, market transactions in comparable
securities, quotations from dealers, and various relationships between
securities in determining value. Short-term investments having a remaining
maturity of 60 days or less are valued at amortized cost which approximates
market. All other securities and assets are valued at their fair value as
determined in good faith by or under the direction of the Trustees.

The Money Market Series uses the amortized cost method of security valuation
which, in the opinion of the Trustees, represents the fair value of the
particular security. The Trustees monitor the deviations between the Series' net
asset value per share as determined by using available market quotations and its
amortized cost per share. If the deviation exceeds 1/2 of 1%, the Board of
Trustees will consider what action, if any, should be initiated to provide fair
valuation. The Series attempts to maintain a constant net asset value of $10 per
share.

On September 1, 1998, the Central Bank of Malaysia, announced measures that
significantly restrict the rights of non-residents with respect to transactions
in Malaysian securities with the intention to insulate Malaysia from the
problems confronting the international financial markets.

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998

Beginning September 1, 1998 the Malaysian government fixed the exchange rate of
its currency, the Ringgit, at 3.80 Ringgit equal to US$1.00 and adopted
stringent controls over currency and stock trading which had the effect of
forcing all offshore holdings of Malaysian currency and securities back into the
country. In addition, the government suspended foreign investors' ability to
convert proceeds from the sale of Malaysian securities into foreign currency for
one year from the date of initial purchase, with repatriation of the proceeds
from the sale of all securities held at September 1, 1998 prohibited for one
year. As a result of the imposition of the above restrictions over currency and
stock trading, the Fund's Board of Trustees have deemed all holdings of the Fund
in Malaysian securities as illiquid and have fair valued holdings in such
securities using an exchange rate of 4.56 Ringgit equal to US$1.00. At December
31, 1998, investments in Malaysia for the International Series aggregating
$522,764 (0.2% of net assets) and for the Aberdeen New Asia Series aggregating
$546,904 (5.75% of net assets) have been fair valued in good faith by, or under
the direction of, the Fund's Board of Trustees.

B. SECURITY TRANSACTIONS AND RELATED INCOME

Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified. The Fund does not amortize premiums except for the Money Market
Series, but does amortize discounts using the effective interest method.
Realized gains and losses are determined on the identified cost basis.

C. INCOME TAXES

Each of the Series is treated as a separate taxable entity. It is the policy of
each Series to comply with the requirements of the Internal Revenue Code,
applicable to regulated investment companies, and to distribute all of its
taxable income to its shareholders. In addition, each Series intends to
distribute an amount sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision for federal income taxes or
excise taxes has been made.

D. DISTRIBUTIONS TO SHAREHOLDERS

Distributions are recorded by each Series on the ex-dividend date and all
distributions are reinvested into the Fund. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences include
the treatment of non-taxable dividends, expiring capital loss carryforwards,
foreign currency gain/loss, partnerships, and losses deferred due to wash sales
and excise tax regulations. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassifications to paid in capital.

E. FOREIGN CURRENCY TRANSLATION

Foreign securities and other assets and liabilities are valued using the foreign
currency exchange rate effective at the end of the reporting period. Cost of
investments is translated at the currency exchange rate effective at the trade
date. The gain or loss resulting from a change in currency exchange rates
between the trade and settlement dates of a portfolio transaction is treated as
a gain or loss on foreign currency. Likewise, the gain or loss resulting from a
change in currency exchange rates between the date income is accrued and paid is
treated as a gain or loss on foreign currency. The Fund does not separate that
portion of the results of operations arising from changes in exchange rates and
that portion arising from changes in the market prices of securities.

F. FORWARD CURRENCY CONTRACTS

Each Series may enter into forward currency contracts in conjunction with the
planned purchase or sale of foreign denominated securities in order to hedge the
U.S. dollar cost or proceeds. Forward currency contracts involve, to varying
degrees, elements of market risk in excess of the amount recognized in the
statement of assets and liabilities. Risks arise from the possible movements in
foreign exchange rates or if the counterparty does not perform under the
contract.

