TEMPLETON VARIABLE PRODUCTS SERIES FUND, N-30D, 2000-03-08

TEMPLETON VARIABLE PRODUCTS SERIES FUND
N-30D, 2000-03-08

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ANNUAL REPORT

DECEMBER 31, 1999

TEMPLETON VARIABLE
PRODUCTS SERIES FUND

CLASS 2

[LOGO/R/]
FRANKLIN/R/ TEMPLETON/R/
<PAGE>

A WORD ABOUT RISK

All of the portfolios 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. 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 fluctuate more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.

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

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

TABLE OF CONTENTS

TEMPLETON VARIABLE PRODUCTS SERIES FUND
ANNUAL REPORT

<TABLE>
<S> <C>
Letter to Contract Owners ..................................... 2
Class 2 Portfolio Reports
Franklin Large Cap Growth Investments Fund ................... FG-1
Franklin Small Cap Investments Fund .......................... FS-1
Franklin Strategic Income Investments Fund ................... FSI-1
Mutual Shares/R/ Investments Fund ............................ MS-1
Templeton Asset Allocation Fund .............................. TA-1
Templeton Bond Fund .......................................... TB-1
Templeton Developing Markets Fund ............................ TD-1
Templeton International Fund ................................. TI-1
Templeton Stock Fund ......................................... TS-1
Class 3 Portfolio Report
Franklin S&P 500 Index Fund .................................. S&P-1
REPORT OF SPECIAL MEETING OF SHAREHOLDERS ..................... R-1
</TABLE>

PLEASE NOTE:
Templeton Variable Products Series Fund ("the Fund") currently consists of 10
separate investment portfolios, all of which offer Class 1 and Class 2 shares,
with the exception of Franklin S&P 500 Index Fund, which also offers Class 3
shares. Only the portfolios and classes listed in the above Table of Contents
are currently available under your insurance contract. Please consult
prospectuses for your insurance contract and the Fund for further information.
Please retain this document with your current prospectus for reference.

<PAGE>

LETTER TO CONTRACT OWNERS

Dear Contract Owner:

We are pleased to bring you this annual report of Templeton Variable Products
Series Fund for the 12 months ended December 31, 1999. The period was a
challenging one for investors forced to deal with diverse factors, ranging from
currency devaluations to the introduction of the euro, and from rising interest
rates to the enormous impact of the Internet upon global economies.

The U.S. economy barreled along, enjoying strong growth for the ninth
consecutive year. Inflation remained benign, and domestic stock indexes, led by
large-capitalization, blue-chip, technology and Internet-related stocks, hit
record highs. On March 29, 1999, the Dow Jones/R/ Industrial Average broke
through the 10000 barrier for the first time and went on to close at 11484 on
December 31--up 27.18% for the year.(1) The Standard & Poor's/R/ 500 Index,
representing 500 large companies, rose 21.04%.(2) Small cap stocks also
performed well, and the Russell 2000/R/ Index rose 21.26% for the period.(3)
Even value stocks, after underperforming growth stocks for two years, appeared
to return to life in April and May. But the big news was made by
Internet-related shares, as the Nasdaq/R/ Composite Index, comprising many
high-technology and Internet companies, posted a return of 85.87% for the fiscal
year.(4)

European securities markets produced mixed results during the reporting period.
Although some European economies began to grow due to increasing Asian demand,
the trend did not exert a positive influence on all European securities. The
stock markets of France, Germany, Norway and Sweden each rose significantly
during the period, while those of Belgium, Ireland and Switzerland each fell in
U.S. dollar terms.

1. Source: Standard & Poor's Micropal (Dow Jones). Total return measured by
Wilshire & Associates, Inc.

2. Source: Standard & Poor's Micropal (S&P 500).

3. Source: Standard & Poor's Micropal (Frank Russell).

4. Source: Standard & Poor's Micropal (Nasdaq).

2
<PAGE>

Equity markets in many emerging market countries experienced significant
volatility throughout the period and surged as investors poured money into many
Asian and South American stocks. As measured in U.S. dollars, Hong Kong's,
Indonesia's and South Korea's equity indexes each rose more than 68%, while
Mexico's Bolsa Index climbed 90.39% and Brazil's Bovespa Index appreciated
76.63%.(5)

As stock markets in emerging markets rebounded, so did their bond markets, and
the J.P. Morgan Emerging Markets Bond Index Plus, which tracks the performance
of bond markets in developing nations, increased 26.00% during 1999.(6) However,
most other bond markets performed poorly, and the Salomon Brothers World
Government Bond Index, representative of government bonds in developed
countries, posted a one-year total return of only -4.27%.(7) U.S. Treasury
securities, as measured by the 30-year Treasury bond, fell in value, and most
European government bond prices were also down, as measured in local currency
terms.

Of course, it is important to remember that securities markets always have, and
always will, fluctuate. And no one knows when they will drop, or when they will
soar to new heights. But prudent investors realize that good years can be mixed
with bad years, and that long-term results matter more than short-term
volatility. That is why we urge you to focus not on short-term market
movements, but on your long-term investment goals.

As always, 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

5. Sources: Mexico Bolsa Index and Brazil Bovespa Index.
6. Source: Standard & Poor's Micropal (J.P. Morgan).
7. Source: Standard & Poor's Micropal (Salomon Bros.).

Total returns measured in U.S. dollars. Indexes are unmanaged and include
reinvested dividends and/or interest. One cannot invest directly in an index,
nor is an index representative of the Funds' portfolios.

3
<PAGE>

FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: FRANKLIN LARGE CAP GROWTH
INVESTMENTS FUND SEEKS CAPITAL APPRECIATION BY INVESTING PRIMARILY IN COMMON
STOCKS OR CONVERTIBLE SECURITIES BELIEVED TO OFFER FAVORABLE POSSIBILITIES FOR
CAPITAL APPRECIATION.
- --------------------------------------------------------------------------------

During the 12 months under review, major U.S. equity market indexes posted
strong results for the fifth consecutive year. The period was also marked by a
further widening in the disparity in the rates of investment return among
different segments of the stock market. Large-capitalization and
technology-related shares performed far better than stocks from traditional
non-technology related industries and most small-cap stocks. And initial public
offerings brought in a record $69 billion during the year, with many of them
soaring spectacularly in their first days of trading.

Supported by the easing of monetary policy and job-creating government
policies, many European economies also performed well, posting their highest
growth in several years. In addition, following a challenging 1998, the
reporting period brought stabilization and economic recovery to many eastern
European, Latin American and Asian nations.

Evidencing the stabilization of global economic conditions, U.S. crude oil
prices recovered sharply, from a low of about $11 per barrel in 1998 to over
$22 per barrel by year-end 1999. Global economic recovery also brought with it
a steady rise in U.S. interest rates, and the yield on the benchmark 30-year
Treasury bond rose from 5.1% on January 1, 1999, to 6.4% on December 31. During
the spring of 1999, global economic recovery supported a period of temporary
outperformance by cyclical stocks, including those from several basic materials
and industrial sectors. However, this proved short lived and, by summer,
technology-related stocks and other high-growth sectors resumed their market
leadership.

[This chart shows in bar format the industry breakdown of Franklin Large Cap
Growth Investments Fund, based on total net assets as of 12/31/99.]

Electronic Technology 23.9%
Health Technology 10.7%
Telecommunications 8.5%
Technology Services 8.3%
Utilities 7.2%
Retail Trade 7.0%
Finance 4.4%
Consumer Non-Durables 3.2%
Industrial Services 2.9%
Consumer Durables 2.5%
Producer Manufacturing 2.4%
Other Industries 6.0%
Cash & Equivalents 13.0%

FG-1
<PAGE>

During the period under review, Franklin Large Cap Growth Investments Fund
benefited significantly from the strong performance of the electronic
technology sector. JDS Uniphase Corp., a leading provider of laser-based fiber
optic networking components, and the Fund's largest position on December 31,
1999, appreciated dramatically, and our investments in Cisco Systems Inc.,
Applied Materials Inc., EMC Corp., Hewlett-Packard Co. and Microsoft Corp. also
proved to be strong performers. Outside the electronic technology area, our
holdings of Genentech Inc., Amgen Inc., Global Crossing Ltd., Qwest
Communications International Inc., KPNQwest NV, Vodafone AirTouch PLC, Wal-Mart
Stores Inc., De Beers Consolidated Mines AG, Expeditors International of
Washington Inc., Air Express International Corp., Enron Corp., and AES Corp.
each appreciated more than 50% during 1999.

As in any year, some of the Fund's investments performed below our
expectations. For example, our holdings in industry leaders such as Abbott
Laboratories, Eli Lilly & Co. and Schering-Plough Corp. were subject to the
general weakness of the health care and pharmaceuticals sectors. However, we
remain committed to such holdings and believe that, because of their long-term
growth prospects and extensive research capabilities, these shares should
eventually resume their upward trend. Other consumer-related companies, such as
Albertson's Inc. and Safeway Inc., also provided disappointing results when
they failed to meet earnings expectations.

FG-2
<PAGE>

As we enter 2000, we believe the Fund's holdings should continue to benefit
from our economy's most exciting growth opportunities. Recognizing that the
extraordinarily strong price appreciation enjoyed in 1999 by many U.S.
technology-related sectors brings an added element of risk to investing in such
highly valued stocks, we will monitor our holdings very closely and continue to
search for less richly valued but fundamentally strong companies with
compelling long-term growth prospects. Our holdings in Maytag Corp.,
Albertson's Inc. and GPU Inc. represent our belief that positioning a portion
of the Fund in stocks we believe are severely undervalued balances our larger
weighting in more aggressively valued sectors. Although the market's all-time
high valuations may signal a high degree of market volatility, we intend to
retain our core strategy of seeking to opportunistically purchase shares of
outstanding growth companies and hold them for the long term to keep portfolio
turnover low and provide investors with consistent growth over time.

We thank you for your participation in Franklin Large Cap Growth Investments
Fund and welcome your comments and suggestions.

Sincerely,

/s/KENT SHEPHERD

Kent Shepherd
Portfolio Manager
Franklin Large Cap Growth Investments Fund

This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.

[This chart lists the top 10 holdings, including industry, of Franklin Large Cap
Growth Investments Fund, based on total net assets as of 12/31/99.]

TOP 10 HOLDINGS
Franklin Large Cap Growth
Investments Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------
JDS Uniphase Corp., 3.5%
ELECTRONIC TECHNOLOGY

Genentech Inc., 2.3%
HEALTH TECHNOLOGY

Motorola Inc., 1.9%
ELECTRONIC TECHNOLOGY

Cisco Systems Inc., 1.9%
ELECTRONIC TECHNOLOGY

Nortel Networks Corp., 1.8%
ELECTRONIC TECHNOLOGY

Johnson & Johnson, 1.6%
HEALTH TECHNOLOGY

Costco Wholesale Corp., 1.6%
RETAIL TRADE

Albertson's Inc., 1.5%
RETAIL TRADE

Microsoft Corp., 1.5%
TECHNOLOGY SERVICES

Schering-Plough Corp., 1.5%
HEALTH TECHNOLOGY

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

FG-3
<PAGE>

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FG-4
<PAGE>

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FG-5
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999/dagger//dagger/ 1998/dagger/
------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year $11.34 $10.00
--------------------------
Income from investment operations:
Net investment income ........................................ .12 .08
Net realized and unrealized gains ............................ 5.31 1.26
--------------------------
Total from investment operations .............................. 5.43 1.34
--------------------------
Less distributions from net investment income ................. (.07) --
--------------------------
Net asset value, end of year .................................. $16.70 $11.34
==========================
Total Return* ................................................. 48.24% 13.40%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $2,302 $284
Ratios to average net assets:
Expenses ..................................................... 1.00% 1.00%**
Expenses, excluding waiver and payments by affiliate ......... 3.75% 4.68%**
Net investment income ........................................ .90% 1.18%**
Portfolio turnover rate ....................................... 50.61% 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 LARGE CAP GROWTH INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 87.0%
COMMERCIAL SERVICES 1.5%
* Concord EFS Inc. ............................... United States 650 $ 16,738
Equifax Inc. ................................... United States 300 7,069
* Robert Half International Inc. ................. United States 400 11,425
----------
35,232
----------
CONSUMER DURABLES 2.5%
* Champion Enterprises Inc. ...................... United States 1,800 15,413
Clayton Homes Inc. ............................. United States 1,400 12,863
* Crossmann Communities Inc. ..................... United States 1,000 15,500
Maytag Corp. ................................... United States 300 14,400
----------
58,176
----------
CONSUMER NON-DURABLES 3.2%
Coca-Cola Co. .................................. United States 500 29,125
Philip Morris Cos. Inc. ........................ United States 1,200 27,825
Wm. Wrigley Jr. Co. ............................ United States 200 16,588
----------
73,538
----------
CONSUMER SERVICES .9%
Time Warner Inc. ............................... United States 300 21,731
----------
ELECTRONIC TECHNOLOGY 23.9%
* 3Com Corp. ..................................... United States 200 9,400
* Applied Materials Inc. ......................... United States 200 25,338
* Cisco Systems Inc. ............................. United States 400 42,851
Compaq Computer Corp. .......................... United States 500 13,531
* Comverse Technology Inc. ....................... United States 100 14,475
* Dell Computer Corp. ............................ United States 600 30,600
* EMC Corp. ...................................... United States 300 32,775
* Finisar Corp. .................................. United States 100 8,988
Hewlett-Packard Co. ............................ United States 250 28,484
Intel Corp. .................................... United States 400 32,925
International Business Machines Corp. .......... United States 200 21,600
* JDS Uniphase Corp. ............................. United States 500 80,656
* KLA-Tencor Corp. ............................... United States 300 33,413
Lucent Technologies Inc. ....................... United States 400 29,925
Motorola Inc. .................................. United States 300 44,175
Nokia Corp., ADR, A ............................ Finland 100 19,000
Nortel Networks Corp. .......................... Canada 400 40,400
Raytheon Co., B ................................ United States 500 13,281
* Tellabs Inc. ................................... United States 450 28,884
----------
550,701
----------
ENERGY MINERALS 1.1%
Royal Dutch Petroleum Co., N.Y. shs. ........... Netherlands 400 24,175
----------
FINANCE 4.4%
American International Group Inc. .............. United States 100 10,813
Associates First Capital Corp., A .............. United States 300 8,231
Capital One Financial Corp. .................... United States 400 19,275
Charles Schwab Corp. ........................... United States 300 11,513
Citigroup Inc. ................................. United States 250 13,891
Fannie Mae ..................................... United States 100 6,244
Fifth Third Bancorp ............................ United States 300 22,013
The Goldman Sachs Group Inc. ................... United States 100 9,419
----------
101,399
----------
</TABLE>

FG-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH SERVICES .8%
McKesson HBOC Inc. ........................... United States 750 $ 16,922
----------
HEALTH TECHNOLOGY 10.7%
Abbott Laboratories .......................... United States 500 18,156
* Amgen Inc. ................................... United States 200 12,013
Baxter International Inc. .................... United States 300 18,844
Eli Lilly & Co. .............................. United States 300 19,950
* Genentech Inc. ............................... United States 400 53,800
* Guidant Corp. ................................ United States 200 9,400
Johnson & Johnson ............................ United States 400 37,251
Medtronic Inc. ............................... United States 500 18,219
Schering-Plough Corp. ........................ United States 800 33,750
Warner-Lambert Co. ........................... United States 300 24,581
----------
245,964
----------
INDUSTRIAL SERVICES 2.9%
* AES Corp. .................................... United States 400 29,900
* Republic Services Inc., A .................... United States 1,400 20,125
Waste Management Inc. ........................ United States 1,000 17,188
----------
67,213
----------
NON-ENERGY MINERALS .3%
De Beers Consolidated Mines AG, ADR .......... South Africa 200 5,788
----------
PRODUCER MANUFACTURING 2.4%
Emerson Electric Co. ......................... United States 100 5,738
* Gentex Corp. ................................. United States 800 22,200
Molex Inc. ................................... United States 200 11,338
Tyco International Ltd. ...................... United States 400 15,550
----------
54,826
----------
RETAIL TRADE 7.0%
Albertson's Inc. ............................. United States 1,100 35,475
* Costco Wholesale Corp. ....................... United States 400 36,500
The Gap Inc. ................................. United States 200 9,200
* Rite Aid Corp. ............................... United States 900 10,069
* Safeway Inc. ................................. United States 900 32,006
Tiffany & Co. ................................ United States 200 17,850
Wal-Mart Stores Inc. ......................... United States 300 20,738
----------
161,838
----------
TECHNOLOGY SERVICES 8.3%
Automatic Data Processing Inc. ............... United States 300 16,163
* BMC Software Inc. ............................ United States 200 15,988
* Commerce One Inc. ............................ United States 50 9,825
* Entrust Technologies Inc. .................... United States 300 17,981
* i2 Technologies Inc. ......................... United States 100 19,500
* Infonet Services Corp., B .................... United States 600 15,750
* InfoSpace.com Inc. ........................... United States 150 32,100
* Microsoft Corp. .............................. United States 300 35,025
* VERITAS Software Corp. ....................... United States 200 28,624
----------
190,956
----------
</TABLE>

FG-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 8.5%
* 365 Corp. PLC ............................................................. United Kingdom 100 $ 405
AT&T Corp. ................................................................ United States 400 20,300
BellSouth Corp. ........................................................... United States 500 23,405
* KPNQwest NV ............................................................... Netherlands 300 19,124
* MCI WorldCom Inc. ......................................................... United States 450 23,877
* Qwest Communications International Inc. ................................... United States 600 25,800
SBC Communications Inc. ................................................... United States 600 29,250
* STET Hellas Telecommunications SA, ADR .................................... Greece 400 12,200
* TeleCorp PCS Inc. ......................................................... United States 100 3,800
Vodafone AirTouch PLC, ADR ................................................ United Kingdom 450 22,274
* VoiceStream Wireless Corp. ................................................ United States 100 14,230
----------
194,665
----------
TRANSPORTATION 1.4%
Air Express International Corp. ........................................... United States 300 9,694
Expeditors International of Washington Inc. ............................... United States 200 8,762
United Parcel Service Inc., B ............................................. United States 200 13,800
----------
32,256
----------
UTILITIES 7.2%
Duke Energy Corp. ......................................................... United States 400 20,050
Edison International ...................................................... United States 400 10,474
Enron Corp. ............................................................... United States 600 26,624
FPL Group Inc. ............................................................ United States 700 29,968
* Global Crossing Ltd. ...................................................... Bermuda 500 25,000
GPU Inc. .................................................................. United States 900 26,943
PECO Energy Co. ........................................................... United States 800 27,800
----------
166,859
----------
TOTAL COMMON STOCKS (COST $1,595,886)...................................... 2,002,239
----------
PRINCIPAL
AMOUNT**
(a) REPURCHASE AGREEMENTS 15.9% -----------
Joint Repurchase Agreement, 2.583%, 1/03/00, .............................. $ 366,180 366,180
(Maturity Value $366,259) (COST $366,180).................................
Banc of America Securities LLC (Maturity Value $46,673)....................
Barclays Capital Inc. (Maturity Value $46,673).............................
Bear, Stearns & Co. Inc. (Maturity Value $46,673)..........................
Chase Securities Inc. (Maturity Value $39,548).............................
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $46,673).....
Dresdner Kleinwort Benson, North America LLC (Maturity Value $46,673)......
Paribas Corp. (Maturity Value $46,673).....................................
Warburg Dillon Read LLC (Maturity Value $46,673)...........................
Collateralized by U.S. Treasury Bills and Notes ..........................
----------
TOTAL INVESTMENTS (COST $1,962,066) 102.9%................................. 2,368,419
OTHER ASSETS, LESS LIABILITIES (2.9%) ..................................... (66,370)
----------
NET ASSETS 100.0% ......................................................... $2,302,049
==========
</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 LARGE CAP GROWTH INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $1,595,886)........................ $ 2,002,239
Repurchase agreement, at value and cost ..................................... 366,180
Receivables:
Investment securities sold ................................................. 46,777
Dividends and interest ..................................................... 925
From affiliates ............................................................ 16,415
-----------
Total assets .............................................................. 2,432,536
-----------
Liabilities:
Payables:
Investment securities purchased ............................................ 119,014
Fund shares redeemed ....................................................... 123
Accrued expenses ............................................................ 11,350
-----------
Total liabilities ......................................................... 130,487
-----------
Net assets, at value ......................................................... $ 2,302,049
===========
Net assets consist of:
Undistributed net investment income ......................................... $ 6,993
Net unrealized appreciation ................................................. 406,353
Accumulated net realized gain ............................................... 101,794
Beneficial shares ........................................................... 1,786,909
-----------
Net assets, at value ......................................................... $ 2,302,049
===========
Net asset value per share ($2,302,049 /divided by/ 137,821 shares outstanding) $ 16.70
===========
</TABLE>

See Notes to Financial Statements.

FG-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $34)
Dividends ................................................... $ 4,971
Interest .................................................... 9,782
-------
Total investment income ................................... $ 14,753
---------
Expenses:
Management fees (Note 3) .................................... 4,667
Administrative fees (Note 3) ................................ 752
Reports to shareholders ..................................... 10,842
Professional fees ........................................... 12,491
Trustees' fees and expenses ................................. 352
Other ....................................................... 32
-------
Total expenses ............................................ 29,136
Expenses waived / paid by affiliate (Note 3) .............. (21,378)
---------
Net expenses ............................................. 7,758
---------
Net investment income ................................... 6,995
---------
Realized and unrealized gains:
Net realized gain from investments .......................... 103,404
Net unrealized appreciation on investments .................. 373,111
---------
Net realized and unrealized gain ............................. 476,515
---------
Net increase in net assets resulting from operations ......... $ 483,510
=========
</TABLE>

See Notes to Financial Statements.

FG-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998/dagger/
-----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................... $ 6,995 $ 1,988
Net realized gain (loss) from investments ....................... 103,404 (1,610)
Net unrealized appreciation on investments ...................... 373,111 33,242
-------------------------
Net increase in net assets resulting from operations .......... 483,510 33,620
Distributions to shareholders from net investment income ......... (1,990) --
Fund share transactions -- Class 1 (Note 2) ...................... 1,536,909 250,000
-------------------------
Net increase in net assets .................................... 2,018,429 283,620
Net assets:
Beginning of year ................................................ 283,620 --
-------------------------
End of year ...................................................... $2,302,049 $283,620
=========================
Undistributed net investment income included in net assets:
End of year ...................................................... $ 6,993 $ 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 LARGE CAP GROWTH INVESTMENTS FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Large Cap 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 its total assets in equity securities of U.S. large cap growth
companies.

