TEMPLETON VARIABLE PRODUCTS SERIES FUND, N-30D, 1999-08-31

TEMPLETON VARIABLE PRODUCTS SERIES FUND
N-30D, 1999-08-31

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SEMI ANNUAL REPORT
JUNE 30, 1999

[GRAPH OMITTED]

TEMPLETON
VARIABLE PRODUCTS
SERIES FUND

FRANKLIN TEMPLETON LOGO

PAGE

A WORD ABOUT RISK

All of the funds are subject to certain risks, which will cause investment
returns 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. For example, U.S. stocks and other equities,
representing an ownership interest in an individual company, have historically
outperformed other asset classes over the long term, but tend to rise and fall
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 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
funds, 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 funds may be right for you.

PAGE

TABLE OF CONTENTS

TEMPLETON VARIABLE PRODUCTS SERIES FUND
SEMIANNUAL REPORT

<TABLE>
<S> <C>
Letter to Contract Owners ........................... 2
Class 1 Fund Reports
Franklin Growth Investments Fund ................... FG-1
Prospectus Supplement ............................. FG-5
Franklin Small Cap Investments Fund ................ FS-1
Mutual Shares Investments Fund ..................... MS-1
Templeton Asset Allocation Fund .................... TA-1
Templeton Bond Fund ................................ TB-1
Report of Special Meeting of Shareholders ......... TB-4
Templeton Developing Markets Fund .................. TD-1
Templeton International Fund ....................... TI-1
Templeton Stock Fund ............................... TS-1
</TABLE>

PLEASE NOTE:
Templeton Variable Products Series Fund ("the Trust") currently consists of
nine separate investment portfolios, all of which offer Class 1 and Class 2
shares. Only the funds 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 with your current prospectus for reference.

TFAC1 S99 8/99 TAG

PAGE

LETTER TO CONTRACT OWNERS

Dear Contract Owner:

We are pleased to bring you this semiannual report of Templeton Variable
Products Series Fund for the six months ended June 30, 1999.

During the reporting period, the U.S. economy grew at an impressive pace;
inflation remained benign; and domestic stock market indices, led by large
capitalization, blue chip, technology, and Internet-related stocks, reached
record levels. Many Asian and South American markets recovered substantially
from the financial crises of recent years, but European stock markets provided
mixed results.

In the U.S., on March 29 the Dow Jones/registered trademark/ Industrial Average
broke through the 10000 barrier for the first time, and went on to close at
10970 on June 30, 1999, up 20.44% for the six months under review.(1) During
this period, some investors who had seemed to prefer the perceived safety of
liquid, blue chip stocks, began to display renewed interest in the relatively
low price/earnings ratios of small cap stocks, and the Russell 2000/registered
trademark/ Index rose 9.28% for the period.(2) In April and May, value stocks,
after underperforming growth stocks for two years, appeared to return to life.
Although there has been some rebalancing of growth versus value, there has not
yet been a wholesale shift away from the favorites of the past year.

European equities delivered mixed performances, partly due to accelerated
cross-border investment facilitated by the euro's introduction. The stock
markets of Belgium, Switzerland, and Italy fell 19.06%, 13.05%, and 10.77%
respectively, while those of Finland, Norway, and Sweden rose 23.76%, 20.03%,
and 14.99%, respectively. Other western European markets posted generally flat
returns for the period, with the United Kingdom's rising 3.32% and Germany's
falling 4.71%.(3)

(1) Source: Standard & Poor's/registered trademark/ Micropal. Dow Jones
Industrial Average's total return is calculated by Wilshire Associates Inc.

(2) Source: Standard & Poor's/registered trademark/ Micropal. The Russell
2000/registered trademark/ Index measures 2000 U.S. companies with small market
capitalizations.

(3) Source: Bel20 Index; MIB 30 Index; Swiss Market Index; Helsinki General
Index; Stockholm General Index; Total Share Index.

PAGE

During the reporting period, stock markets in many emerging-market countries
roared back to life, as investors poured money into South American and Asian
equities. Mexico's Bolsa Index appreciated 56.50% as measured in U.S. dollars,
while Indonesia's Jakarta Composite Index and South Korea's Seoul Composite
Index surged 102.91% and 67.51%, respectively.(4)

With regard to debt obligations, the J.P. Morgan Emerging Markets Bond Index
Plus, which tracks the performance of bond markets in emerging-market nations,
increased 10.57% during the six months under review.(5) But the Salomon Brothers
World Government Bond Index, representative of government bonds in developed
countries, produced a total return of -7.17% in U.S. dollar terms.(6) U.S.
Treasury securities, as measured by the 30-year Treasury bond, provided a
return of -9.75%, while European government bond prices were generally flat, as
measured in local currency terms.(7)

Of course, security prices always have been and always will be subject to
volatility. No one can predict exactly how financial markets will perform, and
since bad years can be mixed with good years, it is important for investors to
exercise patience, and focus not on short-term market movements, but on their
long-term investment goals.

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

Sincerely,

/s/ Charles E. Johnson
- ----------------------
Charles E. Johnson
President
Templeton Variable Products Series Fund

(4) Source: Bolsa Index; Jakarta Composite Index; Seoul Composite Index.
(5) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
(6) Source: Salomon Brothers.
(7) Source: Standard & Poor's/registered trademark/ Micropal. Indices include
reinvested dividends and interest. An index is an unmanaged group of securities
used to measure market performance. One cannot invest directly in an index, nor
is an index representative of the Fund portfolios.

YEAR 2000 READINESS DISCLOSURE - HOW FRANKLIN TEMPLETON IS TACKLING THE
Y2K PROBLEM

FRANKLIN TEMPLETON FORMED A COMPANY-WIDE TEAM IN 1996 TO IDENTIFY AND CORRECT
PROBLEMS RELATED TO THE DATE CHANGEOVER AFTER DECEMBER 31, 1999. ALL BUT ONE OF
OUR MISSION-CRITICAL SYSTEMS ARE CERTIFIED AS YEAR 2000 COMPLIANT AND ARE
OPERATING IN PRODUCTION, AS OF JULY 15, 1999. WE INTEND TO HAVE OUR REMAINING
MISSION-CRITICAL SYSTEM, A REPLACEMENT FOR AN EXISTING SALES AND MARKETING
SYSTEM, CERTIFIED BY THE END OF SEPTEMBER 1999.

THE Y2K TEAM IS ALSO UPGRADING, TESTING, AND CERTIFYING REMAINING NONCRITICAL
SYSTEMS, AS WELL AS INTEGRATING AND TESTING LINKS WITH MANY EXTERNAL PARTIES.
OUR DEDICATED, BUSINESS CONTINUITY TEAM IS BUILDING CONTINGENCY PLANS WORLDWIDE
IN THE EVENT OF YEAR 2000 FAILURES.

EARLIER THIS YEAR, WE SUCCESSFULLY COMPLETED A SERIES OF SECURITIES INDUSTRY
ASSOCIATION NATIONWIDE TESTS OF TRANSACTIONS WITH OTHER BUSINESS PARTNERS UNDER
SIMULATED YEAR 2000 CONDITIONS. THIS SUMMER WE ALSO SUCCESSFULLY PARTICIPATED
IN INDUSTRY-WIDE TESTING OF OUR INTERFACES WITH MAJOR DEALERS AND REAL-TIME
MARKET DATA SERVICES.

YOU CAN LEARN MORE ABOUT FRANKLIN TEMPLETON'S Y2K PROJECT BY VISITING OUR
WEB SITE AT WWW.FRANKLINTEMPLETON.COM.

3
PAGE

FRANKLIN GROWTH INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: FRANKLIN GROWTH INVESTMENTS FUND
SEEKS CAPITAL APPRECIATION. THE FUND INVESTS PRIMARILY IN EQUITY SECURITIES OF
LARGE- OR MID-CAP U.S. COMPANIES, AND TO A LESSER EXTENT IN SMALL-CAP
COMPANIES. THE FUND MAY ALSO INVEST A PORTION IN FOREIGN SECURITIES, INCLUDING
EMERGING MARKETS.
- --------------------------------------------------------------------------------
During the reporting period, U.S. Gross Domestic Product and corporate profits
continued to rise, the Standard & Poor's/registered trademark/ 500 Composite
Stock Index posted a 12.38% return, and several foreign economies rebounded
after a difficult 1998.(1) These events, along with rising commodity prices,
seemed to prompt a shift in market psychology, as shares of companies in
mature, slower-growth industries sprang to life after years of underperformance
relative to higher-growth stocks. The period's strong domestic and foreign
economic growth also marked a turning point in U.S. interest rate trends. After
steadily declining for the past two years, rates began to inch up in March, and
on June 30, the Federal Reserve Board raised the federal funds target interest
rate 0.25%, to 5.0%.

The fund's exposure to several technology sectors contributed to its strong
performance relative to the S&P/registered trademark/ 500 Index during the six
months in review. On June 30, the fund's largest investment was Microsoft
Corp., the world's leader in software development and an array of related
information technology fields. Our second-largest position was JDS Uniphase
Corp., a leading manufacturer of specialized components for the fiber optics
telecommunications, cable television, and semiconductor fabrication industries.
Shares of these companies appreciated significantly during the period. The
fund's other top technology-related holdings included Cisco Systems, Inc.,
Intel Corp., and Hewlett-Packard Co. Throughout the period, we sought out
potential technology leaders with what we believed to have reasonable
valuations, superior management teams, and sound, sustainable business growth
models, as well as solid growth companies whose valuations had reached
attractive levels due to unfavorable short-term circumstances.

(1) Source: Standard & Poor's/registered trademark/ Micropal. The index includes
reinvested dividends. One cannot invest directly in an index, nor is the index
representative of a fund's portfolio.

[GRAPHIC OMITTED]

FG-1
PAGE

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Franklin Growth Investments Fund
6/30/99
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ------------------------------------------
<S> <C>
Microsoft Corp.
Technology Services,
United States 3.7%

JDS Uniphase Corp.
Electronic Technology,
United States 3.4%

Cisco Systems Inc.
Electronic Technology,
United States 2.6%

Intel Corp.
Electronic Technology,
United States 2.4%

Schering-Plough Corp.
Health Technology,
United States 2.2%

Hewlett-Packard Co.
Electronic Technology,
United States 2.1%

Vodafone AirTouch
PLC, ADR
Utilities, United Kingdom 2.0%

Johnson & Johnson
Health Technology,
United States 2.0%

Tiffany & Co.
Retail Trade, United States 2.0%

Abbott Laboratories
Health Technology,
United States 1.9%
</TABLE>

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

Stocks in the health technology and health services sectors suffered during the
second half of the period under review, and the fund's position in industry
leaders such as Schering-Plough Corp. and Abbott Laboratories negatively
affected our returns. However, given our assessment of these companies'
superior long-term growth prospects, we remain committed to our holdings and
likely will be opportunistic buyers of stocks in this sector if valuations
become attractive enough to warrant further exposure.

While we cannot predict the future of the U.S. economy, interest rates, or
relative performance between various sectors of equity markets, we remain
committed to our core strategy of buying the strongest growth companies we can
find, at the most favorable prices. We aim to reduce the fund's overall risk by
abstaining from investing in companies whose valuations defy our assessment of
any reasonable basis or justification. While we recognize the revolutionary
impact of the Internet upon our overall economy, and evaluate leading Internet
companies as prospective investments, we initiate positions in such companies
only when we believe we can do so at reasonable prices. Although we do hold
positions in some companies whose businesses are related to the growth of the
Internet sector, our willingness to add pure-play Internet companies to the
portfolio will remain subject to our ability to purchase their stock at prices
we consider reasonable.

FG-2

PAGE

Please remember, this discussion reflects our views, opinions, and portfolio
holdings as of June 30, 1999, 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.

We thank you for participating in Franklin Growth Investments Fund and look
forward to serving you in the future. Please feel free to contact us with your
questions or comments.

Sincerely,

/s/ Kent Shepherd
- -----------------
Kent Shepherd
Portfolio Manager
Franklin Growth Investments Fund

FG-3
PAGE

FRANKLIN GROWTH
INVESTMENTS FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges. The manager is contractually obligated to limit Class 1 expenses
to 1.00% of total net assets through 1999.

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, and you may have a gain or
loss when you sell your shares.

PERFORMANCE SUMMARY

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.

<TABLE>
<CAPTION>
Franklin Growth Investments Fund - Class 1
Period ended 6/30/99
SINCE
INCEPTION
6-MONTH 1-YEAR (5/1/98)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return 16.55% 29.96% 32.17%
Average Annual Total Return 16.55% 29.96% 26.99%
Value of $10,000 Investment $11,655 $12,996 $13,217
</TABLE>

Past performance cannot predict or guarantee future results.

FG-4
PAGE

SUPPLEMENT DATED AUGUST 9, 1999
TO THE PROSPECTUS DATED JULY 1, 1999*
OF
FRANKLIN GROWTH INVESTMENTS FUND
(TEMPLETON VARIABLE PRODUCTS SERIES FUND)
CLASS 1 AND CLASS 2 SHARES

The section "Management" is amended by adding the following lead manager to the
existing management team.

<TABLE>
<S> <C>
KENT SHEPHERD, CFA Mr. Shepherd has been a manager of the fund since 1999, and has been with
VICE PRESIDENT, ADVISERS the Franklin Templeton Group since 1991.
</TABLE>

*The July 1, 1999 prospectus added a new fund to the prospectus dated May 1,
1999.

FG-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED)/dagger//dagger/ DECEMBER 31, 1998/dagger/
----------------------------- --------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......................... $11.34 $10.00
----------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .05 .08
Net realized and unrealized gains ............................ 1.81 1.26
----------------------------------------------------------
Total from investment operations .............................. 1.86 1.34
----------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.07) --
----------------------------------------------------------
Total distributions ........................................... (.07) --
Net asset value, end of period ................................ $13.13 $11.34
==========================================================
Total return* ................................................. 16.55% 13.40%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $489 $284
Ratios to average net assets:
Expenses ..................................................... 1.00%** 1.00%**
Expenses, excluding waiver and payments by affiliate ......... 3.00%** 4.68%**
Net investment income ........................................ .86%** 1.18%**
Portfolio turnover rate ....................................... 15.43% 4.14%
</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.
/dagger/FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1998.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

FG-6
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 73.4%
COMMERCIAL SERVICES 4.3%
* Concord EFS Inc. .............................. United States 200 $ 8,463
Equifax Inc. .................................. United States 200 7,138
* Robert Half International Inc. ................ United States 200 5,200
--------
20,801
--------
CONSUMER DURABLES 1.1%
Mattel Inc. ................................... United States 200 5,288
--------
CONSUMER NON-DURABLES 3.9%
Campbell Soup Co. ............................. United States 100 4,638
Nike Inc., B .................................. United States 100 6,331
Philip Morris Cos. Inc. ....................... United States 200 8,038
--------
19,007
--------
CONSUMER SERVICES 1.0%
* Mirage Resorts Inc. ........................... United States 300 5,025
--------
ELECTRONIC TECHNOLOGY 17.3%
* 3Com Corp. .................................... United States 100 2,669
* Applied Materials Inc. ........................ United States 100 7,388
* Cisco Systems Inc. ............................ United States 200 12,900
Compaq Computer Corp. ......................... United States 200 4,738
Hewlett-Packard Co. ........................... United States 100 10,050
Intel Corp. ................................... United States 200 11,900
Lucent Technologies Inc. ...................... United States 50 3,372
Molex Inc. .................................... United States 200 7,400
Nortel Networks Corp. ......................... Canada 50 4,341
* Tellabs Inc. .................................. United States 50 3,378
* Uniphase Corp. ................................ United States 100 16,600
--------
84,736
--------
ENERGY MINERALS 1.2%
Royal Dutch Petroleum Co., N.Y. shs. .......... Netherlands 100 6,025
--------
FINANCE 8.3%
Associates First Capital Corp., A ............. United States 200 8,863
Charles Schwab Corp. .......................... United States 50 5,494
Citigroup Inc. ................................ United States 150 7,125
Fannie Mae .................................... United States 100 6,838
* TD Waterhouse Group Inc. ...................... United States 200 5,013
The Goldman Sachs Group Inc. .................. United States 100 7,225
--------
40,558
--------
HEALTH SERVICES .3%
McKesson HBOC Inc. ............................ United States 50 1,606
--------
HEALTH TECHNOLOGY 10.4%
Abbott Laboratories ........................... United States 200 9,100
American Home Products Corp. .................. United States 100 5,750
Baxter International Inc. ..................... United States 100 6,063
* Boston Scientific Corp. ....................... United States 100 4,394
* Guidant Corp. ................................. United States 100 5,144
Johnson & Johnson ............................. United States 100 9,800
Schering-Plough Corp. ......................... United States 200 10,600
--------
50,851
--------
</TABLE>

FG-7
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES 2.2%
* AES Corp. ............................................ United States 100 $ 5,813
* Republic Services Inc., A ............................ United States 200 4,950
--------
10,763
--------
NON-ENERGY MINERALS 1.0%
De Beers Consolidated Mines AG, ADR .................. South Africa 200 4,775
--------
PROCESS INDUSTRIES 2.6%
Air Products & Chemicals Inc. ........................ United States 200 8,050
Pall Corp. ........................................... United States 200 4,438
--------
12,488
--------
PRODUCER MANUFACTURING 1.3%
Emerson Electric Co. ................................. United States 100 6,288
--------
RETAIL TRADE 3.0%
Albertson's Inc. ..................................... United States 100 5,156
Tiffany & Co. ........................................ United States 100 9,650
--------
14,806
--------
TECHNOLOGY SERVICES 5.5%
Automatic Data Processing Inc. ....................... United States 200 8,800
* Microsoft Corp. ...................................... United States 200 18,038
--------
26,838
--------
TRANSPORTATION 2.7%
Air Express International Corp. ...................... United States 300 7,613
Expeditors International of Washington Inc. .......... United States 200 5,450
--------
13,063
--------
UTILITIES 7.3%
CMS Energy Corp. ..................................... United States 150 6,281
Dominion Resources Inc. .............................. United States 100 4,331
Enron Corp. .......................................... United States 100 8,175
MCN Energy Group Inc. ................................ United States 150 3,113
PECO Energy Corp. .................................... United States 100 4,189
* Vodafone AirTouch PLC, ADR ........................... United Kingdom 50 9,850
--------
35,939
--------
TOTAL COMMON STOCKS (COST $287,458)................... 358,857
--------
</TABLE>

FG-8
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(A) REPURCHASE AGREEMENTS 24.6%
Joint Repurchase Agreement, 4.767%, 7/01/99
(Maturity Value, $120,041) (COST $120,025)............................ $120,025 $120,025
Barclays Capital Inc. (Maturity Value $15,141)
Bear, Stearns & Co. Inc. (Maturity Value $13,360)
Chase Securities Inc. (Maturity Value $2,473)
CIBC Oppenheimer Corp. (Maturity Value $15,141)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $10,688)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $10,688)
Goldman, Sachs & Co. (Maturity Value $5,344)
NationsBanc Montgomery Securities LLC (Maturity Value $10,688)
Paine Webber Inc. (Maturity Value $10,688)
Paribas Corp. (Maturity Value $10,688)
UBS Securities LLC (Maturity Value $15,142)
Collateralized by U.S. Treasury Bills & Notes
TOTAL INVESTMENTS (COST $407,483) 98.0%............................... 478,882
OTHER ASSETS, LESS LIABILITIES 2.0% .................................. 9,707
--------
NET ASSETS 100.0% .................................................... $488,589
========
</TABLE>

*NON INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.
(A)SEE NOTE 1(C) REGARDING JOINT REPURCHASE AGREEMENTS.

See Notes to Financial Statements.

FG-9
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $287,458)....................... $358,857
Repurchase agreement, at value and cost .................................. 120,025
Receivables:
Investment securities sold .............................................. 16,784
Fund shares sold ........................................................ 1,505
Dividends and interest .................................................. 236
--------
Total assets ........................................................... 497,407
--------
Liabilities:
Payables:
Investment securities purchased ......................................... 5,644
Accrued expenses ......................................................... 3,174
--------
Total liabilities ...................................................... 8,818
--------
Net assets, at value ...................................................... $488,589
========
Net assets consist of:
Undistributed net investment income ...................................... $ 1,638
Net unrealized appreciation .............................................. 71,399
Accumulated net realized gain ............................................ 20,186
Beneficial shares ........................................................ 395,366
--------
Net assets, at value ...................................................... $488,589
========
Net asset value per share ($488,589 /divided by/ 37,220 shares outstanding) $ 13.13
=========
</TABLE>

See Notes to Financial Statements.

FG-10
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
Dividends ................................................... $1,495
Interest .................................................... 1,997
------
Total investment income ................................... $ 3,492
--------
Expenses:
Management fees (Note 3) .................................... 1,133
Administrative fees (Note 3) ................................ 221
Custodian fees .............................................. 20
Reports to shareholders ..................................... 3,682
Registration and filing fees ................................ 37
Professional fees ........................................... 261
Trustees' fees and expenses ................................. 254
Other ....................................................... 93
------
Total expenses ............................................ 5,701
Expenses waived / paid by affiliate (Note 3) .............. (3,849)
--------
Net expenses ............................................. 1,852
--------
Net investment income ................................... 1,640
--------
Realized and unrealized gains:
Net realized gain from investments ........................ 21,796
Net unrealized appreciation on investments ................ 38,157
--------
Net realized and unrealized gain ............................. 59,953
--------
Net increase in net assets resulting from operations ......... $ 61,593
========
</TABLE>

See Notes to Financial Statements.

FG-11
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1998/dagger/
----------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................... $ 1,640 $ 1,988
Net realized gain (loss) from investments ....................... 21,796 (1,610)
Net unrealized appreciation on investments ...................... 38,157 33,242
---------------------------------
Net increase in net assets resulting from operations ........... 61,593 33,620
Distributions to shareholders from net investment income ......... (1,990) --
Fund share transactions - Class 1 (Note 2) ....................... 145,366 250,000
---------------------------------
Net increase in net assets ..................................... 204,969 283,620
Net assets:
Beginning of period .............................................. 283,620 --
---------------------------------
End of period .................................................... $488,589 $283,620
=================================
Undistributed net investment income included in net assets:
End of period .................................................... $ 1,638 $ 1,988
=================================
</TABLE>

/dagger/FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1998.

See Notes to Financial Statements.

FG-12
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Growth Investments Fund (the Fund) is a separate, diversified series
of Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The
Fund seeks capital appreciation through a policy of investing at least 65% of
total assets in equity securities. The following summarizes the Fund's
significant accounting policies.

A. SECURITY VALUATION:

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

B. FOREIGN CURRENCY TRANSLATION:

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

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

C. JOINT REPURCHASE AGREEMENT:

The Fund may enter into a joint repurchase agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements. The value and face amount of the joint
repurchase agreement are allocated to the Fund based on its pro-rata interest.
A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by securities which are delivered to the Fund's custodian. The
market value, including accrued interest, of the initial collateralization is
required to be at least 102% of the dollar amount invested by the Funds, with
the value of the underlying securities marked to market daily to maintain
coverage of at least 100%. At June 30, 1999, all outstanding repurchase
agreements had been entered into on that date.

D. 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.

FG-13
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. 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. 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.

F. 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 initial sales load, distribution fees, voting rights on matters
affecting a single class, and the exchange privilege of each class.

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's Class 1 shares were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
JUNE 30, 1999 DECEMBER 31, 1998*
---------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 21,049 $ 252,911 25,000 $250,000
Shares issued on reinvestment of distributions 177 1,990 -- --
Shares redeemed ............................... (9,006) (109,535) -- --
-------------------------------------------
Net increase .................................. 12,220 $ 145,366 25,000 $250,000
===========================================
</TABLE>

*Commencement of sales of Class 1 shares was May 1, 1998.

As of June 30, 1999, there were no transactions in the Fund's Class 2 shares.

Templeton Funds Annuity Company, the Fund's administrative manager, is the
record owner of 25,165 Class 1 shares as of June 30, 1999.

FG-14
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN GROWTH INVESTMENTS FUND

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Franklin
Advisers, Inc. (Advisers), 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 Advisers based on the average
daily net assets of the Fund as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------
<S> <C>
0.60% First $200 million
0.50% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion
</TABLE>

Advisers agreed in advance to reduce management fees to the extent necessary to
limit total expenses to an annual rate of 1.00% and 1.25% of the average daily
net assets of Class 1 and Class 2 shares, respectively, through December 31,
1999, as noted in the Statement of Operations.

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>

4. INCOME TAXES

The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At June 30, 1999, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 85,365
Unrealized depreciation ............. (13,966)
---------
Net unrealized appreciation ......... $ 71,399
=========
</TABLE>

At December 31, 1998, the Fund had tax basis capital losses of $1,610 which may
be carried over to offset future capital gains. Such losses expire December 31,
2006.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $97,124 and $46,420, respectively.

FG-15
PAGE

FRANKLIN SMALL CAP INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: FRANKLIN SMALL CAP INVESTMENTS FUND
SEEKS LONG-TERM CAPITAL GROWTH. IT TRIES TO ACHIEVE THIS GOAL BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF U.S. SMALL-CAPITALIZATION COMPANIES - THOSE
WITH A MARKET CAPITALIZATION OF LESS THAN $1.5 BILLION AT THE TIME OF PURCHASE.
- --------------------------------------------------------------------------------
The six months covered by this semiannual report were characterized by a
gradual resurgence of investor interest in small-cap stocks. In January and
February, small-cap stocks began to keep pace with their larger counterparts,
but in March they underperformed them as investors seemed to react to
volatility by seeking refuge in large-cap growth stocks. However, as the
reporting period progressed, many investors, believing that improving Asian
economies would stimulate commodities demand, emerged from the refuge of
large-cap growth stocks to invest in large-cap cyclicals. Concurrent with this
sudden rotation into cyclicals was a more gradual and sustained rotation into
smaller-cap stocks, which enhanced the performance of Franklin Small Cap
Investments Fund.

Throughout the period, we adhered to our strategy of seeking growth at a
reasonable price, by searching for companies with competitive advantages, such
as proprietary intellectual property, barriers to competitors' market entry or
faster-than-average growth trends. We focused our efforts on portfolio
construction and stock selection based on "bottom-up" research from our equity
analysts who identify target "buy" and "sell" prices for the securities they
follow.