A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. These contracts are traded directly between currency traders and
their customers. The contract is marked-to-market daily and the change in market
value is recorded by the Series as an unrealized gain (or loss). When the
contract is closed or offset with the same counterparty, the Series records a
realized gain (or loss) equal to the change in the value of the contract when it
was opened and the value at the time it was closed or offset.

G. FUTURES CONTRACTS

A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Series may enter into financial
futures contracts as a hedge against anticipated changes in the market value of
their portfolio securities. Upon entering into a futures contract, the Series is
required to pledge to the broker an amount of cash and/or securities equal to
the "initial margin" requirements of the futures exchange on which the contract
is traded. Pursuant to the contract, the Series agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as variation margins and are
recorded by the Series as unrealized gains or losses. When the contract is
closed, the Series records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. The potential risk to the Series is that the change in value
of the futures contract may not correspond to the change in value of the hedged
instruments.

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998

H. OPTIONS

The Multi-Sector Fixed Income, Money Market, Growth, Strategic Allocation,
Balanced, International, Strategic Theme, Enhanced Index, Seneca Mid-Cap Growth,
Growth and Income, Value Equity and Aberdeen New Asia Series may write covered
options or purchase options contracts for the purpose of hedging against changes
in the market value of the underlying securities or foreign currencies.

Each Series will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported separately
in the Statement of Operations. When a written option is exercised, the proceeds
on sales or amounts paid are adjusted by the amount of premium received. Options
written are reported as a liability in the Statement of Assets and Liabilities
and subsequently marked-to-market to reflect the current value of the option.
The risk associated with written options is that the change in value of options
contracts may not correspond to the change in value of the hedged instruments.
In addition, losses may arise from changes in the value of the underlying
instruments, or if a liquid secondary market does not exist for the contracts.

Each Series may purchase options which are included in the Series' Schedule of
Investments and subsequently marked-to-market to reflect the current value of
the option. When a purchased option is exercised, the cost of the security is
adjusted by the amount of premium paid. The risk associated with purchased
options is limited to the premium paid.

I. EXPENSES

Expenses incurred by the Fund with respect to any two or more Series are
allocated in proportion to the net assets of each Series, except where
allocation of direct expense to each Series or an alternative allocation method
can be more fairly made.

J. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

Each Series may engage in when-issued or delayed delivery transactions. The
Series record when-issued securities on the trade date and maintain collateral
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis begin earning interest on the settlement date.

K. REPURCHASE AGREEMENTS

A repurchase agreement is a transaction where a Series acquires a security for
cash and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed upon price and date. The Series, through its custodian,
takes possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Series in the event of
default by the seller. If the seller defaults and the value of the collateral
declines or, if the seller enters insolvency proceedings, realization of
collateral may be delayed or limited.

NOTE 3 -- INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS

As compensation for advisory services to the Fund, the Advisers are entitled to
a fee, based upon the following annual rates as a percentage of the average
daily net assets of each separate Series listed below:

<TABLE>
<CAPTION>
RATE FOR FIRST RATE FOR NEXT RATE FOR EXCESS
SERIES $250 MILLION $250 MILLION OVER $500 MILLION
- ------ ------------ ------------ -----------------
<S> <C> <C> <C>
Money Market ............ 0.40% 0.35% 0.30%
Growth .................. 0.70 0.65 0.60
Multi-Sector Fixed Income 0.50 0.45 0.40
Strategic Allocation .... 0.60 0.55 0.50
International ........... 0.75 0.70 0.65
Balanced ................ 0.55 0.50 0.45
Strategic Theme ......... 0.75 0.70 0.65
Aberdeen New Asia ....... 1.00 1.00 1.00
Enhanced Index .......... 0.45 0.45 0.45
Engemann Nifty Fifty .... 0.90 0.85 0.80
Seneca Mid-Cap Growth ... 0.80 0.80 0.80
Growth and Income ....... 0.70 0.65 0.60
Value Equity ............ 0.70 0.65 0.60
Schafer Mid-Cap Value ... 1.05 1.05 1.05
</TABLE>