On October 21, 1999, the shareholders voted to change the name of the Fund to
Franklin Large Cap Growth Investments Fund. The following summarizes the Fund's
significant accounting policies.

A. SECURITY VALUATION:

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

B. FOREIGN CURRENCY TRANSLATION:

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

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

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

C. 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 December 31, 1999, all outstanding repurchase
agreements had been entered into on that date.

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.

FG-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

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

E. ACCOUNTING ESTIMATES:

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

2. BENEFICIAL SHARES

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

At December 31, 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>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998*
------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 125,679 $ 1,701,816 25,000 $250,000
Shares issued on reinvestment of distributions 177 1,990 -- --
Shares redeemed ............................... (13,035) (166,897) -- --
------------------------------------------------
Net increase .................................. 112,821 $ 1,536,909 25,000 $250,000
================================================
</TABLE>

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

As of December 31, 1999 and 1998, there were no transactions in the Fund's
Class 2 shares.

Templeton Funds Annuity Company, the Fund's subadministrative manager, is the
record owner of 25,165 and 25,000 Class 1 shares as of December 31, 1999 and
1998, respectively.

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:

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
0.60% First $200 million
0.50% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion

FG-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

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

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
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

Advisers and FT Services have agreed in advance to limit total expenses of the
Fund to an annual rate of 1.00% and 1.25% of average daily net assets of Class
1 and Class 2 shares, respectively, through December 31, 2000, as noted in the
Statement of Operations.

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. No payments were made by the Fund for the year ended December 31, 1999.

4. 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.

The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At December 31, 1999, the net unrealized appreciation
based on the cost of investments for income tax purposes of $1,595,886 was as
follows:

Unrealized appreciation ............. $ 458,396
Unrealized depreciation ............. (52,043)
---------
Net unrealized appreciation ......... $ 406,353
=========

At December 31,1999, the Fund has deferred capital losses occurring subsequent
to October 31, 1999 of $5,959. For tax purposes, such losses will be reflected
in the year ending December 31, 2000.

5. INVESTMENT TRANSACTIONS

Purchases of securities (excluding short-term securities) for the year ended
December 31, 1999 aggregated $1,602,318 and $324,795, respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Franklin Large Cap Growth
Investments Fund, are participants in a $750 million senior unsecured credit
agreement for temporary borrowing purposes. The termination date of the
agreement is March 1, 2000. Interest is calculated on the Fund's borrowings at
market rates. At December 31, 1999, the Fund had not utilized this credit
facility.

FG-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

7. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Large Cap Growth
Securities Fund.

FG-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Large Cap Growth
Investments Fund, series of Templeton Variable Products Series Fund at December
31, 1999, and the results of its operations, the changes in its net assets and
the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the period from May 1, 1998 (commencement of
operations) to December 31, 1998 were audited by other independent accountants
whose report dated January 28, 1999 expressed an unqualified opinion in those
financial statements.

/s/PRICEWATERHOUSECOOPERS LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000.

FG-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

CHANGE IN INDEPENDENT AUDITOR

On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.

None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.

During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

FG-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN LARGE CAP GROWTH INVESTMENTS FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $10,768 as a capital gain dividend for the fiscal year ended
December 31, 1999.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 100.00% of the ordinary income dividends as income qualifying for
the dividends received deduction for the fiscal year ended December 31, 1999.

FG-19
<PAGE>

FRANKLIN SMALL CAP INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: FRANKLIN SMALL CAP INVESTMENTS FUND
SEEKS LONG-TERM CAPITAL GROWTH BY INVESTING IN EQUITY SECURITIES OF
SMALL-CAPITALIZATION COMPANIES -- THOSE WITH A MARKET CAPITALIZATION OF LESS
THAN $1.5 BILLION AT THE TIME OF INVESTMENT.
- --------------------------------------------------------------------------------

During the year under review, infrastructure investment, rising bandwidth and
the increasing use of electronics in daily life drove prices of technology
stocks to record highs. However, the strength of the technology sector obscured
the weakness of other parts of the stock market. Although they registered
significant gains during the first half of the year, most energy-related,
small-cap stocks failed to sustain their momentum and stagnated or fell later
in the year.

As the second half of the year progressed, investors chased the best-performing
technology stocks to ever-higher valuations, and the gap between strong
technology and weak non-tech stock performances widened. Fortunately, we had
already established positions in many of these technology-related stocks and
were positioned to benefit from their robust fourth-quarter performance.

During the year, we saw many excellent small cap companies, whose shares we
own, flourish as their market capitalizations grew significantly. Although our
ownership of such stocks benefited our shareholders, it did increase the median
market cap of the fund. While the unusually high market valuations affected our
median market cap, it also made it challenging for us to fully invest all of
the cash in small cap securities, which are generally sold in smaller amounts.
As you can see from the chart to the right, at the end of the period, 38.8% of
the Fund's total net assets was in cash and equivalents.

During 1999, Franklin Small Cap Investments Fund posted strong total returns,
handily beating its benchmark, the Russell 2000 Growth Index. The Fund's
outperformance was primarily attributable to its significant positions in
technology stocks and its small allocation to financial and retail stocks.
Traditionally, we have found more growth potential in the technology sector
and, despite its inherent volatility, we anticipate maintaining large positions
in this sector in the near future. We also anticipate holding relatively small
positions in the retail and financial sectors, where it is often difficult to
find small-cap companies able to sustain consistent revenue and earnings
growth.

[This chart shows in pie format the portfolio breakdown of Franklin Small Cap
Investments Fund, based on total net assets as 12/31/99.]

Stocks 61.2%
Cash & Equivalents 38.8%

FS-1
<PAGE>

[This chart lists the top 10 holdings, including industries, of Franklin Small
Cap Investments Fund, based on total net assets as of 12/31/99.]

TOP 10 HOLDINGS
Franklin Small Cap
Investments Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------
JDS Uniphase Corp., 1.9%
ELECTRONIC TECHNOLOGY

i2 Technologies Inc., 1.8%
TECHNOLOGY SERVICES

Bindview Development 1.7%
Corp.,
TECHNOLOGY SERVICES

VERITAS Software Corp., 1.4%
TECHNOLOGY SERVICES

Netsolve Inc., 1.2%
TECHNOLOGY SERVICES

HNC Software Inc., 1.2%
TECHNOLOGY SERVICES

VoiceStream Wireless 1.2%
Corp.,
UTILITIES

PMC-Sierra Inc., 1.1%
ELECTRONIC TECHNOLOGY

Tanning Technology Corp., 1.1%
TECHNOLOGY SERVICES

Sapient Corp., 1.0%
TECHNOLOGY SERVICES

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

For some time, we have been commenting about the weakness in the small-cap
market's non-tech sectors. We are pleased to report that as the year ended, we
did observe signs of life among a small group of under-appreciated non-tech
growth stocks in sectors as disparate as health care and producer
manufacturing. Although mutual fund flows and investor interest still seemed to
favor technology stocks, we find it encouraging that some investors are
starting to appreciate strong fundamental growth potential in uncovered nooks
of the market. We are especially optimistic about improved conditions in the
home builder and real estate investment trust sectors and have added
selectively to our holdings of some non-tech stocks we believe may be strong
performers if the market eventually broadens.

Looking forward, we see strong growth potential for small-cap companies. In our
opinion, such companies are likely to be prominent innovators in creating and
delivering new products, services and technologies during the 21st century, and
healthy growth prospects for the global economy should set the stage for a
broadening of small-cap performance to include other than technology-related
stocks.

We thank you for your participation in Franklin Small Cap Investments Fund and
look forward to serving your investment needs in the years to ahead.

Sincerely,

/s/EDWARD B. JAMIESON

Edward B. Jamieson
Portfolio Manager
Franklin Small Cap Investments Fund

FS-2
<PAGE>

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (5/1/98 -- 12/31/99)

The graph below compares the performance of Franklin Small Cap Investments Fund
- -- Class 2 and the unmanaged Standard & Poor's 500/R/ (S&P 500/R/) Stock Index,
including reinvested dividends, as well as the Russell 2000/R/ Growth Index. The
Fund's total return represents the change in value of an investment over the
period shown and assumes reinvestment of dividends and capital gains at net
asset value. We are replacing the Russell 2000 Index with the Russell 2000
Growth Index because it more closely mirrors our growth style of investing. The
S&P 500 Index is market-value weighted and consists of 500 stocks chosen for
market size, liquidity, and industry group weighting. The Russell 2000 Growth
Index measures the performance of those Russell 2000 companies with higher
price-to-book ratios and higher forecasted growth values. The Russell 2000 Index
measures the performance of the 2,000 smallest companies in the Russell 3000
Index, which represents approximately 7% of the total U.S. market
capitalization. The Fund's performance differs from an index's because an index
is not managed, does not contain cash (the Fund generally carries a certain
percentage of cash at any given time), and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index, nor is
an index representative of the Fund's portfolio. Index source is Standard &
Poor's/R/ Micropal (S&P 500; Russell 2000 and Russell 2000 Growth Indices).

[The following line graph compares the performance of the Franklin Small Cap
Investments Fund - Class 2 to that of the Standard & Poor's 500, the Russell
2000 Index, and the Russell 2000 Growth Index, based on a $10,000 investment
from 5/1/98 - 12/31/99.]

TVP SMALL CAP S&P 500 RUSSELL 2000 INDEX RUSSELL
INVESTMENTS FUND-CLASS 2 2000 GROWTH
INDEX
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000 $10,000
05/31/1998 $9,390 $9,828 $9,461 $9,273
06/30/1998 $9,540 $10,227 $9,481 $9,368
07/31/1998 $8,480 $10,118 $8,713 $8,585
08/31/1998 $7,380 $8,655 $7,021 $6,604
09/30/1998 $7,611 $9,209 $7,571 $7,274
10/31/1998 $7,961 $9,958 $7,879 $7,653
11/30/1998 $8,701 $10,562 $8,292 $8,247
12/31/1998 $9,231 $11,170 $8,806 $8,993
01/31/1999 $9,581 $11,637 $8,923 $9,398
02/28/1999 $8,981 $11,275 $8,200 $8,538
03/31/1999 $9,366 $11,726 $8,328 $8,842
04/30/1999 $9,867 $12,180 $9,074 $9,623
05/31/1999 $10,000 $11,892 $9,207 $9,638
06/30/1999 $10,971 $12,552 $9,623 $10,146
07/31/1999 $10,869 $12,161 $9,359 $9,833
08/31/1999 $10,920 $12,100 $9,013 $9,465
09/30/1999 $11,513 $11,768 $9,015 $9,648
10/31/1999 $12,606 $12,513 $9,052 $9,895
11/30/1999 $13,925 $12,767 $9,592 $10,941
12/31/1999 $16,092 $13,519 $10,678 $12,869
</TABLE>

The historical performance figures shown pertain only to the Fund's Class 2
shares.
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on July 30, 1998,
historical results of Class 1 shares; and (b) for periods after July 30, 1998,
Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

FRANKLIN SMALL CAP
INVESTMENTS FUND
- -- CLASS 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had been
included, performance would be lower. These 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 Fund
adviser agreed to limit Class 2 expenses to 1.25% of total net assets. This
agreement may be terminated at a later date.

Past performance does not guarantee future results.

FS-3

<PAGE>

FRANKLIN SMALL CAP
INVESTMENTS FUND
- -- CLASS 2

Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions. There are special risks
involved with seeking long-term capital growth from small or relatively new
or unseasoned companies, such as relatively small revenues, limited product
lines and small market share, as well as currency fluctuations and
political uncertainty associated with foreign investing. You may have a
gain or loss when you sell your shares.

PERFORMANCE

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

<TABLE>
<CAPTION>
Franklin Small Cap Investments Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* (5/1/98)*
- -------------------------------------------------------
<S> <C> <C>
Cumulative Total Return 74.34% 60.92%
Average Annual Total Return 74.34% 32.93%
Value of $10,000 Investment $17,434 $16,092
</TABLE>

*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on July 30, 1998,
historical results of Class 1 shares; and (b) for periods after July 30, 1998,
Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

Past performance does not guarantee future results.

FS-4

<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-----------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999/dagger//dagger/ 1998/dagger/
-----------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................. $9.23 $10.00
-----------------------------------------
Income from investment operations:
Net investment income ......................................... .09 .11
Net realized and unrealized gains (losses) .................... 6.67 (.88)
-----------------------------------------
Total from investment operations ............................... 6.76 (.77)
-----------------------------------------
Less distributions from:
Net investment income ......................................... (.02) --
Net realized gains ............................................ (.18) --
-----------------------------------------
Total distributions ............................................ (.20) --
-----------------------------------------
Net asset value, end of year ................................... $15.79 $9.23
=========================================
Total Return* .................................................. 74.93% (7.70)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $1,545 $231
Ratios to average net assets:
Expenses ..................................................... 1.00% 1.00%**
Expenses, excluding waiver and payments by affiliate ......... 1.01% 1.75%**
Net investment income ........................................ .76% 1.97%**
Portfolio turnover rate ........................................ 46.88% 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 MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1998.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

FS-5
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Highlights (CONTINUED)

<TABLE>
<CAPTION>
CLASS 2
--------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1999/dagger//dagger/ 1998/dagger/
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................. $9.23 $8.55
--------------------------------------
Income from investment operations:
Net investment income ........................................ .06 .02
Net realized and unrealized gains ............................ 6.65 .66
--------------------------------------
Total from investment operations ............................... 6.71 .68
--------------------------------------
Less distributions from:
Net investment income ........................................ (.02) --
Net realized gains ........................................... (.18) --
--------------------------------------
Total distributions ............................................ (.20) --
--------------------------------------
Net asset value, end of year ................................... $15.74 $9.23
======================================
Total Return* .................................................. 74.34% 7.95%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $71,252 $6,211
Ratios to average net assets:
Expenses ..................................................... 1.25% 1.25%**
Expenses, excluding waiver and payments by affiliate ......... 1.26% 2.00%**
Net investment income ........................................ .52% 1.73%**
Portfolio turnover rate ........................................ 46.88% 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 OPERATIONS) 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, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 61.2%
COMMERCIAL SERVICES 1.3%
* Aether Systems Inc. .............................. United States 500 $ 35,813
* Answerthink Consulting Group Inc. ................ United States 600 20,550
* Careerbuilder Inc. ............................... United States 4,300 27,681
* Chemdex Corp. .................................... United States 700 77,700
* Corporate Executive Board Co. .................... United States 2,200 122,925
* Digital Impact Inc. .............................. United States 200 10,025
* Exchange Applications Inc. ....................... United States 600 33,525
* Flycast Communications Corp. ..................... United States 200 25,988
* GetThere.com Inc. ................................ United States 500 20,125
* Harris Interactive Inc. .......................... United States 700 9,144
* Hotjobs.com Ltd. ................................. United States 2,900 126,694
* Interep National Radio Sales Inc. ................ United States 3,000 40,125
* Management Network Group Inc. .................... United States 200 6,525
* Mediaplex Inc. ................................... United States 300 18,825
* Netcentives Inc. ................................. United States 500 31,156
* NetRatings Inc. .................................. United States 100 4,813
* NOVA Corp. ....................................... United States 5,000 157,813
* Probusiness Services Inc. ........................ United States 1,000 36,000
* Smith-Gardner & Associates Inc. .................. United States 3,300 56,306
* Stamps.com Inc. .................................. United States 1,100 45,788
* Sylvan Learning Systems Inc. ..................... United States 1,800 23,400
* Wink Communications Inc. ......................... United States 200 12,013
-----------
942,934
-----------
CONSUMER DURABLES .2%
* Audiovox Corp., A ................................ United States 2,200 66,825
Ethan Allen Interiors Inc. ....................... United States 3,000 96,188
-----------
163,013
-----------
CONSUMER NON-DURABLES .8%
* Tommy Hilfiger Corp. ............................. United States 10,000 233,125
Wolverine World Wide Inc. ........................ United States 29,800 325,938
-----------
559,063
-----------
CONSUMER SERVICES 2.6%
* Acme Communications Inc. ......................... United States 300 9,975
* Cumulus Media Inc., A ............................ United States 9,500 482,125
* Emmis Communications Corp., A .................... United States 500 62,320
* Entercom Communications Corp. .................... United States 1,000 66,000
* E-Stamp Corp. .................................... United States 600 13,350
* Harrah's Entertainment Inc. ...................... United States 100 2,644
* Homestore.com Inc. ............................... United States 100 7,425
* Insight Communications Co. Inc., A ............... United States 6,600 195,525
* Jack in the Box Inc. ............................. United States 8,000 165,500
* Knot Inc. ........................................ United States 400 3,375
* Martha Stewart Living Omnimedia Inc., A .......... United States 400 9,600
* NDS Group PLC, ADR ............................... United Kingdom 300 9,150
* Prime Hospitality Corp. .......................... United States 4,600 40,538
* Quokka Sports Inc. ............................... United States 2,300 30,188
* Quotesmith.com Inc. .............................. United States 2,400 27,300
* Radio One Inc. ................................... United States 1,400 128,800
* SFX Entertainment Inc. ........................... United States 11,325 409,823
* Spanish Broadcasting Systems Inc. ................ United States 2,000 80,500
* TiVo Inc. ........................................ United States 400 13,500
* Vail Resorts Inc. ................................ United States 2,600 46,638
* XM Satellite Radio Holdings Inc. ................. United States 2,400 91,500
-----------
1,895,776
-----------
</TABLE>

FS-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY 16.2%
* Advanced Energy Industries Inc. .............. United States 6,600 $ 325,050
* Airnet Communications Corp. .................. United States 300 10,913
* Alpha Industries Inc. ........................ United States 3,000 171,938
* Alteon Websystems Inc. ....................... United States 100 8,775
* Ancor Communications Inc. .................... United States 5,200 352,950
* ANTEC Corp. .................................. United States 200 7,300
* Apex Inc. .................................... United States 1,000 32,250
* AVT Corp. .................................... United States 1,400 65,800
* Brocade Communications Systems Inc. .......... United States 400 70,800
* Carrier Access Corp. ......................... United States 3,700 249,056
* Catapult Communications Corp. ................ United States 1,300 12,919
* C-COR.net Corp. .............................. United States 1,400 107,275
* Cirrus Logic Inc. ............................ United States 15,600 207,675
* Coherent Inc. ................................ United States 6,000 160,500
* Com21 Inc. ................................... United States 1,700 38,144
* Copper Mountain Networks Inc. ................ United States 200 9,750
* CVC Inc. ..................................... United States 1,700 16,363
* Cymer Inc. ................................... United States 2,450 112,700
* Digital Microwave Corp. ...................... United States 5,600 131,250
* DII Group Inc. ............................... United States 800 56,775
* Ditech Communications Corp. .................. United States 600 56,100
* Electro Scientific Industries Inc. ........... United States 4,000 292,000
* EMCORE Corp. ................................. United States 1,800 61,200
* Etec Systems Inc. ............................ United States 2,400 107,700
* Exar Corp. ................................... United States 4,700 276,713
* Finisar Corp. ................................ United States 300 26,963
* Flextronics International Ltd. ............... Singapore 3,000 138,000
* FLIR Systems Inc. ............................ United States 1,500 24,375
* Foundry Networks Inc. ........................ United States 200 60,338
* FVC.COM Inc. ................................. United States 400 4,675
* Gadzoox Networks Inc. ........................ United States 400 17,425
* Gemstar International Group Ltd. ............. United States 9,200 655,500
* Immersion Corp. .............................. United States 300 11,513
* Interspeed Inc. .............................. United States 200 3,538
* Jabil Circuit Inc. ........................... United States 800 58,400
* Javelin Systems Inc. ......................... United States 2,200 20,213
* JDS Uniphase Corp. ........................... United States 8,400 1,355,025
* JNI Corp. .................................... United States 200 13,200
* Juniper Networks Inc. ........................ United States 400 136,000
* Komag Inc. ................................... United States 15,000 46,875
* Kopin Corp. .................................. United States 600 25,200
* Lattice Semiconductor Corp. .................. United States 6,400 301,600
* LTX Corp. .................................... United States 12,400 277,450
* Maker Communications Inc. .................... United States 9,900 423,225
* MCK Communications Inc. ...................... United States 400 9,000
* Methode Electronics Inc., A .................. United States 2,400 77,100
* Mettler-Toledo International Inc. ............ United States 12,100 462,069
* Micrel Inc. .................................. United States 1,400 79,713
* Natural MicroSystems Corp. ................... United States 300 14,044
* Netopia Inc. ................................. United States 1,000 54,313
* Netro Corp. .................................. United States 700 35,700
* Nice Systems Ltd., ADR ....................... Israel 1,900 93,456
* Novellus Systems Inc. ........................ United States 600 73,519
* PC-Tel Inc. .................................. United States 2,500 131,250
</TABLE>