[GRAPHIC OMITTED]

FS-1
PAGE

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Franklin Small Cap Investments Fund
6/30/99
COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------
<S> <C>
Careinsite Inc.
Health Services 3.4%

Tommy Hilfiger Corp.
Consumer Non-Durables 1.8%

Affiliated Computer
Services Inc., A
Technology Services 1.7%

Uniphase Corp.
Electronic Technology 1.7%

Maker Communications
Inc.
Electronic Technology 1.7%

PMC-Sierra Inc.
Electronic Technology 1.5%

i2 Technologies Inc.
Technology Services 1.4%

Dycom Industries Inc.
Industrial Services 1.4%

Synopsys Inc.
Electronic Technology 1.4%

Polycom Inc.
Producer Manufacturing 1.3%
</TABLE>

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

As investor interest in most small-cap industry sectors increased during April
and May, the value of our energy, utilities, transportation, commercial
services, and industrial services holdings appreciated significantly. However,
many technology stocks did not participate in this rise, and several Internet
stocks fell from their lofty heights. On June 30, we were overweighted in
Internet stocks relative to the Russell 2000/registered trademark/ Index
because we believed growth potential in this industry remains strong. Of
course, if we enter an inflationary environment that provokes higher interest
rates, these stocks could be vulnerable to short-term price declines. In our
opinion, the sharp rally in technology shares during the last week of the
reporting period may indicate that many investors believe interest rates will
not rise during the remainder of the year, but we think this is a dangerous
assumption. Despite the risk, we believe technology is increasing global
economic productivity, and such increases should counterbalance inflation over
the longer term. We shall therefore continue to invest in Internet,
semiconductor, and communications companies whose technology offers their
customers potential for improved productivity.

Looking forward, we are concerned about scattered data that appears to suggest
rising consumer prices, and about Asia's economic recovery raising the cost of
materials used by non-Asian manufacturers. We are also concerned about the
possibility of additional interest rate increases by the Federal Reserve (the
Fed) even though their bias toward raising rates shifted to "neutral" following
a .25% hike in the target federal funds rate on June 30, 1999.

We cannot predict if or when small-cap stocks will outperform their larger
counterparts, but it is worth noting that their cumulative performance has more
than tripled that of large caps over the past 70 years.(1) Although past
performance is not predictive of future results, small caps tend to outperform
when there are signs that the global economy is beginning a cyclical upturn. We
do see signs of an improved global economy, but price appreciation of small-cap
growth stocks may be delayed if the Fed finds it necessary to raise interest
rates in an attempt to restrain the U.S. economy.

(1) Source: Ibbotson Associates. For the 70-year period ending June 30, 1999,
the cumulative total return of large company stocks was 103,982.77%, and the
return of small company stocks was 358,848.41%. Indices are unmanaged and
include reinvested dividends. One cannot invest directly in an index.

FS-2
PAGE

It is important to note that there are risks involved in investing in a fund
seeking long-term growth from small or relatively new or unseasoned companies.
These risks, which include relatively small revenues, limited product lines,
and small market share, are further discussed in the fund's prospectus.

This discussion reflects our views, opinions, and portfolio holdings as of June
30, 1999, 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
philosophy.

We thank you for participating in Franklin Small Cap Investments Fund and look
forward to serving you in the future. Please feel free to contact us with your
questions or comments.

Sincerely,

/s/ Edward B. Jamieson
- ----------------------
Edward B. Jamieson
Portfolio Manager
Franklin Small Cap Investments Fund

FS-3
PAGE

FRANKLIN SMALL CAP
INVESTMENTS FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges. The manager is contractually obligated to limit Class 1 expenses
to 1.00% of total net assets through 1999.

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, and you may have a gain or
loss when you sell your shares.

PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
Franklin Small Cap Investments Fund - Class 1
Period ended 6/30/99
SINCE
INCEPTION
6-MONTH 1-YEAR (5/1/98)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return 18.98% 15.12% 9.82%
Average Annual Total Return 18.98% 15.12% 8.36%
Value of $10,000 Investment $11,898 $11,512 $10,982
</TABLE>

Past performance cannot predict or guarantee future results.

FS-4
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED)/dagger//dagger/ DECEMBER 31, 1998/dagger/
----------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......................... $ 9.23 $ 10.00
----------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .01 .11
Net realized and unrealized gains (losses) ................... 1.70 (.88)
----------------------------------------------------------
Total from investment operations .............................. 1.71 (.77)
----------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.02) --
Net realized gains ........................................... (.18) --
----------------------------------------------------------
Total distributions ........................................... (.20) --
----------------------------------------------------------
Net asset value, end of period ................................ $10.74 $9.23
==========================================================
Total return * ................................................ 18.98% (7.70)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $483 $231
Ratios to average net assets:
Expenses ..................................................... 1.00%** 1.00%**
Expenses, excluding waiver and payments by affiliate ......... 1.11%** 1.75%**
Net investment income ........................................ .30%** 1.97%**
Portfolio turnover rate ....................................... 40.44% 36.43%
</TABLE>

FS-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED)/dagger//dagger/ DECEMBER 31, 1998/dagger/
----------------------------- --------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......................... $9.23 $ 8.55
----------------------------------------------------------
Income from investment operations:
Net investment income ........................................ -- .02
Net realized and unrealized gains ............................ 1.70 .66
----------------------------------------------------------
Total from investment operations .............................. 1.70 .68
----------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.02) --
Net realized gains ........................................... (.18) --
----------------------------------------------------------
Total distributions ........................................... (.20) --
----------------------------------------------------------
Net asset value, end of period ................................ $10.73 $ 9.23
==========================================================
Total return * ................................................ 18.85% 7.95%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $19,868 $6,211
Ratios to average net assets:
Expenses ..................................................... 1.25%** 1.25%**
Expenses, excluding waiver and payments by affiliate ......... 1.33%** 2.00%**
Net investment income ........................................ .05%** 1.73%**
Portfolio turnover rate ....................................... 40.44% 36.43%
</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.
/dagger/FOR THE PERIOD JULY 30, 1998 (COMMENCEMENT OF SALES) TO DECEMBER 31,
1998.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

FS-6
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 83.7%
COMMERCIAL SERVICES 2.3%
* 24/7 Media Inc. .................................. United States 500 $ 19,250
* Corporate Executive Board Co. .................... United States 2,200 78,238
* Exchange Applications Inc. ....................... United States 700 28,525
* Inet Technologies Inc. ........................... United States 1,400 33,600
* Lamar Advertising Co., A ......................... United States 800 32,750
* NOVA Corp. ....................................... United States 5,000 125,000
* Probusiness Services Inc. ........................ United States 700 25,113
* Smith-Gardner & Associates Inc. .................. United States 3,300 26,606
* Stamps.com Inc. .................................. United States 900 15,750
* Sylvan Learning Systems Inc. ..................... United States 2,000 54,375
* Viant Corp. ...................................... United States 200 7,000
* WESCO International Inc. ......................... United States 1,500 30,750
-----------
476,957
-----------
CONSUMER DURABLES .6%
Ethan Allen Interiors Inc. ....................... United States 3,000 113,250
-----------
CONSUMER NON-DURABLES 3.1%
* Tommy Hilfiger Corp. ............................. United States 5,000 367,500
* Tropical Sportswear International Corp. .......... United States 6,000 191,250
Wolverine World Wide Inc. ........................ United States 4,300 60,200
-----------
618,950
-----------
CONSUMER SERVICES 4.4%
* BEA Systems Inc. ................................. United States 2,900 82,831
* Entercom Communications Corp. .................... United States 1,000 42,750
* Foodmaker Inc. ................................... United States 7,000 198,625
* Harrah's Entertainment Inc. ...................... United States 6,900 151,800
* Intelligent Life Corp. ........................... United States 4,400 28,875
* Jones Intercable Inc., A ......................... United States 2,000 98,000
* Prime Hospitality Corp. .......................... United States 4,600 55,200
* Radio One Inc. ................................... United States 300 13,950
* SFX Entertainment Inc. ........................... United States 2,550 163,200
* Vail Resorts Inc. ................................ United States 3,500 61,250
-----------
896,481
-----------
ELECTRONIC TECHNOLOGY 19.4%
* Advanced Energy Industries Inc. .................. United States 1,100 44,619
* Alpha Industries Inc. ............................ United States 3,000 142,875
* American Xtal Technology Inc. .................... United States 4,500 107,156
* ANTEC Corp. ...................................... United States 200 6,413
* Aspect Telecommunications Corp. .................. United States 1,400 13,650
* AVT Corp. ........................................ United States 1,400 53,025
* Brocade Communications Systems Inc. .............. United States 200 19,288
* Carrier Access Corp. ............................. United States 2,700 118,294
* Catapult Communications Corp. .................... United States 1,100 20,763
* Coherent Inc. .................................... United States 6,000 111,750
* Com21 Inc. ....................................... United States 3,400 58,013
* Copper Mountain Networks Inc. .................... United States 100 7,725
* Cymer Inc. ....................................... United States 300 7,500
* Digital Microwave Corp. .......................... United States 600 7,650
* EG&G Inc. ........................................ United States 1,000 35,625
* Electro Scientific Industries Inc. ............... United States 2,500 104,453
* EMCORE Corp. ..................................... United States 1,800 36,225
* Etec Systems Inc. ................................ United States 1,700 56,525
* E-Tek Dynamics Inc. .............................. United States 500 23,781
</TABLE>

FS-7
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
* Excel Switching Corp. ........................... United States 600 $ 17,963
* Flextronics International Ltd. .................. United States 1,500 83,250
* FLIR Systems Inc. ............................... United States 1,500 22,688
* FVC.COM Inc. .................................... United States 400 2,600
* Gemstar International Group Ltd. ................ United States 2,300 150,075
* hi/fn Inc. ...................................... United States 100 7,613
* Jabil Circuit Inc. .............................. United States 1,000 45,125
* Javelin Systems Inc. ............................ United States 1,200 14,700
* Juniper Networks Inc. ........................... United States 400 59,600
* Komag Inc. ...................................... United States 15,000 49,688
* Latitude Communications Inc. .................... United States 300 3,900
* Lattice Semiconductor Corp. ..................... United States 3,200 199,200
* Level One Communications Inc. ................... United States 900 44,044
* Maker Communications Inc. ....................... United States 11,000 341,000
* Mettler-Toledo International Inc. ............... United States 6,000 148,875
* Micrel Inc. ..................................... United States 600 44,400
* Natural MicroSystems Corp. ...................... United States 900 8,606
* Netopia Inc. .................................... United States 700 15,925
* Novellus Systems Inc. ........................... United States 600 40,950
* PLX Technology Inc. ............................. United States 200 9,475
* PMC-Sierra Inc. ................................. United States 5,000 294,688
* Sanmina Corp. ................................... United States 2,500 189,688
* Security Dynamics Technologies Inc. ............. United States 8,000 170,000
* SIPEX Corp. ..................................... United States 2,500 51,250
* Synopsys Inc. ................................... United States 5,000 275,938
* Tekelec ......................................... United States 5,900 71,906
* Uniphase Corp. .................................. United States 2,100 348,600
* Veeco Instruments Inc. .......................... United States 300 10,200
* Waters Corp. .................................... United States 4,000 212,500
* Wavecom SA, ADR ................................. France 500 6,563
* Western Digital Corp. ........................... United States 6,500 42,250
------------
3,958,590
------------
ENERGY MINERALS 3.5%
* Barrett Resources Corp. ......................... United States 5,200 199,550
* Basin Exploration Inc. .......................... United States 2,200 44,138
* Forest Oil Corp. ................................ United States 3,300 41,456
* Newfield Exploration Co. ........................ United States 7,200 204,750
Range Resources Corp. ........................... United States 100 613
* Santa Fe Snyder Corp. ........................... United States 16,400 125,050
* Tom Brown Inc. .................................. United States 6,600 102,713
------------
718,270
------------
FINANCE 4.8%
* Affiliated Managers Group Inc. .................. United States 2,100 63,394
Bank United Corp., A ............................ United States 1,600 64,300
* DLJdirect ....................................... United States 1,800 53,100
Espirito Santo Financial Group SA, ADR .......... Luxembourg 200 3,275
E.W. Blanch Holdings Inc. ....................... United States 200 13,638
Federated Investors Inc., B ..................... United States 5,700 102,244
* First Sierra Financial Inc. ..................... United States 1,500 37,500
* Golden State Bancorp Inc. ....................... United States 6,000 132,000
* Hambrecht & Quist Group ......................... United States 800 29,700
* HealthCare Financial Partners Inc. .............. United States 1,200 41,100
Heller Financial Inc. ........................... United States 700 19,469
* Knight/Trimark Group Inc., A .................... United States 1,100 66,344
</TABLE>

FS-8
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCE (CONT.)
Metris Cos. Inc. .................................... United States 300 $ 12,225
Mutual Risk Management Ltd. ......................... United States 4,400 146,850
* National Discount Brokers Group Inc. ................ United States 1,000 58,000
* Silicon Valley Bancshares ........................... United States 4,000 99,000
Westamerica Bancorp. ................................ United States 600 21,900
* WIT Capital Group Inc. .............................. United States 300 10,200
------------
974,239
------------
HEALTH SERVICES 5.6%
* Beverly Enterprises Inc. ............................ United States 10,000 80,625
* Careinsite Inc. ..................................... United States 14,700 694,575
* Integrated Health Services Inc. ..................... United States 5,000 40,000
* PAREXEL International Corp. ......................... United States 3,000 39,938
* Pediatrix Medical Group Inc. ........................ United States 1,300 27,625
* Pharmaceutical Product Development Inc. ............. United States 6,700 183,413
* Renal Care Group Inc. ............................... United States 2,700 69,863
------------
1,136,039
------------
HEALTH TECHNOLOGY 1.2%
* Inhale Therapeutic Systems Inc. ..................... United States 3,000 71,438
* Serologicals Corp. .................................. United States 17,000 138,125
Wesley Jessen VisionCare Inc. ....................... United States 1,300 42,088
------------
251,651
------------
INDUSTRIAL SERVICES 4.9%
* Atwood Oceanics Inc. ................................ United States 6,000 187,500
* Casella Waste Systems Inc., A ....................... United States 3,500 91,000
* Catalytica Inc. ..................................... United States 5,000 70,000
* Core Laboratories NV ................................ Netherlands 3,000 41,813
* Dycom Industries Inc. ............................... United States 5,200 291,200
* KTI Inc. ............................................ United States 200 2,850
* Marine Drilling Cos. Inc. ........................... United States 3,000 41,063
* Safety-Kleen Corp. .................................. United States 3,575 64,797
* US Liquids Inc. ..................................... United States 1,800 37,575
* Varco International Inc. ............................ United States 16,000 175,000
------------
1,002,798
------------
INSURANCE 2.2%
Financial Security Assurance Holdings Ltd. .......... United States 4,000 208,000
HCC Insurance Holdings Inc. ......................... United States 4,200 95,288
Reinsurance Group of America Inc. ................... United States 4,300 151,575
------------
454,863
------------
NON-ENERGY MINERALS .2%
Carpenter Technology Corp. .......................... United States 1,200 34,275
------------
PROCESS INDUSTRIES 1.0%
* CUNO Inc. ........................................... United States 1,600 30,600
Optical Coating Laboratory Inc. ..................... United States 2,100 175,613
------------
206,213
------------
PRODUCER MANUFACTURING 3.7%
* Gentex Corp. ........................................ United States 5,400 151,200
Gibralter Steel Corp. ............................... United States 2,800 69,300
JLG Industries Inc. ................................. United States 6,000 122,250
* Polycom Inc. ........................................ United States 6,500 253,500
Roper Industries Inc. ............................... United States 4,600 147,200
------------
743,450
------------
</TABLE>
FS-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE 2.1%
Arden Realty Inc. ............................. United States 3,000 $ 73,875
Camden Property Trust ......................... United States 3,600 99,900
FelCor Lodging Trust Inc. ..................... United States 800 16,600
Glenborough Realty Trust Inc. ................. United States 3,000 52,500
MeriStar Hospitality Corp. .................... United States 8,000 179,500
------------
422,375
------------
RETAIL TRADE 2.2%
* Beyond.com Corp. .............................. United States 1,300 37,294
Claire's Stores Inc. .......................... United States 6,700 171,688
* Guitar Center Inc. ............................ United States 2,500 26,094
* The Men's Wearhouse Inc. ...................... United States 8,000 204,000
------------
439,076
------------
TECHNOLOGY SERVICES 16.9%
* Affiliated Computer Services Inc., A .......... United States 7,000 354,375
* Ask Jeeves Inc. ............................... United States 100 1,400
* AppNet Systems Inc. ........................... United States 3,900 52,406
* BackWeb Technologies Ltd. ..................... United States 100 2,738
* Brightpoint Inc. .............................. United States 2,100 12,731
* BroadVision Inc. .............................. United States 1,200 88,500
* Citrix Systems Inc. ........................... United States 1,400 79,100
* Complete Business Solutions Inc. .............. United States 10,000 179,375
* Concord Communications Inc. ................... United States 1,000 45,000
* Cybersourc Corp. .............................. United States 600 8,850
* Deltek Systems Inc. ........................... United States 300 2,963
* Digital Island Inc. ........................... United States 1,000 17,938
* Documentum Inc. ............................... United States 1,500 19,594
* DoubleClick Inc. .............................. United States 600 55,050
* Entrust Technologies Inc. ..................... United States 3,000 99,750
* Exodus Communications Inc. .................... United States 1,200 143,925
* High Speed Access Corp. ....................... United States 600 15,375
* HNC Software Inc. ............................. United States 4,000 123,250
* i2 Technologies Inc. .......................... United States 6,800 292,400
* Integrated Systems Inc. ....................... United States 400 4,700
* International Network Services ................ United States 5,500 222,063
* Intuit Inc. ................................... United States 800 72,100
* ISS Group Inc. ................................ United States 400 15,100
* Keane Inc. .................................... United States 1,600 36,200
* Legato Systems Inc. ........................... United States 3,300 190,575
* Marimba Inc. .................................. United States 100 5,269
* Media Metrix Inc. ............................. United States 700 37,275
* Micromuse Inc. ................................ United States 2,340 116,708
* MicroStrategy Inc. ............................ United States 300 11,363
* Mpath Interactive Inc. ........................ United States 100 2,200
* Proxicom Inc. ................................. United States 300 7,706
* Sapient Corp. ................................. United States 3,000 169,875
* Serena Software Inc. .......................... United States 500 6,719
* Software.com Inc. ............................. United States 500 11,594
* StarMedia Network Inc. ........................ United States 1,300 83,363
* Sykes Enterprises Inc. ........................ United States 800 26,700
* TenFold Corp. ................................. United States 200 6,350
* Verio Inc. .................................... United States 2,800 194,600
* VERITAS Software Corp. ........................ United States 2,400 227,850
* Vignette Corp. ................................ United States 1,500 112,500
* Whittman-Hart Inc. ............................ United States 6,600 209,550
* Wind River Systems Inc. ....................... United States 4,250 68,266
------------
3,433,346
------------
</TABLE>

FS-10
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

*NON INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.
(A)SEE NOTE 1(C) REGARDING JOINT REPURCHASE AGREEMENT.

See Notes to Financial Statements.

FS-11
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $14,109,194) ........................... $ 17,023,661
Repurchase agreement, at value and cost .......................................... 3,259,794
Receivables:
Investment securities sold ...................................................... 84,288
Fund shares sold ................................................................ 96,826
Dividends and interest .......................................................... 5,151
------------
Total assets ................................................................... 20,469,720
------------
Liabilities:
Payables:
Investment securities purchased ................................................. 56,057
To affiliates ................................................................... 20,960
Accrued expenses ................................................................. 42,231
------------
Total liabilities .............................................................. 119,248
------------
Net assets, at value .............................................................. $ 20,350,472
============
Net assets consist of:
Undistributed net investment income .............................................. $ 3,202
Net unrealized appreciation ...................................................... 2,914,467
Accumulated net realized gain .................................................... 368,928
Beneficial shares ................................................................ 17,063,875
------------
Net assets, at value .............................................................. $ 20,350,472
============
CLASS 1:
Net asset value per share ($482,735 /divided by/ 44,934 shares outstanding) ...... $ 10.74
============
CLASS 2:
Net asset value per share ($19,867,737 /divided by/ 1,852,384 shares outstanding) $ 10.73
============
</TABLE>

See Notes to Financial Statements.

FS-12
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
Dividends ................................................... $17,563
Interest .................................................... 60,320
-------
Total investment income .................................... $ 77,883
----------
Expenses:
Management fees (Note 3) .................................... 45,181
Administrative fees (Note 3) ................................ 7,322
Distribution fees - Class 2 (Note 3) ........................ 14,812
Custodian fees .............................................. 98
Reports to shareholders ..................................... 4,685
Registration and filing fees ................................ 262
Professional fees ........................................... 1,135
Trustees' fees and expenses ................................. 1,808
Other ....................................................... 5,413
-------
Total expenses ............................................. 80,716
Expenses waived / paid by affiliate (Note 3) ............... (6,115)
----------
Net expenses .............................................. 74,601
----------
Net investment income .................................... 3,282
----------
Realized and unrealized gains:
Net realized gain from investments ......................... 369,105
Net unrealized appreciation on investments ................. 2,449,410
----------
Net realized and unrealized gain ............................. 2,818,515
----------
Net increase in net assets resulting from operations ......... $2,821,797
==========
</TABLE>

See Notes to Financial Statements.

FS-13
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1998/dagger/
----------------- --------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income .......................................... $ 3,282 $ 17,706
Net realized gain from investments ............................. 369,105 182,914
Net unrealized appreciation on investments ..................... 2,449,410 465,057
----------- ----------
Net increase in net assets resulting from operations ......... 2,821,797 665,677
Distributions to shareholders from:
Net investment income:
Class 1 ....................................................... (529) --
Class 2 ....................................................... (17,257) --
Net realized gains:
Class 1 ....................................................... (4,876) --
Class 2 ....................................................... (178,215) --
Fund share transactions (Note 2):
Class 1 ....................................................... 195,207 250,000
Class 2 ....................................................... 11,092,255 5,526,413
----------- ----------
Net increase in net assets ................................... 13,908,382 6,442,090
Net assets:
Beginning of period ............................................. 6,442,090 --
----------- ----------
End of period ................................................... $20,350,472 $6,442,090
=========== ==========
Undistributed net investment income included in net assets:
End of period ................................................... $ 3,202 $ 17,706
=========== ==========
</TABLE>

/dagger/FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1998.

See Notes to Financial Statements.

FS-14
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Small Cap Investments 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 by investing primarily in equity
securities of smaller capitalization growth companies. The following summarizes
the Fund's significant accounting policies.

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

C. JOINT REPURCHASE AGREEMENT:

D. 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.

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

FS-15
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)

F. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1999 DECEMBER 31, 1998*
--------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 19,335 $ 189,932 25,000 $ 250,000
Shares issued on reinvestment of distributions 612 5,406 -- --
Shares redeemed ............................... (13) (131) -- --
------------------------------------------------
Net increase .................................. 19,934 $ 195,207 25,000 $ 250,000
================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1999 DECEMBER 31, 1998**
--------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: --------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 1,184,276 $ 11,156,349 681,475 $ 5,599,186
Shares issued on reinvestment of distributions 22,162 195,471 -- --
Shares redeemed ............................... (27,113) (259,565) (8,416) (72,773)
------------------------------------------------------
Net increase .................................. 1,179,325 $ 11,092,255 673,059 $ 5,526,413
======================================================
</TABLE>

*Commencement of operations of Class 1 shares was May 1, 1998.
**Commencement of sales of Class 2 shares was July 30, 1998.

Templeton Funds Annuity Company, the Fund's administrative manager, is record
owner of 25,564 Class 1 shares as of June 30, 1999.

FS-16
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

The Fund pays an investment management fee to Advisers 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
0.65% Over $200 million, up to and including $1.3 billion
0.55% 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:

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.

4. INCOME TAXES

At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $17,407,422 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 3,719,152
Unrealized depreciation ............. (843,119)
-----------
Net unrealized appreciation ......... $ 2,876,033
===========
</TABLE>

Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $13,883,797 and $4,053,388, respectively.

FS-17
PAGE

MUTUAL SHARES INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: MUTUAL SHARES INVESTMENTS FUND SEEKS
CAPITAL APPRECIATION, WITH INCOME AS A SECONDARY OBJECTIVE. THE FUND INVESTS
PRIMARILY IN DOMESTIC EQUITY SECURITIES THAT THE MANAGER BELIEVES ARE
UNDERVALUED. THE FUND MAY ALSO INVEST IN FOREIGN SECURITIES.
- --------------------------------------------------------------------------------
During the first six months of 1999, which were marked by low inflation, rising
interest rates, and moderate economic growth, Mutual Shares Investments Fund's
performance exceeded the fund's benchmarks, the Standard & Poor's/registered
trademark/ 500 Composite Index and the Lipper Growth & Income Funds Objective
Average. The strong performance of the fund was due largely to our disciplined
value and special situations approach.

Citizens Utilities Co. and Telephone & Data Systems Inc. benefited from
material corporate events in the first half of the year. We had identified
these investments previously through detailed, fundamental analysis of
companies with attractive assets whose stocks were trading at large discounts
to our assessment of their true worth. Telephone and Data Systems' announcement
that it would sell or spin off one of its largest assets helped narrow the huge
discount at which the stock traded. Citizens Utilities announced it would buy
local telephone assets and sell its public service businesses.

In the U.S., undervalued asset plays we favored included Bank One Corp.,
Lockheed Martin Corp., and Washington Post Co. Bank One Corp. owns First USA,
an outstanding credit card and consumer banking business which is not fully
reflected in its share price. Lockheed Martin Corp., the nation's largest
defense company, generates substantial free cash flow, while Washington Post
Co., a well-respected media company, owns attractive, and we believe
underappreciated, cable assets.

[GRAPHIC OMITTED]

MS-1
PAGE

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Mutual Shares Investments Fund
6/30/99
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -----------------------------------------
<S> <C>
Promus Hotel Corp.
Leisure & Tourism,
United States 3.2%

First Union Corp.
Banking, United States 2.6%

Invensys PLC
Machinery & Engineering,
United Kingdom 2.3%

Lockheed Martin Corp.
Aerospace & Military
Technology, United States 2.2%

Rhone-Poulenc SA, A
Health & Personal Care,
France 2.1%

Lehman Brothers
Holdings Inc.
Financial Services,
United States 2.0%

Old Republic
International Corp.
Insurance, United States 2.0%

Hillenbrand Industries Inc.
Business & Public Services,
United States 2.0%

Citizens Utilities Co., B
Utilities Electrical & Gas,
United States 2.0%

Bear Stearns Co., Inc.
Financial Services,
United States 1.9%
</TABLE>

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

In Europe, we purchased shares of Rhone-Poulenc SA because we felt they were
undervalued. Rhone-Poulenc SA is restructuring in a manner that will create one
of the world's largest and most attractively priced pharmaceutical companies.

Looking forward, we believe that both domestic and foreign markets should
continue to present us with potentially profitable investment opportunities. We
feel that we are experienced at recognizing opportunity where others may see
only bad news, and shall attempt to profit from the stocks of companies
undergoing corporate change, such as the purchase or sale of assets, spinoffs,
and share buybacks. In our opinion, a favorable merger and acquisition
environment could lead to bids for some of our holdings, as well as
opportunities to profit by arbitraging the deals. We hope to increase profit by
investing in bankruptcy and distressed companies, a strategy we have
successfully employed in many cases. As always, we are mindful of the risks of
each investment, focusing on the downside as well as the upside potential.