<TABLE>
<CAPTION>
RATE FOR FIRST RATE FOR NEXT RATE FOR EXCESS
$1 BILLION $1 BILLION OVER $2 BILLION
---------- ---------- ---------------
<S> <C> <C> <C>
Real Estate ....... 0.75 0.70 0.65
</TABLE>

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998

Phoenix Investment Council ("PIC") is adviser to each Series except the Real
Estate Series and Aberdeen New Asia Series. Pursuant to a subadvisory agreement
with the Fund, PIC delegates certain investment decisions and research functions
with respect to the following series to the subadvisor indicated, for which
services each is paid a fee by PIC.

<TABLE>
<CAPTION>
<S> <C>
Enhanced Index Series ........................... J.P. Morgan Investment Management, Inc. ("J.P. Morgan")
Engemann Nifty Fifty Series ..................... Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Growth Series .................... Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Value Series .................... Schafer Capital Management, Inc. ("Schafer")
</TABLE>

In accordance with the subadvisory agreement between the Fund and J.P. Morgan,
J.P. Morgan is paid a monthly fee at the annual rate of 0.25% of the average
aggregate daily net asset values of the Enhanced Index Series up to $100
million; and 0.20% of such value in excess of $100 million. Pursuant to the
subadvisory agreement with the Fund and Engemann, Engemann is paid a monthly fee
at the annual rate of .45% of the average aggregate daily net asset values of
the Engemann Nifty Fifty Series up to $250,000,000, .425% of such values between
$250,000,000 and $500,000,000 and .40% of such values in excess of $500,000.000.
Pursuant to the subadvisory agreement with the Fund and Seneca, Seneca is paid a
monthly fee at the annual rate of .40% of the average aggregate daily net asset
values of the Seneca Mid-Cap Growth Series. In accordance with the subadvisory
agreement with the Fund and Schafer, Schafer is paid a monthly fee at the annual
rate of .85% of the average aggregate daily net asset values of the Schafer
Mid-Cap Value Series up to $175 million and .80% of such value in excess of $175
million.

Effective November 24, 1998, Aberdeen Fund Managers, Inc. ("Aberdeen") was
appointed subadvisor to the International Series. For its services, Aberdeen is
paid a fee by the Advisers equal to 0.375% of the average daily net assets of
the International Series up to $250 million, 0.35% of such value between $250
million to $500 million and 0.325% of such value in excess of $500 million.
Aberdeen is a subsidiary of Aberdeen Asset Management PLC, of which PHL owns
approximately 11%.

The investment adviser for the Real Estate Series through March 2, 1998 was
Phoenix Realty Securities, Inc. ("PRS"). PRS is an indirect, wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company ("PHL"). For its
services, PRS was entitled to a fee at an annual rate of 0.75% of the average
daily net assets for the first $1 billion. Pursuant to a subadvisory agreement
with the Series, PRS delegates certain investment decisions and research
functions to Duff & Phelps Investment Management Co. ("DPIM"), a subsidiary of
Phoenix Investment Partners, Ltd. ("PXP"). PXP is a majority owned subsidiary of
PHL. On March 2, 1998 DPIM purchased the management rights for the Real Estate
Series from PRS and PRS' contract was assigned to DPIM. For its services, DPIM
is entitled to a fee at an annual rate of 0.75% of the average daily net assets
for the first $1 billion, 0.70% on the next $1 billion and 0.65% thereafter.

Phoenix-Aberdeen International Advisors, LLC ("PAIA") serves as the investment
adviser to the Aberdeen New Asia Series. PAIA is a joint venture between PM
Holdings, Inc., a direct subsidiary of PHL, and Aberdeen Fund Managers, Inc.
("Aberdeen"), a wholly-owned subsidiary of Aberdeen Asset Management PLC. PAIA
is entitled to a fee, at an annual rate of 1.00% of the average daily net assets
of the Aberdeen New Asia Series. Pursuant to subadvisory agreements, PAIA
delegates certain investment decisions and functions to other entities. PIC
receives a fee of 0.30% of the average daily net assets of the Aberdeen New Asia
Series from PAIA for providing research and other domestic advisory services, as
needed. In addition, PAIA also pays a subadvisory fee to Aberdeen of 0.40% of
the average daily net assets of the Aberdeen New Asia Series for implementing
certain portfolio transactions and providing research and other services.