FS-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
* Perkinelmer Inc. ........................................ United States 1,000 $ 41,688
* Photronics Inc. ......................................... United States 2,000 57,250
* PMC-Sierra Inc. ......................................... Canada 5,000 801,563
* Power Integrations Inc. ................................. United States 7,000 335,563
* Proxim Inc. ............................................. United States 800 88,000
* QuickLogic Corp. ........................................ United States 500 8,250
* Radiant Systems Inc. .................................... United States 900 36,169
* RSA Security Inc. ....................................... United States 8,000 620,000
* Rudolph Techonologies Inc. .............................. United States 500 16,750
* Sanmina Corp. ........................................... United States 2,000 199,750
* Semtech Corp. ........................................... United States 5,200 271,050
* Silicon Image Inc. ...................................... United States 100 7,006
* SIPEX Corp. ............................................. United States 2,500 61,406
* Synopsys Inc. ........................................... United States 5,000 333,750
* Tekelec ................................................. United States 4,900 110,250
* Triquint Semiconductor Inc. ............................. United States 300 33,375
* Varian Inc. ............................................. United States 16,500 371,250
* Varian Semiconductor Equipment Associates Inc. .......... United States 9,800 333,200
* Veeco Instruments Inc. .................................. United States 1,600 74,900
* Visual Networks Inc. .................................... United States 1,000 79,250
* Vixel Corp. ............................................. United States 300 5,119
* Waters Corp. ............................................ United States 5,000 265,000
* Western Digital Corp. ................................... United States 6,500 27,219
* Xicor Inc. .............................................. United States 200 2,738
-----------
11,752,071
-----------
ENERGY MINERALS 1.1%
* Barrett Resources Corp. ................................. United States 6,500 191,344
* Basin Exploration Inc. .................................. United States 5,200 91,650
* Chesapeake Energy Corp. ................................. United States 10,800 25,650
* Forest Oil Corp. ........................................ United States 2,600 34,288
* Newfield Exploration Co. ................................ United States 7,200 192,600
* Pennaco Energy Inc. ..................................... United States 9,600 76,800
Range Resources Corp. ................................... United States 5,900 18,806
* Santa Fe Snyder Corp. ................................... United States 9,100 72,800
* Tom Brown Inc. .......................................... United States 6,100 81,588
-----------
785,526
-----------
FINANCE 4.4%
* Affiliated Managers Group Inc. .......................... United States 2,100 84,919
Alexandria Real Estate Equities Inc. .................... United States 2,500 79,531
Allied Capital Corp. .................................... United States 3,700 67,756
Arden Realty Inc. ....................................... United States 3,000 60,188
Bank United Corp., A .................................... United States 3,200 87,200
Camden Property Trust ................................... United States 3,600 98,550
* Catellus Development Corp. .............................. United States 3,300 42,281
CBL & Associates Properties Inc. ........................ United States 2,500 51,563
* Commerce Bancorp Inc. ................................... United States 400 16,175
Developers Diversified Realty Corp. ..................... United States 10,400 133,900
* DLJdirect ............................................... United States 1,800 24,413
* Duff & Phelps Credit Rating Co. ......................... United States 500 44,469
E.W. Blanch Holdings Inc. ............................... United States 3,000 183,750
* eSPEED Inc. ............................................. United States 1,000 35,563
Federated Investors Inc., B ............................. United States 5,700 114,356
FelCor Lodging Trust Inc. ............................... United States 800 14,000
Financial Security Assurance Holdings Ltd. .............. United States 4,000 208,500
</TABLE>

FS-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCE (CONT.)
General Growth Properties Inc. ................... United States 7,200 $ 201,600
* Glenborough Realty Trust Inc.c. .................. United States 2,800 37,450
* Golden State Bancorp Inc. ........................ United States 6,000 103,500
HCC Insurance Holdings Inc. ...................... United States 4,200 55,388
Health Care Property Investors Inc. .............. United States 10,200 243,525
* Knight/Trimark Group Inc., A ..................... United States 1,100 50,600
* Labranche & Co. Inc. ............................. United States 8,500 108,375
MeriStar Hospitality Corp. ....................... United States 8,000 128,000
Metris Cos. Inc. ................................. United States 1,800 64,238
* Mortgage.com Inc. ................................ United States 1,800 10,463
Mutual Risk Management Ltd. ...................... Bermuda 4,500 75,656
* National Discount Brokers Group Inc. ............. United States 1,000 26,375
Reinsurance Group of America Inc. ................ United States 8,000 222,000
* Silicon Valley Bancshares ........................ United States 6,400 316,800
SL Green Realty Corp. ............................ United States 9,600 208,800
Westamerica Bancorp. ............................. United States 400 11,175
-----------
3,211,059
-----------
HEALTH SERVICES .4%
* Beverly Enterprises Inc. ......................... United States 10,000 43,750
* Ebenx Inc. ....................................... United States 300 13,575
* PAREXEL International Corp. ...................... United States 3,000 35,438
* Pharmaceutical Product Development Inc. .......... United States 6,700 79,563
* Renal Care Group Inc. ............................ United States 2,700 63,113
* SciQuest.com Inc. ................................ United States 800 63,600
-----------
299,039
-----------
HEALTH TECHNOLOGY .5%
* Alexion Pharmaceuticals Inc. ..................... United States 2,100 63,263
* ImClone Systems Inc. ............................. United States 700 27,738
* Inhale Therapeutic Systems Inc. .................. United States 3,000 127,688
* Serologicals Corp. ............................... United States 17,000 102,000
* Wesley Jessen Visioncare Inc. .................... United States 1,500 56,813
-----------
377,502
-----------
INDUSTRIAL SERVICES 1.6%
* Atwood Oceanics Inc. ............................. United States 6,000 231,750
* Casella Waste Systems Inc., A .................... United States 7,000 132,125
* Catalytica Inc. .................................. United States 5,000 67,813
* Core Laboratories NV ............................. United States 3,000 60,188
* Dycom Industries Inc. ............................ United States 4,600 202,688
* Grey Wolf Inc. ................................... United States 23,700 68,138
* Marine Drilling Cos. Inc. ........................ United States 3,200 71,800
* Plug Power Inc. .................................. United States 700 19,775
* Rowan Cos. Inc. .................................. United States 6,500 140,969
* US Liquids Inc. .................................. United States 1,200 10,050
* Varco International Inc. ......................... United States 16,000 163,000
-----------
1,168,296
-----------
PROCESS INDUSTRIES 1.1%
Carpenter Technology Corp. ....................... United States 800 21,950
* CUNO Inc. ........................................ United States 7,600 157,344
Optical Coating Laboratory Inc. .................. United States 2,100 621,600
* Symyx Technologies Inc. .......................... United States 500 15,000
-----------
815,894
-----------
</TABLE>

FS-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
PRODUCER MANUFACTURING 2.6%
* Gentex Corp. .................................. United States 25,900 $ 718,725
Gibraltar Steel Corp. ......................... United States 2,800 65,450
JLG Industries Inc. ........................... United States 6,500 103,594
* Polycom Inc. .................................. United States 5,200 331,175
* Power-One Inc. ................................ United States 800 36,650
Roper Industries Inc. ......................... United States 4,600 173,938
* Tower Automotive Inc. ......................... United States 31,900 492,456
-----------
1,921,988
-----------
RETAIL TRADE .6%
* 1-800-FLOWERS.COM Inc. ........................ United States 4,900 52,369
* Beyond.com Corp. .............................. United States 600 4,688
* Liquid Audio Inc. ............................. United States 5,800 152,250
* MotherNature.com Inc. ......................... United States 100 731
* PlanetRx.com Inc. ............................. United States 400 5,800
* The Men's Wearhouse Inc. ...................... United States 8,000 235,000
-----------
450,838
-----------
TECHNOLOGY SERVICES 22.8%
* Accrue Software Inc. .......................... United States 1,500 81,188
* Active Software Inc. .......................... United States 500 46,000
* Actuate Corp. ................................. United States 7,000 300,125
* Affiliated Computer Services Inc., A .......... United States 7,000 322,000
* AGENCY.COM Inc. ............................... United States 100 5,100
* Allaire Corp. ................................. United States 600 87,000
* Appnet Inc. ................................... United States 3,500 153,125
* Ardent Software Inc. .......................... United States 1,600 62,400
* Art Technology Group Inc. ..................... United States 400 51,250
* Aspect Communications Corp. ................... United States 1,400 54,775
* Backweb Technologies Ltd. ..................... United States 100 4,213
* BEA Systems Inc. .............................. United States 5,800 405,638
* Bindview Development Corp. .................... United States 25,000 1,242,188
* Bluestone Software Inc. ....................... United States 600 69,000
* Breakaway Solutions Inc. ...................... United States 100 7,300
* Brightpoint Inc. .............................. United States 1,800 23,625
* Brio Technology Inc. .......................... United States 7,000 294,000
* BroadVision Inc. .............................. United States 3,600 612,225
* Citrix Systems Inc. ........................... United States 1,400 172,200
* Commerce One Inc. ............................. United States 600 117,900
* Complete Business Solutions Inc. .............. United States 10,000 251,250
* Concord Communications Inc. ................... United States 1,000 44,375
* Cybersource Corp. ............................. United States 2,000 103,500
* Cysive Inc. ................................... United States 200 14,413
* Data Return Corp. ............................. United States 300 16,050
* Deltek Systems Inc. ........................... United States 300 4,050
* Digex Inc. .................................... United States 400 27,500
* Digimarc Corp. ................................ United States 100 5,000
* Digital Insight Corp. ......................... United States 200 7,275
* Digital Island Inc. ........................... United States 1,000 95,125
* Documentum Inc. ............................... United States 1,300 77,838
* eGain Communications Corp. .................... United States 400 15,100
* El Sitio Inc. ................................. Argentina 500 18,375
* Entrust Technologies Inc. ..................... United States 7,000 419,563
* Exodus Communications Inc. .................... United States 2,000 177,625
* F5 Networks Inc. .............................. United States 500 57,000
* High Speed Access Corp. ....................... United States 600 10,800
</TABLE>

FS-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES (CONT.)
* HNC Software Inc. ............................. United States 8,000 $ 846,000
* i2 Technologies Inc. .......................... United States 6,800 1,326,000
* Imanage Inc. .................................. United States 300 9,638
* Inet Technologies Inc. ........................ United States 900 62,888
* Integrated Systems Inc. ....................... United States 400 13,425
* Interactive Pictures Corp. .................... United States 600 13,988
* Internap Network Services Corp. ............... United States 300 51,900
* Intertrust Technologies Corp. ................. United States 200 23,525
* Interwoven Inc ................................ United States 200 24,325
* Intuit Inc. ................................... United States 2,400 143,850
* ISS Group Inc. ................................ United States 400 28,450
* ITXC Corp. .................................... United States 900 30,263
* Keane Inc. .................................... United States 1,600 50,800
* Keynote Systems Inc. .......................... United States 600 44,250
* Korea Thrunet Co. Ltd., A ..................... South Korea 100 6,788
* Legato Systems Inc. ........................... United States 6,600 454,163
* Liberate Technologies Inc. .................... United States 1,300 334,100
* Luminant Worldwide Corp. ...................... United States 9,200 418,600
* McAfee.com Corp. .............................. United States 300 13,500
* Media Metrix Inc. ............................. United States 1,000 35,750
* Metasolv Software Inc. ........................ United States 100 8,175
* Metron Technology NV .......................... United States 300 4,819
* Micromuse Inc. ................................ United States 3,840 652,800
* MicroStrategy Inc. ............................ United States 300 63,000
* Mission Critical Software Inc. ................ United States 1,300 91,000
* N2H2 Inc. ..................................... United States 1,800 42,300
* National Information Consortium Inc. .......... United States 1,000 32,000
* National Instruments Corp. .................... United States 150 5,738
* Navisite Inc. ................................. United States 500 50,000
* NBC Internet Inc., A .......................... United States 4,300 332,175
* Netiq Corp. ................................... United States 1,200 62,475
* Netsolve Inc. ................................. United States 27,300 859,950
* OnDisplay Inc. ................................ United States 200 18,175
* OpenTV Corp., A ............................... United States 200 16,050
* Predictive Systems Inc. ....................... United States 200 13,100
* Proxicom Inc. ................................. United States 1,100 136,744
* Quest Software Inc. ........................... United States 100 10,200
* Quintus Corp. ................................. United States 100 4,588
* Radware Ltd. .................................. United States 400 17,250
* Rare Medium Group Inc. ........................ United States 2,300 78,488
* Retek Inc. .................................... United States 600 45,150
* Sapient Corp. ................................. United States 5,200 732,875
* Serena Software Inc. .......................... United States 500 15,469
* Software.com Inc. ............................. United States 700 67,200
* SonicWALL Inc. ................................ United States 200 8,050
* StarMedia Network Inc. ........................ United States 1,300 52,081
* Sykes Enterprises Inc. ........................ United States 800 35,100
* Tanning Technology Corp. ...................... United States 13,800 813,338
* TenFold Corp. ................................. United States 600 23,963
* Tumbleweed Communications Corp. ............... United States 1,800 152,550
* U.S. Interactive Inc. ......................... United States 1,300 55,900
* Verio Inc. .................................... United States 5,600 258,650
* VERITAS Software Corp. ........................ United States 7,200 1,030,500
* Verity Inc. ................................... United States 6,000 255,375
* Vignette Corp. ................................ United States 3,000 489,000
* Vitria Technology Inc. ........................ United States 200 46,800
</TABLE>

FS-12
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES (CONT.)
* Whittman-Hart Inc. ................................... United States 6,600 $ 353,925
* Wind River Systems Inc. .............................. United States 4,250 156,188
* Women.com Networks Inc. .............................. United States 3,100 44,175
* Xpedior Inc. ......................................... United States 500 14,375
-----------
16,537,985
-----------
TRANSPORTATION 1.6%
Air Express International Corp. ...................... United States 1,400 45,238
* Alaska Air Group Inc. ................................ United States 2,200 77,275
* Atlantic Coast Airlines Holdings Inc. ................ United States 3,000 71,250
C.H. Robinson Worldwide Inc. ......................... United States 14,700 584,325
Expeditors International of Washington Inc. .......... United States 9,000 394,313
-----------
1,172,401
-----------
UTILITIES 3.4%
* 365 Corp. PLC ........................................ United Kingdom 1,700 6,882
* Airgate PCS Inc. ..................................... United States 300 15,825
* Alaska Communications Systems Holdings Inc. .......... United States 5,600 69,300
* AT&T Canada Inc., B .................................. Canada 400 16,100
* Clearnet Communications Inc., A ...................... Canada 1,800 61,875
* DSL.net Inc. ......................................... United States 3,500 50,531
* GRIC Communications Inc. ............................. United States 400 10,150
* Ibasis Inc. .......................................... United States 600 17,250
* ICG Communications Inc. .............................. United States 5,000 93,750
* Illuminet Holdings Inc. .............................. United States 100 5,500
* Intermedia Communications Inc. ....................... United States 12,600 489,038
* ITC Deltacom Inc. .................................... United States 900 24,863
* MGC Communications Inc. .............................. United States 2,600 131,950
* Millicom International Cellular SA ................... Luxembourg 2,300 143,463
* Pinnacle Holdings Inc. ............................... United States 3,900 165,263
* Primus Telecommunications Group Inc. ................. United States 2,700 103,275
* Rhythms NetConnections Inc. .......................... United States 100 3,100
* Time Warner Telecom Inc. ............................. United States 600 29,963
* Triton PCS Inc., A ................................... United States 200 9,100
* VoiceStream Wireless Corp. ........................... United States 6,000 853,875
* Western Wireless Corp., A ............................ United States 3,000 200,213
-----------
2,501,266
-----------
TOTAL COMMON STOCKS (COST $24,688,823)................ 44,554,651
-----------
</TABLE>

FS-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(A) REPURCHASE AGREEMENT 38.7%
Joint Repurchase Agreement, 2.583%, 01/03/00,
(Maturity Value $28,146,138) (COST $28,140,081) ......................... $28,140,081 28,140,081
Banc of America Securities LLC (Maturity Value $3,586,713)
Barclays Capital Inc. (Maturity Value $3,586,713)
Bear, Stearns & Co. Inc. (Maturity Value $3,586,713)
Chase Securities Inc. (Maturity Value $3,039,148)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $3,586,713)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $3,586,713)
Paribas Corp. (Maturity Value $3,586,713)
Warburg Dillon Read LLC (Maturity Value $3,586,712)
Collateralized by U.S. Treasury Bills & Notes
-----------
TOTAL INVESTMENTS (COST $52,828,904) 99.9%............................... 72,694,732
OTHER ASSETS, LESS LIABILITIES .1% ...................................... 102,205
-----------
NET ASSETS 100.0% ....................................................... $72,796,937
===========
</TABLE>

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

See Notes to Financial Statements.

FS-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $24,688,823)............................ $ 44,554,651
Repurchase agreement, at value and cost .......................................... 28,140,081
Receivables:
Investment securities sold ...................................................... 74,357
Fund shares sold ................................................................ 180,611
Dividends ....................................................................... 20,692
------------
Total assets ................................................................... 72,970,392
------------
Liabilities:
Payables:
Investment securities purchased ................................................. 47,184
Fund shares redeemed ............................................................ 16,690
To affiliates ................................................................... 89,031
Accrued expenses ................................................................. 20,550
------------
Total liabilities .............................................................. 173,455
------------
Net assets, at value .............................................................. $ 72,796,937
============
Net assets consist of:
Undistributed net investment income .............................................. $ 128,998
Net unrealized appreciation ...................................................... 19,865,828
Accumulated net realized gain .................................................... 1,444,668
Beneficial shares ................................................................ 51,357,443
------------
Net assets, at value .............................................................. $ 72,796,937
============
CLASS 1:
Net asset value per share ($1,544,579 /divided by/ 97,819 shares outstanding).... $ 15.79
------------
CLASS 2:
Net asset value per share ($71,252,358 /divided by/ 4,525,661 shares outstanding) $ 15.74
============
</TABLE>

See Notes to Financial Statements.

FS-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
Dividends ................................................... $ 59,846
Interest .................................................... 368,785
----------
Total investment income ................................... $ 428,631
-----------
Expenses:
Management fees (Note 3) .................................... 183,960
Administrative fees (Note 3) ................................ 23,679
Distribution fees - Class 2 (Note 3) ........................ 59,546
Custodian fees .............................................. 134
Reports to shareholders ..................................... 9,635
Registration and filing fees ................................ 112
Professional fees ........................................... 28,629
Trustees' fees and expenses ................................. 803
Other ....................................................... 831
----------
Total expenses ............................................ 307,329
Expenses waived / paid by affiliate (Note 3) .............. (7,603)
-----------
Net expenses ............................................. 299,726
-----------
Net investment income ................................... 128,905
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 1,445,032
Foreign currency transactions .............................. (13)
----------
Net realized gain ......................................... 1,445,019
Net unrealized appreciation on investments ................ 19,400,771
-----------
Net realized and unrealized gain ............................. 20,845,790
-----------
Net increase in net assets resulting from operations ......... $20,974,695
===========
</TABLE>

See Notes to Financial Statements.

FS-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998/dagger/
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 128,905 $ 17,706
Net realized gain from investments and foreign currency transactions 1,445,019 182,914
Net unrealized appreciation on investments .......................... 19,400,771 465,057
-------------------------------
Net increase in net assets resulting from operations .............. 20,974,695 665,677
Distributions to shareholders from:
Net investment income:
Class 1 ............................................................. (529) --
Class 2 ............................................................. (17,257) --
Net realized gains:
Class 1 ............................................................. (4,877) --
Class 2 ............................................................. (178,215) --
Fund share transactions (Note 2):
Class 1 ............................................................. 810,439 250,000
Class 2 ............................................................. 44,770,591 5,526,413
-------------------------------
Net increase in net assets ........................................ 66,354,847 6,442,090
Net assets:
Beginning of year .................................................... 6,442,090 --
-------------------------------
End of year .......................................................... $72,796,937 $6,442,090
===============================
Undistributed net investment income included in net assets:
End of year .......................................................... $ 128,998 $ 17,706
===============================
</TABLE>

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

See Notes to Financial Statements.

FS-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements

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:

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 the 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 December 31, 1999, all outstanding repurchase
agreements had been entered into on that date.

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

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.

FS-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

E. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998*
--------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 90,592 $ 1,065,368 25,000 $ 250,000
Shares issued on reinvestment of distributions 612 5,406 -- --
Shares redeemed ............................... (18,385) (260,335) -- --
--------------------------------------------------
Net increase .................................. 72,819 $ 810,439 25,000 $ 250,000
==================================================

<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998**
--------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: --------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 3,868,851 $ 44,964,848 681,475 $ 5,599,186
Shares issued on reinvestment of distributions 22,163 195,471 -- --
Shares redeemed ............................... (38,412) (389,728) (8,416) (72,773)
--------------------------------------------------------
Net increase .................................. 3,852,602 $ 44,770,591 673,059 $ 5,526,413
========================================================
</TABLE>

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

Templeton Funds Annuity Company, the Fund's subadministrative manager, is
record owner of 25,564 and 25,000 Class 1 shares as of December 31, 1999 and
1998, respectively.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

FS-19
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

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

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

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
0.75% First $200 million
0.65% Over $200 million, up to and including $1.3 billion
0.55% Over $1.3 billion

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

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.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $52,846,953 was as follows:

Unrealized appreciation ............. $ 21,234,177
Unrealized depreciation ............. (1,386,398)
------------
Net unrealized appreciation ......... $ 19,847,779
============

Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of wash sales
and foreign currency transactions.

At December 31, 1999 the Fund had deferred capital and currency losses
occurring subsequent to October 31, 1999 of $11,000. For tax purposes, such
losses will be reflected in the year ending December 31, 2000.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $27,820,528 and $8,481,678,
respectively.

FS-20
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Franklin Small Cap Investments
Fund, are participants in a $750 million senior unsecured credit agreement for
temporary borrowing purposes. The termination date of the agreement is March 1,
2000. Interest is calculated on the Fund's borrowings at market rates. At
December 31, 1999, the Fund had not utilized this credit facility.

7. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Small Cap Fund.

FS-21
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Small Cap Investments
Fund, series of Templeton Variable Products Series Fund at December 31, 1999,
and the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the period from May 1, 1998 (commencement of
operations) to December 31, 1998 were audited by other independent accountants
whose report dated January 28, 1999 expressed an unqualified opinion in those
financial statements.

/s/PRICEWATERHOUSECOOPERS LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000.

FS-22
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

CHANGE IN INDEPENDENT AUDITOR

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

FS-23
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $1,730 as a capital gain dividend for the fiscal year ended December
31, 1999.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 8.30% of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

FS-24
<PAGE>

FRANKLIN S&P 500 INDEX FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: FRANKLIN S&P 500 INDEX FUND SEEKS TO
MATCH THE PERFORMANCE OF THE STANDARD & POOR'S/R/ 500 (S&P 500/R/) COMPOSITE
STOCK PRICE INDEX BEFORE DEDUCTION OF FUND EXPENSES. THE FUND USES INVESTMENT
"INDEXING" STRATEGIES AND INVESTS IN THE COMMON STOCKS OF THE S&P 500 INDEX IN
APPROXIMATELY THE SAME PROPORTION AS THE S&P 500 INDEX.
- --------------------------------------------------------------------------------

We are pleased to bring you this first annual report of the Franklin S&P 500
Index Fund, which covers the two months from the Fund's inception on November
1, 1999, through the end of the Fund's fiscal year on December 31, 1999. As you
know, the Fund, which is sub-advised by State Street Global Advisers, seeks to
match the investment performance of the unmanaged Standard and Poor's 500 (S&P
500) Index, before the deduction of Fund expenses. During the Fund's brief
two-months' existence, it underperformed the index.