MS-2
PAGE

It is important to remember that the fund may invest in lower-rated "junk
bonds," which entail higher credit risks, as well as in foreign securities
involving risks such as political uncertainty or fluctuations in foreign
exchange rates in areas where the fund invests. The fund generally expects to
hedge against currency risk where feasible and to the extent possible. The
fund's value-oriented strategy may include investments in companies involved in
mergers, reorganizations, restructurings or liquidations.

It is also important to note that stocks offer the potential for long-term
gains but can be subject to short-term up and down price movements. Securities
of companies involved in mergers, liquidations and reorganizations, and
distressed/bankruptcy investments, involve higher credit risks. These and other
risks are discussed in the prospectus, which you should review before making an
investment decision.

We appreciate your participation in Mutual Shares Investments Fund and will
strive to provide the best risk-adjusted returns possible.

Sincerely,

/s/ Larry Sondike
- -----------------
Larry Sondike
Portfolio Manager
Mutual Shares Investments Fund

/s/ David Marcus
- ----------------
David Marcus
Portfolio Manager
Mutual Shares Investments Fund

MS-3
PAGE

MUTUAL SHARES
INVESTMENTS FUND
CLASS 1

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions. Securities of companies
involved in mergers, liquidations and distress/bankruptcy investments,
involve higher credit risks. You may have a gain or loss when you sell your
shares.

PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
Mutual Shares Investments Fund - Class 1
Periods ended 6/30/99
SINCE
INCEPTION
6-MONTH 1-YEAR (5/1/98)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return 15.12% 17.41% 11.89%
Average Annual Total Return 15.12% 17.41% 10.14%
Value of $10,000 Investment $11,512 $11,741 $11,189
</TABLE>

Past performance cannot predict or guarantee future results.

MS-4
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1998/dagger/
----------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE/dagger//dagger/
(For a share outstanding throughout the period)
Net asset value, beginning of period .......................... $9.72 $10.00
----------------------------------------------
Income from investment operations:
Net investment income ........................................ .02 .08
Net realized and unrealized gains (losses) ................... 1.44 (.36)
----------------------------------------------
Total from investment operations .............................. 1.46 (.28)
----------------------------------------------
Less distributions from:
Net investment income ........................................ (.02) --
----------------------------------------------
Total distributions ........................................... (.02) --
----------------------------------------------
Net asset value, end of period ................................ $11.16 $9.72
==============================================
Total return* ................................................. 15.12% (2.80)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $2,456 $1,274
Ratios to average net assets:
Expenses ..................................................... 1.00%** 1.00%**
Expenses, excluding waiver and payments by affiliate ......... 2.47%** 2.87%**
Net investment income ........................................ .40%** 1.47%**
Portfolio turnover rate ....................................... 31.47% 23.15%
</TABLE>

MS-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1999 PERIOD ENDED
(UNAUDITED)/dagger//dagger/ DECEMBER 31, 1998/dagger/
----------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......................... $ 9.73 $9.58
----------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .02 .08
Net realized and unrealized gains ............................ 1.42 .07
----------------------------------------------------------
Total from investment operations .............................. 1.44 .15
----------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.02) --
----------------------------------------------------------
Total distributions ........................................... (.02) --
----------------------------------------------------------
Net asset value, end of period ................................ $11.15 $9.73
==========================================================
Total return* ................................................. 14.88% 1.57%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $1,211 $490
Ratios to average net assets:
Expenses ..................................................... 1.25%** 1.25%**
Expenses, excluding waiver and payments by affiliate ......... 2.72%** 3.12%**
Net investment income ........................................ .31%** 4.15%**
Portfolio turnover rate ....................................... 31.47% 23.15%
</TABLE>

*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE CONTRACT LEVEL FOR COST OF
INSURANCE CHARGES, PREMIUM LOAD, ADMINISTRATIVE CHARGES, MORTALITY AND EXPENSE
RISK CHARGES OR OTHER CHARGES THAT MAY BE INCURRED UNDER THE VARIABLE ANNUITY
CONTRACT FOR WHICH THE FUND SERVES AS AN UNDERLYING INVESTMENT VEHICLE. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD NOVEMBER 10, 1998 (COMMENCEMENT OF SALES) TO DECEMBER
31, 1998.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

MS-6
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 85.4%
AEROSPACE & MILITARY TECHNOLOGY 4.6%
* Coltec Industries Inc. ......................... United States 2,150 $ 46,628
Lockheed Martin Corp. .......................... United States 2,203 82,062
Northrop Grumman Corp. ......................... United States 627 41,578
----------
170,268
----------
APPLIANCES & HOUSEHOLD DURABLES 1.5%
Premark International Inc. ..................... United States 1,500 56,250
----------
AUTOMOBILES 5.5%
Delphi Automotive Systems Corp. ................ United States 3,653 67,809
General Motors Corp. ........................... United States 520 34,320
* Lear Corp. ..................................... United States 796 39,601
TRW Inc. ....................................... United States 1,106 60,692
----------
202,422
----------
BANKING 6.1%
Bank One Corp. ................................. United States 774 46,101
Chase Manhattan Corp. .......................... United States 425 36,816
First American Corp. Tennessee ................. United States 400 16,625
First Union Corp. .............................. United States 2,000 94,000
Peoples Heritage Financial Group Inc. .......... United States 100 1,881
U.S. Bancorp ................................... United States 800 27,200
----------
222,623
----------
BEVERAGES & TOBACCO 2.3%
Gallaher Group PLC ............................. United Kingdom 5,400 33,196
Nabisco Group Holdings Corp. ................... United States 100 1,956
Philip Morris Cos. Inc. ........................ United States 800 32,150
UST Inc. ....................................... United States 550 16,088
----------
83,390
----------
BROADCASTING & PUBLISHING 7.6%
Central Newspapers Inc., A ..................... United States 1,600 60,200
* MediaOne Group Inc. ............................ United States 600 44,625
Meredith Corp. ................................. United States 500 17,313
NV Holdingsmig de Telegraaf .................... Netherlands 1,468 28,915
Scripps Co., A ................................. United States 1,485 70,630
Washington Post Co., B ......................... United States 103 55,388
----------
277,071
----------
BUILDING MATERIALS & COMPONENTS 1.4%
* American Standard Cos. Inc. .................... United States 650 31,200
Armstrong World Industries Inc. ................ United States 320 18,500
----------
49,700
----------
BUSINESS & PUBLIC SERVICES 2.5%
Hillenbrand Industries Inc. .................... United States 1,700 73,525
Suez Lyonnaise des Eaux SA ..................... France 90 16,233
----------
89,758
----------
CHEMICALS 1.6%
Crompton & Knowles Corp. ....................... United States 2,500 48,906
Olin Corp. ..................................... United States 855 11,275
----------
60,181
----------
ELECTRONIC COMPONENTS & INSTRUMENTS 1.3%
* Quantum Corp. .................................. United States 2,000 48,250
----------
</TABLE>

MS-7
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------- -------- -------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY EQUIPMENT & SERVICES 1.6%
* Cooper Cameron Corp. .............................. United States 690 $ 25,573
* Weatherford International Inc. .................... United States 900 32,963
----------
58,536
----------
ENERGY SOURCES 1.5%
Shell Transport & Trading Co. PLC ................. United Kingdom 2,130 15,956
Societe Elf Aquitaine SA, Br. ..................... France 275 40,355
----------
56,311
----------
FINANCIAL SERVICES 11.6%
Bear Stearns Co. Inc. ............................. United States 1,525 71,294
CIT Group Inc., A ................................. United States 1,700 49,087
Greenpoint Financial Corp. ........................ United States 1,228 40,294
Heller Financial Inc. ............................. United States 1,200 33,375
Household International Inc. ...................... United States 735 34,821
Lehman Brothers Holdings Inc. ..................... United States 1,200 74,700
Liberty Financial Cos. Inc. ....................... United States 2,347 68,356
Newcourt Credit Group Inc. ........................ Canada 985 12,743
United Asset Management Corp. ..................... United States 1,700 38,675
----------
423,345
----------
FOOD & HOUSEHOLD PRODUCTS 1.9%
U.S. Industries Inc. .............................. United States 4,050 68,850
----------
FOREST PRODUCTS & PAPER 1.0%
Rayonier Inc. ..................................... United States 750 37,359
----------
HEALTH & PERSONAL CARE 3.0%
* Pacificare Health Systems Inc. .................... United States 500 35,969
Rhone-Poulenc SA, A ............................... France 1,647 75,259
----------
111,228
----------
INDUSTRIAL COMPONENTS 1.8%
* Owens-Illinois Inc. ............................... United States 2,000 65,375
----------
INSURANCE 2.0%
* Old Republic International Corp. .................. United States 4,300 74,444
----------
LEISURE & TOURISM 4.7%
* Park Place Entertainment Corp. .................... United States 1,600 15,500
* Promus Hotel Corp. ................................ United States 3,740 115,940
Starwood Hotels & Resorts Worldwide Inc. .......... United States 1,375 42,023
----------
173,463
----------
MACHINERY & ENGINEERING 2.3%
Invensys PLC ...................................... United Kingdom 17,760 84,122
----------
MERCHANDISING 5.8%
* Federated Department Stores Inc. .................. United States 954 50,502
J.C. Penney Co. Inc. .............................. United States 858 41,667
* Payless Shoesource Inc. ........................... United States 680 36,380
Rite Aid Corp. .................................... United States 1,876 46,197
* Toys R Us Inc. .................................... United States 1,880 38,892
----------
213,638
----------
</TABLE>

MS-8
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 7.2%
* Alleghany Corp. ............................................. United States 319 $ 59,015
Compagnie Financiere Richemont AG, Br., A ................... Switzerland 22 42,313
Compagnie Generale D'Industrie et de Participation .......... France 990 47,881
Corporacion Financiera Alba SA .............................. Spain 240 38,857
Investor AB, A .............................................. Sweden 1,100 12,097
Investor AB, B .............................................. Sweden 2,580 28,829
Ogden Corp. ................................................. United States 1,300 35,019
----------
264,011
----------
TELECOMMUNICATIONS 1.4%
Telephone & Data Systems Inc. ............................... United States 675 49,317
----------
TEXTILES & APPAREL 1.4%
Liz Claiborne Inc. .......................................... United States 1,400 51,100
----------
TRANSPORTATION .6%
Florida East Coast Industries Inc. .......................... United States 500 22,125
----------
UTILITIES ELECTRICAL & GAS 3.2%
* Citizens Utilities Co., B ................................... United States 6,443 71,678
Veba AG ..................................................... Germany 800 47,190
----------
118,868
----------
TOTAL COMMON STOCKS (COST $2,749,090) ....................... 3,132,005
----------
PREFERRED STOCKS .8%
Tele Centro Sul Participacoes SA, ADR, pfd. ................. Brazil 261 14,486
Tele Norte Leste Participacoes SA, ADR, pfd. ................ Brazil 865 16,057
----------
TOTAL PREFERRED STOCKS (COST $27,010) ....................... 30,543
----------
TOTAL INVESTMENTS (COST $2,776,100) 86.2% ................... 3,162,548
OTHER ASSETS, LESS LIABILITIES 13.8% ........................ 504,512
----------
TOTAL NET ASSETS 100.0% ..................................... $3,667,060
==========
</TABLE>

*NON INCOME PRODUCING.

See Notes to Financial Statements.

MS-9
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $2,776,100) ......................... $3,162,548
Cash .......................................................................... 581,040
Receivables:
Investment securities sold ................................................... 56,875
Fund shares sold ............................................................. 2,037
Dividends and interest ....................................................... 4,525
From affiliates .............................................................. 15,840
----------
Total assets ................................................................ 3,822,865
----------
Liabilities:
Payables:
Investment securities purchased .............................................. 137,417
To affiliates ................................................................ 433
Accrued expenses .............................................................. 17,955
----------
Total liabilities ........................................................... 155,805
----------
Net assets, at value ........................................................... $3,667,060
==========
Net assets consist of:
Undistributed net investment income ........................................... $ 8,318
Net unrealized appreciation ................................................... 386,448
Accumulated net realized gain ................................................. 13,149
Beneficial shares ............................................................. 3,259,145
----------
Net assets, at value ........................................................... $3,667,060
==========
CLASS 1:
Net asset value per share ($2,456,111 /divided by/ 220,178 shares outstanding) $ 11.16
==========
CLASS 2:
Net asset value per share ($1,210,949 /divided by/ 108,637 shares outstanding) $ 11.15
==========
</TABLE>

See Notes to Financial Statements.

MS-10
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,134)
Dividends ............................................................... $ 17,296
Interest ................................................................ 283
--------
Total investment income ............................................... $ 17,579
---------
Expenses: ................................................................
Management fees (Note 3) ................................................ 7,319
Administrative fees (Note 3) ............................................ 1,181
Distribution fees - Class 2 (Note 3) .................................... 890
Custodian fees .......................................................... 100
Reports to shareholders ................................................. 10,100
Professional fees ....................................................... 11,422
--------
Total expenses ........................................................ 31,012
Expenses waived / paid by affiliate (Note 3) .......................... (17,938)
---------
Net expenses ......................................................... 13,074
---------
Net investment income ............................................... 4,505
---------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ 36,585
Foreign currency transactions .......................................... (3,290)
--------
Net realized gain ..................................................... 33,295
Net unrealized appreciation on: .........................................
Investments ............................................................ 339,010
Translation of assets and liabilities denominated in foreign currencies 3,439
--------
Net unrealized appreciation ........................................... 342,449
---------
Net realized and unrealized gain ......................................... 375,744
---------
Net increase in net assets resulting from operations ..................... $ 380,249
=========
</TABLE>

See Notes to Financial Statements.

MS-11
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

Distributions to shareholders from:
Net investment income:
Class 1 ......................................................................... (3,781) --
Class 2 ......................................................................... (1,453) --
Fund share transactions (Note 2):
Class 1 ......................................................................... 920,994 1,247,562
Class 2 ......................................................................... 607,335 483,254
--------------------------------------
Net increase in net assets ..................................................... 1,903,344 1,763,716
Net assets:
Beginning of period ............................................................... 1,763,716 --
--------------------------------------
End of period ..................................................................... $3,667,060 $1,763,716
======================================
Undistributed net investment income included in net assets:
End of period ..................................................................... $ 8,318 $ 9,047
======================================
</TABLE>

/dagger/FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1998.

See Notes to Financial Statements.

MS-12
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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

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

C. INCOME TAXES:

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

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

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.

MS-13
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)

E. ACCOUNTING 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 June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1999 DECEMBER 31, 1998*
---------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 98,015 $1,010,778 131,739 $1,254,575
Shares issued on reinvestment of distributions 398 3,781 -- --
Shares redeemed ............................... (9,237) (93,565) (737) (7,013)
-------------------------------------------------
Net increase .................................. 89,176 $ 920,994 131,002 $1,247,562
=================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1999 DECEMBER 31, 1998**
----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ----------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 89,491 $ 922,943 51,816 $ 496,983
Shares issued on reinvestment of distributions 153 1,453 -- --
Shares redeemed ............................... (31,389) (317,061) (1,434) (13,729)
--------------------------------------------------
Net increase .................................. 58,255 $ 607,335 50,382 $ 483,254
==================================================
</TABLE>

*Commencement of operations of Class 1 shares was May 1, 1998.
**Commencement of sales of Class 2 shares was November 10, 1998.

Templeton Funds Annuity Company, the Fund's administrative manager, is record
owner of 25,066 Class 1 shares as of June 30, 1999.

MS-14
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

MUTUAL SHARES INVESTMENTS FUND

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Franklin Mutual
Advisers, Inc. (Franklin Mutual), 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 Franklin Mutual of 0.60% per year
of the average daily net assets of the Fund. Franklin Mutual agreed in advance
to reduce management fees to the extent necessary to limit total expenses to an
annual rate of 1.00% and 1.25% of the average daily net assets of Class 1 and
Class 2 shares, respectively, through December 31, 1999, as noted in the
Statement of Operations. 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.

4. INCOME TAXES

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 424,652
Unrealized depreciation ............. (38,204)
---------
Net unrealized appreciation ......... $ 386,448
=========
</TABLE>

At December 31, 1998, the Fund had tax basis capital losses of $21,595 which
may be carried over to offset future capital gains. Such losses expire December
31, 2006.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $2,013,860 and $644,237, respectively.

MS-15
PAGE

TEMPLETON ASSET ALLOCATION FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON ASSET ALLOCATION FUND
SEEKS A HIGH LEVEL OF TOTAL RETURN. THE FUND INVESTS IN EQUITY SECURITIES OF
COMPANIES IN ANY NATION, DEBT SECURITIES 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.
- --------------------------------------------------------------------------------
This semiannual report of Templeton Asset Allocation Fund covers the six months
ended June 30, 1999. During this period, Asian equity markets made significant
gains, and Latin American markets rallied in response to changes in Brazil's
economic policy and stronger Mexican currency values. Although the U.S. equity
market performed well, the euro performed poorly and European equities
delivered relatively weak returns. As the reporting period progressed, many
investors, seeming to believe that commodity prices would rise, displayed a
renewed interest in stocks of economically sensitive, cyclical industries. The
rally in Asian and Latin American markets and the appreciation of cyclical
stocks, some of which we purchased several months ago, helped the fund exceed
the performance of its benchmarks, the Morgan Stanley Capital
International/registered trademark/ (MSCI) World Index and the J.P. Morgan
Global Government Bond Index.(1)

(1) Source: Standard & Poor's/registered trademark/ Micropal. The J.P. Morgan
Global Government Bond Index includes only actively traded fixed-rate bonds
with a remaining maturity of one year or longer and is an aggregate of
government securities issued in 13 countries. The MSCI World Index includes
approximately 1,500 companies representing the stock markets of 22 countries.
Indices are unmanaged and include reinvested interest or dividends. One cannot
invest directly in an index.

[GRAPHIC OMITTED]

TA-1
PAGE
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
Templeton Asset Allocation Fund
Based on Total Net Assets
6/30/99
<S> <C>
Europe 36.1%

North America 16.5%

Asia 14.2%

Latin America 8.6%

Australia/New Zealand 3.3%

Mid-East/Africa 1.4%

Fixed-Income Securities 11.3%

Short-Term Investments
& Other Net Assets 8.6%
</TABLE>

On June 30, 1999, the fund was composed of 80.1% equities, 11.3% fixed income,
and 8.6% short-term investments and other net assets. Asia, representing 14.2%
of total net assets, produced several of the fund's top performers during the
reporting period, including Hong Kong Telecommunications Ltd. and Korea
Electric Power Corp. While we remained cautious about corporate and economic
restructuring in Asia, we found value in the region, establishing or adding to
positions in companies such as Korea Telecom Corp., and Kurita Water Industries
Ltd. of Japan, which we feel have strong fundamentals and promising financial
prospects.

During the reporting period, a number of the fund's Latin American holdings,
such as telecommunications company Telefonos de Mexico SA (Telmex), ADR, posted
strong gains. We continued to find value in the area, and accumulated shares of
firms such as Telesp Participacoes SA, a Brazilian telecommunications provider,
and Cia Vale do Rio Doce, a Brazilian mining company. With European markets
retreating from their 1998 elevated levels, we discovered some opportunities
there and added to our positions in the banking and retail sectors. At the end
of the reporting period, Europe represented 36.1% of the fund's total net
assets, with the majority invested in the United Kingdom.

In the U.S., the Standard & Poor's/registered trademark/ 500 Composite Index
increased 12.38% despite investor concern over possible interest rate hikes.(2)
Although some of the fund's U.S. holdings, such as Motorola Inc., performed
especially well, our overall allocation there declined modestly. On June 30,
North America represented 16.5% of the fund's total net assets, a weighting we
feel comfortable with given current economic conditions.

(2) Source: Standard & Poor's/registered trademark/ Micropal. The index includes
reinvested dividends. One cannot invest directly in an index, nor is the index
representative of a fund's portfolio.

TA-2
PAGE

With regard to fixed income markets, the J.P. Morgan Global Government Bond
Index posted a -1.05% return in local currency terms, outperforming the -2.77%
return of the J.P. Morgan U.S. Government Bond Index during the period under
review.(3) This outperformance was mainly attributable to declining interest
rates in Europe and Japan. However, weakness in the euro and the Japanese yen
contributed to lower returns in U.S. dollar terms, and the J.P. Morgan Global
Government Bond Index declined 7.19% in U.S. dollar terms during the six months
ended June 30, 1999.(4)

In January, many emerging-debt markets suffered temporary losses arising from
Brazil's currency devaluation, but recovered quickly, and the J.P. Morgan
Emerging Market Bond Index Plus increased 10.57% during the reporting period.(5)
Russia, Bulgaria and Venezuela were among the top performing bond markets and
Ecuador was the worst performer, as bond prices there fell due to uncertainty
about approval of financial aid from the International Monetary Fund.

(3) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Global Government Bond Index tracks the performance of
government securities in several countries. The J.P. Morgan U.S. Government Bond
Index tracks the performance of U.S. government securities. Indices are
unmanaged and include reinvested interest. One cannot invest directly in an
index, nor is the index representative of the fund's portfolio.

(4) Source: J.P. Morgan.

(5) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Global Government Bond Index tracks the performance of
government securities in several countries. The J.P. Morgan U.S. Government Bond
Index tracks the performance of U.S. government securities. Indices are
unmanaged and include reinvested interest. One cannot invest directly in an
index, nor is the index representative of the fund's portfolio.

<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton Asset Allocation Fund
6/30/99

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -------------------------------------------
<S> <C>
Alcatel SA
Electrical & Electronics,
France 2.7%

Merita AS
Banking, Finland 2.1%

British Airways PLC
Transportation,
United Kingdom 1.9%

ING Groep NV
Financial Services,
Netherlands 1.8%

AXA SA
Financial Services, France 1.8%

Nomura Securities Co. Ltd .
Financial Services, Japan 1.7%

Zurich Allied AG
Insurance, Switzerland 1.7%

Telefonos de Mexico SA
(Telmex), ADR
Telecommunications,
Mexico 1.7%

Shell Transport & Trading
Co. PLC
Energy Sources,
United Kingdom 1.7%

Autoliv, Inc.
Automobiles, Sweden 1.7%

For a complete list of portfolio holdings, please see the fund's Statement of
Investments.
</TABLE>
TA-3
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 fund
invests. Emerging 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

TA-4

PAGE

PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
Templeton Asset Allocation Fund - Class 1
Periods ended 6/30/99

SINCE
INCEPTION
6-MONTH 1-YEAR 5-YEAR 10-YEAR (8/31/88)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return 10.98% 8.18% 102.19% 235.40% 259.57%

Average Annual
Total Return 10.98% 8.18% 15.12% 12.87% 12.52%

Value of $10,000
Investment $11,098 $10,818 $20,219 $33,540 $35,957

6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
- --------------------------------------------------------------------------------------------
One-Year
Total Return 13.90% 18.46% 26.67% 9.35% 8.18%
</TABLE>

Past performance cannot predict or guarantee future results.

TEMPLETON ASSET
ALLOCATION FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these charges, including sales
charges. Past expense reductions by the manager increased returns.

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.

TA-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
---------------------------------
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1999 ------------
(UNAUDITED)/dagger/ 1998
---------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period $ 22.46 $ 22.35
-------------------------------
Income from investment operations:
Net investment income .............................. .29 .69
Net realized and unrealized gains (losses) ......... 1.67 .75
-------------------------------
Total from investment operations .................... 1.96 1.44
-------------------------------
Less distributions from:
Net investment income .............................. (.50) (.66)
Net realized gains ................................. (2.81) (.67)
-------------------------------
Total distributions ................................. (3.31) (1.33)
-------------------------------
Net asset value, end of period ...................... $ 21.11 $ 22.46
===============================
Total return* ....................................... 10.98% 6.41%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $660,892 $692,163
Ratios to average net assets:
Expenses ........................................... .74%** .78%
Net investment income .............................. 2.77%** 2.88%
Portfolio turnover rate ............................. 27.19% 43.18%

<CAPTION>
CLASS 1
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period $ 21.08 $ 18.72 $ 15.69 $ 16.55
-------------------------------------------------
Income from investment operations:
Net investment income .............................. .67 .63 .57 .44
Net realized and unrealized gains (losses) ......... 2.44 2.76 2.87 (.92)
-------------------------------------------------
Total from investment operations .................... 3.11 3.39 3.44 (.48)
-------------------------------------------------
Less distributions from:
Net investment income .............................. (.63) (.58) (.41) (.31)
Net realized gains ................................. (1.21) (.45) -- (.07)
-------------------------------------------------
Total distributions ................................. (1.84) (1.03) (.41) (.38)
-------------------------------------------------
Net asset value, end of period ...................... $ 22.35 $ 21.08 $ 18.72 $ 15.69
=================================================
Total return* ....................................... 15.52% 18.93% 22.48% (2.96)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $735,568 $556,027 $406,123 $288,172
Ratios to average net assets:
Expenses ........................................... .74% .64% .66% .75%
Net investment income .............................. 3.32% 3.56% 3.73% 4.02%
Portfolio turnover rate ............................. 45.27% 57.50% 43.02% 51.36%
</TABLE>

TA-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ---------------------------
(UNAUDITED)/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 22.38 $ 22.32 $ 20.40
------------------------------------------------------
Income from investment operations:
Net investment income ........................ .26 .63 .16
Net realized and unrealized gains ............ 1.68 .74 1.76
------------------------------------------------------
Total from investment operations .............. 1.94 1.37 1.92
------------------------------------------------------
Less distributions from:
Net investment income ........................ (.46) (.64) --
Net realized gains ........................... (2.81) (.67) --
------------------------------------------------------
Total distributions ........................... (3.27) (1.31) --
------------------------------------------------------
Net asset value, end of period ................ $ 21.05 $ 22.38 $ 22.32
======================================================
Total return * ................................ 10.85% 6.10% 9.41%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $15,490 $15,763 $9,665
Ratios to average net assets:
Expenses ..................................... .99%** 1.03% 1.03%**
Net investment income ........................ 2.50%** 2.61% 1.97%**
Portfolio turnover rate ....................... 27.19% 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.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