Each Series (except the International, Real Estate, Strategic Theme, Aberdeen
New Asia, Enhanced Index and Seneca Mid-Cap Series) pays a portion or all of its
other operating expenses (not including management fee, interest, taxes,
brokerage fees and commissions), up to 0.15% of its average net assets. The
International, Real Estate, Strategic Theme, Aberdeen New Asia, Enhanced Index
and Seneca Mid-Cap Series pay other operating expenses up to 0.40%, 0.25%,
0.25%, 0.25%, 0.10% and .25% respectively, of its average net assets. Expenses
above these limits are paid by the Advisers (PIC, DPIM, PAIA), PHL and/or PHL
Variable Insurance Company.

As Financial Agent to the Fund and to each Series, Phoenix Equity Planning
Corporation ("PEPCO"), an indirect majority-owned subsidiary of PHL, received a
fee at an annual rate of 0.06% of the average daily net assets of each Series
through May 31, 1998 for bookkeeping, administrative and pricing services.

Effective June 1, 1998, PEPCO receives a financial agent fee equal to the sum of
(1) the documented cost of fund accounting and related services provided by
PFPC, Inc. (subagent to PEPCO), plus (2) the documented cost to PEPCO to provide
financial reporting, tax services and oversight of subagent's performance. The
current fee schedule of PFPC, Inc. ranges from 0.085% to 0.0125% of the average
daily net asset values of the Fund. Certain minimum fees and fee waivers may
apply.

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998

At December 31, 1998, PHL and affiliates held shares in The Phoenix Edge
Series Fund which had the following aggregate value:

<TABLE>
<CAPTION>
<S> <C>
Real Estate Series ......... $3,313,172
Aberdeen New Asia Series ... 1,885,989
Engemann Nifty Fifty Series 2,499,272
Seneca Mid-Cap Growth Series 2,388,100
Growth and Income Series ... 2,384,514
Value Equity Series ........ 2,197,472
Schafer Mid-Cap Value Series 1,754,054
</TABLE>

NOTE 4 -- PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities during the period ended December 31, 1998
(excluding U.S. Government securities, short-term securities, options written
and forward currency contracts) aggregated the following:

<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Growth Series .................................... $1,623,280,248 $1,619,706,351
Multi-Sector Fixed Income Series ................. 233,895,415 197,086,009
Strategic Allocation Series ...................... 529,142,388 502,610,192
International Series ............................. 202,357,792 214,439,616
Balanced Series .................................. 282,447,552 258,900,399
Real Estate Series ............................... 7,732,285 9,846,099
Strategic Theme Series ........................... 195,397,197 185,996,003
Aberdeen New Asia Series ......................... 4,993,427 3,959,516
Research Enhanced Index Series ................... 46,318,196 20,947,863
Engemann Nifty Fifty Series ...................... 17,010,118 6,080,962
Seneca Mid-Cap Growth Series ..................... 12,295,627 5,596,788
Growth and Income Series ......................... 53,386,812 16,444,743
Value Equity Series .............................. 12,958,808 4,279,319
Schafer Mid-Cap Value Series ..................... 9,669,802 834,650
</TABLE>

There were no purchases or sales of such securities in the Money Market
Series.

Purchases and sales of long-term U.S. Government securities during the period
ended December 31, 1998 aggregated the following:

<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Multi-Sector Fixed Income Series $ 91,713,764 $110,151,084
Strategic Allocation Series .... 24,650,801 51,883,816
Balanced Series ................ 59,109,060 56,841,567
</TABLE>

There were no purchases or sales of long-term U.S. Government Securities in the
Money Market, Growth, International, Real Estate, Strategic Theme, Aberdeen New
Asia, Enhanced Index, Engemann Nifty-Fifty, Seneca Mid-Cap Growth, Growth and
Income, Value Equity and Schafer Mid-Cap Value Series.