Since the S&P 500 Index is market capitalization weighted, stocks or sectors
with significant market capitalizations can have a substantial impact on the
performance of the index. For example, in recent years the top ten stocks have
come to account for nearly a quarter of the index's value and its performance,
and technology stocks have gone from about 13% to 30% of the S&P 500 Index. Of
course, historically the sectors dominating the index have varied and the
index's biggest members have generally not made up such a large portion of the
index as they do today. To the extent that the Fund's holdings replicate the
index, the same stocks and sectors that impact the S&P 500 Index will also
impact the Fund. Of course, since the index is designed to reflect the U.S.
market, it naturally will also reflect the same characteristics and risks of
the market.

Under normal market conditions, we will attempt to employ the full replication
strategy of index management by investing in the common stocks of the S&P 500
Index in approximately the same proportions as the index. However, given the
new Fund's small size during the reporting period, we employed a specialized
strategy to minimize transaction costs while tracking the index. This strategy
utilized computer-based statistical data to select a sampling of stocks that
resembled the full index in terms of industry weighting, market capitalization,
and other characteristics such as beta, price-to-book ratios, price-to-earnings
ratios and dividend yields. If we had employed a full replication strategy at
such an early stage in the Fund's asset growth cycle, we believe it would have
increased the Fund's transaction costs and further dampened its investment
performance.

[This chart shows in bar format the industry breakdown of Franklin S&P 500 Index
Fund, based on total net assets as of 12/31/99.]

Electronic Technology 17.6%
Finance 11.7%
Technology Services 9.5%
Utilities 8.6%
Health Technology 7.2%
Retail Trade 6.4%
Process Industries 5.2%
Consumer Non-Durables 5.0%
Energy Minerals 4.7%
Consumer Services 4.6%
Producer Manufacturing 3.4%
Other Industries 3.7%
Cash & Equivalents 12.4%

S&P-1
<PAGE>

[This chart lists the top 10 holdings, including industry, of the Franklin S&P
500 Fund, based on total net assets as of 12/31/99.]

TOP 10 HOLDINGS
Franklin S&P 500 Index Fund
12/31/99
<TABLE>
<CAPTION>

COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------
<S> <C>
Microsoft Corp., 4.4%
TECHNOLOGY SERVICES

General Electric Co., 3.2%
PROCESS INDUSTRIES

Cisco Systems Inc., 2.6%
ELECTRONIC TECHNOLOGY

Wal-Mart Stores Inc., 2.2%
RETAIL TRADE

Intel Corp., 2.1%
ELECTRONIC TECHNOLOGY

Exxon Mobil Corp., 1.9%
ENERGY MINERALS

Lucent Technologies Inc., 1.8%
ELECTRONIC TECHNOLOGY

International Business 1.5%
Machines Corp.,
ELECTRONIC TECHNOLOGY

America Online Inc., 1.4%
TECHNOLOGY SERVICES

Honeywell International 1.3%
Inc.,
PRODUCER MANUFACTURING
</TABLE>

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

At the end of the reporting period, the Fund held a mix of 140 companies
present in the S&P 500 Index, as well as 12.4% in cash and equivalents.
Although uninvested cash, the result of regular cash inflows that inundated the
Fund since inception, hindered positive investment performance, it was a
benefit when index returns were negative and helped cushion the impact of
negative equity price returns.

The Fund's performance was also influenced by factors that do not affect the
investment performance of an unmanaged index such as the S&P 500. For example,
the Fund has transaction costs and investment management expenses, and must
always keep some cash on hand to redeem shares. Generally speaking, these
variables account for much of the difference between the Fund's performance and
that of the S&P 500 Index.

Looking forward, we anticipate that once the Fund reaches critical mass,
additional cash flows will have less of an impact upon performance. At that
time, the Fund should more closely track the index.

We thank you for investing in Franklin S&P 500 Index Fund and welcome your
comments or suggestions.

Sincerely,

/s/MARK BOYADJIAN

Mark Boyadjian
Portfolio Manager
Franklin S&P 500 Index Fund

S&P-2
<PAGE>

PERFORMANCE SUMMARY

Total return represents the cumulative change in value, assuming reinvestment
of dividends and capital gains.

<TABLE>
<CAPTION>
Franklin S&P 500 Index Fund -- Class 3
Periods ended 12/31/99
SINCE
INCEPTION
(11/1/99)
- ------------------------------------------------------
<S> <C>
Cumulative Total Return 5.50%
Aggregate Total Return* 5.50%
Value of $10,000 Investment $10,550
</TABLE>

*Aggregate total return represents the change in value of an investment over
the indicated period. Since these shares have existed for less than one year,
average annual total returns are not provided.

FRANKLIN S&P 500
INDEX FUND
- -- CLASS 3

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.

Past performance does not guarantee future results.

S&P-3

<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
--------------------------
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year $10.00
-------
Income from investment operations:
Net investment income ........................... .03
Net unrealized gain ............................. .53
-------
Total from investment operations ................. .56
-------
Net asset value, end of year ..................... $10.56
=======
Total Return* .................................... 5.60%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $14,888
Ratios to average net assets:
Expenses ........................................ .55%**
Expenses, excluding waiver by affiliate ......... .98%**
Net investment income ........................... 1.77%**
Portfolio turnover rate .......................... --
</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 1, 1999 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

S&P-4
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Financial Highlights (CONTINUED)

<TABLE>
<CAPTION>
CLASS 2
--------------------------
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year $10.00
-------
Income from investment operations:
Net investment income ........................... .04
Net unrealized gain ............................. .51
-------
Total from investment operations ................. .55
-------
Net asset value, end of year ..................... $10.55
=======
Total Return* .................................... 5.50%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $88
Ratios to average net assets:
Expenses ........................................ .80%**
Expenses, excluding waiver by affiliate ......... 1.23%**
Net investment income ........................... 2.17%**
Portfolio turnover rate .......................... --
</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 1, 1999 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

S&P-5
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Financial Highlights (CONTINUED)

<TABLE>
<CAPTION>
CLASS 3
--------------------------
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year $10.00
-------
Income from investment operations:
Net investment income ........................... .03
Net unrealized gain ............................. .52
-------
Total from investment operations ................. .55
-------
Net asset value, end of year ..................... $10.55
=======
Total Return* .................................... 5.50%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $2,349
Ratios to average net assets:
Expenses ........................................ .80%**
Expenses, excluding waiver by affiliate ......... 4.16%**
Net investment income ........................... 1.78%**
Portfolio turnover rate .......................... --
</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 1, 1999 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

S&P-6
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 87.6%
CONSUMER DURABLES 1.3%
Ford Motor Co. ................................. United States 1,747 $ 114,730
General Motors Corp. ........................... United States 1,379 100,236
-----------
214,966
-----------
CONSUMER NON-DURABLES 5.0%
Anheuser-Busch Cos. Inc. ....................... United States 600 42,525
Campbell Soup Co. .............................. United States 1,249 48,321
Coca-Cola Co. .................................. United States 2,785 162,226
Colgate-Palmolive Co. .......................... United States 900 58,500
Gillette Co. ................................... United States 1,616 66,559
Kimberly-Clark Corp. ........................... United States 1,016 66,294
PepsiCo Inc. ................................... United States 2,101 74,060
Philip Morris Cos. Inc. ........................ United States 4,546 105,410
Procter & Gamble Co. ........................... United States 1,200 131,475
Sara Lee Corp. ................................. United States 2,345 51,737
Unilever NV, N.Y. shs., ADR .................... Netherlands 1,100 59,881
-----------
866,988
-----------
CONSUMER SERVICES 4.6%
Carnival Corp. ................................. United States 1,224 58,523
* CBS Corp. ...................................... United States 1,365 87,275
Comcast Corp. .................................. United States 1,358 68,664
Gannett Co. Inc. ............................... United States 1,101 89,800
McDonald's Corp. ............................... United States 2,305 92,920
* MediaOne Group Inc. ............................ United States 1,000 76,813
Seagrams Co. Ltd. .............................. Canada 700 40,444
Time Warner Inc. ............................... United States 1,690 122,419
* Viacom Inc. .................................... United States 1,138 68,778
Walt Disney - Disney Group ..................... United States 3,059 89,476
-----------
795,112
-----------
ELECTRONIC TECHNOLOGY 17.6%
* 3Com Corp. ..................................... United States 900 42,300
* Applied Materials Inc. ......................... United States 700 88,681
Boeing Co. ..................................... United States 1,720 71,488
* Cisco Systems Inc. ............................. United States 4,159 445,533
Compaq Computer Corp. .......................... United States 3,187 86,248
* Dell Computer Corp. ............................ United States 3,462 176,562
* EMC Corp. ...................................... United States 1,460 159,505
Hewlett-Packard Co. ............................ United States 1,466 167,032
Intel Corp. .................................... United States 4,281 352,380
International Business Machines Corp. .......... United States 2,360 254,880
Lucent Technologies Inc. ....................... United States 4,038 302,093
Motorola Inc. .................................. United States 946 139,299
Nortel Networks Corp. .......................... Canada 1,834 185,234
QUALCOMM Inc. .................................. United States 800 141,000
* Sun Microsystems Inc. .......................... United States 2,380 184,301
* Tellabs Inc. ................................... United States 900 57,769
Texas Instruments Inc. ......................... United States 1,224 118,575
United Technologies Corp. ...................... United States 1,041 67,665
-----------
3,040,545
-----------
ENERGY MINERALS 4.7%
Atlantic Richfield Co. ......................... United States 800 69,200
Chevron Corp. .................................. United States 800 69,300
Conoco Inc. .................................... United States 2,438 60,645
</TABLE>

S&P-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY MINERALS (CONT.)
Exxon Mobil Corp. ............................. United States 4,051 $ 326,359
Phillips Petroleum Co. ........................ United States 1,645 77,315
Royal Dutch Petroleum Co., N.Y. shs. .......... Netherlands 2,525 152,605
Texaco Inc. ................................... United States 1,000 54,313
-----------
809,737
-----------
FINANCE 11.7%
Allstate Corp. ................................ United States 2,775 66,600
American Express Co. .......................... United States 541 89,941
American International Group Inc. ............. United States 1,733 187,381
Associates First Capital Corp. ................ United States 1,683 46,177
Bank of America Corp. ......................... United States 2,016 101,178
Bank of New York Co. Inc. ..................... United States 1,482 59,280
Bank One Corp. ................................ United States 2,282 73,167
Charles Schwab Corp. .......................... United States 1,452 55,721
Chase Manhattan Corp. ......................... United States 1,100 85,456
Citigroup Inc. ................................ United States 3,967 220,416
Fannie Mae .................................... United States 1,109 69,243
First Union Corp. ............................. United States 2,187 71,761
Firstar Corp. ................................. United States 2,671 56,425
Fleet Boston Financial Corp. .................. United States 1,919 66,805
Freddie Mac ................................... United States 1,223 57,557
Household International Inc. .................. United States 1,233 45,929
Loews Corp. ................................... United States 1,200 72,825
Marsh & McLennan Cos. Inc. .................... United States 700 66,981
MBNA Corp. .................................... United States 1,768 48,178
Mellon Financial Corp. ........................ United States 1,657 56,442
Merrill Lynch & Co. Inc. ...................... United States 800 66,800
Morgan Stanley, Dean Witter & Co. ............. United States 796 113,629
National City Corp. ........................... United States 2,949 69,854
U.S. Bancorp. ................................. United States 2,382 56,721
Washington Mutual Inc. ........................ United States 1,870 48,620
Wells Fargo Co. ............................... United States 1,897 76,710
-----------
2,029,797
-----------
HEALTH SERVICES .3%
Columbia/HCA Healthcare Corp. ................. United States 2,035 59,651
-----------
HEALTH TECHNOLOGY 7.2%
Abbott Laboratories ........................... United States 2,426 88,094
American Home Products Corp. .................. United States 1,820 71,776
* Amgen Inc. .................................... United States 1,500 90,094
Bristol-Myers Squibb Co. ...................... United States 2,070 132,868
Eli Lilly & Co. ............................... United States 1,451 96,492
Johnson & Johnson ............................. United States 1,466 136,521
Medtronic Inc. ................................ United States 2,073 75,535
Merck & Co. Inc. .............................. United States 2,625 176,039
Pfizer Inc. ................................... United States 4,724 153,235
Pharmacia & Upjohn Inc. ....................... United States 1,216 54,720
Schering-Plough Corp. ......................... United States 2,051 86,527
Warner-Lambert Co. ............................ United States 1,053 86,280
-----------
1,248,181
-----------
</TABLE>

S&P-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES .6%
Halliburton Co. ................................. United States 1,001 $ 40,290
Schlumberger Ltd. ............................... United States 1,100 61,875
Transocean Sedco Forex Inc. ..................... United States 213 7,174
-----------
109,339
-----------
NON-ENERGY MINERALS .8%
Aluminum Co. of America ......................... United States 800 66,400
Weyerhaeuser Co. ................................ United States 900 64,631
-----------
131,031
-----------
PROCESS INDUSTRIES 5.2%
Dow Chemical Co. ................................ United States 500 66,813
E. I. Du Pont de Nemours and Co. ................ United States 1,490 98,154
General Electric Co. ............................ United States 3,573 552,922
International Paper Co. ......................... United States 1,154 65,129
Monsanto Co. .................................... United States 1,470 52,369
PPG Industries Inc. ............................. United States 1,083 67,755
-----------
903,142
-----------
PRODUCER MANUFACTURING 3.4%
Caterpillar Inc. ................................ United States 1,266 59,581
Emerson Electric Co. ............................ United States 1,540 88,358
Honeywell International Inc. .................... United States 3,825 220,655
Minnesota Mining & Manufacturing Co. ............ United States 700 68,513
Tyco International Ltd. ......................... United States 2,755 107,101
Xerox Corp. ..................................... United States 2,116 48,007
-----------
592,215
-----------
RETAIL TRADE 6.4%
Albertson's Inc. ................................ United States 1,515 48,859
Costco Wholesale Corp. .......................... United States 700 63,875
Dayton Hudson Corp. ............................. United States 1,046 76,816
GAP Inc. ........................................ United States 1,439 66,194
Home Depot Inc. ................................. United States 2,994 205,276
Lowe's Cos. Inc. ................................ United States 905 54,074
May Department Stores Co. ....................... United States 2,100 67,725
* Safeway Inc. .................................... United States 1,469 52,241
* The Kroger Co. .................................. United States 2,648 49,981
Walgreen Co. .................................... United States 2,000 58,500
Wal-Mart Stores Inc. ............................ United States 5,334 368,713
-----------
1,112,254
-----------
TECHNOLOGY SERVICES 9.5%
* America Online Inc. ............................. United States 3,070 231,593
Automatic Data Processing Inc. .................. United States 1,378 74,240
Computer Associates International Inc. .......... United States 1,100 76,931
Electronic Data Systems Corp. ................... United States 900 60,244
First Data Corp. ................................ United States 1,247 61,493
* Microsoft Corp. ................................. United States 6,438 751,637
* Oracle Corp. .................................... United States 1,955 219,082
Yahoo! Inc. ..................................... United States 400 173,075
-----------
1,648,295
-----------
</TABLE>

S&P-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION .7%
Burlington Northern Santa Fe Corp. .......................................... United States 2,475 $ 60,019
Union Pacific Corp. ......................................................... United States 1,328 57,934
------------
117,953
------------
UTILITIES 8.6%
Alltel Corp. ................................................................ United States 900 74,419
AT&T Corp. .................................................................. United States 3,840 194,880
Bell Atlantic Corp. ......................................................... United States 1,984 122,140
BellSouth Corp. ............................................................. United States 2,451 114,737
Duke Energy Corp. ........................................................... United States 1,129 56,591
Enron Corp. ................................................................. United States 1,374 60,971
* Global Crossing Ltd. ........................................................ Bermuda 1,221 61,050
GTE Corp. ................................................................... United States 1,229 86,720
* MCI WorldCom Inc. ........................................................... United States 3,717 197,232
SBC Communications Inc. ..................................................... United States 3,983 194,171
Southern Co. ................................................................ United States 2,460 57,810
* Sprint Corp. (PCS Group) .................................................... United States 700 71,750
Sprint Corp. Fon Group ...................................................... United States 1,216 81,851
U.S. West Inc. .............................................................. United States 1,009 72,648
Williams Cos. Inc. .......................................................... United States 1,471 44,957
------------
1,491,927
------------
TOTAL COMMON STOCKS (COST $14,701,201)....................................... 15,171,133
------------
SHORT TERM INVESTMENTS 19.5%
** Franklin Institional Fiduciary Trust Money Market Portfolio (COST $3,382,348) United States 3,382,348 3,382,348
------------
TOTAL INVESTMENTS (COST $18,083,549) 107.1%.................................. 18,553,481
OTHER ASSETS, LESS LIABILITIES (7.1%) ....................................... (1,228,714)
------------
NET ASSETS 100.0% ........................................................... $ 17,324,767
============
</TABLE>

*NON-INCOME PRODUCING.
**SEE NOTE 3 REGARDING INVESTMENT IN THE "SWEEP MONEY FUND".

See Note to Financial Statements.

S&P-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $18,083,549)........................... $ 18,553,481
Receivables:
Fund shares sold ............................................................... 338,292
Dividends ...................................................................... 7,198
Offering costs (Note 1c) ........................................................ 40,000
------------
Total assets .................................................................. 18,938,971
------------
Liabilities:
Payables:
Investment securities purchased ................................................ 1,587,953
To affiliates .................................................................. 4,616
Accrued expenses ................................................................ 21,635
------------
Total liabilities ............................................................. 1,614,204
------------
Net assets, at value ............................................................. $ 17,324,767
============
Net assets consist of:
Undistributed net investment income ............................................. $ 21,813
Net unrealized appreciation ..................................................... 469,932
Beneficial shares ............................................................... 16,833,022
------------
Net assets, at value ............................................................. $ 17,324,767
============
CLASS 1:
Net asset value per share ($14,888,190 /divided by/ 1,410,004 shares outstanding) $ 10.56
============
CLASS 2:
Net asset value per share ($87,915 /divided by/ 8,333 shares outstanding)......... $ 10.55
============
CLASS 3:
Net asset value per share ($2,348,662 /divided by/ 222,589 shares outstanding) ... $ 10.55
============
</TABLE>

See Notes to Financial Statements.

S&P-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Financial Statements (CONTINUED)

STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 1, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1999

<TABLE>
<S> <C> <C>
Investment Income:
Dividends ................................................... $21,605
Interest .................................................... 4,815
-------
Total investment income .................................... $ 26,420
---------
Expenses:
Management fees (Note 3) .................................... 1,735
Administrative fees (Note 3) ................................ 1,140
Distribution fees (Note 3)
Class 2 .................................................... 36
Class 3 .................................................... 513
Transfer agent fees - Class 3 (Note 3) ...................... 2,600
Custodian fees .............................................. 20
Reports to shareholders ..................................... 5,500
Amortization of offering costs (Note 1C) .................... 4,500
Amortization of offering costs - Class 3 (Note 1C) .......... 3,500
Professional fees ........................................... 8,020
Trustees' fees and expenses ................................. 8
Other ....................................................... 243
-------
Total expenses ............................................ 27,815
Expenses waived (Note 3) .................................. (15,055)
Expenses waived - Class 3 (Note 3) ........................ (6,100)
---------
Net expenses ............................................. 6,660
---------
Net investment income ................................... 19,760
---------
Net unrealized appreciation on investments ................... 469,932
---------
Net increase in net assets resulting from operations ......... $ 489,692
=========
</TABLE>

See Notes to Financial Statements.

S&P-12
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Financial Statements (CONTINUED)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
Increase in net assets:
Operations:
Net investment income .......................................... $ 19,760
Net unrealized appreciation on investments ..................... 469,932
-----------
Net increase in net assets resulting from operations ......... 489,692
Fund share transactions (Note 2):
Class 1 ....................................................... 14,487,738
Class 2 ....................................................... 83,330
Class 3 ....................................................... 2,264,007
-----------
Net increase in net assets ................................... 17,324,767
Net assets:
Beginning of year ............................................... --
-----------
End of year ..................................................... $17,324,767
===========
Undistributed net investment income included in net assets:
End of year ..................................................... $ 21,813
===========
</TABLE>

/dagger/FOR THE PERIOD NOVEMBER 1, 1999 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1999.

See Notes to Financial Statements.

S&P-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin S&P 500 Index 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 to match the performance of S&P 500 Index. The following summarizes
the Fund's significant accounting policies.

A. SECURITY VALUATION:

B. 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.

C. OFFERING COSTS:

Offering costs are amortized on a straight-line basis over twelve months.

D. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

The Fund offers three classes of shares: Class 1, Class 2 and Class 3 shares.
The shares differ by their distribution fees, registration fees, shareholder
servicing costs, voting rights on matters affecting a single class, and the
exchange privilege of each class.

S&P-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Notes to Financial Statements (CONTINUED)

2. BENEFICIAL SHARES (CONT.)
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

YEAR ENDED
DECEMBER 31, 1999*
-----------------------------
SHARES AMOUNT
CLASS 1 SHARES: -----------------------------
Shares sold ............. 1,433,132 $ 14,724,579
Shares redeemed ......... (23,128) (236,841)
-----------------------------
Net increase ............ 1,410,004 $ 14,487,738
=============================

YEAR ENDED
DECEMBER 31, 1999*
---------------------------
SHARES AMOUNT
CLASS 2 SHARES: ---------------------------
Shares sold .......... 8,333 $ 83,330
---------------------------
Net increase ......... 8,333 $ 83,330
===========================

YEAR ENDED
DECEMBER 31, 1999*
---------------------------
SHARES AMOUNT
CLASS 3 SHARES: ---------------------------
Shares sold ............. 232,129 $ 2,362,095
Shares redeemed ......... (9,540) (98,088)
---------------------------
Net increase ............ 222,589 $ 2,264,007
===========================

*Commencement of operations of Class 1, Class 2, and Class 3 shares was
November 1, 1999.

Templeton Funds Annuity Company, the Fund's subadministrative manager, is the
record owner of 8,334, 8,333, and 8,333 of the Fund's Class 1, Class 2, and
Class 3 shares, respectively, as of December 31, 1999.

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),
Franklin/Templeton Distributors, Inc. (Distributors), and Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter, and transfer agent,
respectively.