TA-7
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 75.5%
AEROSPACE & MILITARY TECHNOLOGY .5%
Rolls-Royce PLC ............................. United Kingdom 770,000 $ 3,261,838
------------
APPLIANCES & HOUSEHOLD DURABLES 1.5%
Sony Corp. .................................. Japan 92,400 9,962,161
------------
AUTOMOBILES 5.0%
Autoliv Inc. ................................ Sweden 246,900 7,468,725
Autoliv Inc., SDR ........................... Sweden 129,000 3,929,781
Fiat SpA .................................... Italy 2,361,700 7,506,197
Ford Motor Co ............................... United States 84,000 4,740,750
General Motors Corp. ........................ United States 40,000 2,640,000
Volvo AB, B ................................. Sweden 260,000 7,538,226
------------
33,823,679
------------
BANKING 5.1%
Canadian Imperial Bank of Commerce .......... Canada 140,000 3,357,704
Den Norske Bank ............................. Norway 2,178,900 7,196,113
Deutsche Bank AG, Br. ....................... Germany 121,400 7,398,928
Foreningssparbanken AB, A ................... Sweden 170,700 2,409,315
Merita AS ................................... Finland 2,453,000 13,938,362
------------
34,300,422
------------
BROADCASTING & PUBLISHING .2%
South China Morning Post Ltd. ............... Hong Kong 2,821,000 1,581,594
------------
BUILDING MATERIALS & COMPONENTS .4%
Pioneer International Ltd. .................. Australia 969,005 2,469,334
------------
BUSINESS & PUBLIC SERVICES 1.7%
Kurita Water Industries Ltd. ................ Japan 432,000 7,744,878
Laidlaw Inc. ................................ Canada 549,130 4,049,834
------------
11,794,712
------------
CHEMICALS 1.8%
Akzo Nobel NV ............................... Netherlands 98,800 4,156,997
DSM NV, Br. ................................. Netherlands 25,000 2,681,242
Hoechst AG .................................. Germany 118,200 5,326,740
------------
12,164,979
------------
DATA PROCESSING & REPRODUCTION 1.0%
*3Com Corp. .................................. United States 240,800 6,426,350
------------
ELECTRICAL & ELECTRONICS 4.8%
Alcatel SA .................................. France 92,119 12,967,148
Alcatel SA, ADR ............................. France 185,738 5,270,316
Koninklijke Philips Electronics NV .......... Netherlands 56,856 5,608,205
Motorola Inc. ............................... United States 94,000 8,906,500
------------
32,752,169
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.8%
Hewlett-Packard Co. ......................... United States 106,000 10,653,000
Intel Corp. ................................. United States 144,000 8,568,000
------------
19,221,000
------------
ENERGY SOURCES 4.7%
*Consol Energy ............................... United States 584,000 7,008,000
*Ranger Oil Ltd. ............................. Canada 1,153,490 5,695,357
*Renaissance Energy Ltd. ..................... Canada 549,350 7,432,272
Shell Transport & Trading Co. PLC ........... United Kingdom 1,525,600 11,428,413
------------
31,564,042
------------
</TABLE>

TA-8
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 5.3%
AXA SA ............................................ France 97,600 $ 11,906,858
ING Groep NV ...................................... Netherlands 222,100 12,024,595
Nomura Securities Co. Ltd. ........................ Japan 1,000,600 11,713,898
------------
35,645,351
------------
FOREST PRODUCTS & PAPER 1.5%
Assidoman AB ...................................... Sweden 90,000 1,761,468
International Paper Co. ........................... United States 50,000 2,525,000
Stora Enso OYJ, R ................................. Finland 225,000 2,413,117
Stora Enso OYJ, R, fgn. ........................... Finland 326,569 3,533,798
------------
10,233,383
------------
HEALTH & PERSONAL CARE 5.1%
Medeva PLC ........................................ United Kingdom 4,572,675 7,495,952
Ono Pharmaceutical Co Ltd. ........................ Japan 247,000 8,427,875
Rhone-Poulenc SA, A ............................... France 201,800 9,221,159
Teva Pharmaceutical Industries Ltd., ADR .......... Israel 197,200 9,662,800
------------
34,807,786
------------
INDUSTRIAL COMPONENTS .2%
Madeco Manufacturera de Cobre SA, ADR ............. Chile 162,500 1,645,313
------------
INSURANCE 4.4%
Aetna Inc. ........................................ United States 16,700 1,493,606
Allstate Corp. .................................... United States 80,000 2,870,000
Reinsurance Australia Corp. Ltd. .................. Australia 829,055 691,428
Torchmark Corp .................................... United States 90,000 3,071,250
XL Capital Ltd., A ................................ Bermuda 179,400 10,136,100
Zurich Allied AG .................................. Switzerland 20,400 11,600,154
------------
29,862,538
------------
MERCHANDISING 2.5%
Dairy Farm International Holdings Ltd. ............ Hong Kong 1,000,000 1,200,000
Marks & Spencer PLC ............................... United Kingdom 1,232,600 7,110,930
Sears Roebuck & Co. ............................... United States 42,000 1,871,625
Storehouse ........................................ United Kingdom 3,079,116 6,624,938
------------
16,807,493
------------
METALS & MINING 1.5%
British Steel PLC, ADR ............................ United Kingdom 394,300 10,276,444
------------
MISC MATERIALS & COMMODITIES .7%
Agrium Inc. ....................................... Canada 517,000 4,556,063
------------
MULTI-INDUSTRY 3.1%
Alfa SA de CV, A .................................. Mexico 1,150,000 4,807,528
Cheung Kong Holdings Ltd. ......................... Hong Kong 600,000 5,335,842
Swire Pacific Ltd., A ............................. Hong Kong 2,200,000 10,888,212
------------
21,031,582
------------
REAL ESTATE .1%
New World Development Co. Ltd. .................... Hong Kong 303,543 909,590
------------
TELECOMMUNICATIONS 10.4%
AT&T Corp. ........................................ United States 181,500 10,129,969
*Cable & Wireless Optus Ltd., 144A ................. Australia 2,768,640 6,304,025
Hong Kong Telecommunications Ltd. ................. Hong Kong 2,588,400 6,722,164
*Korea Telecom Corp., ADR .......................... South Korea 97,400 3,896,000
Nippon Telegraph & Telephone Corp. ................ Japan 860 10,018,176
PT Indosat, ADR ................................... Indonesia 159,400 3,108,300
*Telecom Italia SpA, di Risp ....................... Italy 1,200,000 6,527,792
Telefonica de Argentina SA, ADR ................... Argentina 315,000 9,883,125
</TABLE>

TA-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
Telefonica del Peru SA, ADR ...................................... Peru 131,800 $ 1,993,475
Telefonos de Mexico SA (Telmex), ADR ............................. Mexico 142,800 11,540,025
Telesp Celular Participacoes SA .................................. Brazil 22,228,000 120,494
Telesp Participacoes SA .......................................... Brazil 22,228,000 289,059
------------
70,532,604
------------
TEXTILES & APPAREL .2%
*Fruit of the Loom Inc., A ........................................ United States 160,000 1,560,000
------------
TRANSPORTATION 4.7%
Air New Zealand Ltd., B .......................................... New Zealand 274,000 566,251
British Airways PLC .............................................. United Kingdom 1,808,900 12,502,800
*Fritz Cos. Inc. .................................................. United States 350,000 3,762,500
Mayne Nickless Ltd., A ........................................... Australia 1,730,400 5,921,477
Peninsular & Oriental Steam Navigation Co. ....................... United Kingdom 580,000 8,726,238
------------
31,479,266
------------
UTILITIES ELECTRICAL & GAS 6.3%
Centrica PLC ..................................................... United Kingdom 2,880,000 6,775,322
Endesa SA ........................................................ Spain 122,000 2,601,794
Endesa SA, ADR ................................................... Spain 88,000 1,870,000
Gener SA, ADR .................................................... Chile 287,050 5,095,138
Hong Kong Electric Holdings Ltd. ................................. Hong Kong 2,001,500 6,449,087
Iberdrola SA, Br. ................................................ Spain 85,000 1,294,679
Korea Electric Power Corp. ....................................... South Korea 196,000 8,144,795
Veba AG .......................................................... Germany 173,800 10,251,995
------------
42,482,810
------------
TOTAL COMMON STOCKS (COST $424,657,697)........................... 511,152,503
------------
PREFERRED STOCKS 4.6%
Banco Bradesco SA, pfd. .......................................... Brazil 767,000,000 3,938,944
Cia Vale do Rio Doce, A, ADR, pfd. ............................... Brazil 371,400 7,375,019
Embratel Participacoes SA, ADR, pfd. ............................. Brazil 121,000 1,678,875
Moebel Walther AG, pfd. .......................................... Germany 119,092 1,848,339
News Corp. Ltd., pfd. ............................................ Australia 850,000 6,475,708
Petroleo Brasileiro SA, pfd. ..................................... Brazil 36,000,000 5,649,073
Telesp Celular Participacoes SA, pfd. ............................ Brazil 40,981,336 434,952
Telesp Participacoes SA, ADR, pfd. ............................... Brazil 110,000 2,516,250
Telesp Participacoes SA, pfd. .................................... Brazil 40,981,336 970,457
------------
TOTAL PREFERRED STOCKS (COST $35,843,184)......................... 30,887,617
------------
PRINCIPAL
AMOUNT**
------------
BONDS 11.3%
Australian Government, 10.00%, 10/15/07 .......................... Australia 4,184,000 AUD 3,435,239
Essar Steel Ltd., Reg S, FRN, 7.635%, 7/20/99 .................... India 445,000 300,375
Federal Republic of Germany, Series 118, 5.25%, 2/21/01 .......... Germany 710,696 EUR 756,986
Government of Canada:
7.00%, 12/01/06 ................................................. Canada 1,140,000 CAD 849,528
6.00%, 6/01/08 .................................................. Canada 2,812,000 CAD 1,990,881
Government of France, 6.50%, 10/25/06 ............................ France 6,309,000 EUR 7,410,489
Government of Italy, 7.75%, 11/01/06 ............................. Italy 5,685,153 EUR 7,037,113
Government of Netherlands, 5.75%, 2/15/07 ........................ Netherlands 3,484,000 EUR 3,895,383
Government of New Zealand, 7.00%, 7/15/09 ........................ New Zealand 3,614,000 NZD 1,983,362
Government of Spain, 7.35%, 3/31/07 .............................. Spain 3,201,000 EUR 3,891,078
Hypothekenbank In Essen AG, Series 502, 5.25%, 1/22/08 ........... Germany 4,834,265 EUR 5,145,847
Kingdom of Belgium, 6.25%, 3/28/07 ............................... Belgium 3,968,208 EUR 4,539,070
Kingdom of Denmark, 7.00%, 11/15/07 .............................. Denmark 17,701,000 DKK 2,838,633
Kingdom of Sweden, 6.00%, 2/09/05 ................................ Sweden 22,400,000 SEK 2,802,898
</TABLE>

TA-10
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

PRINCIPAL
COUNTRY AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
Republic of Argentina, 10.95%, 11/01/99 .................................. Argentina $ 1,025,000 $ 1,035,250
Republic of Panama, 8.875%, 9/30/27 ...................................... Panama 960,000 796,800
Republic of Peru, FRN, 4.50%, 3/07/17 .................................... Peru 1,560,000 962,333
Republic of Turkey, 12.375%, 6/15/09 ..................................... Turkey 1,130,000 1,121,525
Republic of Venezuela, 144A, 9.125%, 6/18/07 ............................. Venezuela 1,540,000 1,170,400
Treuhandanstalt, 7.50%, 9/09/04 .......................................... Germany 511,292 EUR 610,682
U.S. Treasury Notes: United States 5,890,000 5,803,494
4.50%, 1/31/01 .......................................................... United States 5,000,000 4,426,565
5.25%, 11/15/28 ......................................................... United Kingdom 3,685,000 GBP 6,549,033
United Kingdom, 7.50%, 12/07/06 .......................................... Mexico 2,895,000 3,017,314
United Mexican States: Mexico 5,050,000 3,743,313
9.75%, 2/06/01 .......................................................... ------------
6.25%, 12/31/19 ......................................................... 76,113,591
TOTAL BONDS (COST $98,095,590)............................................ ------------
SHORT TERM INVESTMENTS 7.3% United States 19,226,000 19,226,000
Chase Securities Inc., 5.00%, 7/01/99, Time Deposit ...................... United States 10,000,000 9,975,950
Fannie Mae, 4.85%, 7/19/99 ............................................... United States 10,000,000 10,000,000
Sallie Mae, 4.85%, 7/19/99 ............................................... United States 10,195,000 10,114,323
U.S. Treasury Bills, 4.48% to 4.72% with maturities to 10/21/99 .......... ------------
TOTAL SHORT TERM INVESTMENTS (COST $30,085,569) .......................... 49,316,273
TOTAL INVESTMENTS (COST $588,682,040) 98.7%............................... ------------
NET EQUITY IN FORWARD CONTRACTS .......................................... 667,469,984
OTHER ASSETS, LESS LIABILITIES 1.3% ...................................... 21,151
TOTAL NET ASSETS 100.0% .................................................. 8,890,544
------------
$676,381,679
============
</TABLE>

CURRENCY ABBREVIATIONS:

AUD-Australian Dollar
CAD-Canadian Dollar
DKK-Danish Krone
EUR-European Unit
GBP-British Pound
NZD-New Zealand Dollar
SEK-Swedish Krone

*NON INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.

See Notes to Financial Statements.

TA-11
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $588,682,040) ............................ $667,469,984
Cash ............................................................................... 1,703,578
Receivables:
Investment securities sold ........................................................ 3,339,306
Fund shares sold .................................................................. 137,846
Dividends and interest ............................................................ 4,788,533
Unrealized gain on forward exchange contracts (Note 6) ............................. 21,151
------------
Total assets ..................................................................... 677,460,398
------------
Liabilities:
Payables:
Fund shares redeemed .............................................................. 401,778
To affiliates ..................................................................... 390,348
Deferred tax liability (Note 1f) ................................................... 36,995
Accrued expenses ................................................................... 249,598
------------
Total liabilities ................................................................ 1,078,719
------------
Net assets, at value ................................................................ $676,381,679
============
Net assets consist of:
Undistributed net investment income ................................................ $ 15,359,902
Net unrealized appreciation ........................................................ 78,756,047
Accumulated net realized gain ...................................................... 60,885,631
Beneficial shares .................................................................. 521,380,099
------------
Net assets, at value ................................................................ $676,381,679
============
CLASS 1:
Net asset value per share ($660,891,561 /divided by/ 31,309,340 shares outstanding). $ 21.11
============
CLASS 2:
Net asset value per share ($15,490,118 /divided by/ 735,922 shares outstanding) .... $ 21.05
============
</TABLE>

See Notes to Financial Statements.

TA-12

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $896,270)
Dividends ............................................................... $ 9,590,810
Interest ................................................................ 2,307,725
------------
Total investment income ............................................... $ 11,898,535
Expenses:
Management fees (Note 3) ................................................ 2,051,486
Administrative fees (Note 3) ............................................ 328,996
Distribution fees - Class 2 (Note 3) .................................... 18,750
Custodian fees .......................................................... 103,500
Professional fees ....................................................... 20,900
Other ................................................................... 1,192
------------
Total expenses ........................................................ 2,524,824
------------
Net investment income ................................................ 9,373,711
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ 68,059,983
Foreign currency transactions .......................................... (511,527)
------------
Net realized gain ..................................................... 67,548,456
Net unrealized depreciation on:
Investments ............................................................ (5,777,410)
Deferred taxes (Note 1f) ............................................... (36,995)
Translation of assets and liabilities denominated in foreign currencies (17,098)
------------
Net unrealized depreciation ........................................... (5,831,503)
------------
Net realized and unrealized gain ......................................... 61,716,953
------------
Net increase in net assets resulting from operations ..................... $ 71,090,664
============
</TABLE>

See Notes to Financial Statements.

TA-13
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 9,373,711 $ 21,455,483
Net realized gain from investments and foreign currency transactions ................... 67,548,456 78,748,336
Net unrealized depreciation on investments, deferred taxes, and translation of assets
and liabilities denominated in foreign currencies .................................... (5,831,503) (56,540,967)
-------------------------------
Net increase in net assets resulting from operations ................................. 71,090,664 43,662,852

Distributions to shareholders from:
Net investment income:
Class 1 ............................................................................... (14,822,362) (21,506,765)
Class 2 ............................................................................... (310,147) (313,012)
Net realized gains:
Class 1 ............................................................................... (82,476,906) (21,669,695)
Class 2 ............................................................................... (1,907,029) (324,175)

Fund share transactions (Note 2):
Class 1 ............................................................................... (3,517,257) (43,165,375)
Class 2 ............................................................................... 399,333 6,008,335
-------------------------------
Net decrease in net assets ........................................................... (31,543,704) (37,307,835)

Net assets:
Beginning of period ..................................................................... 707,925,383 745,233,218
-------------------------------
End of period ........................................................................... $ 676,381,679 $ 707,925,383
===============================
Undistributed net investment income included in net assets:
End of period ........................................................................... $ 15,359,902 $ 21,118,700
===============================
</TABLE>

See Notes to Financial Statements.

TA-14
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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:

TA-15
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES

FUND TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. INDEXED SECURITIES:

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 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. DEFERRED TAXES:

Deferred taxes are recorded for estimated tax liabilities inherent in the
Fund's portfolio securities which may arise from subsequent sales of those
securities and asset repatriations from countries that impose such taxes.

G. 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.

H. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 108,431 $ 2,293,121 1,101,798 $ 24,979,341
Shares issued on reinvestment of distributions 5,305,304 97,299,268 1,918,954 43,176,460
Shares redeemed ............................... (4,925,724) (103,109,646) (5,108,135) (111,321,176)
-----------------------------------------------------------------
Net increase (decrease) ....................... 488,011 $ (3,517,257) (2,087,383) $ (43,165,375)
=================================================================
</TABLE>

TA-16
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (unaudited) (continued)

2. BENEFICIAL SHARES (CONT.)

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 81,542 $ 1,710,398 359,493 $ 7,948,841
Shares issued on reinvestment of distributions 121,157 2,217,176 28,357 637,187
Shares redeemed ............................... (171,117) (3,528,241) (116,620) (2,577,693)
--------------------------------------------------------
Net increase .................................. 31,582 $ 399,333 271,230 $ 6,008,335
========================================================
</TABLE>

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:

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.

4. INCOME TAXES

At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $588,684,436 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 132,490,577
Unrealized depreciation ............. (53,705,029)
-------------
Net unrealized appreciation ......... $ 78,785,548
=============
</TABLE>

TA-17
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES

FUND TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (unaudited) (continued)

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $179,127,625 and $304,615,319,
respectively.

6. OFF-BALANCE SHEET RISK

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

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

As of June 30, 1999, all forward exchange contracts in the Fund were offset.

TA-18
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (unaudited) (continued)

6. OFF-BALANCE SHEET RISK (CONT.)

Tax Designation

At December 31, 1998, more than 50% of the Templeton Asset Allocation Fund
total assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the Fund on these
investments. The Fund intends to make an election under Section 853 of the
Internal Revenue Code. This election will allow shareholders to treat their
proportionate share of foreign taxes paid by the Fund as having been paid
directly to them.

The following table provides a breakdown by country of foreign source income
and foreign taxes paid to Class 1 and Class 2 shareholders in March 1999.

<TABLE>
<CAPTION>
CLASS 1 CLASS 2
------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $0.0000 $0.0226 $0.0000 $0.0213
Australia .............. 0.0065 0.0581 0.0065 0.0548
Bermuda ................ 0.0000 0.0016 0.0000 0.0016
Brazil ................. 0.0067 0.0473 0.0067 0.0446
Bulgaria ............... 0.0000 0.0003 0.0000 0.0003
Canada ................. 0.0010 0.0055 0.0010 0.0052
Chile .................. 0.0014 0.0046 0.0014 0.0044
Finland ................ 0.0028 0.0149 0.0028 0.0141
France ................. 0.0052 0.0397 0.0052 0.0374
Germany ................ 0.0001 0.0009 0.0001 0.0008
Hong Kong .............. 0.0000 0.0506 0.0000 0.0477
India .................. 0.0000 0.0071 0.0000 0.0067
Indonesia .............. 0.0001 0.0007 0.0001 0.0006
Israel ................. 0.0004 0.0012 0.0004 0.0011
Italy .................. 0.0017 0.0096 0.0017 0.0090
Japan .................. 0.0001 0.0008 0.0001 0.0007
Korea (South) .......... 0.0003 0.0014 0.0003 0.0013
Luxembourg ............. 0.0000 0.0061 0.0000 0.0058
Malaysia ............... 0.0002 0.0007 0.0002 0.0007
Mexico ................. 0.0000 0.0153 0.0000 0.0144
Netherlands ............ 0.0038 0.0208 0.0038 0.0196
New Zealand ............ 0.0013 0.0074 0.0013 0.0070
Norway ................. 0.0042 0.0229 0.0042 0.0216
Panama ................. 0.0000 0.0001 0.0000 0.0001
Peru ................... 0.0000 0.0024 0.0000 0.0022
Russia ................. 0.0000 0.0001 0.0000 0.0000
Spain .................. 0.0026 0.0164 0.0026 0.0155
Sweden ................. 0.0034 0.0213 0.0034 0.0201
Switzerland ............ 0.0015 0.0079 0.0015 0.0074
Turkey ................. 0.0000 0.0005 0.0000 0.0004
United Kingdom ......... 0.0169 0.0800 0.0169 0.0754
Venezuela .............. 0.0000 0.0115 0.0000 0.0108
------- ------- ------- -------
TOTAL .................. $0.0602 $0.4803 $0.0602 $0.4526
------- ------- ------- -------
</TABLE>

TA-19
PAGE

TEMPLETON BOND FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON BOND FUND SEEKS HIGH
CURRENT INCOME. THE FUND INVESTS PRIMARILY IN DEBT SECURITIES OF GOVERNMENTS
AND THEIR POLITICAL SUBDIVISIONS AND AGENCIES, SUPRANATIONAL ORGANIZATIONS, AND
COMPANIES OF VARIOUS NATIONS THROUGHOUT THE WORLD.
- --------------------------------------------------------------------------------
Global bond markets generally performed well in the first half of the reporting
period, but many of them declined during the second half. In January, low
inflation, generally weak economic growth for developed economies, and the
possibility of interest rate cuts seemed to contribute to a positive attitude
toward bond markets by many investors. However, in February,
stronger-than-expected economic data and lowered expectations of interest rate
cuts caused a temporary sell-off in global bond markets. In March, investors
became more optimistic despite the potential negative effect of higher oil
prices on inflation. In our view, factors contributing to this optimism
included economic weakness in Europe, Japan, and some sectors of the U.S., and
expectations of monetary policy easing by several central banks.

During this time, the U.K. and U.S. bond markets also benefited from "flight to
quality" inflows as a result of the crisis in Yugoslavia. However, during the
second half of the reporting period, investor expectations for global bond
markets deteriorated following improved business surveys in Europe and the
release of data indicating a strengthening U.S. economy. On June 30, concerned
with the possibility of future inflation, the U.S. Federal Reserve Board raised
the federal funds target interest rate 0.25%, while indicating a "neutral" bias
going forward.

During the period under review, the J.P. Morgan Global Government Bond Index
posted a return of -1.05% in local currency terms, outperforming the -2.77%
return of the J.P. Morgan U.S. Government Bond Index.(1) This outperformance was
mainly attributable to declining interest rates in Europe and Japan. However,
weakness in the euro and the Japanese yen resulted in lower returns in U.S.
dollar terms, and the J.P. Morgan Global Government Bond Index declined 7.19%
in U.S. dollar terms during the six months ended June 30, 1999.

(1) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Global Government Bond Index tracks the performance of
government securities in several countries. The J.P. Morgan U.S. Government Bond
Index tracks the performance of U.S. government securities. Indices are
unmanaged and include reinvested interest. One cannot invest directly in an
index, nor is the index representative of the fund's portfolio.

[GRAPHIC OMITTED]

TB-1
PAGE

Although many emerging-debt markets suffered temporary losses in January,
arising from Brazil's currency devaluation, they recovered quickly, and the J.P.
Morgan Emerging Market Bond Index Plus increased 10.57% during the period under
review.(2) Russia and Venezuela's bond markets were among the top performers,
and Ecuador was the worst performer, as bond prices there fell partly due to
uncertainty regarding the approval of financial aid from the International
Monetary Fund.

Throughout the six months in review, we attempted to maximize the fund's return
by allocating approximately 85% of total net assets to intermediate- and
long-term bonds in developed markets and 15% to what we believed were the
highest quality and most liquid bonds available in emerging markets. In our
opinion, this combination offered an opportunity for higher long-term returns
at the cost of modestly higher short-term volatility.

The fund's country allocations changed only moderately during the six months
under review. Our North American allocation decreased 7.2%, due mainly to a
reduction in the fund's Canadian exposure, while our European holdings rose
4.6%, as we increased our exposure to Germany and the United Kingdom and added
a new position in Bulgaria. Our exposure to emerging market bonds, especially
those of Latin America, also increased during the period. In an effort to
reduce the overall volatility characteristic of emerging market securities, we
invested in those bonds with generally shorter maturities than those of the
J.P. Morgan Emerging Market Bond Index. Most Latin American bonds in the
portfolio were U.S. dollar-denominated sovereign Eurobonds with fixed coupons,
issued by countries with strong repayment capacity. This helped to eliminate
currency risk and add security to the portfolio. Meanwhile, we shall continue
to follow a defensive strategy until we think credit risk sensitivity and
volatility have stabilized.

(2) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Emerging Markets Bond Index tracks the performance of fixed
income securities in several emerging markets. Indices are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is the index
representative of the Fund's portfolio.

TB-2

PAGE

Looking forward, we believe that global inflation will likely be quite tame in
the period ahead and that global economic growth is likely to pick up slightly
during the second half of 1999. This is an ideal environment for high quality
bonds and this makes the management team positive for the intermediate-term
outlook for the fund.

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

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

Sincerely,

Templeton Global Bond Managers
Portfolio Management Team
Templeton Bond Fund

TB-3
PAGE

REPORT OF SPECIAL MEETING
OF SHAREHOLDERS

At the Special Meeting of Shareholders of Templeton Bond Fund, a series of
Templeton Variable Products Series Fund, held on February 16, 1999,
shareholders voted as follows:

1. Regarding the approval of a change in the diversification of the Templeton
Bond Fund from a diversified to a non-diversified fund and a related change to
the fund's fundamental restrictions:

<TABLE>
<CAPTION>
SHARES % OF SHARES % OF SHARES % OF
SHARES VOTED SHARES VOTED SHARES VOTED TO SHARES
VOTED FOR VOTED AGAINST VOTED ABSTAIN VOTED
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2,728,740.563 2,330,186.947 85.394% 237,261.457 8.695% 161,292.159 5.911%
</TABLE>

There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.

TB-4

PAGE

PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
Templeton Bond Fund - Class 1
Periods ended 6/30/99

SINCE
INCEPTION
6-MONTH 1-YEAR 5-YEAR 10-YEAR (8/31/88)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return -5.40% -1.20% 32.30% 87.15% 97.66%

Average Annual
Total Return -5.40% -1.20% 5.76% 6.47% 6.48%

Value of $10,000
Investment $9,460 $9,880 $13,230 $18,715 $19,766
</TABLE>

Past performance cannot predict or guarantee future results.

TEMPLETON BOND FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges. Past expense reductions by the manager increased returns.