Written call option activity for the year ended December 31, 1998 aggregated the
following:

<TABLE>
<CAPTION>
GROWTH AND INCOME SERIES
# OF AMOUNT OF
OPTIONS PREMIUMS
------- --------
<S> <C> <C>
Options outstanding at December 31, 1997......... -- $ --
Options written ................................. 70 11,727
Options canceled in closing purchase transactions -- --
Options expired ................................. (48) (7,393)
Options exercised ............................... (22) (4,334)
---- ---------
Options outstanding at December 31, 1998.........
==== =========
</TABLE>

At December 31, 1998, the Enhanced Index Series had entered into futures
contracts as follows:

<TABLE>
<CAPTION>
VALUE OF
NUMBER CONTRACTS MARKET NET
OF WHEN VALUE OF UNREALIZED
DESCRIPTION CONTRACTS OPENED CONTRACTS APPRECIATION
- ----------- --------- ------ --------- ------------
<S> <C> <C> <C> <C>
Standard & Poor's 500 Index ................ 2 $ 578,475 $ 622,750 $ 44,275
Standard & Poor's 500 Index ................ 1 298,575 311,375 12,800
Standard & Poor's 500 Index ................ 1 305,500 311,375 5,875
- ---------- ---------- ----------
4 $1,182,550 $1,245,500 $ 62,950
= ========== ========== ==========
</TABLE>

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998

NOTE 5 -- CREDIT RISK

In countries with limited or developing markets, investments may present greater
risks than in more developed markets and the prices of such investments may be
volatile. The consequences of political, social or economic changes in these
markets may have disruptive effects on the market prices of these investments
and the income they generate, as well as a fund's ability to repatriate such
amounts.

NOTE 6 -- LOAN AGREEMENTS

The Fund may invest in direct debt instruments which are interests in amounts
owed by a corporate, governmental, or other borrower to lenders or lending
syndicates. The Fund's investments in loans may be in the form of participations
in loans or assignments of all or a portion of loans from third parties. A loan
is often administered by a bank or other financial institution (the lender) that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. When investing in a loan participation, the
Fund has the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the loan agreement and only
upon receipt by the lender of payments from the borrower. The Fund generally has
no right to enforce compliance with the terms of the loan agreement with the
borrower. As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a risk
that the government entities responsible for the repayment of the debt may be
unable, or unwilling to pay the principal and interest when due.

NOTE 7 -- CAPITAL LOSS CARRYOVERS

At December 31, 1998, the following Series have capital loss carryforwards which
may be used to offset future capital gains.

<TABLE>
<CAPTION>
<S> <C>
Multi-Sector Fixed Income Series $ 566,989
Real Estate Series ............. 113,500
Aberdeen New Asia Series ....... 2,887,698
Engemann Nifty Fifty Series .... 4,085
Seneca Mid-Cap Growth Series ... 164,133
Growth and Income Series ....... 349,419
Value Equity Series ............ 104,098
Schafer Mid-Cap Value Series ... 285,733
</TABLE>

Capital loss carryforwards expire in 2006 for all Series except for Aberdeen New
Asia Series which expires as follows: $143,419 in 2005 and $2,744,279 in 2006.

Under current tax law, capital and foreign currency losses realized after
October 31, 1998 may be deferred and treated as occurring on the first day of
the following tax year. For the calendar year ended December 31, 1998 the
Aberdeen New Asia Series, Multi-Sector Fixed Income Series, and Schafer Mid-Cap
Growth Series elected to defer losses occurring between November 1, 1998 and
December 31, 1998 in the amount of $496,277, $5,850,282, and $55,831,
respectively. In addition, the International Series, Aberdeen New Asia Series,
Growth Series and Strategic Theme Series were able to utilize losses deferred in
the prior year in the amount of $761,290, $379,802, $1,144 and $1,280,577,
respectively.