The Fund pays an investment management fee to Advisers of 0.15% per year of the
average daily net assets of the Fund.

The Fund pays an administrative fee to FT Services of 0.10% per year of the
Fund's average daily net assets.

Under a sub-advisory agreement, State Street Global Advisors (SSgA) provides
sub-advisory services to the Fund and receives from Advisers fees based on the
average daily net assets of the Fund as follows:

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ---------------------------------------------------------------
0.05% First $50 million
0.04% Over $50 million, up to and including $100 million
0.02% Over $100 million

S&P-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

Notes to Financial Statements (CONTINUED)

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

Advisers and FT Services have agreed in advance to limit total expenses of the
Fund to an annual rate of 0.55%, 0.80%, and 0.80% of average daily net assets
of Class 1, Class 2, and Class 3 shares, respectively, through December 31,
2000, as noted in the Statements of Operations.

The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is managed by Advisers. The Fund earned
$12,524 of dividend income from its investment in the Sweep Money Fund.

The Fund reimburses Distributors for costs incurred in marketing the Fund's
shares up to 0.25% per year of its average daily net assets of Class 2 and
Class 3 shares.

4. 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.

Unrealized appreciation ............. $ 860,490
Unrealized depreciation ............. (390,558)
----------
Net unrealized appreciation ......... $ 469,932
==========

Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of offering costs and distribution fees.

5. INVESTMENT TRANSACTIONS

Purchases of securities (excluding short-term securities) for the year ended
December 31, 1999 aggregated $14,701,201.

6. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Franklin S&P 500 Index
Fund.

S&P-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin S&P 500 Stock Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the period from November 1, 1999 (effective date) to December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 6, as to which the date is February 8, 2000.

S&P-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN S&P 500 INDEX FUND

CHANGE IN INDEPENDENT AUDITOR

Since this change occurred during the Fund's initial year of operation,
McGladrey did not report on the Fund's financial statements.

There were no disagreements with McGladrey on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure.

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

S&P-18
<PAGE>

FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: FRANKLIN STRATEGIC INCOME
INVESTMENTS FUND SEEKS A HIGH LEVEL OF CURRENT INCOME, WITH CAPITAL
APPRECIATION OVER THE LONG TERM AS A SECONDARY OBJECTIVE. THE FUND USES AN
ACTIVE ASSET ALLOCATION PROCESS AND INVESTS IN SECURITIES OF FOREIGN
GOVERNMENTS, U.S. AND FOREIGN HIGH YIELD, FIXED-INCOME SECURITIES, ASSET-BACKED
SECURITIES, PREFERRED STOCK, COMMON STOCK THAT PAYS DIVIDENDS, AND
INCOME-PRODUCING SECURITIES CONVERTIBLE INTO COMMON STOCK OF SUCH COMPANIES.
- --------------------------------------------------------------------------------

We are pleased to bring you this first annual report of Franklin Strategic
Income Investments Fund. Because the Fund was launched on July 1, 1999, this
discussion will cover the six-month period ending December 31, 1999.

Overall, the past six months have proved to be a period of rather mixed results
for fixed income investments. Although reported domestic inflation figures
remained relatively benign, fears of rising pricing pressure on the domestic
economy, and the calendar year's third 25 basis points increase in the federal
funds rate, pushed interest rates higher during the period. In fact, 10-year
Treasury rates jumped by about 60 basis points during the last six months,
climbing from 5.8% to end the period at 6.4%

Within this environment, we tried to take advantage of relative value
opportunities in the fixed income universe given the Fund's flexibility to
invest across six primary asset classes--high yield corporate bonds, foreign
government bonds, emerging market debt securities, U.S. government bonds,
mortgage-backed securities, and convertible securities. In particular, our
focus on growth-oriented fixed income sectors rather than interest-rate
sensitive sectors helped to support the Fund's total return performance over
the past six months. For example, the Fund benefited from its heavier weighting
in the emerging markets fixed income sector, which posted one of the strongest
relative returns across the fixed income market. Similarly, the Fund's lower
weighting in U.S. government securities proved to be opportune given the softer
performance from that interest-rate sensitive sector. Given relative valuation
levels at the end of the period, we believe that our portfolio positioning,
which favored more growth-oriented over interest-rate sensitive fixed income
sectors, was appropriate and that this positioning should lead to superior
returns for our shareholders over the longer-term.

[This chart lists in pie format the portfolio breakdown for Franklin Strategic
Income Investments Fund, based on total net assets as of 12/31/99.]

High Yield Corporate Bonds 34.7%
Emerging Market Bonds 17.0%
Convertible Securities 8.9%
International Developed Market Bonds 8.8%
Mortgages and Asset-Backed Securities 7.5%
U.S. Government and Agencies 7.4%
Cash & Other Net Assets 15.7%

FSI-1
<PAGE>

HIGH YIELD CORPORATE

During the past six months, a combination of rising interest rates and
unfavorable supply and demand fundamentals pressured pricing in the high yield
market. In addition to an increase in Treasury rates, asset outflows from
dedicated high yield mutual funds and a moderate level of new issue volume
pushed overall yield spread levels over Treasuries higher. However, although
default rates in the high yield corporate bond market moved higher in 1999, we
believe the healthy domestic economy should continue to support the fundamental
credit outlook for many high yield issuers. Because of this, as well as the
historically wide yield spreads, high yield corporate bonds were the Fund's
largest sector holding at the end of the reporting period.

Merger and acquisition activity as well as other positive corporate events
continued to drive performance for the Fund's more heavily-weighted cable,
broadcasting, and wireless communications sectors. Radio station operator
Chancellor Media (now AMFM Inc.) agreed to merge with investment-grade rated
Clear Channel Communications, driving prices for our bond position in this
issuer higher. Our holdings in United Pan-Europe Communications NV, one of the
largest cable television operators in Europe, benefited from that company's
healthy operational results combined with its willingness to use its equity
currency to help fund various cable system acquisitions. The Fund's position in
Nextel Communications Inc., a nationwide provider of digital wireless
communication services, was favorably impacted by strong operating results and
a successful common stock offering which raised $2.8 billion in capital. The
Fund's largest industry allocation is telecommunications, given the robust
long-term growth outlook and consolidation trends for companies that operate in
that arena. Over the past six months, we initiated positions in PSI Net Inc., a
global facilities-based provider of Internet access, and in Level 3
Communications Inc., a provider of wholesale telecommunications services. The
expected growth in the demand for both of these companies' services should
drive operating results for these two companies for the next several years and
simultaneously lead to improving credit profiles.

FSI-2
<PAGE>

EMERGING MARKET

The emerging markets continued their recent trend of high volatility. However,
during the past six months the sector provided one of the strongest relative
total return performances within the fixed income asset class, largely as a
result of the healthy yields being offered in this market. Emerging markets
represented the Fund's second-largest sector weighting, which reflects both an
apparently improving fundamental outlook for select developing countries, as
well as the still generous yield spreads over Treasuries being provided for
investors in this market.

During the year, Latin America was our top region within this sector. Mexico
continued to be our largest position in the sector. We believe the fundamental
outlook for this country remains favorable and has begun to be reflected in the
trading levels for its sovereign debt. We initiated a position in Columbian
bonds, which had traded off largely on fears of the impact of its currency
depreciation. However, with rising yield levels, Columbia's sovereign bonds
appeared to us relatively attractive given a more sanguine longer-term outlook
for that country's economy.

INTERNATIONAL DEVELOPED MARKET

A generally stronger U.S. dollar constrained returns from our international
developed markets sector. However, the Fund has kept a fairly moderate exposure
to this sector because its total return potential, absent major currency moves,
remained rather constrained compared to other fixed income sectors given the
low nominal yields being offered in many developed international fixed income
markets. In terms of currency exposure, the Fund's positions in this sector
were generally unhedged at period end, as the dollar appeared vulnerable to
near-term depreciation.

During the period, German bonds comprised one of the Fund's largest holdings in
Europe because that country continues to serve as the sovereign benchmark in
that region. Because of the relative value of Italy's bonds within the European
Union, we also maintained a meaningful exposure to that country. In the
dollar-bloc countries, the Fund held relatively equal exposures to Australia
and New Zealand at period end.

FSI-3
<PAGE>

CONVERTIBLE SECURITIES

After experiencing a dip in the fall of 1999, the broad domestic equity markets
rebounded sharply towards the latter half of the reporting period. Although the
strength in the U.S. economy should continue to support earnings growth, rising
nominal interest rates and the fear of increasing inflation could temper future
pricing levels in this sector. As valuations in this market become more
attractive, the Fund will continue to look for select opportunities to invest
in the equities of undervalued companies with favorable fundamental outlooks.
Of note, during the period the Fund's position in Vodafone (through the
MediaOne Group Inc. convertible preferred) benefited from the healthy
subscriber additions and favorable long-term global growth projections for
wireless services.

U.S. GOVERNMENT AND AGENCIES

During the past six months, the Fund generally held an underweighted exposure
to this sector. However, in an attempt to take advantage of widening spreads in
the callable government agency market, we did add exposure to that part of the
sector. Although recent increases in the nominal rates being offered in the
U.S. government market have increased this sector's attractiveness, total
return potential in this sector still remains relatively limited compared to
other fixed income alternatives and consequently the Fund's exposure remained
generally low at period end.

MORTGAGES AND ASSET-BACKED SECURITIES

The Fund continued to overweight its mortgage and other asset-backed securities
sector relative to its U.S. government exposure due to the historically wide
yield spreads over Treasuries being offered in this market. Over the course of
the period, spread levels did begin to contract, which helped to support
pricing in this sector even in the face of rising domestic interest rates.

FSI-4
<PAGE>

LOOKING FORWARD

Despite the fact that domestic economic growth may slow from the robust rate of
gross domestic product expansion experienced in the latter half of 1999, the
outlook for moderate economic growth for 2000 remains intact. Although certain
measures of domestic pricing pressure have recently been on the rise, core
inflationary rates still appear to be relatively subdued. Moreover, on the
international front, the fiscal position of many developing countries is
expected to stabilize as a result of a stronger economic outlook. Given this
apparently favorable global economic outlook and the above-average yield
spreads being offered by high yield corporate bonds and emerging market
securities, at period end we favored these growth-oriented sectors. Our lower
exposure to interest-rate sensitive sectors reflected the relatively low
nominal yields being offered in these markets and the more limited
intermediate-term total return prospects in those sectors. As always, the Fund
will continue to look for opportunities to enhance its long-term returns while
reducing overall volatility by actively managing its sector and security
allocations.

We thank you for your participation in Franklin Strategic Income Investments
Fund and look forward to serving your investment needs in the years to come.

Sincerely,

/s/CHRISTOPHER J. MOLUMPHY

Christopher J. Molumphy
Portfolio Manager
Franklin Strategic Income Investments Fund

This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.

FSI-5
<PAGE>

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FSI-6
<PAGE>

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FSI-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 10.00
-------
Income from investment operations:
Net investment income ........................................ .38
Net realized and unrealized loss ............................. (.12)
--------
Total from investment operations ............................... .26
--------
Less distributions from net investment income .................. (.30)
--------
Net asset value, end of year ................................... $ 9.96
========
Total Return* .................................................. 2.61%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 4,741
Ratios to average net assets:
Expenses ..................................................... .75%**
Expenses, excluding waiver and payments by affiliate ......... 1.46%**
Net investment income ........................................ 7.52%**
Portfolio turnover rate ........................................ 9.96%
</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 1, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

FSI-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS 6.4%
ENERGY MINERALS 2.1%
Kerr-McGee Corp., 5.50%, cvt. pfd. ........................................................ United States 3,000 $ 99,000
----------
FINANCE 2.0%
Protective Life Capital Trust II, 6.50%, cvt. pfd. ........................................ United States 1,750 92,531
----------
TELECOMMUNICATIONS 2.3%
MediaOne Group Inc., 7.00%, cvt. pfd. ..................................................... United States 2,300 110,400
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $293,309)......................................... 301,931
----------
PRINCIPAL
AMOUNT*
----------
BONDS 34.7%
CONSUMER SERVICES 6.1%
AMFM Inc., senior note, 8.00%, 11/01/08 ................................................... United States $ 100,000 100,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ...................................... United States 100,000 106,000
United Pan-Europe Communications NV, zero cpn. to 8/01/04 12.50%, thereafter, 8/01/09 ..... Netherlands 150,000 85,500
----------
291,500
----------
ENERGY MINERALS 4.1%
Chesapeake Energy Corp., senior note, B, 9.625%, 5/01/05 .................................. United States 100,000 95,000
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ............................. United States 100,000 99,000
----------
194,000
----------
FINANCE 2.2%
Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ..................................... United States 100,000 102,000
----------
HEALTH SERVICES 2.0%
Fresenius Medical Care Capital Trust, 7.875%, 2/01/08 ..................................... Germany 100,000 93,000
----------
INDUSTRIAL SERVICES 1.9%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 .......................... United States 100,000 88,500
----------
PROCESS INDUSTRIES 6.1%
Anchor Glass, first mortgage, 11.25%, 4/01/05 ............................................. United States 100,000 85,500
Lyondell Chemical Co., senior secured note, 9.875%, 5/01/07 ............................... United States 100,000 102,000
Packaging Corp. Of America, senior sub. note, 9.625%, 4/01/09 ............................. United States 100,000 103,000
----------
290,500
----------
TECHNOLOGY SERVICES 2.1%
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 .......................................... United States 100,000 101,250
----------
TELECOMMUNICATIONS 8.0%
Level 3 Communications Inc., senior disc. note, zero cpn to 12/01/03,10.50% thereafter,
12/01/08................................................................................ United States 150,000 91,875
Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02, 9.75% thereafter,
10/31/07 ............................................................................... United States 150,000 109,125
Nextlink Communications Inc., 144A, zero cpn. to 6/01/04, 12.25% thereafter, 6/01/09 ...... United States 150,000 92,250
VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn. to 11/15/04, 11.875%
thereafter, 11/15/09 ................................................................... United States 150,000 90,000
----------
383,250
----------
UTILITIES 2.2%
AES Corp., senior note, 9.50%, 6/01/09 .................................................... United States 100,000 102,000
----------
TOTAL BONDS (COST $1,650,290).............................................................. 1,646,000
----------
CONVERTIBLE BONDS 2.5%
TECHNOLOGY SERVICES 2.5%
Affiliated Computer Services, cvt., sub. note, 4.00%, 3/15/05 (COST $120,750).............. United States 100,000 120,688
----------
</TABLE>

FSI-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
--------------- --------------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 14.9%
OTHER U.S. GOVERNMENT AND AGENCY SECURITIES 7.4%
FHLMC, 6.60%, 4/20/09 ........................................................... United States 140,000 $ 131,199
FNMA, 5.25%, 1/15/09 ............................................................ United States 250,000 220,520
----------
351,719
----------
U.S. GOVERNMENT AGENCIES/MORTGAGES 7.5%
FNMA, 7.00%, 5/01/12 ............................................................ United States 91,944 91,141
FNMA, 6.50%, 7/01/28 ............................................................ United States 96,622 91,284
FNMA, 6.00%, 2/01/29 ............................................................ United States 97,878 89,694
GNMA, SF, 8.00%, 6/15/26 ........................................................ United States 79,883 80,863
----------
352,982
----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $721,170)...................... 704,701
----------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 25.8%
Republic of Argentina, Bonos Del Tesoro, 8.75%, 5/09/02 ......................... Argentina 150,000 142,275
Australian Government, 7.50%, 7/15/05 ........................................... Australia 97,000 AUD 65,881
Republic of Brazil, 9.375%, 4/07/08 ............................................. Brazil 150,000 133,125
Republic of Brazil, 14.50%, 10/15/09 ............................................ Brazil 10,000 11,100
Republic of Bulgaria, Series A, FRN, 6.875%, 7/28/24 ............................ Bulgaria 100,000 80,313
Republic of Columbia, 9.75%, 4/23/09 ............................................ Colombia 50,000 47,915
French Treasury Note, 3.50%, 7/12/04 ............................................ France 28,000 EUR 26,662
Federal Republic of Germany, 3.25%, 2/17/04 ..................................... Germany 41,000 EUR 39,010
Federal Republic of Germany, 4.50%, 7/04/09 ..................................... Germany 73,000 EUR 68,936
Buoni Poliennali Del Tesoro, 7.75%, 11/01/06 .................................... Italy 100,000 EUR 114,064
United Mexican States, 8.625%, 3/12/08 .......................................... Mexico 250,000 246,252
Government of New Zealand, 7.00%, 7/15/09 ....................................... New Zealand 125,000 NZD 63,904
Republic of Panama, 9.375%, 4/01/29 ............................................. Panama 50,000 48,200
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 .............................. Russia 50,000 30,500
Swedish Government, 10.25%, 5/05/03 ............................................. Sweden 300,000 SEK 40,769
Republic of Venezuela, 9.25%, 9/15/27 ........................................... Venezuela 100,000 66,500
----------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $1,210,367)................. 1,225,406
----------
TOTAL LONG TERM INVESTMENTS (COST $3,995,886).................................... 3,998,726
==========
SHARES
-----------
SHORT TERM INVESTMENTS 12.2%
** Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $576,652).... United States 576,652 576,652
----------
TOTAL INVESTMENTS (COST $4,572,538) 96.5%........................................ 4,575,378
OTHER ASSETS, LESS LIABILITIES 3.5% ............................................. 165,688
----------
NET ASSETS 100.0% ............................................................... $4,741,066
==========
</TABLE>

CURRENCY ABBREVIATIONS:
AUD--Australian Dollars
EUR--European Currency Unit
NZD--New Zealand Dollars
SEK--Swedish Krona

*Securities denominated in U.S. dollars unless otherwise indicated.
**See Note 3 regarding investments in the "Sweep Money Fund".

See Notes to Financial Statements.

FSI-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $4,572,538)........................ $4,575,378
Receivables:
Fund shares sold ........................................................... 112,775
Dividends and interest ..................................................... 63,009
From affiliates ............................................................. 3,640
----------
Total assets .............................................................. 4,754,802
----------
Liabilities:
Payables to affiliates ...................................................... 743
Accrued expenses ............................................................ 12,993
----------
Total liabilities ......................................................... 13,736
----------
Net assets, at value ......................................................... $4,741,066
==========
Net assets consist of:
Undistributed net investment income ......................................... $ 1,950
Net unrealized appreciation ................................................. 2,727
Accumulated net realized loss ............................................... (20,144)
Beneficial shares ........................................................... 4,756,533
----------
Net assets, at value ......................................................... $4,741,066
==========
Net asset value per share ($4,741,066 /divided by/ 476,054 shares outstanding) $ 9.96
==========
</TABLE>

See Notes to Financial Statements.

FSI-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 1, 1999 (EFFECTIVE DATE) TO DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $507)
Dividends ............................................................... $ 16,003
Interest ................................................................ 130,879
---------
Total investment income ............................................... $ 146,882
---------
Expenses:
Management fees (Note 3) ................................................ 6,732
Administrative fees (Note 3) ............................................ 3,525
Custodian fees .......................................................... 245
Reports to shareholders ................................................. 5,005
Registration and filing fees ............................................ 60
Professional fees ....................................................... 8,030
Trustees' fees and expenses ............................................. 7
Other ................................................................... 2,339
---------
Total expenses ........................................................ 25,943
Expenses waived / paid by affiliate (Note 3) .......................... (12,621)
---------
Net expenses ......................................................... 13,322
---------
Net investment income ............................................... 133,560
---------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ............................................................ (20,144)
Foreign currency transactions .......................................... (367)
---------
Net realized loss ..................................................... (20,511)
Net unrealized appreciation (depreciation) on:
Investments ............................................................ 2,840
Translation of assets and liabilities denominated in foreign currencies (113)
---------
Net unrealized appreciation ........................................... 2,727
---------
Net realized and unrealized loss ......................................... (17,784)
---------
Net increase in net assets resulting from operations ..................... $ 115,776
=========
</TABLE>

See Notes to Financial Statements.

FSI-12
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
1999/dagger/
-------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 133,560
Net realized loss from investments and foreign currency transactions ................... (20,511)
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies...................................................... 2,727
----------
Net increase in net assets resulting from operations ................................. 115,776
Distributions to shareholders from net investment income ................................ (131,241)
Fund share transactions (Note 2): ....................................................... 4,756,531
----------
Net increase in net assets ........................................................... 4,741,066
Net assets:
Beginning of year ....................................................................... --
----------
End of year ............................................................................. $4,741,066
==========
Undistributed net investment income included in net assets:
End of year ............................................................................. $ 1,950
==========
</TABLE>

/dagger/FOR THE PERIOD JULY 1, 1999 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1999.

See Notes to Financial Statements.

FSI-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Income 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 high current income. 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. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

D. ACCOUNTING ESTIMATES:

FSI-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

2. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

YEAR ENDED
DECEMBER 31, 1999*
-------------------------
SHARES AMOUNT
-------------------------
Shares sold ...................................... 463,525 $4,632,471
Shares issued on reinvestment of distributions ... 13,257 131,241
Shares redeemed .................................. (728) (7,181)
------- ----------
Net increase ..................................... 476,054 $4,756,531
======= ==========

*Commencement of operations of shares was July 1, 1999.

As of December 31, 1999, there were no transactions in the Fund's Class 2
shares.

Templeton Funds Annuity Company, the Fund's subadministrative manager, is the
record owner of 309,058 shares as of December 31, 1999.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Franklin
Advisers, Inc. (Advisers), Templeton Investment Counsel, Inc. (TICI), Franklin
Templeton Services, Inc. (FT Services), and Franklin/Templeton Distributors,
Inc. (Distributors) the Fund's investment manager, sub-advisor, 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:

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
0.425% First $500 million
0.325% Over $500 million, up to and including $1 billion
0.280% Over $1 billion

Fees are further reduced on net assets over $1.5 billion.

The Fund pays an administrative fee to FT Services of 0.20% per year of the
Fund's average daily net assets.

Under a sub-advisory agreement, TICI provides sub-advisory services to the Fund
and receives from Advisers an annual rate of 0.25% based on the average daily
net assets of the Fund.

Advisers and FT Services have agreed in advance to limit total expenses of the
Fund to an annual rate of 0.75% and 1.00% of average daily net assets of Class
1 and Class 2 shares, respectively, through December 31, 2000, as noted in the
Statements of Operations.

The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is managed by Advisers. The Fund earned
$13,159 of dividend income from its investment in the Sweep Money Fund.