TB-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
--------------------------------
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1999 -----------
(UNAUDITED)/dagger/ 1998
--------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period ................ $11.07 $11.06
------------------------------
Income from investment operations:
Net investment income ............................. .31 .79
Net realized and unrealized gains (losses) ........ (.90) (.03)
------------------------------
Total from investment operations .................... (.59) .76
------------------------------
Less distributions from:
Net investment income ............................. (.44) (.75)
Net realized gains ................................ -- --
------------------------------
Total distributions ................................. (.44) (.75)
------------------------------
Net asset value, end of period ...................... $10.04 $11.07
==============================
Total return* ....................................... (5.40)% 7.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $23,523 $30,207
Ratios to average net assets:
Expenses ........................................... .72%** .73%
Net investment income .............................. 5.84%** 6.83%
Portfolio turnover rate .............................. 29.20% 89.86%

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

TB-6
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
--------------
PERIOD ENDED
JUNE 30, 1999
(UNAUDITED)
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE/dagger/
(For a share outstanding throughout the period)
Net asset value, beginning of period .......... $11.11
------
Income from investment operations:
Net investment income ....................... .46
Net realized and unrealized losses .......... (1.10)
------
Total from investment operations .............. (.64)
------
Less distributions from:
Net investment income ....................... (.44)
------
Total distributions ........................... (.44)
------
Net asset value, end of period ................ $10.03
======
Total return* ................................. (5.83)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $290
Ratios to average net assets:
Expenses .................................... .88%**
Net investment income ....................... 5.79%**
Portfolio turnover rate ....................... 29.20%
</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.
/dagger/FOR THE PERIOD JANUARY 19, 1999 (COMMENCEMENT OF SALES) TO JUNE 30,
1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

TB-7
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 96.1%
ARGENTINA 1.5%
Republic of Argentina, 10.95%, 11/01/99 ......................... $ 350,000 $ 353,500
-----------
AUSTRALIA 5.0%
Australian Government, 10.00%, 10/15/07 ......................... 1,463,000 AUD 1,201,184
-----------
BELGIUM 4.0%
Kingdom of Belgium, 6.25%, 3/28/07 .............................. 838,376 EUR 958,984
-----------
BRAZIL .5%
Republic of Brazil, FRN, 5.938%, 4/15/09 ........................ 170,000 117,300
-----------
BULGARIA 1.7%
Republic of Bulgaria, Series A, FRN, 5.875%, 7/28/24 ............ 605,000 413,669
-----------
CANADA 1.5%
Government of Canada, 7.00%, 12/01/06 ........................... 475,000 CAD 353,970
-----------
DENMARK 2.0%
Kingdom of Denmark, 7.00%, 11/15/07 ............................. 3,001,000 DKK 481,257
-----------
ECUADOR 1.3%
Republic of Ecuador, FRN, 6.00%, 2/28/25 ........................ 670,000 313,647
-----------
GERMANY 9.3%
Hypothekenbank In Essen AG, Series 502, 5.25%, 1/22/08 .......... 935,664 995,970
Treuhandanstalt, 7.50%, 9/09/04 ................................. 1,022,584 EUR 1,221,364
-----------
2,217,334
-----------
INDIA .1%
Essar Steel Ltd., Reg S, FRN, 7.635%, 7/20/99 ................... 50,000 33,750
-----------
ITALY 7.4%
Buoni Poliennali del Tesoro, 10.50%, 7/15/00 .................... 612,000 EUR 677,953
Government of Italy, 7.75%, 11/01/06 ............................ 877,975 EUR 1,086,763
-----------
1,764,716
-----------
MEXICO 7.2%
United Mexican States:
9.75%, 4/06/05 ................................................. 650,000 660,563
11.375%, 9/15/16 ............................................... 175,000 188,213
6.25%, 12/31/19 ................................................ 800,000 593,000
11.50%, 5/15/26 ................................................ 250,000 279,375
-----------
1,721,151
-----------
NEW ZEALAND 2.3%
Government of New Zealand, 7.00%, 7/15/09 ....................... 990,000 NZD 543,312
-----------
NORWAY 2.3%
Statkraft SF, 7.50%, 11/10/99 ................................... 511,292 EUR 535,177
-----------
PANAMA .6%
Republic of Panama, 8.875%, 9/30/27 ............................. 170,000 141,100
-----------
PERU .6%
Republic of Peru, FRN, 4.50%, 3/07/17 ........................... 235,000 144,967
-----------
SWEDEN 3.1%
Kingdom of Sweden, 6.00%, 2/09/05 ............................... 5,800,000 SEK 725,750
-----------
TURKEY .4%
Republic of Turkey, 12.375%, 6/15/09 ............................ 100,000 99,250
-----------
UNITED KINGDOM 9.5%
United Kingdom:
6.50%, 12/07/03 ................................................ 820,000 GBP 1,375,628
7.50%, 12/07/06 ................................................ 500,000 GBP 888,607
-----------
2,264,235
-----------
</TABLE>

TB-8
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
UNITED STATES 34.8%
Fannie Mae, 6.875%, 6/07/02 .................................. 475,000 GBP $ 768,191
U.S. Treasury Notes:
4.50%, 1/31/01 .............................................. 2,100,000 2,069,157
7.25%, 8/15/04 .............................................. 1,072,000 1,139,000
6.125%, 11/15/27 ............................................ 412,000 408,266
5.25%, 11/15/28 ............................................. 4,395,000 3,890,950
-----------
8,275,564
-----------
VENEZUELA 1.0%
Republic of Venezuela, 144A, 9.125%, 6/18/07 ................. 300,000 228,000
-----------
TOTAL LONG TERM SECURITIES (COST $24,331,681)................. 22,887,817
-----------
SHORT TERM INVESTMENTS (COST $509,000) 2.1%
Chase Securities Inc., 5.00%, 7/01/99, Time Deposit .......... 509,000
-----------
TOTAL INVESTMENTS (COST $24,840,681) 98.2%.................... 23,396,817
NET EQUITY IN FORWARD CONTRACTS .1% .......................... 15,853
OTHER ASSETS, LESS LIABILITIES 1.7% .......................... 400,446
-----------
TOTAL NET ASSETS 100.0% ...................................... $23,813,116
===========
</TABLE>

CURRENCY ABBREVIATIONS:
AUD--Australian Dollar
CAD--Canadian Dollar
DKK--Danish Krone
EUR--European Unit
GBP--British Pound
NZD--New Zealand Dollar
SEK--Swedish Krone

*Securities denominated in U.S. dollars unless otherwise indicated.

See Notes to Financial Statements.

TB-9
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $24,840,681)........................... $ 23,396,817
Cash ............................................................................ 602
Receivables:
Fund shares sold ............................................................... 430
Dividends and interest ......................................................... 439,143
Unrealized gain on forward exchange contracts (Note 6) .......................... 15,853
------------
Total assets .................................................................. 23,852,845
------------
Liabilities:
Payables:
Fund shares redeemed ........................................................... 11
To affiliates .................................................................. 11,601
Accrued expenses ................................................................ 28,117
------------
Total liabilities ............................................................. 39,729
------------
Net assets, at value ............................................................. $ 23,813,116
============
Net assets consist of:
Undistributed net investment income ............................................. $ 761,789
Net unrealized depreciation ..................................................... (1,440,879)
Accumulated net realized loss ................................................... (2,480,958)
Beneficial shares ............................................................... 26,973,164
------------
Net assets, at value ............................................................. $ 23,813,116
============
CLASS 1:
Net asset value per share ($23,523,321 /divided by/ 2,343,325 shares outstanding) $ 10.04
============
CLASS 2:
Net asset value per share ($289,795 /divided by/ 28,891 shares outstanding)...... $ 10.03
============
</TABLE>

See Notes to Financial Statements.

TB-10
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Interest Income .......................................................... $ 877,644
Expenses:
Management fees (Note 3) ................................................ 66,912
Administrative fees (Note 3) ............................................ 12,962
Distribution fees--Class 2 (Note 3) ..................................... 103
Custodian fees .......................................................... 3,600
Reports to shareholders ................................................. 4,900
Registration and filing fees ............................................ 700
Professional fees ....................................................... 7,000
Other ................................................................... 194
----------
Total expenses ......................................................... 96,371
------------
Net investment income ................................................. 781,273
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ (278,372)
Foreign currency transactions .......................................... 25,160
----------
Net realized loss ..................................................... (253,212)
Net unrealized depreciation on:
Investments ............................................................ (1,979,559)
Translation of assets and liabilities denominated in foreign currencies (18,666)
----------
Net unrealized depreciation ........................................... (1,998,225)
------------
Net realized and unrealized loss ......................................... (2,251,437)
------------
Net decrease in net assets resulting from operations ..................... $ (1,470,164)
============
</TABLE>

See Notes to Financial Statements.

TB-11
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 781,273 $ 2,078,728
Net realized loss from investments and foreign currency transactions ................... (253,212) (1,004,448)
Net unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies ........................................ (1,998,225) 1,014,416
-------------------------------
Net increase (decrease) in net assets resulting from operations ....................... (1,470,164) 2,088,696

Distributions to shareholders from:
Net investment income:
Class 1 ................................................................................ (1,132,000) (2,063,703)
Class 2 ................................................................................ (3,631) --

Fund share transactions (Note 2):
Class 1 ................................................................................ (4,090,154) (1,644,280)
Class 2 ................................................................................ 302,178 --
-------------------------------
Net decrease in net assets ............................................................ (6,393,771) (1,619,287)
Net assets:
Beginning of period ..................................................................... 30,206,887 31,826,174
-------------------------------
End of period ........................................................................... $ 23,813,116 $ 30,206,887
===============================
Undistributed net investment income included in net assets:
End of period ........................................................................... $ 761,789 $ 1,116,147
===============================
</TABLE>

See Notes to Financial Statements.

TB-12
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Notes to Financial Statements (unaudited)

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:

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:

TB-13
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. INDEXED SECURITIES:

F. FOREIGN EXCHANGE CONTRACTS:

G. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 75,733 $ 804,672 371,187 $ 3,983,652
Shares issued on reinvestment of distributions 110,872 1,132,000 195,983 2,063,703
Shares redeemed ............................... (572,021) (6,026,826) (716,054) (7,691,635)
-------------------------------------------------------------
Net decrease .................................. (385,416) $ (4,090,154) (148,884) $ (1,644,280)
=============================================================
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 1999*
--------------------------
SHARES AMOUNT
CLASS 2 SHARES: --------------------------
<S> <C> <C>
Shares sold ................................... 39,902 $ 416,032
Shares issued on reinvestment of distributions 356 3,631
Shares redeemed ............................... (11,367) (117,485)
------------------------
Net increase .................................. 28,891 $ 302,178
========================
</TABLE>

*Commencement of sales of Class 2 shares was January 19, 1999.

TB-14
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Notes to Financial Statements (unaudited) (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>
0.50% First $200 million
0.45% Over $200 million, up to and including $1.3 billion
0.40% 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:

The Fund reimburses Distributors up to 0.15% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.

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 June 30, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 48,294
Unrealized depreciation ............. (1,492,158)
-------------
Net unrealized depreciation ......... $ (1,443,864)
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $7,444,654 and $10,659,326, respectively.

TB-15
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON BOND FUND

Notes to Financial Statements (unaudited) (continued)

6. OFF-BALANCE SHEET RISK

As of June 30, 1999, all forward exchange contracts in the Fund were offset.

TB-16
PAGE

TEMPLETON DEVELOPING MARKETS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON DEVELOPING MARKETS FUND
SEEKS LONG-TERM CAPITAL APPRECIATION. THE FUND INVESTS PRIMARILY IN
EMERGING-MARKET EQUITY SECURITIES.
- --------------------------------------------------------------------------------
We are pleased to bring you this semiannual report of Templeton Developing
Markets Fund covering the six months ended June 30, 1999. During this time,
most emerging markets performed extremely well, and the fund outperformed its
benchmark Morgan Stanley Capital International/registered trademark/ (MSCI)
Emerging Markets Free Index.(1)

Initially, 1999 presented concerns for emerging market investors as attention
focused upon pressure on the Brazilian real and the growing flight of capital
from Brazil. The outlook worsened in mid-January when Brazil's central bank
allowed the real to float, letting the market determine its fair value. Within
days, the real plummeted 43% against the U.S. dollar. Despite speculation that
such an event might lead to a global economic crisis, the real's devaluation
appeared to spur foreign investors to take advantage of bargain-priced stocks
in the region, and Latin American equity markets rallied until the middle of
May. This positive market reaction encouraged Brazil's government to implement
other economic measures, which contributed to falling interest rates and a more
stable currency. This in turn led to economic improvements in many other Latin
American markets.

(1) Source: Standard & Poor's/registered trademark/ Micropal. The unmanaged MSCI
Emerging Markets Free Index measures the performance of equity securities in 27
emerging markets. It includes reinvested dividends. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.

[GRAPHIC OMITTED]

TD-1
PAGE

<TABLE>
<CAPTION>
TOP 10 COUNTRIES
REPRESENTED IN THE FUND
Templeton Developing Markets Fund
6/30/99

% OF TOTAL
COUNTRY NET ASSETS
- ---------------------------
<S> <C>
Brazil 13.8%
South Korea 11.1%
South Africa 9.8%
Mexico 8.9%
Singapore 7.8%
Thailand 7.7%
Indonesia 5.8%
Hong Kong* 4.6%
Argentina 4.3%
Philippines 3.8%
</TABLE>

*Hong Kong reverted to the sovereignty of China on July 1, 1997.

As Latin America's economic situation improved, the outlook grew brighter for
emerging Asian economies. By March, a number of countries in the region
displayed signs of economic growth, including lower unemployment rates,
shrinking trade surpluses, and increased domestic spending. While emerging
Asian economies still faced challenges, these positive indicators helped the
area's equity markets continue to rebound from their 1997 and 1998 lows.

China remained an anomaly among Asian markets during the reporting period.
Despite the strong performance of its equity market, the progress of China's
economic and market reform appeared to be jeopardized by the poor state of its
relations with the United States. Accusations that China stole military secrets
and hardware were broadcast widely in the U.S.; the negotiation of China's
entry into the World Trade Organization was put on hold; and China expressed
outrage after warplanes representing the North Atlantic Treaty Organization
(NATO) bombed the Chinese embassy in Yugoslavia.

Eastern European economies lagged those of most other emerging markets during
the period under review. Russia's economy stalled as the country experienced a
prolonged reshuffling of government officials and attempted to negotiate a
monetary rescue package with the International Monetary Fund. And when NATO
began bombing Yugoslavia, concerns about the effects on trade helped keep most
investors on the sidelines.

On June 30, the fund was invested in 30 foreign countries. During the six
months under review, we did not significantly restructure the fund's portfolio,
and its position in short-term investments and other assets remained low.
However, we sold all of our positions in Zimbabwe, Kazakhstan, and Sri Lanka
because we believed that better bargains could be found elsewhere, and we
initiated positions in Austria, which could benefit from the ongoing
development of the European Union and the euro. Two of our holdings which
appreciated significantly were Anglo American PLC (South Africa) and Siam
Cement Public Co. Ltd. (Thailand), as rising commodity prices created
additional investor interest in cyclical industries.

Looking forward, we believe that emerging markets may be in for a bit of
short-term volatility as new governments form in Indonesia, Mexico, and South
Africa, and as political struggles play out in Pakistan, India, and Korea.
Although factors such as currency exchange rates and increased inflation could
put pressure on interest rates, we feel that the

TD-2
PAGE

impact of such events may be short lived and that overall recovery and growth
of emerging market countries should be preserved.

Of course, investing in emerging market securities 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. For example, Mexico's equity market has
increased 3,760% in the last 15 years, but has suffered 8 declines of more than
15% during that time.(1) While short-term volatility can be disconcerting,
declines exceeding 50% are not unusual in emerging markets. These special risks
and other considerations are discussed in the fund's prospectus.

Please remember, this discussion reflects our views, opinions, and portfolio
holdings as of June 30, 1999, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to
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.

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

Sincerely,

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

(1) Source: Bolsa Index. Based on quarterly percentage price change over 15
years ended June 30, 1999. Market return is measured in U.S. dollar terms and
does not include reinvested dividends.

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Templeton Developing Markets Fund
6/30/99

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -------------------------------------------
<S> <C>
Hana Bank
Banking, South Korea 3.3%

Cemex SA
Building Materials &
Components, Mexico 3.2%

Korea Electric Power Corp.
Utilities Electrical & Gas,
South Korea 2.8%

Telesp Participacoes SA
Telecommunications, Brazil 2.4%

Aracruz Celulose SA, ADR
Forest Products & Paper,
Brazil 2.0%

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

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

PT Semen Cibinong
Building Materials &
Components,
Indonesia 1.6%

Grupo Financiero
Banamex Accival
SA de CV
Banking, Mexico 1.6%

Anglo American PLC
Metals & Mining,
South Africa 1.6%
</TABLE>

For a complete list of portfolio holdings, please see the fund's Statement of
Investments.
TD-3
PAGE

TEMPLETON DEVELOPING
MARKETS FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges. Past expense reductions by the manager increased returns.

PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
Templeton Developing Markets Fund - Class 1
Period ended June 30, 1999

SINCE
INCEPTION
6-MONTH 1-YEAR 3-YEAR (3/4/96)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return 43.15% 47.76% -22.92% -24.46%
Average Annual Total Return 43.15% 47.76% -8.32% -8.10%
Value of $10,000 Investment $14,315 $14,776 $7,708 $7,554
</TABLE>

Past performance cannot predict or guarantee future results.

TD-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
--------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 --------------------------------------
(UNAUDITED)/dagger//dagger/ 1998 1997 1996/dagger/
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......................... $ 5.13 $ 6.63 $ 9.43 $ 10.00
--------------------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .04 .07 .09 .05
Net realized and unrealized gains (losses) ................... 2.14 (1.42) (2.82) (.62)
--------------------------------------------------------------------
Total from investment operations .............................. 2.18 (1.35) (2.73) (.57)
--------------------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.08) (.09) (.04) --
Net realized gains ........................................... -- (.06) (.03) --
--------------------------------------------------------------------
Total distributions ........................................... (.08) (.15) (.07) --
--------------------------------------------------------------------
Net asset value, end of period ................................ $ 7.23 $ 5.13 $ 6.63 $ 9.43
====================================================================
Total return* ................................................. 43.15% (20.94)% (29.22)% (5.70)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $268,036 $ 180,684 $ 163,459 $72,245
Ratios to average net assets:
Expenses ..................................................... 1.48%** 1.66% 1.58% 1.70%**
Expenses, excluding waiver and payments by affiliate ......... 1.48%** 1.66% 1.58% 1.78%**
Net investment income ........................................ 1.33%** 1.67% 1.63% 1.52%**
Portfolio turnover rate ....................................... 31.25% 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.
/dagger/FOR THE PERIOD MARCH 4, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1996.
/dagger//dagger/ BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

TD-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
--------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------------
(UNAUDITED)/dagger//dagger/ 1998 1997/dagger/
--------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period ................ $ 5.12 $ 6.62 $ 9.85
------- ------- ------
Income from investment operations:
Net investment income .............................. .03 .07 .04
Net realized and unrealized gains (losses) ......... 2.13 (1.42) (3.27)
------- ------- ------
Total from investment operations .................... 2.16 (1.35) (3.23)
------- ------- ------
Less distributions from:
Net investment income .............................. (.07) (.09) --
Net realized gains ................................. -- (.06) --
------- ------- ------
Total distributions ................................. (.07) (.15) --
------- ------- ------
Net asset value, end of period ...................... $ 7.21 $ 5.12 $ 6.62
======= ======= ======
Total return* ....................................... 42.78% (21.03)% (32.79)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $35,072 $17,287 $9,569
Ratios to average net assets:
Expenses ........................................... 1.73%** 1.91% 1.77%**
Net investment income .............................. 0.95%** 1.44% 1.48%**
Portfolio turnover rate ............................. 31.25% 23.22% 23.82%
</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.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/ BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

TD-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES 97.4%
ARGENTINA 4.3%
* Atanor Cia Nacional Para la Industria Quimica SA, D ............... Chemicals 82,061 $ 40,214
Banco de Galicia y Buenos Aires SA de CV, B ....................... Banking 76,205 390,971
* Banco Frances SA .................................................. Banking 36,000 234,032
* Buenos Aires Embotelladora SA, B, ADR ............................. Beverages & Tobacco 29,000 1,827
* Capex SA, A .......................................................Utilities Electrical & Gas 25,000 145,765
Central Costanera SA, B ...........................................Utilities Electrical & Gas 35,860 103,287
* Molinos Rio de la Plata SA, B ..................................... Food & Household Products 60,018 100,840
Nobleza Piccardo Sdad Industrial Comercial y Financial ............ Beverages & Tobacco 52,451 173,106
Perez Companc SA, B ............................................... Energy Sources 509,070 2,927,445
Quilmes Industrial SA, ADR ........................................ Beverages & Tobacco 123,000 1,522,125
* Sociedad Comercial del Plata Cadelplata Come ...................... Multi-Industry 345,950 132,858
Telecom Argentina Stet-France SA, ADR ............................. Telecommunications 118,200 3,161,850
Telefonica De Argentina SA, ADR ................................... Telecommunications 110,730 3,474,154
Transportadora de Gas del Sur SA, ADR .............................Utilities Electrical & Gas 51,600 483,750
Transportadora de Gas del Sur SA, B ...............................Utilities Electrical & Gas 110,115 207,037
------------
13,099,261
------------
AUSTRIA 1.3%
Austria Tabak AG .................................................. Beverages & Tobacco 23,700 1,380,891
Bank Austria AG ................................................... Banking 20,800 1,093,947
OMV AG ............................................................ Energy Sources 17,200 1,534,112
------------
4,008,950
------------
BOTSWANA .1%
Sechaba Brewery Holding Ltd. ...................................... Beverages & Tobacco 159,200 183,886
------------
BRAZIL 13.8%
Aracruz Celulose SA, ADR .......................................... Forest Products & Paper 267,200 5,878,400
Banco Bradesco SA ................................................. Banking 132,856,544 530,668
Banco Bradesco SA, pfd. ........................................... Banking 65,233,889 335,010
Banco do Brasil SA ................................................ Banking 37,626,000 150,289
Brasmotor SA, pfd. ................................................ Multi-Industry 1,306,000 104,256
Centrais Eletricas Brasileiras SA (Electrobras) ...................Utilities Electrical & Gas 14,941,000 284,753
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. ..........Utilities Electrical & Gas 170,946,000 3,482,324
Centrais Geradoras Do Sul Do Brasil SA, B, pfd. ...................Utilities Electrical & Gas 161,900,000 131,183
Cia Cervejaria Brahma, pfd. ....................................... Beverages & Tobacco 495,000 282,171
Cia Energetica de Minas Gerais Cemig, Br., pfd. ...................Utilities Electrical & Gas 113,752,000 2,402,261
Cia Vale do Rio Doce, A, pfd. ..................................... Metals & Mining 156,750 3,112,639
Copene-Petroquimica do Nordeste SA, A, pfd. ....................... Chemicals 1,097,000 172,140
Duratex SA, pfd. .................................................. Forest Products & Paper 12,525,000 335,906
Embratel Participacoes SA, pfd. ................................... Telecommunications 62,558,000 878,132
Investimentos Itau SA ............................................. Multi-Industry 212,359 113,561
* Investimentos Itau SA, pfd. ....................................... Multi-Industry 5,218,000 2,798,813
* Mannesmann SA ..................................................... Machinery & Engineering 2,692,000 199,231
Petroleo Brasileiro SA, pfd. ...................................... Energy Sources 1,523,000 238,987
Tele Celular Sul Participacoes SA, pfd. ........................... Telecommunications 62,558,000 133,862
Tele Centro Oeste Celular Participacoes SA, pfd. .................. Telecommunications 23,658,000 30,104
Tele Centro Sul Participacoes SA, pfd. ............................ Telecommunications 397,594,000 4,421,746
Tele Leste Celular Participacoes SA, pfd. ......................... Telecommunications 62,558,000 37,481
Tele Nordeste Celular Participacoes SA, pfd. ...................... Telecommunications 62,558,000 86,385
Tele Norte Celular Participacoes SA, pfd. ......................... Telecommunications 62,558,000 35,696
Tele Norte Leste Participacoes SA, pfd. ........................... Telecommunications 243,998,000 4,483,158
Tele Sudeste Celular Participacoes SA, pfd. ....................... Telecommunications 499,230,000 2,862,914
Telemig Celular Participacoes SA, pfd. ............................ Telecommunications 62,558,000 79,603
Telesp Celular Participacoes SA, pfd. ............................. Telecommunications 62,558,000 663,954
Telesp Participacoes SA, ADR ...................................... Telecommunications 248,400 5,682,150
Telesp Participacoes SA, pfd. ..................................... Telecommunications 62,558,000 1,481,402
Unibanco Uniao de Bamncos Brasileiros SA .......................... Banking 7,111,000 324,611
------------
41,753,790
------------
</TABLE>
TD-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CHILE 2.2%
Cia Cervecerias Unidas SA, ADR............................. Beverages & Tobacco 7,500 $ 214,687
Cia de Telecomunicaciones de Chile SA, ADR ................ Telecommunications 161,414 3,994,997
Empresa Nacional de Electricidad SA, ADR .................. Electrical & Electronics 99,615 1,207,832
Enersis SA, ADR ........................................... Utilities Electrical & Gas 38,753 886,475
Madeco Manufacturera de Cobre SA, ADR ..................... Industrial Components 5,600 56,700
Quinenco SA, ADR .......................................... Multi-Industry 30,900 289,687
-------------
6,650,378
-------------
CHINA .4%
Beijing Datang Power Generation Co. Ltd., H ............... Multi-Industry 5,000 1,611
China Resources Enterprises Ltd. .......................... Multi-Industry 116,000 204,824
* China Telecommunications Ltd. ............................. Telecommunications 58,000 161,093
Guangshen Railway Co. Ltd., H ............................. Transportation 768,000 117,791
Guangshen Railway Co. Ltd., H, ADR ........................ Transportation 20,400 155,550
Shandong Huaneng Power Development Co. Ltd., ADR .......... Utilities Electrical & Gas 22,500 116,719
* Shanghai New Asia Group Co. Ltd., B ....................... Food & Household Products 34,502 9,316
Shanghai Petrochemical Co. Ltd., H ........................ Chemicals 1,812,900 427,590
Yanzhou Coal Mining Company Ltd., H ....................... Energy Sources 100,000 35,766
-------------
1,230,260
-------------
CZECH REPUBLIC 1.4%
* CEZ AS .................................................... Utilities Electrical & Gas 1,079,250 2,221,246
* SPT Telecom AS ............................................ Telecommunications 113,540 1,843,341
Tabak AS .................................................. Beverages & Tobacco 260 61,926
-------------
4,126,513
-------------
EGYPT .1%
Commercial International Bank Ltd. ........................ Banking 38,700 347,550
Eastern Tobacco Co. ....................................... Beverages & Tobacco 1,100 26,793
-------------
374,343
-------------
GHANA .1%
Ashanti Goldfields Co. Ltd., GDR .......................... Metals & Mining 25,159 174,541
-------------
HONG KONG 4.6%
CDL Hotel International Ltd. .............................. Leisure & Tourism 61,250 25,656
Cheung Kong Holdings Ltd. ................................. Multi-Industry 145,000 1,289,495
China Overseas Land & Investment Ltd. ..................... Real Estate 487,000 69,044
Citic Pacific Ltd. ........................................ Multi-Industry 407,000 1,298,292
Cross Harbour Tunnel Co. Ltd. ............................. Transportation 44,000 33,175
Dairy Farm International Holdings Ltd. .................... Merchandising 1,334,370 1,601,244
Hang Lung Development Co. Ltd. ............................ Real Estate 972,000 1,202,652
Hong Kong & Shanghai Hotels Ltd. .......................... Leisure & Tourism 966,000 821,720
Hong Kong Electric Holdings Ltd. .......................... Utilities Electrical & Gas 206,594 665,672
Hong Kong Land Holdings Ltd. .............................. Real Estate 19,000 30,780
HSBC Holdings PLC ......................................... Banking 46,902 1,710,726
Jardine Matheson Holdings Ltd. ............................ Multi-Industry 376,055 1,880,275
Jardine Strategic Holdings Ltd. ........................... Multi-Industry 35,000 91,000
* Lai Sun Development Co. Ltd. .............................. Real Estate 48,000 4,207
* Lai Sun Garment International Ltd. ........................ Multi-Industry 612,000 44,960
New World Development Co. Ltd. ............................ Real Estate 786,322 2,356,275
Shangri La Asia Ltd. ...................................... Leisure & Tourism 2,000 2,475
Sun Hung Kai Properties Ltd. .............................. Real Estate 47,617 434,201
Wheelock and Company Ltd. ................................. Multi-Industry 196,890 270,256
-------------
13,832,105
-------------
</TABLE>