NOTE 8 -- RECLASS OF CAPITAL ACCOUNTS

In accordance with accounting pronouncements, the Series have recorded several
reclassifications in the capital accounts. These reclassifications have no
impact on the net asset value of the Series and are designed generally to
present undistributed net investment income and realized gains on a tax basis
which is considered to be more informative to the shareholder. As of December
31, 1998, the Series recorded the following reclassifications to increase
(decrease) the accounts listed below:

<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED CAPITAL PAID IN ON
NET INVESTMENT NET REALIZED SHARE OF
INCOME (LOSS) GAIN (LOSS) BENEFICIAL INTEREST
------------- ----------- -------------------
<S> <C> <C> <C>
Multi-Sector Fixed Income Series $ 185,299 $ (20,925) $ (164,374)
Strategic Allocation Series .... 3,389 (3,389) --
International Series ........... 1,020,757 (1,020,757) --
Balanced Series ................ 7,308 (7,308) --
Strategic Theme Series ......... 5,345 (5,345) --
Aberdeen New Asia Series ....... 98,695 (98,695) --
Engemann Nifty-Fifty Series .... 1,543 -- (1,543)
Growth and Income Series ....... (257) 257 --
</TABLE>

PAGE

THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998

TAX INFORMATION NOTICE (Unaudited)

For the fiscal year ended December 31, 1998, the following Series distributed
long-term capital gain dividends as follows:

<TABLE>
<CAPTION>
TOTAL LONG-TERM
DISTRIBUTIONS
-------------
<S> <C>
Growth Series .................. $29,385,512
Multi-Sector Fixed Income Series 788,837
Strategic Allocation Series .... 562,474
International Series ........... 22,045,574
Balanced Series ................ 3,589,015
Real Estate Securities Series .. 26,597
Research Enhanced Index Series . 620,322
</TABLE>

This report is not authorized for distribution to prospective investors in The
Phoenix Edge Series Fund unless preceded or accompanied by and effective
Prospectus which includes information concerning the sales charges, Fund's
record and other pertinent information.

PAGE

REPORT OF INDEPENDENT ACCOUNTANTS

[PricewaterhouseCoopers Logo]

TO THE SHAREHOLDERS AND TRUSTEES OF
THE PHOENIX EDGE SERIES FUND

In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments (except for bond ratings), and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Money Market Series, Growth Series, Multi-Sector Fixed Income Series,
Strategic Allocation Series, International Series, Balanced Series, Real Estate
Securities Series, Strategic Theme Series, Aberdeen New Asia Series, Research
Enhanced Index Series, Engemann Nifty Fifty Series, Seneca Mid-Cap Growth
Series, Growth and Income Series, Value Equity Series, and Schafer Mid-Cap Value
Series (constituting the Phoenix Edge Series Fund, hereafter referred to as the
"Fund") at December 31, 1998, and the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 17, 1999

PAGE

RESULTS OF SHAREHOLDER MEETING (UNAUDITED)

MEETING 1: A special meeting of Shareholders of the Phoenix Aberdeen New Asia
Series of The Phoenix Edge Series Fund was held on October 21, 1998 to approve
the following matters:

1. Approval of an advisory agreement with Phoenix-Aberdeen International
Advisors LLC.

2. Approval of a subadvisory agreement with Aberdeen Fund Managers, Inc.

3. Approval of a subadvisory agreement with Phoenix Investment Counsel, Inc.

On the record date for this meeting there were 1,542,936 shares outstanding
and 100% of the shares outstanding and entitled to vote were present by proxy.

NUMBER OF VOTES

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
1. Approval of investment advisory agreement 1,331,496 84,905 126,535

2. Approval of investment subadvisory agreement 1,326,736 85,559 130,641

3. Approval of investment subadvisory agreement 1,339,160 78,984 124,792
</TABLE>

MEETING 2: A special meeting of Shareholders of the Phoenix Edge Series Fund was
held on November 24, 1998 to approve the following matters:

1. Fix the number of trustees at twelve and elect such number as detailed
below.

2. Ratify selection of PricewaterhouseCoopers LLP, independent accountants, as
auditors for the fiscal year ending December 31, 1998.