The Fund reimburses Distributors up to 0.25% per year of the average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares. No payments were made by the Fund for the year ended December 31, 1999.

FSI-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

4. 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.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $4,572,538 was as follows:

Unrealized appreciation ............. $ 79,560
Unrealized depreciation ............. (76,720)
---------
Net unrealized appreciation ......... $ 2,840
=========

At December 31, 1999, the Fund had tax basis capital losses of $18,246 which
may be carried over to offset figure capital gains. Such lossex expire in
December 31, 2007.

At December 31, 1999, the Fund have deferred capital losses occurring
subsequent to October 31, 1999 of $1,898. For tax purposes, such losses will be
reflected in the year ending December 31, 2000.

Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.

Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of foreign currency transactions.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $4,298,095 and $312,949, respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Strategic Income Investments Fund,
are participants in a $750 million senior unsecured credit agreement for
temporary borrowing purposes. The termination date of the agreement is March 1,
2000. Interest is calculated on the Fund's borrowings at market rates. At
December 31, 1999, the Fund had not utilized this credit facility.

7. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Franklin Strategic Income
Securities Fund.

FSI-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND
INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Strategic Income
Investments Fund, series of Templeton Variable Products Series Fund at December
31, 1999, and the results of its operations, the changes in its net assets and
the financial highlights for the period from July 1, 1999 (effective date) to
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with auditing standards generally accepted
in the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian provides a reasonable basis for the opinion
expressed above.

PricewaterhouseCoopers LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000.

FSI-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

CHANGE IN INDEPENDENT AUDITOR

Since this change occurred during the Fund's initial year of operation,
McGladrey did not report on the Fund's financial statements.

There were no disagreements with McGladrey on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure.

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

FSI-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN STRATEGIC INCOME INVESTMENTS FUND

Tax Designation

Under Section 854(b)(2) of the Internal Revenue Code, the Franklin Strategic
Income Investments Fund hereby designates 2.17% of ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year
ended December 31, 1999.

FSI-19
<PAGE>

MUTUAL SHARES INVESTMENTS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: MUTUAL SHARES INVESTMENTS FUND SEEKS
CAPITAL APPRECIATION, WITH INCOME AS A SECONDARY OBJECTIVE. IT INVESTS
PRIMARILY IN DOMESTIC EQUITY SECURITIES AND DEBT OBLIGATIONS. THE FUND MAY ALSO
INVEST IN FOREIGN SECURITIES.
- --------------------------------------------------------------------------------

We are pleased to bring you the annual report of the Mutual Shares Investments
Fund for the year ended December 31, 1999. During the year under review, the
U.S. economy experienced unusually strong growth in a low-inflation
environment. Global economies generally followed suit, and stock markets around
the world sprang back to life in a broad-based rally. In the process, the
market became increasingly two-tiered, and a select group of about 40 companies
achieved over-the-top success while most publicly traded equities languished.
Share prices for a majority of companies listed on the New York Stock Exchange
(NYSE) actually declined in 1999, while a few hundred white-hot technology
stocks pushed most of the indexes, especially the Nasdaq, to new highs.

We achieved our results by sticking to our longstanding value and special
situation approach. Although many market participants were interested only in
positive momentum (buying what's hot) and were unconcerned about valuation, we
continued to conduct fundamental analysis and bought securities only when we
saw substantial upside potential with relatively little risk. In our opinion,
risk still matters.

Several stocks contributed significantly to the Fund's strong performance.
Telephone & Data Systems Inc., a wireless and wireline telephone company,
almost tripled during the 12 months under review due to fast growth and the
announced merger of one of its affiliates. And one of the Fund's largest
holdings, Compagnie Financiere Richemont AG, a Swiss holding company primarily
involved in luxury goods, almost doubled in price in 1999 as the market value
of its strong brand names appreciated.

[This chart shows in bar format the geographic distribution of the Mutual Shares
Investments Fund, based on total net assets as of 12/31/99.]

United States 61.3%
France 8.1%
Spain 2.2%
United Kingdom 2.2%
Sweden 1.7%
Other Countries 1.8%
Fixed-Income Securities 1.6%
Short-Term Investments &
Other Net Assets 21.1%

MS-1
<PAGE>

[This chart lists the top 10 industries, based on equity securities, of the
Mutual Shares Investments Fund, based on total net assets as of 12/31/99.]

TOP 10 INDUSTRIES*
Mutual Shares Investments Fund
12/31/99

% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------
Multi-Industry 12.7%

Financial Services 11.5%

Broadcasting & Publishing 8.8%

Merchandising 7.5%

Automobiles 5.3%

Banking 4.8%

Insurance 4.0%

Leisure & Tourism 2.2%

Utilities Electrical & Gas 2.2%

Energy Sources 2.2%

*Based on equity securities.

The year was not without disappointment, however. While certain investments in
financial stocks, including brokers Lehman Brothers Holdings Inc. and Morgan
Stanley, Dean Witter & Co., were highly profitable, some of our bank and
finance company investments, including First Union, were not. Despite these
setbacks, the Fund's overall performance was good for a value fund during a
year in which our style generally remained out of favor.

Looking forward, we believe domestic and foreign markets should again present
us with profitable investment opportunities in the year 2000. As a number of
"new economy" securities have risen to dizzying heights, the stocks of many
solid companies have languished, creating investment opportunities for Mutual
Shares Investments Fund. We believe that a number of industries feature
attractive companies trading at low multiples and big discounts to their
intrinsic value, and we shall concentrate our efforts on mining these
overlooked sectors for what we believe will be tomorrow's gems. Among the areas
in which we see compelling value are financials, especially finance companies,
where rising interest rates have sent many companies' share prices sharply
lower. Other sectors where we see opportunity include "old media" (i.e.,
newspapers, television broadcasting), auto parts suppliers, and lodging. We
also expect to profit by investing in bankrupt and distressed companies, a
strategy we have long successfully employed.

MS-2
<PAGE>

While acknowledging the significant innovations brought about by technology and
the Internet, we are unwilling to pay the incredible market valuations these
companies now command. We realize that many once great technology companies
have vanished over the years, and that the technological winners of today may
not sustain their leadership in the years ahead. With the Nasdaq 100 trading at
over 100 times earnings, the optimism built into current prices does not allow
for error or disappointment. We will not engage in this type of speculative
investing, but shall continue to attempt to determine the true present value of
a business while endeavoring to purchase its securities at a meaningful
discount. Of course, past results do not guarantee future performance. As
always, we are mindful of the risks of each investment, and will continue to
focus on the downside as well as the upside potential while striving to provide
shareholders with the best risk-adjusted returns possible.

We thank you for your participation in Mutual Shares Investments Fund and look
forward to serving your investment needs in the years to come.

Sincerely,

/s/LAWRENCE SONDIKE
Lawrence Sondike*
Portfolio Manager
Mutual Shares Investments Fund

*In February 2000, Lawrence Sondike assumed primary responsibility for
investments in Mutual Shares Investments Fund.

It is important to remember 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 risks are
discussed in the prospectus.

[This chart lists the top 10 holdings, including industry and country, of the
Mutual Shares Investments Fund, based on total net assets as of 12/31/99.]

TOP 10 HOLDINGS
Mutual Shares Investments Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------
Lagardere SCA, 2.6%
MULTI-INDUSTRY, FRANCE

Corporacion Financier a 2.2%
Alba SA,
MULTI-INDUSTRY, SPAIN

Compagnie Generale 1.9%
D'Industrie et de
Participation,
MULTI-INDUSTRY, FRANCE

Scripps Co., A, 1.9%
BROADCASTING &
PUBLISHING, U.S.

Bear Stearns 1.8%
Companies Inc.,
FINANCIAL SERVICES, U.S.

Lehman Brothers 1.8%
Holdings Inc.,
FINANCIAL SERVICES, U.S.

Aventis SA, 1.8%
HEALTH & PERSONAL CARE,
FRANCE

B.F. Goodrich Co., 1.8%
AEROSPACE & MILITARY
TECHNOLOGY, U.S.

Delphi Automotive 1.7%
Systems Corp.,
AUTOMOBILES, U.S.

Finova Group Inc., 1.7%
FINANCIAL SERVICES, U.S.

For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.
MS-3
<PAGE>

MUTUAL SHARES
INVESTMENTS FUND
- -- CLASS 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but does
NOT include any Contract fees, expenses, or sales charges. If they had been
included, performance would be lower. These Contract charges and deductions,
particularly for variable life policies, can have a significant effect on
Contract values and insurance benefits. See the Contract prospectus for a
complete description of these expenses, including sales charges. The manager is
contractually obligated to limit Class 2 expenses to 1.25% of total net assets
through December 31, 2000.

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (5/1/98 -- 12/31/99)

The graph below compares the performance of Mutual Shares Investments Fund --
Class 2 and the unmanaged Standard & Poor's 500/R/ (S&P 500/R/) Index, including
reinvested dividends, as well as the Lipper Growth & Income Funds Objective
Average (the Lipper G&I Average) and Lipper Annuity Growth & Income Funds
Objective Average (the Annuity Average). The Fund's total return represents the
change in value of an investment over the period shown and assumes reinvestment
of dividends and capital gains at net asset value. We are replacing the Lipper
G&I Average with the Annuity Average because the former is based on a peer group
of mutual funds, while the latter is based on a peer group of annuity
subaccounts and better reflects the portfolio's performance. The Annuity Average
is an equally-weighted average calculation of performance figures for all funds
within the Lipper Annuity G&I Funds Objective Category, which is defined as all
annuity subaccounts that combine a growth of earnings orientation and a
requirement for level and/or rising dividends. Lipper calculations include
reinvested dividends but do not include sales charges. The Fund's performance
differs from an index's because an index is not managed, does not contain cash
(the Fund generally carries a certain percentage of cash at any given time), and
includes no sales charges or management expenses. Of course, one cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
The indexes' sources are Standard & Poor's Micropal and Lipper, Inc.

[The following line graph compares the performance of the Mutual Shares
Investments Fund - Class 2 to that of the Lipper Annuity Growth & Income Funds
Average and the Lipper Growth & Income Funds Average, based on a $10,000
investment from 5/1/98 - 12/31/99.]

MUTUAL SHARES INVESTMENTS S&P 500 LIPPER ANNUITY LIPPER GROWTH
FUND - CLASS 2 GROWTH & INCOME & INCOME FUNDS
FUNDS AVERAGE AVERAGE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000 $10,000
05/31/1998 $9,760 $9,828 $9,803 $9,793
06/30/1998 $9,530 $10,227 $9,959 $9,957
07/31/1998 $9,380 $10,118 $9,701 $9,700
08/31/1998 $8,360 $8,655 $8,316 $8,271
09/30/1998 $8,610 $9,209 $8,761 $8,711
10/31/1998 $9,310 $9,958 $9,407 $9,350
11/30/1998 $9,456 $10,562 $9,881 $9,828
12/31/1998 $9,485 $11,170 $10,316 $10,266
01/31/1999 $9,339 $11,637 $10,504 $10,439
02/28/1999 $9,261 $11,275 $10,191 $10,118
03/31/1999 $9,675 $11,726 $10,541 $10,448
04/30/1999 $10,447 $12,180 $11,202 $11,066
05/31/1999 $10,467 $11,892 $11,074 $10,923
06/30/1999 $10,897 $12,552 $11,534 $11,396
07/31/1999 $10,730 $12,161 $11,209 $11,068
08/31/1999 $10,222 $12,100 $10,991 $10,838
09/30/1999 $9,791 $11,768 $10,632 $10,491
10/31/1999 $10,074 $12,513 $11,074 $10,965
11/30/1999 $10,074 $12,767 $11,218 $11,114
12/31/1999 $10,636 $13,519 $11,686 $11,618

</TABLE>

The historical performance figures shown pertain only to the Fund's Class 2
shares.
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on November 10, 1998,
historical results of Class 1 shares; and (b) for periods after November 10,
1998, Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

Past performance does not guarantee future results.

MS-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Mutual Shares Investments Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* (5/1/98)*
- ------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return 9.31% 6.36%
Average Annual Total Return 9.31% 3.77%
Value of $10,000 Investment $10,931 $10,636
</TABLE>

*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on November 10, 1998,
historical results of Class 1 shares; and (b) for periods after November 10,
1998, Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

MUTUAL SHARES
INVESTMENTS FUND
- -- CLASS 2

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 distressed/bankruptcy investments involve higher
credit risks. You may have a gain or loss when you sell your shares.

Past performance does not guarantee future results.

MS-5
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C>
1999/dagger//dagger/ 1998/dagger/
-------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................ $9.72 $10.00
-------------------------------------------
Income from investment operations:
Net investment income ........................................ .06 .08
Net realized and unrealized gains (losses) ................... .88 (.36)
-------------------------------------------
Total from investment operations .............................. .94 (.28)
-------------------------------------------
Less distributions from net investment income ................. (.03) --
-------------------------------------------
Net asset value, end of year .................................. $10.63 $9.72
===========================================
Total Return* ................................................. 9.65% (2.80)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $2,965 $1,274
Ratios to average net assets:
Expenses ..................................................... 1.00% 1.00%**
Expenses, excluding waiver and payments by affiliate ......... 1.76% 2.87%**
Net investment income ........................................ .53% 1.47%**
Portfolio turnover rate ....................................... 68.48% 23.15%
</TABLE>

MS-6
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Financial Highlights (CONTINUED)

<TABLE>
<CAPTION>
CLASS 2
-------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C>
1999/dagger//dagger/ 1998/dagger/
-------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................ $9.73 $9.58
-------------------------------------------
Income from investment operations:
Net investment income ........................................ .04 .08
Net realized and unrealized gains ............................ .86 .07
-------------------------------------------
Total from investment operations .............................. .90 .15
-------------------------------------------
Less distributions from net investment income ................. (.02) --
-------------------------------------------
Net asset value, end of year .................................. $10.61 $9.73
===========================================
Total Return * ................................................ 9.31% 1.57%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $3,064 $490
Ratios to average net assets:
Expenses ..................................................... 1.25% 1.25%**
Expenses, excluding waiver and payments by affiliate ......... 2.01% 3.12%**
Net investment income ........................................ .41% 4.15%**
Portfolio turnover rate ....................................... 68.48% 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-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 77.3%
AEROSPACE & MILITARY TECHNOLOGY 1.8%
B.F. Goodrich Co. .............................. United States 3,904 $ 107,360
-----------
AUTOMOBILES 5.3%
Borg-Warner Automotive Inc. .................... United States 1,700 68,850
Delphi Automotive Systems Corp. ................ United States 6,603 103,997
General Motors Corp. ........................... United States 820 59,604
* Lear Corp. ..................................... United States 2,696 86,272
-----------
318,723
-----------
BANKING 4.8%
Bank One Corp. ................................. United States 2,574 82,529
Chase Manhattan Corp. .......................... United States 425 33,017
Peoples Heritage Financial Group Inc. .......... United States 4,100 61,756
Sovereign Bancorp Inc. ......................... United States 7,300 54,408
U.S. Bancorp. .................................. United States 2,400 57,150
-----------
288,860
-----------
BEVERAGES & TOBACCO .4%
Gallaher Group PLC ............................. United Kingdom 5,800 24,699
-----------
BROADCASTING & PUBLISHING 8.8%
Central Newspapers Inc., A ..................... United States 1,160 45,675
Dun & Bradstreet Corp. ......................... United States 1,500 44,250
Media General Inc., A .......................... United States 1,390 72,280
* MediaOne Group Inc. ............................ United States 1,200 92,175
Meredith Corp. ................................. United States 700 29,181
NV Holdingsmig de Telegraaf .................... Netherlands 1,468 32,514
Scripps Co., A ................................. United States 2,585 115,840
Washington Post Co., B ......................... United States 177 98,390
-----------
530,305
-----------
BUILDING MATERIALS & COMPONENTS 1.2%
* American Standard Cos. Inc. .................... United States 650 29,819
Armstrong World Industries Inc. ................ United States 1,320 44,055
-----------
73,874
-----------
BUSINESS & PUBLIC SERVICES 1.7%
* Republic Services Inc. ......................... United States 2,400 34,500
Suez Lyonnaise des Eaux SA ..................... France 425 68,074
-----------
102,574
-----------
CHEMICALS 1.5%
* Cytec Industries Inc. .......................... United States 3,800 87,875
-----------
ENERGY EQUIPMENT & SERVICES .5%
* Cooper Cameron Corp. ........................... United States 590 28,873
-----------
ENERGY SOURCES 2.2%
Burlington Resources Inc. ...................... United States 2,900 95,881
Total Fina SA, B ............................... France 259 34,549
-----------
130,430
-----------
FINANCIAL SERVICES 11.5%
Bear Stearns Companies Inc. .................... United States 2,598 111,065
CIT Group Inc., A .............................. United States 3,800 80,275
Finova Group Inc. .............................. United States 2,900 102,950
Greenpoint Financial Corp. ..................... United States 3,264 77,724
Heller Financial Inc. .......................... United States 4,200 84,262
Household International Inc. ................... United States 1,035 38,554
</TABLE>

MS-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES (CONT.)
Lehman Brothers Holdings Inc. ............................... United States 1,300 $ 110,094
Liberty Financial Cos. Inc. ................................. United States 1,647 37,778
United Asset Management Corp. ............................... United States 2,700 50,119
----------
692,821
----------
FOOD & HOUSEHOLD PRODUCTS .9%
U.S. Industries Inc. ........................................ United States 4,050 56,700
----------
FOREST PRODUCTS & PAPER .5%
Rayonier Inc. ............................................... United States 650 31,403
----------
HEALTH & PERSONAL CARE 1.8%
Aventis SA .................................................. France 1,887 109,614
----------
INDUSTRIAL COMPONENTS .9%
Mannesmann AG, Reg D ........................................ Germany 70 16,942
* Owens-Illinois Inc. ......................................... United States 1,500 37,594
----------
54,536
----------
INSURANCE 4.0%
Allmerica Financial Corp. ................................... United States 500 27,813
AON Corp. ................................................... United States 950 38,000
MBIA Inc. ................................................... United States 1,700 89,781
Old Republic International Corp. ............................ United States 6,200 84,475
----------
240,069
----------
LEISURE & TOURISM 2.2%
Hilton Hotels Corp. ......................................... United States 3,331 32,061
* Park Place Entertainment Corp. .............................. United States 1,500 18,750
Starwood Hotels & Resorts Worldwide Inc. .................... United States 3,415 80,253
----------
131,064
----------
MACHINERY & ENGINEERING .9%
Invensys PLC ................................................ United Kingdom 10,460 56,292
----------
MERCHANDISING 7.5%
* Federated Department Stores Inc. ............................ United States 1,454 73,518
J.C. Penney Co. Inc. ........................................ United States 2,858 56,981
May Department Stores Co. ................................... United States 2,700 87,075
* Payless Shoesource Inc. ..................................... United States 2,080 97,760
* Saks Inc. ................................................... United States 5,700 88,706
Sears, Roebuck & Co. ........................................ United States 1,500 45,656
----------
449,696
----------
MULTI-INDUSTRY 12.7%
* Alleghany Corp. ............................................. United States 319 59,174
Compagnie Financiere Richemont AG, Br., A ................... Switzerland 10 23,862
Compagnie Generale D'Industrie et de Participation .......... France 1,787 116,938
Corporacion Financiera Alba SA .............................. Spain 3,940 134,705
Investor AB, A .............................................. Sweden 4,550 64,733
Investor AB, B .............................................. Sweden 2,580 36,402
Kansas City Southern Industries Inc. ........................ United States 900 67,162
Lagardere SCA ............................................... France 2,930 159,287
TRW Inc. .................................................... United States 1,106 57,443
Williams PLC ................................................ United Kingdom 10,700 48,937
----------
768,643
----------
</TABLE>

MS-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------- ------------- ------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 1.9%
Telephone & Data Systems Inc. ................................... United States 675 $ 85,050
U.S. West Inc. .................................................. United States 400 28,800
----------
113,850
----------
TEXTILES & APPAREL .6%
Liz Claiborne Inc. .............................................. United States 1,000 37,625
----------
TRANSPORTATION 1.5%
Burlington Northern Santa Fe Corp. .............................. United States 3,000 72,750
Florida East Coast Industries Inc. .............................. United States 500 20,875
----------
93,625
----------
UTILITIES ELECTRICAL & GAS 2.2%
* Citizens Utilities Co., B ....................................... United States 6,443 91,410
Veba AG ......................................................... Germany 800 39,062
----------
130,472
----------
TOTAL COMMON STOCKS (COST $4,339,546)............................ 4,659,983
----------
PRINCIPAL
AMOUNT**
-----------
BONDS & NOTES IN REORGANIZATION 1.6%
* Decision One Corp., Tranche A, Term Loan ........................ United States $ 100,000 $ 44,750
* Loewen Group International Inc., 144A, 6.70%, 10/01/99 .......... Canada 60,000 29,400
* Vencor Inc., Term Loan A ........................................ United States 39,456 25,843
----------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $119,242)............ 99,993
----------
SHORT TERM INVESTMENT (COST $494,546) 8.2%
Federal Home Loan Bank, 5.61%, 3/10/00 .......................... United States 500,000 494,864
----------
TOTAL INVESTMENTS (COST $4,953,334) 87.1%........................ 5,254,840
OTHER ASSETS, LESS LIABILITIES 12.9% ............................ 774,775
----------
TOTAL NET ASSETS 100.0% ......................................... $6,029,615
==========
</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.

See Notes to Financial Statements.

MS-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $4,953,334)......................... $5,254,840
Cash ......................................................................... 434,144
Receivables:
Investment securities sold .................................................. 36,502
Fund shares sold ............................................................ 437,870
Dividends and interest ...................................................... 6,868
From affiliates ............................................................. 7,975
----------
Total assets ............................................................... 6,178,199
----------
Liabilities:
Payables for Investment securities purchased ................................. 133,399
Accrued expenses ............................................................. 15,185
----------
Total liabilities .......................................................... 148,584
----------
Net assets, at value .......................................................... $6,029,615
==========
Net assets consist of:
Undistributed net investment income .......................................... $ 20,861
Net unrealized appreciation .................................................. 301,506
Accumulated net realized loss ................................................ (71,229)
Beneficial shares ............................................................ 5,778,477
----------
Net assets, at value .......................................................... $6,029,615
==========
CLASS 1:
Net asset value per share ($2,965,248 /divided by/ 279,032 shares outstanding) $ 10.63
==========
CLASS 2:
Net asset value per share ($3,064,367 /divided by/ 288,911 shares outstanding) $ 10.61
==========
</TABLE>

See Notes to Financial Statements.