TD-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
SHARES/
INDUSTRY PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
HUNGARY 1.6%
Borsodchem RT ......................................... Chemicals 45,569 $ 1,111,531
Borsodchem RT, GDR, Reg S ............................. Chemicals 6,900 169,567
Egis RT ............................................... Multi-Industry 6,720 160,860
* Fotex First Hungarian American Photo Service Co. ...... Multi-Industry 45,385 17,262
Gedeon Richter Ltd. ................................... Health & Personal Care 23,110 1,005,593
Matav RT .............................................. Telecommunications 41,500 224,417
Mol Magyar Olay-Es Gazipari RT ........................ Energy Sources 62,070 1,496,065
Pannonplast Plastic Industries PLC .................... Industrial Components 842 16,326
Tiszai Vegyi Kombinat RT .............................. Chemicals 74,562 779,899
Zwack Unicum Ltd. ..................................... Beverages & Tobacco 100 2,295
-------------
4,983,815
-------------
INDIA .6%
Bajaj Auto Ltd. ....................................... Automobiles 650 8,110
Bharat Petroleum Corp. Ltd. ........................... Energy Sources 12,900 78,243
* Hindalco Industries Inc. .............................. Metals & Mining 19,742 286,151
Hindustan Petroleum Corporation Ltd. .................. Energy Sources 64,338 368,716
Indian Aluminium Co Ltd ............................... Metals & Mining 29,000 40,964
Larsen and Toubro Ltd. ................................ Multi-Industry 91,671 605,696
Mahanagar Telephone Nigam Ltd. ........................ Telecommunications 96,800 415,228
** National Aluminum Co Ltd., 14.50%, 3/08/05 ............ Metals & Mining 1,529,000 INR 37,249
Reliance Industries Ltd. .............................. Chemicals 8,515 34,699
-------------
1,875,056
-------------
INDONESIA 5.8%
* Asia Pulp & Paper Co. Ltd., ADR ....................... Forest Products & Paper 92,800 893,200
* Asia Pulp & Paper Co. Ltd., ADR, wts. ................. Forest Products & Paper 20,540 53,917
* PT Barito Pacific Timber TBK .......................... Forest Products & Paper 1,774,000 193,246
PT Gudang Garamm ...................................... Beverages & Tobacco 320,000 869,136
* PT Indah Kiat Pulp & Paper Corp. ...................... Forest Products & Paper 3,750,750 1,743,268
* PT Indocement Tunggal Prakarsa ........................Building Materials & Components 1,746,000 893,922
* PT Indofoods Sukses Makmurr ........................... Food & Household Products 1,054,685 1,439,948
PT Indosat ............................................ Telecommunications 232,000 444,793
* PT Semen Cibinong .....................................Building Materials & Components 35,534,500 4,903,090
PT Semen Gresik (Persero) .............................Building Materials & Components 316,501 689,545
* PT Sinar Mas Agro Resources & Technology Corp. ........ Food & Household Products 482,800 431,259
PT Tambang Timah ...................................... Metals & Mining 1,289,500 1,123,747
PT Telekomunikasi Indonesia (Persero), B .............. Telecommunications 5,611,140 3,259,922
PT Tempo Scan Pacific ................................. Health & Personal Care 487,000 203,359
* PT Tjiwi Kimia ........................................ Forest Products & Paper 909,454 350,044
-------------
17,492,396
-------------
ISRAEL .3%
* Formula Systems Ltd. .................................. Data Processing & Reproduction 18,380 557,917
Koor Industries Ltd. .................................. Multi-Industry 2,590 298,623
-------------
856,540
-------------
JORDAN .2%
* Zara Investment Holdings Company Ltd. ................. Leisure & Tourism 345,450 752,561
-------------
</TABLE>
TD-9
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

</TABLE>

TD-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
PHILIPPINES 3.8%
* A Soriano Corp. ........................................... Multi-Industry 6,301,500 $ 182,172
Ayala Corp. ............................................... Multi-Industry 441,840 145,151
* Belle Corp. ............................................... Real Estate 39,075,000 4,159,100
* Filinvest Development Corp. ............................... Real Estate 2,639,000 242,746
* Keppel Philippine Holdings Inc., B ........................ Machinery & Engineering 8,776,186 174,140
Petron Corp. .............................................. Energy Sources 1,144,000 121,766
* Philex Mining Corp., B .................................... Metals & Mining 6,059,500 60,515
Philippine Commercial International Bank Inc. ............. Banking 185,060 1,264,536
Philippine Long Distance Telephone Co., ADR ............... Telecommunications 45,800 1,379,725
* Philippine National Bank .................................. Banking 701,931 1,900,102
RFM Corp. ................................................. Food & Household Products 1,587,636 202,366
San Miguel Corp., B ....................................... Food & Household Products 703,200 1,533,919
* Southeast Asia Cement Holdings Inc. ....................... Building Materials & Components 16,230,683 234,609
-------------
11,600,847
-------------
POLAND 1.0%
Bank Slaski SA W Katowicach ............................... Banking 19,900 973,824
Elektrim SA ............................................... Multi-Industry 84,700 1,198,127
* Impexmetal SA ............................................. Metals & Mining 93,892 430,752
* Prokom Software SA. ....................................... Data Processing & Reproduction 491 16,331
* Rolimpex SA ............................................... Wholesale & International Trade 22,617 34,299
Warta SA .................................................. Insurance 14,709 288,669
Wielkopolski Bank Kredytowy SA ............................ Banking 12,100 70,932
-------------
3,012,934
-------------
RUSSIA 1.5%
* Aeroflot - Russia International Airlines .................. Transportation 1,684,800 225,763
GAZ Auto Works ............................................ Automobiles 1,270 44,755
Irkutskenergo ............................................. Utilities Electrical & Gas 680,800 69,305
Irkutskenergo, ADR ........................................ Utilities Electrical & Gas 7,000 35,630
* Krasnoyarsk Aluminum Plant ................................ Metals & Mining 5,748 35,375
Lukoil Holdings, ADR ...................................... Energy Sources 19,320 765,072
Mosenergo ................................................. Utilities Electrical & Gas 5,937,200 265,987
Mosenergo, ADR ............................................ Utilities Electrical & Gas 38,930 175,185
* Norilsk Nickel ............................................ Metals & Mining 41,700 136,776
* Novorosissk Sea Shipping .................................. Transportation 28,000 4,715
* Novorosissk Sea Shipping., pfd. ........................... Transportation 224,000 13,418
* Red October ............................................... Food & Household Products 3,000 20,700
* Rostelecom ................................................ Telecommunications 553,000 873,740
* Rostelecom, ADR ........................................... Telecommunications 33,300 326,756
* Rostelecom, pfd. .......................................... Telecommunications 257,300 132,509
* Saint Petersburg City Telephone Network, A, pfd. .......... Telecommunications 53,000 7,420
* Tsum Trade House .......................................... Merchandising 317,500 64,833
Unified Energy Systems .................................... Utilities Electrical & Gas 3,400,000 297,500
Unified Energy Systems, ADR ............................... Utilities Electrical & Gas 11,000 97,075
Unified Energy Systems, pfd. .............................. Utilities Electrical & Gas 200,000 8,160
* Vimpel Communications, ADR ................................ Telecommunications 45,400 1,052,712
-------------
4,653,386
-------------
</TABLE>

TD-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SINGAPORE 7.8%
Acer Computer International Ltd. ................... Electrical & Electronics 195,000 $ 232,050
Acma Ltd. .......................................... Electrical & Electronics 193,000 194,984
City Developments Ltd. ............................. Real Estate 277,000 1,773,451
Cycle & Carriage Ltd. .............................. Automobiles 177,000 1,018,855
Delgro Corp. ....................................... Transportation 39,500 95,125
Development Bank of Singapore Ltd., fgn. ........... Banking 5,000 61,087
First Capital Corp. Ltd. ........................... Real Estate 408,000 635,066
Fraser and Neave Ltd. .............................. Beverages & Tobacco 466,000 2,066,549
Hai Sun Hup Group Ltd. ............................. Transportation 714,000 423,577
Hong Leong Finance Ltd., fgn. ...................... Financial Services 172,000 394,009
Inchcape Motors Ltd. ............................... Wholesale & International Trade 143,000 230,144
Isetan (Singapore) Ltd. ............................ Merchandising 18,000 30,132
Jurong Shipyard Ltd. ............................... Machinery & Engineering 194,000 951,483
Keppel Corp., Ltd. ................................. Transportation 969,000 3,301,145
MCL Land Ltd. ...................................... Real Estate 605,000 764,023
Metro Holdings Ltd. ................................ Wholesale & International Trade 39,000 61,392
Natsteel Ltd. ...................................... Metals & Mining 1,323,000 2,315,736
* Neptune Orient Lines Ltd. .......................... Transportation 300,000 366,520
* Osprey Maritime Ltd. ............................... Transportation 267,000 183,489
Overseas Chinese Banking Corp. Ltd., fgn. .......... Banking 229,000 1,910,015
Overseas Union Enterprise Ltd. ..................... Leisure & Tourism 106,400 337,480
Sembcorp Industries Ltd. ........................... Multi-Industry 1,416,925 2,247,106
Singapore Petroleum Company, fgn. .................. Chemicals 110,000 90,455
United Industrial Corporation Ltd. ................. Real Estate 1,691,000 1,142,232
United Overseas Bank Ltd., fgn. .................... Banking 391,000 2,732,981
United Overseas Land Ltd. .......................... Real Estate 109,000 122,925
WBL Corp. Ltd. ..................................... Multi-Industry 87,000 119,577
-------------
23,801,588
-------------
SLOVAK REPUBLIC .1%
Nafta Gbely AS ..................................... Utilities Electrical & Gas 6,695 88,399
* Slovnaft AS ........................................ Chemicals 11,000 145,241
* Vychodoslovenske Zeleziarne AS ..................... Metals & Mining 22,857 93,661
-------------
327,301
-------------
SOUTH AFRICA 9.8%
AECI Ltd. .......................................... Chemicals 63,600 142,282
Anglo American PLC ................................. Metals & Mining 100,878 4,714,160
Barlow Ltd. ........................................ Multi-Industry 228,500 1,317,723
CG Smith Ltd. ...................................... Multi-Industry 513,000 1,474,944
De Beers/Centenary Linked Units .................... Misc Materials & Commodities 118,100 2,829,938
* Del Monte Royal Foods Ltd. ......................... Food & Household Products 1,411,300 877,020
Dunlop Africa Ltd. ................................. Industrial Components 191,200 99,806
Edgars Consolidated Stores Ltd. .................... Textiles & Apparel 16,563 128,727
Firstrand Ltd. ..................................... Insurance 710,000 811,832
Iscor Ltd. ......................................... Metals & Mining 2,859,390 895,558
Kersaf Investments Ltd. ............................ Leisure & Tourism 391,367 1,751,083
* Liberty International PLC .......................... Insurance 79,444 525,938
Liberty Life Association of Africa Ltd. ............ Insurance 198,392 2,541,338
Palabora Mining Co. Ltd. ........................... Metals & Mining 29,500 210,208
Rembrandt Group Ltd. ............................... Multi-Industry 185,100 1,542,883
Sappi Ltd. ......................................... Forest Products & Paper 401,073 2,937,679
Sasol Ltd. ......................................... Energy Sources 372,000 2,653,840
South African Breweries PLC ........................ Beverages & Tobacco 397,580 3,452,348
Tongaat-Hulett Group Ltd. .......................... Multi-Industry 132,952 812,980
-------------
29,720,287
-------------
</TABLE>

TD-12

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
INDUSTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SOUTH KOREA 11.1%
Asia Cement Manufacturing Co. Ltd. ........................... Building Materials & Components 61,820 $ 1,522,134
* Cho Hung Bank Co. Ltd. ....................................... Banking 34,188 191,689
* Cho Hung Bank Co. Ltd., GDR, Reg S ........................... Banking 20,868 116,965
* Daegu Bank Co. Ltd. .......................................... Banking 143,655 640,397
* Daewoo Electronics Co. ....................................... Electrical & Electronics 62,560 308,071
Dongkuk Steel Mill Co. Ltd. .................................. Metals & Mining 14,592 85,724
Hana Bank .................................................... Banking 585,442 8,598,284
Hana Bank, GDR, Reg S ........................................ Banking 98,502 1,418,429
* Hotel Shilla Co. ............................................. Leisure & Tourism 109,330 1,218,451
Korea Electric Power Corp. ................................... Utilities Electrical & Gas 200,970 8,351,324
* Kyongnam Bank ................................................ Banking 520,745 1,979,506
LG Electronics Inc. .......................................... Electrical & Electronics 71,376 1,973,246
Saehan Precision Co. Ltd. .................................... Electrical & Electronics 58,905 1,201,000
Samsung Display Devices Ltd. ................................. Electrical & Electronics 22,337 1,215,750
Samsung Electronics Co. Ltd. ................................. Electrical & Electronics 28,595 3,137,421
* Samsung Heavy Industries Co. Ltd. ............................ Machinery & Engineering 191,755 1,043,677
Shin Poong Paper Manufacturing Co. Ltd. ...................... Forest Products & Paper 5,361 53,263
Shin Young Wocoal Inc. ....................................... Textiles & Apparel 1,288 75,667
Ssangyong Oil Refining Co. Ltd. .............................. Chemicals 3,570 92,527
Tong Yang Merchant Bank ...................................... Financial Services 55,502 343,802
-------------
33,567,327
-------------
THAILAND 7.7%
Advanced Info Service Public Co. Ltd., fgn. .................. Telecommunications 72,900 988,475
Ayudhya Insurance Public Co. Ltd., fgn. ...................... Insurance 3,800 12,263
* Bangkok Bank Public Co. Ltd. ................................. Banking 1,249,687 2,728,130
* Bangkok Bank Public Co. Ltd., fgn. ........................... Banking 123,000 460,312
* Bangkok Insurance Public Co. Ltd. ............................ Insurance 25,600 96,499
BEC World Public Co Ltd., fgn. ............................... Telecommunications 23,000 143,458
* Charoen Pokphand Feedmill Public Co. Ltd., fgn. .............. Food & Household Products 547,800 891,336
* Hana Microelectronics Co. Ltd., fgn. ......................... Electrical & Electronics 86,200 259,477
Industrial Finance Corp. of Thailand, fgn. ................... Financial Services 1,041,500 663,736
Italian-Thai Development Public Co. Ltd., fgn. ............... Construction & Housing 66,900 161,467
* Jasmine International Public Co. Ltd., fgn. .................. Telecommunications 678,000 473,451
* Land and House Public Co. Ltd. ............................... Real Estate 484,978 677,325
* Land and House Public Co. Ltd., fgn. ......................... Real Estate 206,278 374,797
Saha Pathanapibul Public Co. Ltd., fgn. ...................... Food & Household Products 430,500 642,102
* Saha Union Public Co. Ltd. ................................... Multi-Industry 259,306 114,270
Saha Union Public Co. Ltd., fgn. ............................. Multi-Industry 277,994 124,391
* Serm Suk Public Co. Ltd. ..................................... Food & Household Products 31,100 144,220
Serm Suk Public Co. Ltd., fgn. ............................... Food & Household Products 4,900 25,912
* Shin Corporations Public Company Ltd., fgn. .................. Electrical & Electronics 13,200 61,570
* Siam Cement Public Co. Ltd. .................................. Building Materials & Components 22,750 426,929
Siam Cement Public Co. Ltd., fgn. ............................ Building Materials & Components 84,950 2,580,176
* Siam Commercial Bank, fgn. ................................... Banking 361,901 500,527
* Siam Commercial Bank, 144A, 5.25%, cvt. pfd., fgn. ........... Banking 547,000 778,780
Siam Makro Public Company Ltd., fgn. ......................... Merchandising 307,900 586,158
* Telecomasia Corp. Public Co. Ltd., fgn. ...................... Telecommunications 219,000 221,227
* Thai Airways International Public Co. Ltd., fgn. ............. Transportation 414,000 812,843
* Thai Farmers Bank Public Co. Ltd. ............................ Banking 1,319,008 2,646,958
* Thai Farmers Bank Public Co. Ltd., fgn. ...................... Banking 775,025 2,396,009
* Thai Petrochemical Industry Public Co. Ltd., fgn. ............ Chemicals 795,120 517,502
* Thai Telephone & Telecommunication Public Co. Ltd.,fgn. ...... Telecommunications 866,500 328,976
Thai Wacoal Public Co. Ltd., fgn. ............................ Textiles & Apparel 30,100 61,220
* Tipco Asphalt Public Co. Ltd., fgn. .......................... Building Materials & Components 81,400 112,580
* Total Access Communication Public Co. Ltd. ................... Telecommunications 607,200 1,943,040
* United Communications Industries, fgn. ....................... Telecommunications 284,500 323,269
-------------
23,279,385
-------------
</TABLE>
TD-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

CURRENCY ABBREVIATION:
INR - Indian Rupee

*NON INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.

See Notes to Financial Statements.

TD-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $272,632,324)............................ $ 300,083,708
Cash .............................................................................. 1,707,046
Receivables:
Investment securities sold ....................................................... 5,056,763
Fund shares sold ................................................................. 215,579
Dividends and interest ........................................................... 942,653
-------------
Total assets .................................................................... 308,005,749
-------------
Liabilities:
Payables:
Investment securities purchased .................................................. 4,026,453
To affiliates .................................................................... 333,099
Deferred tax liability (Note 1e) .................................................. 420,541
Accrued expenses .................................................................. 117,736
-------------
Total liabilities ............................................................... 4,897,829
-------------
Net assets, at value ............................................................... $ 303,107,920
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 1,081,233
Net unrealized appreciation ....................................................... 27,030,843
Accumulated net realized loss ..................................................... (59,184,418)
Beneficial shares ................................................................. 334,180,262
-------------
Net assets, at value ............................................................... $ 303,107,920
=============
CLASS 1:
Net asset value per share ($268,035,925 /divided by/ 37,062,731 shares outstanding) $ 7.23
=============
CLASS 2:
Net asset value per share ($35,071,995 /divided by/ 4,862,951 shares outstanding).. $ 7.21
=============
</TABLE>

See Notes to Financial Statements.

TD-15
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $393,488)
Dividends ................................................... $ 3,124,301
Interest .................................................... 143,566
-------------
Total investment income ................................... $ 3,267,867

Expenses:
Management fees (Note 3) .................................... 1,460,484
Administrative fees (Note 3) ................................ 113,170
Distribution fees - Class 2 (Note 3) ........................ 29,391
Custodian fees .............................................. 138,500
Reports to shareholders ..................................... 9,000
Professional fees ........................................... 12,400
Other ....................................................... 1,202
-------------
Total expenses ............................................ 1,764,147
-------------
Net investment income ................................... 1,503,720
-------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ................................................ (28,889,873)
Foreign currency transactions .............................. (112,458)
-------------
Net realized loss ......................................... (29,002,331)
Net unrealized appreciation (depreciation) on:
Investments ................................................ 116,493,272
Deferred taxes (Note 1e) ................................... (420,541)
-------------
Net unrealized appreciation ............................... 116,072,731
-------------
Net realized and unrealized gain ............................. 87,070,400
-------------
Net increase in net assets resulting from operations ......... $ 88,574,120
=============
</TABLE>

See Notes to Financial Statements.

TD-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
----------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................ $ 1,503,720 $ 2,988,307
Net realized loss from investments and foreign currency transactions ............. (29,002,331) (24,805,823)
Net unrealized appreciation (depreciation) on investments and deferred taxes ..... 116,072,731 (20,073,422)
-----------------------------------
Net increase (decrease) in net assets resulting from operations ................ 88,574,120 (41,890,938)

Distributions to shareholders from:
Net investment income:
Class 1 ......................................................................... (2,683,606) (2,577,815)
Class 2 ......................................................................... (248,619) (175,034)
Net realized gains: ..............................................................
Class 1 ......................................................................... -- (1,492,419)
Class 2 ......................................................................... -- (107,443)

Fund share transactions (Note 2): .................................................
Class 1 ......................................................................... 10,596,242 60,604,424
Class 2 ......................................................................... 8,899,041 10,581,714
-----------------------------------
Net increase in net assets ..................................................... 105,137,178 24,942,489

Net assets:
Beginning of period ............................................................... 197,970,742 173,028,253
-----------------------------------
End of period ..................................................................... $ 303,107,920 $ 197,970,742
===================================
Undistributed net investment income included in net assets:
End of period ..................................................................... $ 1,081,233 $ 2,509,738
===================================
</TABLE>

See Notes to Financial Statements.

TD-17
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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

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 June 30, 1999, the Fund has investments with a value of approximately $11
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-18

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)

E. DEFERRED TAXES:

F. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 2,575,436 $ 14,389,727 11,021,993 $ 62,483,672
Shares issued on reinvestment of distributions -- -- 591,604 4,070,234
Shares redeemed ............................... (714,341) (3,793,485) (1,052,335) (5,949,482)
----------------------------------------------------------
Net increase .................................. 1,861,095 $ 10,596,242 10,561,262 $ 60,604,424
==========================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ................................... 2,346,236 $ 14,403,730 4,365,526 $ 23,618,013
Shares issued on reinvestment of distributions -- -- 41,058 282,477
Shares redeemed ............................... (862,310) (5,504,689) (2,472,343) (13,318,776)
-----------------------------------------------------------
Net increase .................................. 1,483,926 $ 8,899,041 1,934,241 $ 10,581,714
===========================================================
</TABLE>

TD-19
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Templeton Asset
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.

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:
<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.

4. INCOME TAXES

At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $277,848,169 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 55,757,500
Unrealized depreciation ............. (33,521,961)
-------------
Net unrealized appreciation ......... $ 22,235,539
=============
</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 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 six
months ended June 30, 1999 aggregated $84,992,457 and $71,659,519,
respectively.

TD-20

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Notes to Financial Statements (unaudited) (continued)

5. INVESTMENT TRANSACTIONS (CONT.)

Tax Designation

At December 31, 1998, more than 50% of the Templeton Developing Markets Fund
total assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the Fund on these
investments. The Fund intends to make an election under Section 853 of the
Internal Revenue Code. This election will allow shareholders to treat their
proportionate share of foreign taxes paid by the Fund as having been paid
directly to them.

The following table provides a breakdown by country of foreign source income
and foreign taxes paid to Class 1 and Class 2 shareholders in March 1999.

<TABLE>
<CAPTION>
CLASS 1 CLASS 2
------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina ............... $0.0000 $0.0030 $0.0000 $0.0027
Botswana ................ 0.0000 0.0004 0.0000 0.0004
Brazil .................. 0.0045 0.0132 0.0045 0.0118
Chile ................... 0.0001 0.0004 0.0001 0.0003
China ................... 0.0000 0.0004 0.0000 0.0003
Greece .................. 0.0000 0.0007 0.0000 0.0006
Ghana ................... 0.0000 0.0002 0.0000 0.0002
Hong Kong ............... 0.0000 0.0081 0.0000 0.0073
Hungary ................. 0.0001 0.0006 0.0001 0.0005
India ................... 0.0000 0.0029 0.0000 0.0026
Indonesia ............... 0.0001 0.0003 0.0001 0.0003
Kenya ................... 0.0002 0.0012 0.0002 0.0011
Korea (South) ........... 0.0004 0.0012 0.0004 0.0011
Malaysia ................ 0.0014 0.0030 0.0014 0.0027
Mexico .................. 0.0000 0.0032 0.0000 0.0029
Pakistan ................ 0.0004 0.0013 0.0004 0.0012
Peru .................... 0.0000 0.0010 0.0000 0.0009
Philippines ............. 0.0001 0.0002 0.0001 0.0002
Poland .................. 0.0004 0.0014 0.0004 0.0012
Russia .................. 0.0001 0.0006 0.0001 0.0005
Singapore ............... 0.0018 0.0039 0.0018 0.0035
Slovak Republic ......... 0.0001 0.0006 0.0001 0.0006
South Africa ............ 0.0000 0.0087 0.0000 0.0078
Sri Lanka ............... 0.0000 0.0002 0.0000 0.0002
Thailand ................ 0.0001 0.0004 0.0001 0.0004
Turkey .................. 0.0000 0.0025 0.0000 0.0023
Venezuela ............... 0.0000 0.0004 0.0000 0.0004
Zimbabwe ................ 0.0000 0.0002 0.0000 0.0002
------------------------------------------------------------------
TOTAL ................... $0.0098 $0.0602 $0.0098 $0.0542
==================================================================
</TABLE>

TD-21
PAGE

TEMPLETON INTERNATIONAL FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON INTERNATIONAL FUND SEEKS
LONG-TERM CAPITAL GROWTH. THE FUND INVESTS PRIMARILY IN THE EQUITY SECURITIES
OF COMPANIES LOCATED OUTSIDE THE UNITED STATES, INCLUDING EMERGING MARKETS.
- --------------------------------------------------------------------------------
The six months under review started with a sell-off in Latin American equity
markets when Brazilian authorities devalued the real in January. But many
investors seemed to realize that the devaluation was a wise decision and,
helped by rising commodity prices, stabilizing currencies, and relatively cheap
valuations, Latin American and Asian equity markets were performing well by the
end of the reporting period. In Europe, weakening economic growth in Germany
and Italy slowed down those countries' equity markets.

With currency volatility around the world declining and evidence of economic
recovery in Asia and Latin America, many of our relatively large holdings of
Asian, Latin American and cyclical stocks helped the fund's performance. Some
of these top performers included Telefonos de Mexico SA (Telmex), Sony Corp.,
Hong Kong Telecommunications Ltd., and Perez Companc SA, which appreciated
significantly during the period in review.