3. Approval of a subadvisory agreement with Aberdeen Fund Managers, Inc.
(International Series only)

On the record date for this meeting, for the Phoenix Edge Series Fund,
there were 195,708,457 shares outstanding and 100% of the shares outstanding and
entitled to vote were present by proxy. For the International Series, there were
13,164,334 shares outstanding and 100% of the shares outstanding and entitled to
vote were present by proxy.

NUMBER OF VOTES:

<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
1. Election of Trustees

Robert Chesek 187,977,973 7,703,484
E. Virgil Conway 187,762,694 7,945,763
Harry Dalzell-Payne 187,684,410 8,024,047
Francis E. Jeffries 187,938,831 7,769,626
Leroy Keith, Jr. 188,134,540 7,573,917
Philip R. McLoughlin 188,173,681 7,534,776
Everett L. Morris 187,938,831 7,769,626
James M. Oates 188,154,111 7,554,346
Calvin J. Pedersen 188,173,681 7,534,776
Herbert Roth, Jr. 187,860,548 7,847,909
Richard E. Segerson 188,154,111 7,554,346
Lowell P. Weicker, Jr. 187,136,427 8,572,030
</TABLE>

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
2. PricewaterhouseCoopers LLP 188,545,527 1,741,805 5,421,124
</TABLE>

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
3. Approval of investment subadvisory agreement 11,596,462 667,432 900,400
</TABLE>

PAGE

THE PHOENIX EDGE SERIES FUND
101 Munson Street
Greenfield, Massachusetts 01301

BOARD OF TRUSTEES
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Everett L. Morris
James M. Oates
Calvin J. Pedersen
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.

OFFICERS
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
John F. Sharry, Executive Vice President
J. Roger Engemann, Senior Vice President
David K. Schafer, Senior Vice President
Gail P. Seneca, Senior Vice President
James D. Wehr, Senior Vice President
Hugh Young, Senior Vice President
David L. Albrycht, Vice President
Christian C. Bertelsen, Vice President
Steven L. Colton, Vice President
Timothy Devlin, Vice President
Ron K. Jacks, Vice President
John D. Kattar, Vice President
Christopher J. Kelleher, Vice President
Richard D. Little, Vice President
James E. Mair, Vice President
William R. Moyer, Vice President
Leonard J. Saltiel, Vice President
Julie L. Sapia, Vice President
Michael Schatt, Vice President
John S. Tilson, Vice President
Pierre G. Trinque, Vice President
James Wiess, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary

INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480

Duff & Phelps Investment Management Co.
(Real Estate Securities Series)
55 East Monroe Street
Chicago, Illinois 60603

Phoenix-Aberdeen International Advisors, LLC
(Aberdeen New Asia Series)
56 Prospect Street
Hartford, Connecticut 06115-0480

CUSTODIANS
The Chase Manhattan Bank
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081

Brown Brothers Harriman & Co.
(Aberdeen New Asia Series and International Series)
40 Water Street
Boston, Massachusetts 02109

State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101

TRANSFER AGENT
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110

PAGE

Bulk Rate
U.S. Postage
Paid
Springfield MA
Permit 444

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

INSURANCE ISSUER
Phoenix Home Life Mutual Insurance Co.

TIP DISTRIBUTOR
WS Griffith and Co., Inc.

SERVICE CENTER
Phoenix's Variable Products Operations
1-800/243-4840

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

TRUST DISTRIBUTOR
Franklin Templeton Distributors, Inc.

This report must be preceded or accompanied by the current Templeton Investment
Plus (TIP), prospectus which includes the Phoenix Home Life Variable
Accumulation Account, the Templeton Variable Products Series Fund and The
Phoenix Edge Series Fund prospectuses, which contain more detailed information,
including sales charges and risks of an investment in TIP. 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
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.

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