MS-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,584)
Dividends ............................................................... $ 51,057
Interest ................................................................ 4,371
---------
Total investment income ................................................ $ 55,428
---------
Expenses:
Management fees (Note 3) ................................................ 20,836
Administrative fees (Note 3) ............................................ 3,362
Distribution fees - Class 2 (Note 3) .................................... 3,416
Custodian fees .......................................................... 200
Reports to shareholders ................................................. 13,800
Professional fees ....................................................... 23,383
Trustees' fees and expenses ............................................. 300
---------
Total expenses ......................................................... 65,297
Expenses waived / paid by affiliate (Note 3) ........................... (26,815)
---------
Net expenses .......................................................... 38,482
---------
Net investment income ................................................ 16,946
---------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ (53,142)
Foreign currency transactions .......................................... 2,161
---------
Net realized loss ..................................................... (50,981)
Net unrealized appreciation on:
Investments ............................................................ 254,068
Translation of assets and liabilities denominated in foreign currencies 3,439
---------
Net unrealized appreciation ........................................... 257,507
---------
Net realized and unrealized gain ......................................... 206,526
---------
Net increase in net assets resulting from operations ..................... $ 223,472
=========
</TABLE>

See Notes to Financial Statements.

MS-12
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Financial Statements (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998/dagger/
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................. $ 16,946 $ 9,047
Net realized loss from investments and foreign currency transactions ... (50,981) (20,146)
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies ........................ 257,507 43,999
------------------------------
Net increase in net assets resulting from operations ................. 223,472 32,900
Distributions to shareholders from:
Net investment income:
Class 1 ............................................................... (3,781) --
Class 2 ............................................................... (1,453) --
Fund share transactions (Note 2):
Class 1 ............................................................... 1,536,523 1,247,562
Class 2 ............................................................... 2,511,138 483,254
------------------------------
Net increase in net assets ........................................... 4,265,899 1,763,716
Net assets:
Beginning of year ....................................................... 1,763,716 --
------------------------------
End of year ............................................................. $6,029,615 $1,763,716
==============================
Undistributed net investment income included in net assets:
End of year ............................................................. $ 20,861 $ 9,047
==============================
</TABLE>

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

See Notes to Financial Statements.

MS-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Notes to Financial Statements

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:

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. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

D. ACCOUNTING ESTIMATES:

MS-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

2. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999 1998*
------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 165,734 $ 1,718,736 131,739 $ 1,254,575
Shares issued on reinvestment of distributions 398 3,781 -- --
Shares redeemed ............................... (18,102) (185,994) (737) (7,013)
------------------------------------------------------
Net increase .................................. 148,030 $ 1,536,523 131,002 $ 1,247,562
======================================================
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998**
-----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: -----------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 280,890 $ 2,943,236 51,816 $ 496,983
Shares issued on reinvestment of distributions 153 1,453 -- --
Shares redeemed ............................... (42,514) (433,551) (1,434) (13,729)
-----------------------------------------------------
Net increase .................................. 238,529 $ 2,511,138 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 subadministrative manager, is
record owner of 25,066 Class 1 shares as of December 31, 1999.

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Trust are also officers or directors of Franklin Mutual
Advisers (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. 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:

Franklin Mutual and FT Services have agreed in advance to limit total expenses
of the Fund to an annual rate of 1.00% and 1.25% of average daily net assets of
Class 1 and Class 2 shares, respectively, through December 31, 2000, as noted
in the Statements of Operations.

MS-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Notes to Financial Statements (CONTINUED)

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

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

4. 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.

Unrealized appreciation ............. $ 573,797
Unrealized depreciation ............. (272,291)
----------
Net unrealized appreciation ......... $ 301,506
==========

At December 31, 1999, 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:

2006 ......... $21,595
2007 ......... 49,400
-------
$70,995
=======

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $5,150,918 and $2,008,849,
respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Mutual Shares Investments Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility

7. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Mutual Shares Securities
Fund.

MS-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Mutual Shares
Investments Fund, series of Templeton Variable Products Series Fund at December
31, 1999, and the results of its operations, the changes in its net assets and
the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the period from May 1, 1998 (commencement of
operations) to December 31, 1998 were audited by other independent accountants
whose report dated January 28, 1999 expressed an unqualified opinion in those
financial statements.

PricewaterhouseCoopers LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000.

MS-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

CHANGE IN INDEPENDENT AUDITOR

None of the reports of McGladrey on the financial statements of the Fund have
ever contained an adverse opinion or disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles.

During the period McGladrey served the Fund, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

MS-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
MUTUAL SHARES INVESTMENTS FUND

Tax Designation

Under Section 854 (b)(2) of the Internal Revenue Code, the Fund hereby
designates 100.00% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

MS-19
<PAGE>

TEMPLETON ASSET ALLOCATION FUND

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

During the 12 months under review, the U.S. economy continued to experience
solid growth without stirring up inflation. For example, data from the U.S.
Commerce Department shows the economy grew at a robust rate of 5.7% in the
third quarter of 1999, while the Consumer Price Index (CPI), a commonly used
measure of inflation, increased by only 1.7%. However, this did not deter the
Federal Reserve Board (the Fed) from keeping a watchful eye on the pace of
private consumption being boosted by stock market and housing gains.

[This chart shows in pie format the asset allocation of Templeton Asset
Allocation Fund, based on total net assets as of 12/31/99.]

Stocks 87.3%
Fixed-Income Securities 9.6%

Concerned about the possibility of future inflation, the Fed raised short-term
interest rates three times during the year. By the end of the reporting period,
the 30-year Treasury bond was yielding over 6.4%, its highest level in two
years, resulting in a 19.9% drop in price for such bonds during the year.
Global bond markets also generally performed poorly, with the J.P. Morgan
Global Government Bond Index declining 5.08% in U.S. dollar terms, while the
J.P. Morgan U.S. Government Bond Index fell 2.88%, during the 12 months under
review.(1)

For domestic stocks, 1999 turned out to be an astonishing year. The
technology-laden Nasdaq Index rose 85.87%, the Dow Jones Industrial Average
climbed 27.18% and Standard & Poor's 500 Index was up 21.04%. Much of this
strong performance occurred during the final two months of the year and was
concentrated in a relatively small number of technology and telecommunications
companies. Despite the market's high valuations, we did manage to uncover what
we felt were some undervalued U.S. technology companies, including Hewlett-
Packard Co. and Compaq Computer Corp.

1. Source: J.P. Morgan Global Government Bond Index and J.P. Morgan U.S.
Government Bond Index. Return includes reinvested interest. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.

TA-1
<PAGE>

[This chart shows in pie format the geographic distribution of the Templeton
Asset Allocation Fund, based on total net assets as of 12/31/99.]

Europe 37.3%
Asia 18.5%
North America 15.3%
Latin America 10.0%
Australia & New Zealand 3.3%
Middle East & Africa 2.9%
Fixed-Income Securities 9.6%
Short-Term Investments & Other Net Assets 3.1%

In Europe, the Bloomberg /R/ European 500 Index, a measure of European
large-company stock performance, rose 36.88% in local currency terms, but only
17.88% in U.S. dollar terms, due to the euro's weakness.(2) At the same time,
the single European currency stimulated a massive increase in merger and
acquisition activity to $1.5 trillion. By the end of the reporting period,
economic growth appeared to be accelerating in "Euroland," with polls indicating
3% gross domestic product growth in 2000, compared with 2% in 1999. This growth
could be spurred even further by exports because a weak euro could help sales.
However, even though such activity could lead to improved corporate
profitability, many European companies may find themselves operating in a more
competitive environment as European markets continue to be deregulated and the
euro leads to price transparency across borders. At the fiscal year ended
December 31, 1999, our largest European position was in the United Kingdom,
where we initiated positions in British Airways PLC, J. Sainsbury PLC and
Storehouse. We also anticipate benefits from restructuring in such Fund holdings
as Koninklijke Philips Electronics NV, Akzo Nobel NV and Aventis SA.

During the reporting period, most Latin American equity markets rebounded
strongly, with the Mexico Bolsa Index and Brazil Bovespa Index up 87.84% and
69.20%, respectively, in U.S. dollar terms.(3) Mexico's economy benefited from
increasing oil prices, as well as a robust U.S. economy, while lower interest
rates in Brazil helped its economy and stimulated investments in Brazilian
stocks. Believing that the primary risk for the region is higher U.S. interest
rates, which could hamper liquidity in Latin American equity markets, we seized
the opportunity to take profits on our holdings of Banco Bradesco SA and
Telefonos de Mexico SA (Telmex) during the period.

2. Source: Bloomberg. Return measures price appreciation only and does not
include reinvested dividends.
3. Source: Mexico Bolsa Index and Brazil Bovespa Index. Returns include
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

TA-2
<PAGE>

Finally, in Japan, the Nikkei 225 Index performed strongly in 1999, rising 54.5%
in U.S. dollar terms.(4) This increase in equities was driven in large part by
restructuring, desperately needed consolidation in Japan's banking sector, and
the perception that Japan's economy had finally bottomed out. The Fund's best
performing securities included such Japanese companies as Sony Corp., Nippon
Telegraph & Telephone Corp., and Nomura Securities Co. Ltd. However, the near
term effects of corporate downsizing and continuing strength of the yen could
act as a drag on economic recovery and hinder the profitability of Japanese
companies dealing in exports. Therefore, we intend to concentrate on retailers
like Best Denki Co. Ltd. and Laox, as well as companies focused on the domestic
economy, such as Makita and Seino Transport, which we believe have the brightest
outlook for growth.

In Europe, bond yields trended higher and bond prices slumped as deregulation,
restructuring, and economic expansion took hold in much of the region. The EMU
Government Bond Index fell 16.84% in U.S. dollar terms, and the United Kingdom
Government Bond Index dropped following the Bank of England's interest rate
increases in the second half of 1999. Most other European country bond prices
also dropped significantly in U.S. dollar terms during the year.(5)

Most Asian bonds provided dismal returns in 1999. However, Japanese bonds bucked
the trend, returning 15.72% thanks to investor expectations of an economic
recovery, stable interest rates, and a stronger yen.(5) Elsewhere in the Pacific
Rim, the dollar-bloc countries (Australia and New Zealand) experienced vigorous
economic growth and, despite plummeting bond prices in the second half of the
reporting period, remained slightly ahead of the dismal U.S. and European bond
markets.

On the positive side, Latin America provided a different picture. Despite
troubling economic developments in Ecuador and Brazil during the summer, Latin
American bonds, and emerging market debt in general, fared relatively well, and
the J.P. Morgan Emerging Market Bond Index Plus rose 26.00% in 1999.(6)

4. Source: Nikkei 225 Index.

5. Source: J.P. Morgan Government Bond Monitor. Return includes reinvested
interest.

6. Source: J.P. Morgan Emerging Market Bond Index Plus. Return includes
reinvested interest.
One cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.

[This chart lists the top 10 equity holdings, including industry and country, of
Templeton Asset Allocation Fund, based on total net assets as of 12/31/99.]

TOP 10 EQUITY HOLDINGS
Templeton Asset Allocation Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ---------------------------------------------
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 3.4%

Nomura Securites Co. Ltd. ,
FINANCIAL SERVICES, JAPAN 2.6%

Aventis SA,
HEALTH & PERSONAL CARE,
FRANCE 2.4%

Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.2%

Nippon Telegraph &
Telephone Corp.,
TELECOMMUNICATIONS,
JAPAN 2.1%

Merita AS,
BANKING, FINLAND 2.1%

Teva Pharmaceutical
Industries Ltd., ADR,
HEALTH & PERSONAL CARE,
ISRAEL 2.0%

AXA SA,
FINANCIAL SERVICES, FRANCE 2.0%

ING Groep NV,
FINANCIAL SERVICES,
NETHERLANDS 1.9%

Medeva PLC,
HEALTH & PERSONAL CARE,
UNITED KINGDOM 1.9%

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

TA-3
<PAGE>

During the reporting period, the majority of the Fund's bond position was in
intermediate- and long-term bonds in developed industrial markets, with the
remaining bond allocation in what we believed were the highest quality and most
liquid bonds available in emerging markets.

Looking forward, we are optimistic about long-term prospects for global equity
and debt markets. However, if inflation re-emerges and U.S. financial markets
reach more extreme valuations, then the Fed may aggressively raise interest
rates. If that happens, Latin American economies could suffer. In our opinion,
Asian economies need to grow further if stock markets there are to maintain
their recent luster, and we would not be surprised to see some setback in the
region in 2000. Finally, in our opinion, the critical issue for global bonds
and interest rates will be the balance between global growth and inflation.
Since we believe the world's economic growth trend is clearly positive and
expect global inflation may pick up slightly in the near term, we will monitor
these conditions as we continue to search the globe for undervalued securities
that may potentially benefit our shareholders.

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

TA-4
<PAGE>

We thank you for investing in Templeton Asset Allocation Fund, welcome your
comments or suggestions and look forward to continuing to serve you.

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

This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.

TA-5
<PAGE>

TEMPLETON ASSET
ALLOCATION FUND
- -- CLASS 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges.

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)

The graph below compares the performance of Templeton Asset Allocation Fund --
Class 2 and the unmanaged Morgan Stanley Capital International (MSCI/R/) World
Index and J.P. Morgan Global Government Bond Index, including reinvested
dividends and/or interest, as well as the Consumer Price Index (CPI). The Fund's
total return represents the change in value of an investment over the period
shown and assumes reinvestment of dividends and capital gains at net asset
value. The MSCI World Index measures the performance of approximately 1,450
securities from 22 countries, including the U.S., Europe, Canada, Australia, New
Zealand, and the Far East. The J.P. Morgan Global Government Bond Index includes
only actively traded fixed-rate bonds with a remaining maturity of one year or
longer, is an aggregate of government securities issued in 13 countries, and
includes reinvested interest. The CPI is a commonly used measure of inflation.
The Fund's performance differs from an index's because an index is not managed,
does not contain cash (the Fund generally carries a certain percentage of cash
at any given time), and includes no sales charges or management expenses. Of
course, one cannot invest directly in an index, nor is an index representative
of the Fund's portfolio. The indexes' sources are MSCI, J.P. Morgan, and
Standard & Poor's/R/ Micropal (U.S. Bureau of Labor Statistics).

[The following line graph compares the performance of the Templeton Asset
Allocation Fund - Class 2 to that of the Morgan Stanley Capital International
World Index, the J.P. Morgan Global Government Bond Index, and the Consumer
Price Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]

TEMPLETON
ASSET J.P. MORGAN
ALLOCATION GLOBAL
FUND - GOVERNMENT
CLASS 2 MSCI WORLD BOND INDEX CPI
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,750 $9,535 $9,851 $10,103
02/28/1990 $9,768 $9,127 $9,744 $10,150
03/31/1990 $9,908 $8,578 $9,685 $10,206
04/30/1990 $9,564 $8,456 $9,647 $10,223
05/31/1990 $10,155 $9,348 $9,955 $10,246
06/30/1990 $10,234 $9,283 $10,135 $10,301
07/31/1990 $10,384 $9,369 $10,433 $10,341
08/31/1990 $9,625 $8,493 $10,352 $10,436
09/30/1990 $8,849 $7,599 $10,449 $10,523
10/31/1990 $8,770 $8,310 $10,861 $10,587
11/30/1990 $9,025 $8,175 $11,053 $10,610
12/31/1990 $9,202 $8,348 $11,176 $10,610
01/31/1991 $9,643 $8,655 $11,429 $10,674
02/28/1991 $10,261 $9,458 $11,440 $10,690
03/31/1991 $10,137 $9,181 $11,083 $10,706
04/30/1991 $10,255 $9,254 $11,217 $10,722
05/31/1991 $10,538 $9,465 $11,226 $10,754
06/30/1991 $10,091 $8,882 $11,076 $10,785
07/31/1991 $10,674 $9,303 $11,310 $10,801
08/31/1991 $10,920 $9,275 $11,546 $10,832
09/30/1991 $11,012 $9,520 $11,967 $10,880
10/31/1991 $11,094 $9,676 $12,085 $10,896
11/30/1991 $10,820 $9,256 $12,282 $10,928
12/31/1991 $11,750 $9,932 $12,902 $10,936
01/31/1992 $11,650 $9,750 $12,650 $10,952
02/29/1992 $11,969 $9,583 $12,613 $10,992
03/31/1992 $11,824 $9,133 $12,496 $11,048
04/30/1992 $12,125 $9,262 $12,600 $11,063
05/31/1992 $12,633 $9,632 $12,958 $11,079
06/30/1992 $12,596 $9,311 $13,311 $11,118
07/31/1992 $12,746 $9,336 $13,605 $11,142
08/31/1992 $12,596 $9,565 $13,967 $11,173
09/30/1992 $12,549 $9,479 $13,953 $11,204
10/31/1992 $12,455 $9,225 $13,605 $11,243
11/30/1992 $12,549 $9,391 $13,363 $11,259
12/31/1992 $12,699 $9,469 $13,490 $11,251
01/31/1993 $12,869 $9,502 $13,718 $11,306
02/28/1993 $13,170 $9,729 $13,939 $11,346
03/31/1993 $13,443 $10,295 $14,154 $11,386
04/30/1993 $13,704 $10,774 $14,411 $11,418
05/31/1993 $13,936 $11,024 $14,503 $11,434
06/30/1993 $14,052 $10,933 $14,515 $11,450
07/31/1993 $14,275 $11,160 $14,521 $11,450
08/31/1993 $14,952 $11,674 $14,951 $11,482
09/30/1993 $14,962 $11,460 $15,109 $11,506
10/31/1993 $15,465 $11,777 $15,101 $11,553
11/30/1993 $15,165 $11,113 $14,991 $11,561
12/31/1993 $16,017 $11,659 $15,144 $11,561
01/31/1994 $16,791 $12,430 $15,287 $11,592
02/28/1994 $16,162 $12,271 $15,119 $11,632
03/31/1994 $15,453 $11,744 $15,050 $11,671
04/30/1994 $15,592 $12,109 $15,038 $11,688
05/31/1994 $15,701 $12,142 $14,914 $11,696
06/30/1994 $15,275 $12,111 $15,091 $11,736
07/31/1994 $15,889 $12,343 $15,233 $11,767
08/31/1994 $16,335 $12,717 $15,194 $11,814
09/30/1994 $15,998 $12,385 $15,269 $11,846
10/31/1994 $16,166 $12,739 $15,497 $11,854
11/30/1994 $15,651 $12,190 $15,302 $11,870
12/31/1994 $15,542 $12,310 $15,338 $11,870
01/31/1995 $15,374 $12,127 $15,648 $11,917
02/28/1995 $15,720 $12,307 $16,051 $11,965
03/31/1995 $15,964 $12,902 $16,868 $12,005
04/30/1995 $16,483 $13,354 $17,137 $12,044
05/31/1995 $17,093 $13,471 $17,615 $12,068
06/30/1995 $17,398 $13,469 $17,725 $12,092
07/31/1995 $18,049 $14,146 $17,809 $12,092
08/31/1995 $17,896 $13,833 $17,314 $12,124
09/30/1995 $18,486 $14,239 $17,704 $12,148
10/31/1995 $18,120 $14,018 $17,877 $12,188
11/30/1995 $18,679 $14,507 $18,076 $12,180
12/31/1995 $19,045 $14,934 $18,300 $12,171
01/31/1996 $19,534 $15,206 $18,112 $12,243
02/29/1996 $19,696 $15,301 $18,007 $12,282
03/31/1996 $19,879 $15,559 $17,979 $12,346
04/30/1996 $20,362 $15,928 $17,913 $12,394
05/31/1996 $20,641 $15,944 $17,931 $12,418
06/30/1996 $20,609 $16,028 $18,088 $12,425
07/31/1996 $20,072 $15,465 $18,420 $12,449
08/31/1996 $20,566 $15,646 $18,497 $12,472
09/30/1996 $20,974 $16,261 $18,599 $12,512
10/31/1996 $21,232 $16,377 $18,968 $12,552
11/30/1996 $22,488 $17,298 $19,239 $12,576
12/31/1996 $22,639 $17,024 $19,105 $12,576
01/31/1997 $23,498 $17,231 $18,627 $12,616
02/28/1997 $23,731 $17,433 $18,498 $12,655
03/31/1997 $23,485 $17,091 $18,358 $12,687
04/30/1997 $23,742 $17,653 $18,254 $12,702
05/31/1997 $25,088 $18,746 $18,685 $12,695
06/30/1997 $26,094 $19,683 $18,897 $12,710
07/31/1997 $27,616 $20,593 $18,828 $12,725
08/31/1997 $26,317 $19,219 $18,805 $12,749
09/30/1997 $28,142 $20,265 $19,222 $12,781
10/31/1997 $26,024 $19,202 $19,630 $12,813
11/30/1997 $26,094 $19,545 $19,394 $12,806
12/31/1997 $26,118 $19,786 $19,373 $12,790
01/31/1998 $25,954 $20,341 $19,568 $12,814
02/28/1998 $27,499 $21,720 $19,713 $12,839
03/31/1998 $29,135 $22,640 $19,564 $12,863
04/30/1998 $29,680 $22,865 $19,865 $12,886
05/31/1998 $28,826 $22,582 $19,951 $12,910
06/30/1998 $28,467 $23,121 $20,006 $12,925
07/31/1998 $28,937 $23,087 $20,061 $12,941
08/31/1998 $23,774 $20,012 $20,615 $12,956
09/30/1998 $23,254 $20,369 $21,691 $12,972
10/31/1998 $25,941 $22,214 $22,177 $13,003
11/30/1998 $27,451 $23,539 $21,927 $13,003
12/31/1998 $27,711 $24,693 $22,340 $12,995
01/31/1999 $28,368 $25,237 $22,156 $13,026
02/28/1999 $26,944 $24,568 $21,416 $13,042
03/31/1999 $28,383 $25,595 $21,469 $13,081
04/30/1999 $30,761 $26,608 $21,463 $13,176
05/31/1999 $29,565 $25,639 $21,086 $13,176
06/30/1999 $30,718 $26,838 $20,733 $13,176
07/31/1999 $30,966 $26,762 $21,188 $13,216
08/31/1999 $31,010 $26,718 $21,243 $13,248
09/30/1999 $30,499 $26,463 $21,549 $13,311
10/31/1999 $30,484 $27,842 $21,522 $13,335
11/30/1999 $31,710 $28,628 $21,266 $13,343
12/31/1999 $33,962 $30,950 $21,205 $13,343
</TABLE>

The historical performance figures shown pertain only to the Fund's Class 2
shares.