Throughout the period, our analysts scoured the globe looking for out-of-favor
securities trading at depressed levels relative to long-term "normalized"
earnings. Normalized represents what a company can earn in the middle of a
typical economic cycle and requires us to estimate earnings and cash flow for
the next five years.

[GRAPHIC OMITTED]

TI-1
PAGE

<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton International Fund
6/30/99

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- -----------------------------------------
<S> <C>
Sony Corp.
Appliances & Household
Durables, Japan 2.2%

Koninklijke Philips
Electronics NV
Electrical & Electronics,
Netherlands 1.9%

Nintendo Co. Ltd.
Recreation & Other
Consumer Goods, Japan 1.9%

Volvo AB, B
Automobiles, Sweden 1.8%

Merita AS
Banking, Finland 1.8%

Alcatel SA
Electrical & Electronics,
France 1.8%

Zurich Allied AG
Insurance, Switzerland 1.7%

Repsol SA
Energy Sources, Spain 1.5%

Teva Pharmaceutical
Industries Ltd., ADR
Health & Personal Care,
Israel 1.5%

AXA SA
Financial Services, France 1.5%
</TABLE>

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

Following this value-based approach resulted in an 17.24% allocation to
"emerging markets" and the fund's portfolio being underweighted in European
securities and underweighted in Japan relative to the Morgan Stanley Capital
International/registered trademark/ Europe, Australasia, Far East (MSCI EAFE)
Index.(1) Consistent with our low-turnover approach, we made only modest
industry or country weighting changes during the period. The fund's European
exposure declined slightly, from 58.6% to 52.0% of total net assets, while our
Asian exposure increased, from 12.5% to 17.6%. Our Australia/New Zealand
weighting increased from 4.4% to 6.9%, and favorable market conditions in Latin
America caused our holdings there to increase, from 9.2% to 10.7%. We made no
major shifts in industry holdings during the period under review.

In Asia, we increased the fund's Japanese exposure through the purchase of a
handful of what we believed were undervalued shares. We added to our Sony Corp.
holdings and established new positions in Nintendo Co. Ltd., Nippon Telegraph &
Telephone Corp., and Nomura Securities Co. Ltd., a company which had struggled
with short-term earnings shortfalls. As a result of this activity, our total
Japanese weighting increased from 2.2% on December 31, 1998, to 7.3% on June
30, 1999. We pared back a number of Hong Kong positions but remained
overweighted in that area, and we added a small position in Korea Telecom
Corp., ADR, due to its low valuation and indications that Korea's economy may
be recovering.

In Europe, we reduced the fund's exposure to banking and financial services
companies, trimming our holdings of Bank Austria AG, AXA SA, and National
Westminster Bank PLC, and eliminating our position in Banque Nationale de Paris
because we believed them to be fully valued. We also sold some holdings in
telecommunications companies, such as Telecom Italia SpA, di Risp and British
Telecommunications PLC. While our European activity was primarily on the sell
side, we did add to a few selective positions, most notably Dutch chemical
company Akzo Nobel NV, and we initiated a position in Repsol SA, a Spanish oil
company. We also took advantage of short-term weakness in UK retailer Marks &
Spencer PLC to build a position in that stock.

(1) Source: Standard & Poor's/registered trademark/ Micropal. The unmanaged MSCI
EAFE Index measures the performance of approximately 1,000 companies
representing the stock markets of 21 countries, and includes reinvested
dividends. One cannot invest directly in an index.

TI-2

PAGE

Looking forward, we remain positively disposed toward international markets
over the long term but are concerned with high short-term valuations of many
stocks. By purchasing out-of-favor securities trading at low valuations and
maintaining a diversified portfolio, we attempt to reduce volatility while
positioning the fund for strong, long-term performance. Our rebound in 1999
after a difficult 1998 would seem to vindicate this approach.

Of course, 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 fund is invested. Emerging markets involve similar but heightened 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 our shareholders for their support and look forward to serving you in
the future.

Sincerely,

/s/ Peter A. Nori
- -----------------
Peter A. Nori
Portfolio Manager
Templeton International Fund

TI-3
PAGE

TEMPLETON
INTERNATIONAL FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges. Past expense reductions by the manager increased returns.

PERFORMANCE SUMMARY

<TABLE>
<CAPTION>
Templeton International Fund - Class 1
Periods ended 6/30/99
SINCE
INCEPTION
6-MONTH 1-YEAR 5-YEAR (5/1/92)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 10.28% 5.34% 103.38% 166.83%
Average Annual
Total Return 10.28% 5.34% 15.25% 14.69%
Value of $10,000
Investment $ 11,028 $ 10,534 $ 20,338 $ 26,683

<CAPTION>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
- ------------------------------------------------------------------------------------------------
One-Year
Total Return 11.42% 18.83% 27.97% 13.95% 5.34%
</TABLE>

Past performance cannot predict or guarantee future results.

TI-4

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ------------------------------------------------------------
(UNAUDITED)/dagger/ 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 20.69 $ 20.18 $ 18.40 $ 15.13 $ 13.22 $ 13.83
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ......................... .27 .60 .49 .43 .23 .12
Net realized and unrealized gains (losses) .... 1.44 1.29 2.01 3.15 1.83 (.42)
---------------------------------------------------------------------------------
Total from investment operations ............... 1.71 1.89 2.50 3.58 2.06 (.30)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.57) (.49) (.51) (.24) (.10) (.08)
Net realized gains ............................ (1.98) (.89) (.21) (.07) (.05) (.23)
---------------------------------------------------------------------------------
Total distributions ............................ (2.55) (1.38) (.72) (.31) (.15) (.31)
---------------------------------------------------------------------------------
Net asset value, end of period ................. $ 19.85 $ 20.69 $ 20.18 $ 18.40 $ 15.13 $ 13.22
=================================================================================
Total return* .................................. 10.28% 9.33% 13.95% 24.04% 15.78% (2.22)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $996,311 $980,470 $938,410 $682,984 $353,141 $150,090
Ratios to average net assets:
Expenses ....................................... 85%** .86% .81% .65% .71% .83%
Net investment income ......................... 2.79%** 2.81% 2.70% 3.23% 2.36% 1.89%
Portfolio turnover rate ........................ 19.90% 29.56% 16.63% 9.46% 5.19% 6.32%
</TABLE>

TI-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 ---------------------------
(UNAUDITED)/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 20.61 $ 20.14 $ 18.40
----------------------------------------------------------
Income from investment operations:
Net investment income ........................ .25 .59 .07
Net realized and unrealized gains ............ 1.42 1.25 1.67
----------------------------------------------------------
Total from investment operations .............. 1.67 1.84 1.74
----------------------------------------------------------
Less distributions from:
Net investment income ........................ (.53) (.48) --
Net realized gains ........................... (1.98) (.89) --
----------------------------------------------------------
Total distributions ........................... (2.51) (1.37) --
----------------------------------------------------------
Net asset value, end of period ................ $ 19.77 $ 20.61 $ 20.14
==========================================================
Total return* ................................. 10.09% 9.08% 9.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $81,170 $39,886 $17,606
Ratios to average net assets:
Expenses ..................................... 1.10%** 1.11% 1.13%**
Net investment income ........................ 2.64%** 2.69% 1.14%**
Portfolio turnover rate ....................... 19.90% 29.56% 16.63%
</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.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

TI-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 92.1%
AEROSPACE & MILITARY TECHNOLOGY .2%
Hong Kong Aircraft Engineering Co. Ltd. ............. Hong Kong 1,160,200 $ 2,242,987
--------------
APPLIANCES & HOUSEHOLD DURABLES 2.1%
Sony Corp. .......................................... Japan 215,200 23,201,917
--------------
AUTOMOBILES 4.5%
Autoliv Inc., SDR ................................... Sweden 358,450 10,919,613
Fiat SpA ............................................ Italy 2,552,500 8,112,617
Volkswagen AG ....................................... Germany 156,000 10,065,917
Volvo AB, B ......................................... Sweden 672,100 19,486,315
--------------
48,584,462
--------------
BANKING 9.7%
Australia & New Zealand Banking Group Ltd. .......... Australia 1,745,350 12,833,660
Banco Popular Espanol SA ............................ Spain 64,000 4,603,486
* Bangkok Bank Public Co. Ltd., fgn. .................. Thailand 2,763,800 10,343,170
Bank Austria AG, 144A ............................... Austria 230,146 12,104,203
Credicorp Ltd. ...................................... Peru 292,160 3,213,760
Foreningssparbanken AB, A ........................... Sweden 228,000 3,218,066
HSBC Holdings PLC, ADR .............................. Hong Kong 30,100 10,978,818
Merita AS ........................................... Finland 3,400,000 19,319,377
National Bank of Canada ............................. Canada 440,000 5,802,528
National Westminster Bank PLC ....................... United Kingdom 574,342 12,167,265
Unidanmark AS, A .................................... Denmark 150,000 10,011,123
--------------
104,595,456
--------------
BUILDING MATERIALS & COMPONENTS .7%
Caradon PLC ......................................... United Kingdom 3,265,240 7,694,483
--------------
CHEMICALS 3.1%
Akzo Nobel NV ....................................... Netherlands 352,800 14,844,014
BASF AG ............................................. Germany 273,530 12,016,477
Kemira OY ........................................... Finland 1,088,632 6,578,719
--------------
33,439,210
--------------
DATA PROCESSING & REPRODUCTION 1.1%
* Newbridge Networks Corp. ............................ Canada 418,260 12,024,975
--------------
ELECTRICAL & ELECTRONICS 4.2% .......................
* ABB Ltd. ............................................ Switzerland 64,840 6,110,292
Alcatel SA .......................................... France 134,405 18,919,545
Koninklijke Philips Electronics NV .................. Netherlands 210,312 20,744,914
--------------
45,774,751
--------------
ENERGY SOURCES 5.4%
Perez Companc SA, B ................................. Argentina 1,975,000 11,357,386
Repsol SA ........................................... Spain 807,000 16,477,880
Shell Transport & Trading Co. PLC ................... United Kingdom 1,913,742 14,336,022
Societe Elf Aquitaine SA, Br. ....................... France 106,150 15,577,132
--------------
57,748,420
--------------
FINANCIAL SERVICES 5.2%
AXA SA .............................................. France 130,000 15,859,544
ING Groep NV ........................................ Netherlands 214,846 11,631,860
Lend Lease Corp. Ltd. ............................... Australia 1,040,000 14,279,005
Nomura Securities Co. Ltd. .......................... Japan 1,210,000 14,165,317
--------------
55,935,726
--------------
</TABLE>

TI-7
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 2.5%
Illovo Sugar Ltd. ......................................... South Africa 3,005,800 $ 3,312,382
Northern Foods PLC ........................................ United Kingdom 2,868,307 5,900,099
Panamerican Beverages Inc., A ............................. Mexico 290,000 6,905,625
Tate & Lyle PLC ........................................... United Kingdom 1,763,000 11,053,139
---------------
27,171,245
---------------
FOREST PRODUCTS & PAPER 1.8%
Stora Enso OYJ, R ......................................... Finland 400,000 4,289,987
Stora Enso OYJ, R, fgn. ................................... Finland 435,426 4,711,737
UPM-Kymmene Corp. ......................................... Finland 351,000 10,062,700
---------------
19,064,424
---------------
HEALTH & PERSONAL CARE 3.2%
Medeva PLC ................................................ United Kingdom 3,190,000 5,229,343
Rhone-Poulenc SA, A ....................................... France 279,800 12,785,334
Teva Pharmaceutical Industries Ltd., ADR .................. Israel 335,200 16,424,800
---------------
34,439,477
---------------
INDUSTRIAL COMPONENTS .5%
Madeco Manufacturera de Cobre SA, ADR ..................... Chile 190,000 1,923,750
Yamato Kogyo Co. Ltd. ..................................... Japan 446,000 3,246,249
---------------
5,169,999
---------------
INSURANCE 7.4%
Ace Ltd. .................................................. Bermuda 320,545 9,055,396
AXA China Region Ltd. ..................................... Hong Kong 11,930,000 9,533,114
Muenchener Rueckversicherungs-Gesellschaft ................ Germany 27,260 5,136,024
* Muenchener Rueckversicherungs-Gesellschaft, 144A .......... Germany 27,260 5,088,232
Partnerre Ltd. ............................................ Bermuda 269,000 10,053,875
Scor SA ................................................... France 250,000 12,400,743
XL Capital Ltd., A ........................................ Bermuda 170,450 9,630,425
Zurich Allied AG .......................................... Switzerland 32,300 18,366,911
---------------
79,264,720
---------------
MACHINERY & ENGINEERING .6%
Invensys PLC .............................................. United Kingdom 1,318,675 6,246,049
---------------
MERCHANDISING 3.3%
David Jones Ltd. .......................................... Australia 2,225,500 2,180,130
Marks & Spencer PLC ....................................... United Kingdom 2,243,000 12,939,977
Safeway PLC ............................................... United Kingdom 3,247,408 12,988,711
Storehouse ................................................ United Kingdom 3,498,781 7,527,877
---------------
35,636,695
---------------
METALS & MINING 5.5%
Angang New Steel Company Ltd., H, 144A .................... China 22,414,000 3,351,043
Anglo American Platinum Corp. Ltd. ........................ South Africa 349,009 8,143,254
Boehler Uddeholm AG ....................................... Austria 31,505 1,559,168
Boehler Uddeholm AG, 144A ................................. Austria 33,800 1,672,746
British Steel PLC ......................................... United Kingdom 4,090,000 10,588,924
Chongqing Iron & Steel Ltd., H ............................ China 25,564,000 2,471,114
Ispat International NV, A ................................. Netherlands 227,600 2,517,825
Pechiney SA, A ............................................ France 136,212 5,854,714
Pohang Iron & Steel Co. Ltd. .............................. South Korea 85,000 10,597,000
WMC Ltd. .................................................. Australia 2,870,000 12,328,766
---------------
59,084,554
---------------
</TABLE>

TI-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 5.1%
Alfa SA de CV, A .................................... Mexico 2,110,000 $ 8,820,769
Broken Hill Proprietary Co. Ltd. .................... Australia 1,210,543 14,022,043
Cheung Kong Holdings Ltd. ........................... Hong Kong 850,000 7,559,110
Elementis PLC ....................................... United Kingdom 2,052,331 3,412,896
Next PLC ............................................ United Kingdom 1,255,500 15,257,881
Saab AB, B .......................................... Sweden 726,900 5,642,837
---------------
54,715,536
---------------
REAL ESTATE .4%
New Asia Realty and Trust Co. Ltd., A ............... Hong Kong 2,670,000 4,060,653
---------------
RECREATION & OTHER CONSUMER GOODS 1.8%
Nintendo Co. Ltd. ................................... Japan 143,500 19,976,661
---------------
TELECOMMUNICATIONS 11.3%
* Cable & Wireless Optus Ltd., 144A ................... Australia 3,417,600 7,781,668
Cia de Telecomunicaciones de Chile SA, ADR .......... Chile 431,500 10,679,625
Hong Kong Telecommunications Ltd. ................... Hong Kong 5,427,349 14,095,012
Koninklijke KPN NV .................................. Netherlands 263,235 12,351,441
* Korea Telecom Corp., ADR ............................ South Korea 104,200 4,168,000
Nippon Telegraph & Telephone Corp. .................. Japan 1,210 14,095,340
* Telecom Italia SpA, di Risp ......................... Italy 2,252,750 12,254,570
Telecomunicacoes Brasileiras SA, ADR ................ Brazil 156,170 14,084,582
Telefonica de Argentina SA, ADR ..................... Argentina 368,800 11,571,100
Telefonica del Peru SA, ADR ......................... Peru 29,000 438,625
Telefonica del Peru SA, B ........................... Peru 3,000,000 4,506,071
Telefonos de Mexico SA (Telmex), ADR ................ Mexico 191,300 15,459,431
---------------
121,485,465
---------------
TRANSPORTATION 3.7%
Hitachi Zosen Corp. ................................. Japan 3,342,000 4,031,163
Koninklijke Nedlloyd Groep NV ....................... Netherlands 216,300 5,353,408
Mayne Nickless Ltd., A .............................. Australia 3,227,820 11,045,691
Peninsular & Oriental Steam Navigation Co. .......... United Kingdom 833,414 12,538,912
Singapore Airlines Ltd., fgn. ....................... Singapore 736,500 7,008,106
---------------
39,977,280
---------------
UTILITIES ELECTRICAL & GAS 8.8%
Evn AG .............................................. Austria 48,600 7,106,816
Gener SA, ADR ....................................... Chile 303,800 5,392,450
Hong Kong Electric Holdings Ltd. .................... Hong Kong 4,062,365 13,089,456
Iberdrola SA, Br. ................................... Spain 807,900 12,305,541
Korea Electric Power Corp. .......................... South Korea 269,000 11,178,315
National Grid Group PLC ............................. United Kingdom 953,785 6,633,738
National Power PLC .................................. United Kingdom 1,972,900 14,328,263
Thames Water Group PLC .............................. United Kingdom 747,372 11,862,861
Veba AG ............................................. Germany 221,850 13,086,336
---------------
94,983,776
---------------
TOTAL COMMON STOCKS (COST $831,477,267).............. 992,518,921
---------------
</TABLE>

TI-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCKS 2.0%
Banco Bradesco SA, pfd. ................................................... Brazil 896,769,450 $ 4,605,378
Cia Vale do Rio Doce, A, ADR, pfd. ........................................ Brazil 350,400 6,958,014
Lojas Americanas SA, pfd. ................................................. Brazil 238,431,408 952,365
* Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..................... Brazil 156,170 9,761
* Telecomunicacoes de Minas Gerais Celular Telemig, pfd. .................... Brazil 1,705,000 15,323
Telesp Participacoes SA, pfd. ............................................. Brazil 4,866,533 115,242
Telesp Participacoes SA, ADR, pfd. ........................................ Brazil 334,800 7,658,550
Usinas Siderurgicas de Minas Gerais, Reg S, ADR, pfd. ..................... Brazil 320,000 1,088,274
--------------
TOTAL PREFERRED STOCKS (COST $31,863,329).................................. 21,402,907
--------------
<CAPTION>

PRINCIPAL
AMOUNT**
------------
SHORT TERM INVESTMENT (COST $12,794,920) 1.2%
Fannie Mae, 4.90%, 9/08/99 ................................................ United States $ 12,918,000 12,798,160
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $876,135,516).......... 1,026,719,988
--------------
(A) REPURCHASE AGREEMENT (COST $43,001,000) 4.0%
Paine Webber, 4.80%, 7/01/99 (Maturity Value $43,006,733)
Collaterized by U.S. Treasury Bonds and Notes ............................. United States 43,001,000 43,001,000
--------------
TOTAL INVESTMENTS (COST $919,136,516) 99.3%................................ 1,069,720,988
OTHER ASSETS, LESS LIABILITIES .7% ........................................ 7,759,521
--------------
TOTAL NET ASSETS 100.0% ................................................... $1,077,480,509
==============
</TABLE>

*NON INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.
(A)AT JUNE 30, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See Notes to Financial Statements.

TI-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $876,135,516) ........................... $1,026,719,988
Repurchase agreement, at value and cost ........................................... 43,001,000
Receivables:
Fund shares sold ................................................................. 2,683,348
Dividends and interest ........................................................... 6,265,179
--------------
Total assets .................................................................... 1,078,669,515
--------------
Liabilities:
Payables:
Investment securities purchased .................................................. 105,369
To affiliates .................................................................... 698,020
Funds advanced by custodian ....................................................... 34,450
Accrued expenses .................................................................. 351,167
--------------
Total liabilities ............................................................... 1,189,006
--------------
Net assets, at value ............................................................... $1,077,480,509
--------------
Net assets consist of:
Undistributed net investment income ............................................... $ 14,883,588
Net unrealized appreciation ....................................................... 150,584,472
Accumulated net realized gain ..................................................... 59,022,909
Beneficial shares ................................................................. 852,989,540
--------------
Net assets, at value ............................................................... $1,077,480,509
==============
CLASS 1:
Net asset value per share ($996,310,751 /divided by/ 50,203,995 shares outstanding) $ 19.85
==============
CLASS 2:
Net asset value per share ($81,169,758 /divided by/ 4,105,074 shares outstanding).. $ 19.77
==============
</TABLE>

See Notes to Financial Statements.

TI-11

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,789,958)
Dividends ................................................... $ 17,654,395
Interest .................................................... 883,934
------------
Total investment income ................................... $ 18,538,329
Expenses:
Management fees (Note 3) .................................... 3,511,590
Administrative fees (Note 3) ................................ 493,227
Distribution fees - Class 2 (Note 3) ........................ 66,442
Custodian fees .............................................. 177,000
Reports to shareholders ..................................... 121,000
Professional fees ........................................... 14,000
Other ....................................................... 4,022
------------
Total expenses ............................................ 4,387,281
------------
Net investment income .................................... 14,151,048
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 60,537,527
Foreign currency transactions .............................. (1,229,829)
------------
Net realized gain ......................................... 59,307,698
Net unrealized appreciation on investments ................ 30,280,684
------------
Net realized and unrealized gain ............................. 89,588,382
------------
Net increase in net assets resulting from operations ......... $103,739,430
============
</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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
--------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 14,151,048 $ 28,896,330
Net realized gain from investments and foreign currency transactions 59,307,698 95,878,753
Net unrealized appreciation (depreciation) on investments ........... 30,280,684 (37,191,402)
-----------------------------------
Net increase in net assets resulting from operations .............. 103,739,430 87,583,681

Distributions to shareholders from:
Net investment income:
Class 1 ............................................................ (26,406,410) (22,916,242)
Class 2 ............................................................ (1,047,921) (505,990)
Net realized gains:
Class 1 ............................................................ (91,727,528) (40,971,463)
Class 2 ............................................................ (3,898,692) (929,242)

Fund share transactions (Note 2):
Class 1 ............................................................ 38,991,551 22,012,097
Class 2 ............................................................ 37,473,915 20,066,468
-----------------------------------
Net increase in net assets ........................................ 57,124,345 64,339,309

Net assets:
Beginning of period .................................................. 1,020,356,164 956,016,855
-----------------------------------
End of period ........................................................ $1,077,480,509 $1,020,356,164
===================================
Undistributed net investment income included in net assets:
End of period ........................................................ $ 14,883,588 $ 28,186,871
===================================
</TABLE>

See Notes to Financial Statements.

TI-13

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton International Fund (the Fund) is a separate, diversified series of
Templeton Variable Products Series Fund (the Trust), which is an open-end
investment company registered under the Investment Company Act of 1940. The
Fund seeks long-term capital growth through a flexible policy of investing in
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:

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

C. INCOME TAXES:

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

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

TI-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

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

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 9,505,422 $ 168,861,508 6,749,923 $ 142,271,216
Shares issued on reinvestment of distributions -- -- 3,071,524 63,887,704
Shares redeemed ............................... (6,701,117) (129,869,957) (8,923,288) (184,146,823)
-----------------------------------------------------------------
Net increase .................................. 2,804,305 $ 38,991,551 898,159 $ 22,012,097
=================================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 32,878,220 $ 630,297,005 8,195,067 $ 161,830,748
Shares issued on reinvestment of distributions -- -- 69,167 1,435,233
Shares redeemed ............................... (30,708,657) (592,823,090) (7,203,053) (143,199,513)
------------------------------------------------------------------
Net increase .................................. 2,169,563 $ 37,473,915 1,061,181 $ 20,066,468
==================================================================
</TABLE>

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>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>

TI-15
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Notes to Financial Statements (unaudited) (continued)

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

The Fund pays its allocated share of an administrative fee to 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.

4. INCOME TAXES

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 238,792,231
Unrealized depreciation ............. (88,207,759)
-------------
Net unrealized appreciation ......... $ 150,584,472
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $192,871,454 and $205,822,013,
respectively.

TI-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON INTERNATIONAL FUND

Notes to Financial Statements (unaudited) (continued)

5. INVESTMENT TRANSACTIONS (CONT.)

Tax Designation

At December 31, 1998, more than 50% of the Templeton International Fund total
assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the Fund on these
investments. The Fund intends to make an election under Section 853 of the
Internal Revenue Code. This election will allow shareholders to treat their
proportionate share of foreign taxes paid by the Fund as having been paid
directly to them.

The following table provides a breakdown by country of foreign source income
and foreign taxes paid to Class 1 and Class 2 shareholders in March 1999.

<TABLE>
<CAPTION>
CLASS 1 CLASS 2
------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $0.0000 $0.0101 $0.0000 $0.0096
Australia .............. 0.0051 0.0455 0.0051 0.0430
Austria ................ 0.0008 0.0052 0.0008 0.0049
Bermuda ................ 0.0000 0.0055 0.0000 0.0052
Brazil ................. 0.0093 0.0538 0.0093 0.0508
Canada ................. 0.0010 0.0054 0.0010 0.0051
Chile .................. 0.0009 0.0028 0.0009 0.0026
China .................. 0.0000 0.0020 0.0000 0.0019
Denmark ................ 0.0020 0.0106 0.0020 0.0100
Finland ................ 0.0045 0.0235 0.0045 0.0222
France ................. 0.0053 0.0402 0.0053 0.0380
Germany ................ 0.0002 0.0017 0.0002 0.0016
Hong Kong .............. 0.0012 0.0395 0.0012 0.0374
Indonesia .............. 0.0001 0.0004 0.0001 0.0004
Israel ................. 0.0004 0.0013 0.0004 0.0012
Italy .................. 0.0018 0.0105 0.0018 0.0100
Japan .................. 0.0004 0.0021 0.0004 0.0019
Korea (South) .......... 0.0004 0.0020 0.0004 0.0019
Mexico ................. 0.0000 0.0119 0.0000 0.0112
Netherlands ............ 0.0037 0.0190 0.0037 0.0180
New Zealand ............ 0.0009 0.0041 0.0009 0.0039
Norway ................. 0.0019 0.0107 0.0019 0.0101
Peru ................... 0.0000 0.0047 0.0000 0.0044
Singapore .............. 0.0005 0.0016 0.0005 0.0015
South Africa ........... 0.0000 0.0091 0.0000 0.0086
Spain .................. 0.0028 0.0148 0.0028 0.0140
Sweden ................. 0.0035 0.0187 0.0035 0.0177
Switzerland ............ 0.0015 0.0091 0.0015 0.0086
United Kingdom ......... 0.0277 0.2024 0.0277 0.1913
------------------------------------------------------------------
TOTAL .................. $0.0759 $0.5682 $0.0759 $0.5370
==================================================================
</TABLE>

TI-17
PAGE

TEMPLETON STOCK FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON STOCK FUND SEEKS CAPITAL
GROWTH. THE FUND INVESTS PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN VARIOUS
NATIONS THROUGHOUT THE WORLD, INCLUDING THE U.S. AND EMERGING MARKETS.
- --------------------------------------------------------------------------------
This semiannual report covers the six months ended June 30, 1999. During this
time, economic restructuring contributed to impressive gains in many Asian and
Latin American equity markets. Despite investor concerns about the possibility
of rising interest rates, U.S. equities also delivered substantial returns. On
the other hand, Europe provided mixed results, as a steady decline in the euro
helped accentuate losses in U.S. dollar terms for some equity markets there.
Thanks largely to our substantial investments in Latin America and Asia, the
fund outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World Index.(1)

ASIA

During the six months under review, many Asian stock markets delivered strong
returns, as numerous currencies stabilized. In Japan, several companies
announced corporate restructuring plans which were well received by investors,
contributing to the strong performance of its equity market. Although we have
underweighted Japan relative to the MSCI World Index during the last few years,
we increased our Japanese exposure during the reporting period through
purchases such as Nippon Telephone & Telegraph Corp., one of the world's
largest telecommunications companies, and investment bank Nomura Securities Co.
Ltd. Hong Kong's market was also an outstanding performer, and the value of our
positions in HSBC Holdings PLC, the large, UK-based Asian banking conglomerate,
and Hutchison Whampoa Ltd., the large real estate and telecom company,
appreciated significantly.

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

[GRAPHIC OMITTED]

TS-1
PAGE

<TABLE>
<CAPTION>
TOP 10 COUNTRIES
REPRESENTED IN THE FUND
Templeton Stock Fund
6/30/99
% OF TOTAL
COUNTRY NET ASSETS
- -----------------------------
<S> <C>
United States 21.2%

United Kingdom 9.2%

France 8.1%

Japan 6.1%

Australia 5.8%

Netherlands 5.5%

Hong Kong 5.3%

Canada 4.0%

Germany 3.9%

Sweden 3.3%
</TABLE>

LATIN AMERICA

Following Brazil's devaluation of its real in January, the appointment of
Arminio Fraga as President of Brazil's central bank helped rebuild confidence
in the country, causing most Latin American stock and bond markets to improve
dramatically. Attempting to take advantage of rising stock prices in the area,
we sold our shares of companies such as YPF Sociedad Anonima, ADR and Brazil's
Banco Bradesco SA, ADR. During the six months under review, our Latin American
position decreased from 9.4% to 7.4%.

EUROPE

Many European equity markets suffered as a slowdown of exports to Asia and
Latin America fundamentally impacted European businesses, and the war in
Yugoslavia dampened investor enthusiasm throughout Western Europe. However,
confident about the long-term potential of our European holdings, we continued
to be overweight in Europe relative to the MSCI World Index. And although the
general performance of our European holdings was not impressive, our position
in Telecom Italia SpA, di Risp appreciated substantially as Italy-based
Olivetti made a hostile takeover bid for the company.

NORTH AMERICA

On June 30, our U.S. weighting was substantially below that of its benchmark
MSCI World Index because we believed that U.S. stocks were generally
overvalued. Attempting to take advantage of these high valuations, we sold
shares of Intel Corp. and Fannie Mae.

TS-2

PAGE

Looking forward, we are enthusiastic about the outlook for global equity
markets, and are confident our value approach should enable us to provide
attractive, long-term returns for shareholders. However, we are concerned about
possible inflation. High unemployment in Europe could prompt increased
government spending there, forcing central banks to raise interest rates to
curb the inflationary effects of such spending. And, if strong demand put
pressure on prices, rising U.S. interest rates could stifle market growth
there.

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. Emerging markets involve similar but heightened risks related to
their smaller size and lesser liquidity. These risks are discussed in the
fund's 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

<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton Stock Fund
6/30/99

COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- ----------------------------------------
<S> <C>
Motorola Inc.
Electrical & Electronics,
United States 2.6%

Sony Corp.
Appliances &
Household Durables,
Japan 2.1%

Koninklijke Philips
Electronics NV
Electrical & Electronics,
Netherlands 1.9%

Alcatel SA
Electrical & Electronics,
France 1.7%

Antec Corp.
Electrical & Electronics,
United States 1.7%

Nortel Networks Corp.
Telecommunications,
Canada 1.6%

Georgia-Pacific Corp.
Forest Products & Paper,
United States 1.6%

Fannie Mae
Financial Services,
United States 1.5%

News Corp. Ltd.
Broadcasting, Australia 1.5%

Zurich Allied AG
Insurance, Switzerland 1.5%
</TABLE>
For a complete list of portfolio holdings, please see the fund's Statement of
Investments.
TS-3
PAGE

TEMPLETON STOCK FUND
CLASS 1

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 Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges. Past expense reductions by the manager increased returns.

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 SUMMARY

<TABLE>
<CAPTION>
Templeton Stock Fund -- Class 1
Periods ended 6/30/99
SINCE
INCEPTION
6-MONTH 1-YEAR 5-YEAR 10-YEAR (8/31/88)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 12.64% 3.09% 97.27% 239.29% 266.79%

Average Annual
Total Return 12.64% 3.09% 14.56% 13.00% 12.73%

Value of $10,000
Investment $ 11,264 $ 10,309 $ 19,727 $ 23,929 $ 36,679

<CAPTION>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
- -----------------------------------------------------------------------------------------------
One-Year Total Return 15.07% 21.32% 27.06% 7.88% 3.09%
</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
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -----------------------------------------------------------
(UNAUDITED)/dagger/ 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 21.07 $ 23.19 $ 22.88 $ 20.83 $ 16.94 $ 17.53
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income .......................... .17 .39 .47 .41 .40 .26
Net realized and unrealized gains (losses) ..... 2.15 .04 2.11 3.88 3.80 (.64)
--------------------------------------------------------------------------------
Total from investment operations ................ 2.32 .43 2.58 4.29 4.20 (.38)
--------------------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (.37) (.49) (.40) (.40) (.27) (.21)
Net realized gains ............................. (1.74) (2.06) (1.87) (1.84) (.04) --
--------------------------------------------------------------------------------
Total distributions ............................. (2.11) (2.55) (2.27) (2.24) (.31) (.21)
--------------------------------------------------------------------------------
Net asset value, end of period .................. $ 21.28 $ 21.07 $ 23.19 $ 22.88 $ 20.83 $ 16.94
================================================================================
Total return* ................................... 12.64% 1.26% 11.88% 22.48% 25.24% (2.20)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $620,428 $646,865 $732,248 $644,366 $498,777 $378,849
Ratios to average net assets:
Expenses ....................................... .83%** .89% .81% .65% .66% .73%
Net investment income .......................... 1.67%** 1.65% 2.05% 2.06% 2.18% 1.81%
Portfolio turnover rate ......................... 15.28% 37.27% 25.82% 23.40% 33.93% 5.10%
</TABLE>

TS-5
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS 2
---------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------
(UNAUDITED)/dagger//dagger/ 1998 1997/dagger/
---------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period ................ $20.99 $23.15 $21.62
---------------------------------------------------------
Income from investment operations:
Net investment income .............................. .15 .40 .06
Net realized and unrealized gains (losses) ......... 2.14 (.03) 1.47
---------------------------------------------------------
Total from investment operations .................... 2.29 .37 1.53
---------------------------------------------------------
Less distributions from:
Net investment income .............................. (.33) (.47) --
Net realized gains ................................. (1.74) (2.06) --
---------------------------------------------------------
Total distributions ................................. (2.07) (2.53) --
---------------------------------------------------------
Net asset value, end of period ...................... $21.21 $20.99 $23.15
=========================================================
Total return* ....................................... 12.46% .99% 7.08%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $27,435 $25,593 $16,414
Ratios to average net assets:
Expenses ........................................... 1.08%** 1.14% 1.14%**
Net investment income .............................. 1.46%** 1.37% .75%**
Portfolio turnover rate ............................. 15.28% 37.27% 25.82%
</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.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

TS-6

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 93.4%
AEROSPACE & MILITARY TECHNOLOGY 1.2%
Boeing Co. ............................................ United States 182,500 $ 8,064,219
Raytheon Co., A ....................................... United States 230 15,841
-----------
8,080,060
-----------
APPLIANCES & HOUSEHOLD DURABLES 2.3%
Guangdong Kelon Electrical Holdings. Ltd., H .......... China 1,123,000 1,309,878
Sony Corp. ............................................ Japan 124,100 13,379,916
-----------
14,689,794
-----------
AUTOMOBILES 3.9%
Fiat SpA .............................................. Italy 1,307,680 4,156,203
Ford Motor Co. ........................................ United States 117,000 6,603,188
Volkswagen AG ......................................... Germany 102,400 6,607,371
Volvo AB, B ........................................... Sweden 269,200 7,804,964
-----------
25,171,726
-----------
BANKING 5.5%
Australia & New Zealand Banking Group Ltd. ............ Australia 542,900 3,991,975
* Banca Nazionale Del Lavoro SpA ........................ Italy 1,781,960 5,619,505
Banque Nationale de Paris ............................. France 62,054 5,170,633
Deutsche Bank AG, Br. ................................. Germany 100,700 6,137,331
HSBC Holdings PLC ..................................... Hong Kong 153,404 5,595,331
* Thai Farmers Bank Public Co. Ltd., fgn. ............... Thailand 1,492,300 4,613,483
Unidanmark AS, A ...................................... Denmark 69,100 4,611,791
-----------
35,740,049
-----------
BROADCASTING & PUBLISHING 1.4%
News Corp. Ltd., ADR .................................. Australia 112,400 3,969,125
Television Broadcasts Ltd. ............................ Hong Kong 1,023,000 4,799,319
-----------
8,768,444
-----------
BUSINESS & PUBLIC SERVICES 2.5%
Kurita Water Industries Ltd. .......................... Japan 387,000 6,938,120
Lex Service PLC ....................................... United Kingdom 221,020 2,032,804
Waste Management Inc. ................................. United States 135,917 7,305,539
-----------
16,276,463
-----------
CHEMICALS 1.3%
Akzo Nobel NV ......................................... Netherlands 195,200 8,213,014
-----------
DATA PROCESSING & REPRODUCTION 2.1%
* 3Com Corp. ............................................ United States 215,800 5,759,163
* Newbridge Networks Corp. .............................. Canada 274,200 7,883,250
-----------
13,642,413
-----------
ELECTRICAL & ELECTRONICS 9.0%
* ABB Ltd. .............................................. Sweden 79,406 7,425,049
Alcatel SA ............................................ France 78,835 11,097,223
* Antec Corp. ........................................... United States 345,500 11,077,594
Koninklijke Philips Electronics NV .................... Netherlands 121,532 11,987,765
Motorola Inc. ......................................... United States 175,800 16,657,050
-----------
58,244,681
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.4%
Hewlett-Packard Co. ................................... United States 85,000 8,542,500
Intel Corp. ........................................... United States 121,400 7,223,300
-----------
15,765,800
-----------
</TABLE>

TS-7

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES 4.2%
Norsk Hydro ASA ........................................... Norway 185,300 $ 6,990,676
Perez Companc SA, B ....................................... Argentina 415,400 2,388,789
Societe Elf Aquitaine SA, Br. ............................. France 61,320 8,998,490
* Total Fina SA, B .......................................... France 67,497 8,707,719
------------
27,085,674
------------
FINANCIAL SERVICES 6.1%
AXA SA .................................................... France 57,091 6,964,902
Fannie Mae ................................................ United States 144,200 9,859,675
ING Groep NV .............................................. Netherlands 157,637 8,534,539
Lend Lease Corp. Ltd. ..................................... Australia 485,500 6,665,824
Nomura Securities Co. Ltd. ................................ Japan 623,000 7,293,382
------------
39,318,322
------------
FOOD & HOUSEHOLD PRODUCTS 1.0%
Archer-Daniels Midland Co. ................................ United States 434,170 6,702,499
------------
FOREST PRODUCTS & PAPER 3.1%
* Asia Pulp & Paper Co. Ltd., ADR ........................... Indonesia 29,000 279,125
Carter Holt Harvey Ltd. ................................... New Zealand 1,155,252 1,383,499
Georgia-Pacific Corp. ..................................... United States 214,800 10,176,150
Stora Enso OYJ, R ......................................... Finland 427,800 4,588,141
Stora Enso OYJ, R, fgn. ................................... Finland 313,540 3,392,811
------------
19,819,726
------------
HEALTH & PERSONAL CARE 5.6%
Astrazeneca PLC ........................................... United Kingdom 152,291 5,928,996
Medeva PLC ................................................ United Kingdom 2,761,300 4,526,579
Novartis AG ............................................... Switzerland 2,236 3,264,968
Nycomed Amersham PLC ...................................... United Kingdom 791,920 5,633,219
Rhone-Poulenc SA, A ....................................... France 170,002 7,768,164
* Skyepharma PLC ............................................ United Kingdom 5,109,873 3,986,928
Teva Pharmaceutical Industries Ltd., ADR .................. Israel 107,400 5,262,600
------------
36,371,454
------------
INDUSTRIAL COMPONENTS 2.5%
Goodyear Tire & Rubber Co. ................................ United States 99,000 5,822,438
Granges AB ................................................ Sweden 379,525 6,428,088
Yamato Kogyo Co. Ltd. ..................................... Japan 539,000 3,923,158
------------
16,173,684
------------
INSURANCE 7.5%
Ace Ltd. .................................................. Bermuda 176,500 4,986,125
AXA China Region Ltd. ..................................... Hong Kong 3,440,000 2,748,861
HIH Insurance Ltd. ........................................ Australia 2,303,465 2,851,125
Muenchener Rueckversicherungs-Gesellschaft ................ Germany 13,445 2,533,156
* Muenchener Rueckversicherungs-Gesellschaft, 144A .......... Germany 13,445 2,509,585
* Muenchener Rueckversicherungs-Gesellschaft, wts. .......... Germany 419 13,395
Partnerre Ltd. ............................................ Bermuda 144,400 5,396,950
Reliastar Financial Corp. ................................. United States 204,700 8,955,625
Torchmark Corp. ........................................... United States 113,400 3,869,775
XL Capital Ltd., A ........................................ Bermuda 92,100 5,203,650
Zurich Allied AG .......................................... Switzerland 17,000 9,666,795
------------
48,735,042
------------
LEISURE & TOURISM .6%
Kuoni Reisen Holding AG, B ................................ Switzerland 1,065 4,106,957
------------
</TABLE>

TS-8

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING 1.9%
Invensys PLC ................................................. United Kingdom 1,621,958 $ 7,682,582
New Holland NV ............................................... Netherlands 259,400 4,442,225
------------
12,124,807
------------
MERCHANDISING 3.5%
Home Depot Inc. .............................................. United States 102,800 6,624,175
Marks & Spencer PLC .......................................... United Kingdom 1,067,200 6,156,729
Safeway PLC .................................................. United Kingdom 1,305,220 5,220,510
Storehouse ................................................... United Kingdom 2,067,800 4,449,020
------------
22,450,434
------------
METALS & MINING 1.8%
Ispat International NV, A, Reg D ............................. Netherlands 228,000 2,522,250
WMC Ltd. ..................................................... Australia 2,183,784 9,380,963
------------
11,903,213
------------
MULTI-INDUSTRY 4.0%
Alfa SA de CV, A ............................................. Mexico 1,743,100 7,286,958
Cheung Kong Holdings Ltd. .................................... Hong Kong 815,000 7,247,852
DESC SA de CV DESC, B ........................................ Mexico 4,018,300 4,419,486
DESC SA de CV DESC, C ........................................ Mexico 800 897
Hutchison Whampoa Ltd. ....................................... Hong Kong 802,100 7,262,355
------------
26,217,548
------------
REAL ESTATE .7%
National Health Investors Inc. ............................... United States 187,700 4,281,906
------------
TELECOMMUNICATIONS 10.6%
Cia de Telecomunicaciones de Chile SA, ADR ................... Chile 117,300 2,903,175
Hong Kong Telecommunications Ltd. ............................ Hong Kong 2,504,000 6,502,974
* Korea Telecom Corp., ADR ..................................... South Korea 88,900 3,556,000
* Mastec Inc. .................................................. United States 340,323 9,614,125
Nippon Telegraph & Telephone Corp. ........................... Japan 675 7,863,103
Nortel Networks Corp. ........................................ Canada 120,460 10,457,434
* Telecom Italia SpA ........................................... Italy 763,200 7,913,763
Telecomunicacoes Brasileiras SA, ADR ......................... Brazil 41,800 3,769,838
* Telefonica SA ................................................ Spain 142,300 6,854,525
Telefonos de Mexico SA (Telmex), ADR ......................... Mexico 117,500 9,495,469
------------
68,930,406
------------
TRANSPORTATION 4.3%
Air New Zealand Ltd., B ...................................... New Zealand 700,100 1,446,833
British Airways PLC .......................................... United Kingdom 928,000 6,414,174
Canadian National Railway Co. ................................ Canada 113,800 7,690,345
Firstgroup PLC ............................................... United Kingdom 592,500 3,236,046
Mayne Nickless Ltd., A ....................................... Australia 1,388,800 4,752,513
Peninsular & Oriental Steam Navigation Co. ................... United Kingdom 294,200 4,426,309
------------
27,966,220
------------
UTILITIES ELECTRICAL & GAS 4.4%
Centrais Eletricas Brasileiras SA (Eletrobras), ADR .......... Brazil 514,400 4,901,843
Evn AG ....................................................... Austria 58,920 8,615,918
Iberdrola SA, Br. ............................................ Spain 486,500 7,410,132
Veba AG ...................................................... Germany 129,600 7,644,756
------------
28,572,649
------------
TOTAL COMMON STOCKS (COST $448,405,493) ...................... 605,352,985
------------
</TABLE>

TS-9

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCKS 2.8%
Banco Itau SA, pfd. ................................................ Brazil 6,309,400 $ 3,276,208
Embotelladora Andina SA, B, ADR, pfd. .............................. Chile 302,900 4,619,225
News Corp. Ltd., pfd. .............................................. Australia 265,309 2,021,251
News Corp. Ltd., ADR, pfd. ......................................... Australia 117,000 3,692,812
* Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. .............. Brazil 41,800 2,613
Telesp Participacoes SA, ADR, pfd. ................................. Brazil 205,300 4,696,237
------------
TOTAL PREFERRED STOCKS (COST $14,628,445)........................... 18,308,346
------------
<CAPTION>
PRINCIPAL
AMOUNT**
------------
BONDS (COST $3,911,844) .6%
AXA SA, cvt., 144A, 2.50%, 1/01/14 ................................. France 3,445,200 EUR 3,574,026
------------
SHORT TERM INVESTMENT (COST $3,578,903) .6%
Fannie Mae, 4.71%, 7/13/99 ......................................... United States 3,585,000 3,579,253
------------
TOTAL BEFORE REPURCHASE AGREEMENT (COST $470,524,685)............... 630,814,610
------------
(A) REPURCHASE AGREEMENT (COST $10,028,000) 1.5%
Paine Webber Group Inc., 4.80%, 7/01/99 (Maturity Value $10,029,337)
Collateralized by U.S. Treasury Notes and Bonds .................... United States 10,028,000 10,028,000
------------
TOTAL INVESTMENTS (COST $480,552,685) 98.9%......................... 640,842,610
OTHER ASSETS, LESS LIABILITIES 1.1% ................................ 7,020,893
------------
TOTAL NET ASSETS 100.0% ............................................ $647,863,503
============
</TABLE>

CURRENCY ABBREVIATION:
EUR--European Unit

*NON INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
(A)AT JUNE 30, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See Notes to Financial Statements.

TS-10

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $470,524,685) ........................... $630,814,610
Repurchase agreement, at value and cost ........................................... 10,028,000
Cash .............................................................................. 1,491,932
Receivables: ......................................................................
Investment securities sold ....................................................... 120,620
Fund shares sold ................................................................. 3,225,239
Dividends and interest ........................................................... 2,928,716
------------
Total assets .................................................................... 648,609,117
------------
Liabilities:
Payables to affiliates ............................................................ 423,469
Deferred tax liability (Note 1e) .................................................. 61,431
Accrued expenses .................................................................. 260,714
------------
Total liabilities ............................................................... 745,614
------------
Net assets, at value ............................................................... $647,863,503
============
Net assets consist of:
Undistributed net investment income ............................................... $ 5,532,631
Net unrealized appreciation ....................................................... 160,228,494
Accumulated net realized gain ..................................................... 12,660,493
Beneficial shares ................................................................. 469,441,885
------------
Net assets, at value ............................................................... $647,863,503
============
CLASS 1:
Net asset value per share ($620,428,154 /divided by/ 29,158,278 shares outstanding) $ 21.28
============
CLASS 2:
Net asset value per share ($27,435,349 /divided by/ 1,293,337 shares outstanding).. $ 21.21
============
</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 SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $752,149)
Dividends ................................................... $ 7,766,878
Interest .................................................... 193,686
-----------
Total investment income ................................... $ 7,960,564

Expenses:
Management fees (Note 4) .................................... 2,219,871
Administrative fees (Note 4) ................................ 307,861
Distribution fees - Class 2 (Note 4) ........................ 30,831
Custodian fees .............................................. 47,000
Reports to shareholders ..................................... 56,000
Professional fees ........................................... 13,400
Other ....................................................... 551
-----------
Total expenses ............................................ 2,675,514
-----------
Net investment income .................................... 5,285,050
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 17,509,630
Foreign currency transactions .............................. (447,977)
-----------
Net realized gain ......................................... 17,061,653
Net unrealized appreciation (depreciation) on: ..............
Investments ................................................ 53,008,541
Deferred taxes (Note 1e) ................................... (61,431)
-----------
Net unrealized appreciation ............................... 52,947,110
-----------
Net realized and unrealized gain ............................. 70,008,763
-----------
Net increase in net assets resulting from operations ......... $75,293,813
===========
</TABLE>

See Notes to Financial Statements.

TS-12

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Financial Statements (continued)

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
--------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......................................... $ 5,285,050 $ 12,029,676
Net realized gain from investments and
foreign currency transactions ................................. 17,061,653 47,568,957
Net unrealized appreciation (depreciation) on
investments and deferred taxes ................................ 52,947,110 (47,396,839)
---------------------------------
Net increase in net assets resulting from operations ......... 75,293,813 12,201,794

Distributions to shareholders from:
Net investment income:
Class 1 ....................................................... (10,783,247) (15,083,722)
Class 2 ....................................................... (372,246) (357,002)
Net realized gains: ............................................
Class 1 ....................................................... (49,890,492) (63,413,199)
Class 2 ....................................................... (1,972,049) (1,560,086)

Fund share transactions (Note 3):
Class 1 ....................................................... (38,177,474) (19,220,136)
Class 2 ....................................................... 1,307,186 11,228,384
---------------------------------
Net decrease in net assets ................................... (24,594,509) (76,203,967)

Net assets:
Beginning of period ............................................. 672,458,012 748,661,979
---------------------------------
End of period ................................................... $ 647,863,503 $ 672,458,012
=================================
Undistributed net investment income included in net assets:
End of period ................................................... $ 5,532,631 $ 11,403,074
=================================
</TABLE>

See Notes to Financial Statements.

TS-13
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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

C. INCOME TAXES:

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

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

TS-14

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

E. DEFERRED TAXES:

F. ACCOUNTING ESTIMATES:

2. MERGER OF TEMPLETON VARIABLE ANNUITY FUND

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

3. BENEFICIAL SHARES

At June 30, 1999, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 1,741,664 $ 35,858,579 2,562,174 $ 50,875,104
Shares issued on reinvestment of distributions 3,313,694 60,673,739 3,523,201 78,496,920
Shares redeemed ............................... (6,596,718) (134,709,792) (6,963,562) (148,592,160)
-----------------------------------------------------------------
Net decrease .................................. (1,541,360) $ (38,177,474) (878,187) $ (19,220,136)
=================================================================
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 177,010 $ 3,646,716 641,741 $ 14,204,072
Shares issued on reinvestment of distributions 128,314 2,344,295 86,200 1,917,088
Shares redeemed ............................... (231,393) (4,683,825) (217,530) (4,892,776)
--------------------------------------------------------
Net increase .................................. 73,931 $ 1,307,186 510,411 $ 11,228,384
========================================================
</TABLE>

TS-15
PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Notes to Financial Statements (unaudited) (continued)

4. 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>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% 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 .25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.

5. INCOME TAXES

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 197,503,259
Unrealized depreciation ............. (37,213,334)
-------------
Net unrealized appreciation ......... $ 160,289,925
=============
</TABLE>

6. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1999 aggregated $95,753,233 and $210,548,151,
respectively.

TS-16

PAGE

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

Notes to Financial Statements (unaudited) (continued)

6. INVESTMENT TRANSACTIONS (CONT.)

Tax Designation

At December 31, 1998, more than 50% of the Templeton Stock Fund total assets
were invested in securities of foreign issuers. In most instances, foreign
taxes were withheld from dividends paid to the Fund on these investments. The
Fund intends to make an election under Section 853 of the Internal Revenue
Code. This election will allow shareholders to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly to them.

The following table provides a breakdown by country of foreign source income
and foreign taxes paid to Class 1 and Class 2 shareholders in March 1999.

<TABLE>
<CAPTION>
CLASS 1 CLASS 2
------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $0.0000 $0.0115 $0.0000 $0.0103
Australia .............. 0.0048 0.0380 0.0048 0.0342
Austria ................ 0.0009 0.0042 0.0009 0.0038
Bermuda ................ 0.0000 0.0033 0.0000 0.0030
Brazil ................. 0.0085 0.0390 0.0085 0.0351
Canada ................. 0.0009 0.0041 0.0009 0.0036
Chile .................. 0.0021 0.0060 0.0021 0.0054
Denmark ................ 0.0009 0.0042 0.0009 0.0037
Ecuador ................ 0.0000 0.0012 0.0000 0.0011
Finland ................ 0.0015 0.0070 0.0015 0.0063
France ................. 0.0076 0.0494 0.0076 0.0445
Germany ................ 0.0011 0.0073 0.0011 0.0066
Hong Kong .............. 0.0000 0.0340 0.0000 0.0306
India .................. 0.0000 0.0051 0.0000 0.0046
Indonesia .............. 0.0001 0.0003 0.0001 0.0003
Israel ................. 0.0002 0.0006 0.0002 0.0006
Italy .................. 0.0016 0.0073 0.0016 0.0065
Japan .................. 0.0005 0.0025 0.0005 0.0022
Malaysia ............... 0.0001 0.0003 0.0001 0.0002
Mexico ................. 0.0000 0.0182 0.0000 0.0164
Netherlands ............ 0.0060 0.0267 0.0060 0.0240
New Zealand ............ 0.0016 0.0074 0.0016 0.0067
Norway ................. 0.0026 0.0112 0.0026 0.0101
Singapore .............. 0.0011 0.0030 0.0011 0.0027
Spain .................. 0.0048 0.0221 0.0048 0.0199
Sweden ................. 0.0042 0.0192 0.0042 0.0173
Switzerland ............ 0.0036 0.0162 0.0036 0.0146
United Kingdom ......... 0.0132 0.0577 0.0132 0.0519
------------------------------------------------------------------
TOTAL .................. $0.0679 $0.4070 $0.0679 $0.3662
==================================================================
</TABLE>

TS-17

PAGE

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

TEMPLETON VARIABLE PRODUCTS SERIES FUND

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

DISTRIBUTOR
Franklin Templeton Distributors, Inc.

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

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

OL 2510 S 08/99 [LOGO] Printed on recycled paper