*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on May 1, 1997,
historical results of Class 1 shares; and (b) for periods after May 1, 1997,
Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

Past performance does not guarantee future results.

TA-6
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Templeton Asset Allocation Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* 5-YEAR* 10-YEAR* (8/31/88)*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return 22.54% 118.49% 239.62% 295.34%
Average Annual Total Return 22.54% 16.92% 13.01% 12.87%
Value of $10,000 Investment $12,254 $21,849 $33,962 $39,534
</TABLE>

TEMPLETON ASSET
ALLOCATION FUND
- -- CLASS 2

Since markets can go down as well as up, investment return and principle
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. Changes in issuers' financial strength may affect
debt securities' values and, thus, impact the value of Fund shares. You may
have a gain or loss when you sell your shares.

Past performance does not guarantee future results.

TA-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year $ 22.46 $ 22.35 $ 21.08 $ 18.72 $ 15.69
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .44 .69 .67 .63 .57
Net realized and unrealized gains .......... 3.78 .75 2.44 2.76 2.87
-------------------------------------------------------------------------
Total from investment operations ............ 4.22 1.44 3.11 3.39 3.44
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.50) (.66) (.63) (.58) (.41)
Net realized gains ......................... (2.81) (.67) (1.21) (.45) --
-------------------------------------------------------------------------
Total distributions ......................... (3.31) (1.33) (1.84) (1.03) (.41)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 23.37 $ 22.46 $ 22.35 $ 21.08 $ 18.72
=========================================================================
Total Return* ............................... 22.86% 6.41% 15.52% 18.93% 22.48%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $671,549 $692,163 $735,568 $556,027 $406,123
Ratios to average net assets:
Expenses ................................... .74% .78% .74% .64% .66%
Net investment income ...................... 2.06% 2.88% 3.32% 3.56% 3.73%
Portfolio turnover rate ..................... 45.34% 43.18% 45.27% 57.50% 43.02%
</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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

TA-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Financial Highlights (CONTINUED)

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 22.38 $ 22.32 $ 20.40
----------------------------------------------------
Income from investment operations:
Net investment income ...................... .36 .63 .16
Net realized and unrealized gains .......... 3.80 .74 1.76
----------------------------------------------------
Total from investment operations ............ 4.16 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 year ................ $ 23.27 $ 22.38 $ 22.32
====================================================
Total Return* ............................... 22.54% 6.10% 9.41%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $20,962 $15,763 $9,665
Ratios to average net assets:
Expenses ................................... .99% 1.03% 1.03%**
Net investment income ...................... 1.71% 2.61% 1.97%**
Portfolio turnover rate ..................... 45.34% 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-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 81.5%
AEROSPACE & MILITARY TECHNOLOGY 1.3%
Rolls-Royce PLC ............................. United Kingdom 2,535,300 $ 8,747,783
------------
APPLIANCES & HOUSEHOLD DURABLES 3.4%
Sony Corp. .................................. Japan 80,200 23,780,985
------------
AUTOMOBILES 4.6%
Autoliv Inc. ................................ Sweden 246,900 7,221,825
Autoliv Inc., SDR ........................... Sweden 129,000 3,776,720
Fiat SpA .................................... Italy 236,170 6,740,581
Ford Motor Co. .............................. United States 84,000 4,488,750
General Motors Corp. ........................ United States 40,000 2,907,500
Volvo AB, B ................................. Sweden 260,000 6,725,456
------------
31,860,832
------------
BANKING 4.2%
Canadian Imperial Bank of Commerce .......... Canada 140,000 3,340,480
DNB Holding ASA ............................. Norway 2,178,900 8,947,864
Foreningssparbanken AB, A ................... Sweden 170,700 2,508,818
* Merita AS ................................... Finland 2,453,000 14,422,148
------------
29,219,310
------------
BUILDING MATERIALS & COMPONENTS .4%
Pioneer International Ltd. .................. Australia 969,005 2,919,935
------------
BUSINESS & PUBLIC SERVICES 1.4%
Kurita Water Industries Ltd. ................ Japan 432,000 6,865,665
Laidlaw Inc. ................................ Canada 549,130 2,882,933
------------
9,748,598
------------
CHEMICALS 1.6%
Akzo Nobel NV ............................... Netherlands 160,600 8,051,827
* Celanese AG ................................. Germany 11,820 218,955
DSM NV, Br. ................................. Netherlands 75,000 3,005,134
------------
11,275,916
------------
DATA PROCESSING & REPRODUCTION 1.5%
Compaq Computer Corp. ....................... United States 386,600 10,462,363
------------
ELECTRICAL & ELECTRONICS 4.3%
Alcatel SA .................................. France 65,119 14,947,279
Koninklijke Philips Electronics NV .......... Netherlands 56,856 7,727,333
Motorola Inc. ............................... United States 47,000 6,920,750
------------
29,595,362
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.0%
Hewlett-Packard Co. ......................... United States 63,750 7,263,516
Intel Corp. ................................. United States 83,500 6,873,094
------------
14,136,610
------------
ENERGY SOURCES 4.0%
Consol Energy ............................... United States 584,000 5,913,000
* Ranger Oil Ltd. ............................. Canada 1,153,490 3,604,656
* Renaissance Energy Ltd. ..................... Canada 549,350 5,509,077
Shell Transport & Trading Co. PLC ........... United Kingdom 1,525,600 12,679,021
------------
27,705,754
------------
FINANCIAL SERVICES 6.5%
AXA SA ...................................... France 97,600 13,598,953
ING Groep NV ................................ Netherlands 222,100 13,402,471
Nomura Securities Co. Ltd. .................. Japan 1,000,600 18,066,321
------------
45,067,745
------------
</TABLE>

TA-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER .8%
* Asia Pulp & Paper Co. Ltd., ADR ................... Indonesia 454,800 $ 3,581,550
Assidoman AB ...................................... Sweden 90,000 1,465,608
Assidoman AB, 144A ................................ Sweden 27,000 439,683
-----------
5,486,841
-----------
HEALTH & PERSONAL CARE 7.5%
Aetna Inc. ........................................ United States 16,700 932,069
Aventis SA ........................................ France 290,472 16,873,295
Medeva PLC ........................................ United Kingdom 4,572,675 13,006,300
Ono Pharmaceutical Co. Ltd. ....................... Japan 247,000 6,623,086
Teva Pharmaceutical Industries Ltd., ADR .......... Israel 197,200 14,136,775
-----------
51,571,525
-----------
INDUSTRIAL COMPONENTS .3%
Madeco Manufacturera de Cobre SA, ADR ............. Chile 162,500 1,807,813
-----------
INSURANCE 3.7%
Allstate Corp. .................................... United States 80,000 1,920,000
Torchmark Corp. ................................... United States 90,000 2,615,625
XL Capital Ltd., A ................................ Bermuda 179,400 9,306,375
Zurich Allied AG .................................. Switzerland 20,400 11,631,523
-----------
25,473,523
-----------
MERCHANDISING 3.6%
Best Denki Co. Ltd. ............................... Japan 557,000 5,232,862
Dairy Farm International Holdings Ltd. ............ Hong Kong 900,000 810,000
J. Sainsbury PLC .................................. United Kingdom 1,670,700 9,396,118
Marks & Spencer PLC ............................... United Kingdom 1,232,600 5,861,508
Sears, Roebuck & Co. .............................. United States 42,000 1,278,375
Storehouse ........................................ United Kingdom 3,079,116 2,226,844
-----------
24,805,707
-----------
METALS & MINING 3.8%
Anglogold Ltd., ADR ............................... South Africa 229,700 5,900,419
Barrick Gold Corp. ................................ Canada 375,400 6,685,490
Corus Group PLC ................................... United Kingdom 3,943,000 10,291,296
* Kinross Gold Corp. ................................ Canada 1,727,800 3,202,506
-----------
26,079,711
-----------
MISC MATERIALS & COMMODITIES .2%
Agrium Inc. ....................................... Canada 217,000 1,708,875
-----------
MULTI-INDUSTRY 4.8%
* Alfa SA de CV, A .................................. Mexico 1,150,000 5,401,055
Cheung Kong Holdings Ltd. ......................... Hong Kong 600,000 7,622,049
Swire Pacific Ltd., A ............................. Hong Kong 2,200,000 12,990,288
Williams PLC ...................................... United Kingdom 1,581,900 7,234,961
-----------
33,248,353
-----------
REAL ESTATE .1%
New World Development Co. Ltd. .................... Hong Kong 303,543 683,348
-----------
RECREATION & OTHER CONSUMER GOODS .7%
Mattel Inc. ....................................... United States 377,100 4,949,438
-----------
TELECOMMUNICATIONS 12.1%
AT&T Corp. ........................................ United States 181,500 9,211,125
Korea Telecom Corp., ADR .......................... South Korea 86,800 6,488,300
Nippon Telegraph & Telephone Corp. ................ Japan 860 14,728,189
Portugal Telecom SA ............................... Portugal 380,500 4,171,595
PT Indosat TBK, ADR ............................... Indonesia 370,800 8,018,550
Telecom Corp. of New Zealand Ltd. ................. New Zealand 1,772,000 8,332,811
</TABLE>

TA-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
Telecom Italia SpA, di Risp ............................. Italy 1,200,000 $ 7,313,802
Telecomunicacoes de Sao Paulo SA ........................ Brazil 27,228,000 376,957
Telefonica de Argentina SA, B, ADR ...................... Argentina 337,500 10,420,313
Telefonica del Peru SA, B, ADR .......................... Peru 225,400 3,014,725
Telefonos de Mexico SA (Telmex), L, ADR ................. Mexico 101,800 11,452,500
Telesp Celular Participacoes SA ......................... Brazil 22,228,000 210,406
------------
83,739,273
------------
TEXTILES & APPAREL
* Fruit of the Loom Ltd. .................................. United States 160,000 230,000
------------
TRANSPORTATION 4.3%
British Airways PLC ..................................... United Kingdom 1,808,900 11,781,222
* Fritz Cos. Inc. ......................................... United States 350,000 3,675,000
Great Eastern Shipping Co. Ltd. ......................... India 5,225 2,372
Mayne Nickless Ltd., A .................................. Australia 1,730,400 4,464,508
Peninsular & Oriental Steam Navigation Co. .............. United Kingdom 580,000 9,635,891
------------
29,558,993
------------
UTILITIES ELECTRICAL & GAS 4.4%
Endesa SA, ADR .......................................... Spain 88,000 1,776,500
Endesa SA, Br. .......................................... Spain 122,000 2,420,840
Gener SA, ADR ........................................... Chile 287,050 4,449,275
Hong Kong Electric Holdings Ltd. ........................ Hong Kong 2,001,500 6,256,699
Iberdrola SA, Br. ....................................... Spain 85,000 1,177,489
Korea Electric Power Corp. .............................. South Korea 196,000 6,075,914
Veba AG ................................................. Germany 173,800 8,486,157
------------
30,642,874
------------
TOTAL COMMON STOCKS (COST $446,446,036).................. 564,507,467
------------
PREFERRED STOCKS 5.8%
Banco Bradesco SA, pfd. ................................. Brazil 767,000,000 6,016,269
* Banco Bradesco SA, pfd., rts., 2/09/00 .................. Brazil 49,804,449 197,674
Cia Vale do Rio Doce, A, ADR, pfd. ...................... Brazil 371,400 10,279,546
Embratel Participacoes SA, ADR, pfd. .................... Brazil 77,300 2,106,425
Moebel Walther AG, pfd. ................................. Germany 40,092 314,827
News Corp. Ltd., pfd. ................................... Australia 850,000 7,282,223
Petroleo Brasileiro SA (Petrobras), pfd. ................ Brazil 36,000,000 9,166,897
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............. Brazil 110,000 2,688,125
Telecomunicacoes de Sao Paulo SA, pfd. .................. Brazil 40,981,336 993,624
Telesp Celular Participacoes SA, pfd. ................... Brazil 40,981,336 725,936
------------
TOTAL PREFERRED STOCKS (COST $32,117,807)................ 39,771,546
------------
PRINCIPAL
AMOUNT**
------------
BONDS 9.6%
Bonos Y Oblig del Estado, 3.25%, 1/31/05 ................ Spain 1,626,000 EUR 1,500,608
Buoni Poliennali del Tesoro, 7.75%, 11/01/06 ............ Italy 5,685,153 EUR 6,484,726
/dagger/ Essar Steel Ltd., Reg. S, FRN, 7.635%, 7/20/99 .......... India 445,000 269,225
Federal Republic of Germany:
3.25%, 2/17/04 ......................................... Germany 2,331,000 EUR 2,217,888
4.50%, 7/04/09 ......................................... Germany 4,160,000 EUR 3,928,400
Government of Canada:
8.75%, 12/01/05 ........................................ Canada 504,000 CAD 390,909
7.00%, 12/01/06 ........................................ Canada 597,000 CAD 429,725
6.00%, 6/01/08 ......................................... Canada 2,812,000 CAD 1,913,401
Government of France, 3.50%, 7/12/04 .................... France 7,620,000 EUR 7,255,992
Government of Spain, 7.35%, 3/31/07 ..................... Spain 3,201,000 EUR 3,580,621
Government of Netherlands, 5.75%, 2/15/07 ............... Netherlands 3,484,000 EUR 3,606,061
</TABLE>

TA-12
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS (CONT.)
Government of New Zealand, 7.00%, 7/15/09 ..................... New Zealand 3,614,000 NZD $ 1,847,604
International Bank for Recon/Dev., 5.25%, 3/20/02 ............. Japan 323,900,000 JPY 3,525,228
Kingdom of Belgium, 7.75%, 10/15/04 ........................... Belgium 2,374,000 EUR 2,661,160
Kingdom of Denmark, 7.00%, 12/15/04 ........................... Denmark 18,025,000 DKK 2,615,750
Kingdom of Sweden, 6.00%, 2/09/05 ............................. Sweden 22,400,000 SEK 2,695,190
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 .......... Australia 1,800,000 AUD 1,180,083
Queensland Treasury Corp., 6.50%, 6/14/05 ..................... Australia 725,000 AUD 465,729
Republic of Panama, 8.875%, 9/30/27 ........................... Panama 960,000 808,800
Republic of Peru, FRN, 4.50%, 3/07/17 ......................... Peru 1,560,000 1,080,300
Republic of Turkey, 12.375%, 6/15/09 .......................... Turkey 1,130,000 1,214,750
Republic of Venezuela, 144A, 9.125%, 6/18/07 .................. Venezuela 1,540,000 1,208,900
U.S. Treasury Bond, 5.25%, 11/15/28 ........................... United States 2,660,000 2,192,838
United Kingdom, 7.50%, 12/07/06 ............................... United Kingdom 3,685,000 GBP 6,494,731
United Mexican States:
9.75%, 2/06/01 ............................................... Mexico 2,895,000 2,989,088
6.25%, 12/31/19 .............................................. Mexico 5,050,000 3,980,031
------------
TOTAL BONDS (COST $71,077,244)................................. 66,537,738
------------
SHORT TERM INVESTMENT (COST $13,862,000) 2.0%
Chase Securities Inc., 5.00%, 1/03/00, Time Deposit ........... United States 13,862,000 13,862,000
------------
TOTAL INVESTMENTS (COST $563,503,087) 98.9%.................... 684,678,751
NET EQUITY IN FORWARD CONTRACTS ............................... (138,404)
OTHER ASSETS, LESS LIABILITIES 1.1% ........................... 7,970,491
------------
TOTAL NET ASSETS 100.0% ....................................... $692,510,838
============
</TABLE>

CURRENCY ABBREVIATIONS:

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

*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
/dagger/REPRESENTS BOND IN DEFAULT.

See Notes to Financial Statements.

TA-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $563,503,087)............................. $ 684,678,751
Cash ............................................................................... 827
Receivables:
Investment securities sold ........................................................ 6,056,177
Fund shares sold .................................................................. 19,507
Dividends and interest ............................................................ 2,902,685
-------------
Total assets ..................................................................... 693,657,947
-------------
Liabilities:
Payables:
Fund shares redeemed .............................................................. 407,501
To affiliates ..................................................................... 407,962
Unrealized loss on forward exchange contracts (Note 6) ............................. 138,404
Accrued expenses ................................................................... 193,242
-------------
Total liabilities ................................................................ 1,147,109
-------------
Net assets, at value ................................................................ $ 692,510,838
=============
Net assets consist of:
Undistributed net investment income ................................................ $ 11,558,951
Net unrealized appreciation ........................................................ 121,012,673
Accumulated net realized gain ...................................................... 90,365,268
Beneficial shares .................................................................. 469,573,946
-------------
Net assets, at value ................................................................ $ 692,510,838
=============
CLASS 1:
Net asset value per share ($671,549,182 /divided by/ 28,735,325 shares outstanding) $ 23.37
=============
CLASS 2:
Net asset value per share ($20,961,656 /divided by/ 900,625 shares outstanding) .... $ 23.27
=============
</TABLE>

See Notes to Financial Statements.

TA-14
<PAGE>

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,410,771)
Dividends ............................................................... $13,862,828
Interest ................................................................ 5,001,404
-----------
Total investment income ............................................... $ 18,864,232
Expenses:
Management fees (Note 3) ................................................ 4,072,911
Administrative fees (Note 3) ............................................ 650,654
Distribution fees - Class 2 (Note 3) .................................... 40,932
Custodian fees .......................................................... 186,300
Reports to shareholders ................................................. 49,100
Professional fees ....................................................... 50,300
Trustees' fees and expenses ............................................. 1,900
Other ................................................................... 1,722
-----------
Total expenses ........................................................ 5,053,819
------------
Net investment income ................................................ 13,810,413
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ 89,558,771
Foreign currency transactions .......................................... (768,331)
-----------
Net realized gain ..................................................... 88,790,440
Net unrealized appreciation (depreciation) on:
Investments ............................................................ 36,610,311
Translation of assets and liabilities denominated in foreign currencies (185,188)
-----------
Net unrealized appreciation ........................................... 36,425,123
------------
Net realized and unrealized gain ......................................... 125,215,563
------------
Net increase in net assets resulting from operations ..................... $139,025,976
============
</TABLE>

See Notes to Financial Statements.

TA-15
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

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 .............................................................................. (58,852,355) (43,165,375)
Class 2 .............................................................................. 3,928,278 6,008,335
-----------------------------------
Net decrease in net assets .......................................................... (15,414,545) (37,307,835)
Net assets:
Beginning of year ...................................................................... 707,925,383 745,233,218
-----------------------------------
End of year ............................................................................ $ 692,510,838 $ 707,925,383
===================================
Undistributed net investment income included in net assets:
End of year ............................................................................ $ 11,558,951 $ 21,118,700
===================================
</TABLE>

See Notes to Financial Statements.

TA-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

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. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

D. 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

TA-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. INDEXED SECURITIES: (CONT.)

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.

E. 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.

F. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 240,379 $ 5,144,326 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 ............................... (7,631,687) (161,295,949) (5,108,135) (111,321,176)
-------------------------------------------------------------------
Net decrease .................................. (2,086,004) $ (58,852,355) (2,087,383) $ (43,165,375)
===================================================================

<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 279,540 $ 5,948,034 359,493 $ 7,948,841
Shares issued on reinvestment of distributions 121,157 2,217,176 28,357 637,187
Shares redeemed ............................... (204,412) (4,236,932) (116,620) (2,577,693)
---------------------------------------------------------
Net increase .................................. 196,285 $ 3,928,278 271,230 $ 6,008,335
=========================================================
</TABLE>

TA-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

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

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

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
0.65% First $200 million
0.585% Over $200 million, up to and including $1.3 billion
0.52% Over $1.3 billion

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:

ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 millon, up to and including $1.2 billion
0.075% Over $1.2 billion

TICI and FT Services have agreed in advance to limit total expenses of the Fund
to an annual rate of 0.78% and 1.03% of average daily net assets of Class 1 and
Class 2 shares, respectively, through December 31, 2000. For the year ended
December 31, 1999, no reimbursement was necessary under the agreement.

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

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.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $563,506,349 was as follows:

Unrealized appreciation ............. $ 180,541,743
Unrealized depreciation ............. (59,369,341)
-------------
Net unrealized appreciation ......... $ 121,172,402
=============

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $296,644,396 and $433,439,832,
respectively.

6. OFF-BALANCE SHEET RISK

TA-19
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Notes to Financial Statements (CONTINUED)

6. OFF-BALANCE SHEET RISK (CONT.)

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 December 31, 1999, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>

NET
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE LOSS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
355,578,000 Japanese Yen ...... U.S. $3,383,425 3/14/00 U.S. $(138,404)
----------------
</TABLE>

7. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton Asset Allocation Fund,
are participants in a $750 million senior unsecured credit agreement for
temporary borrowing purposes. The termination date of the agreement is March 1,
2000. Interest is calculated on the Fund's borrowings at market rates. At
December 31, 1999, the Fund had not utilized this credit facility.

8. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Asset
Allocation Fund.

TA-20
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Asset Allocation Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian, provides
a reasonable basis for the opinion expressed above. The financial statements
for the year ended December 31, 1998, including the financial highlights for
each of the four years in the period then ended were audited by other
independent accountants whose report dated January 28, 1999 expressed an
unqualified opinion on those financial statements.

PricewaterhouseCoopers LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000

TA-21
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

CHANGE IN INDEPENDENT AUDITOR

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

TA-22
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON ASSET ALLOCATION FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $78,840,235 as a capital gain dividend for the fiscal year ended
December 31, 1999.

Under Section 854 (b)(2) of the Internal Revenue Code, the Fund hereby
designates 5.00% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

TA-23
<PAGE>

TEMPLETON BOND FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON BOND FUND SEEKS HIGH,
CURRENT INCOME. THE FUND SEEKS TO ACHIEVE ITS GOAL THROUGH A FLEXIBLE POLICY OF
INVESTING PRIMARILY IN DEBT SECURITIES OF COMPANIES, GOVERNMENTS AND GOVERNMENT
AGENCIES OF VARIOUS NATIONS THROUGHOUT THE WORLD.
- --------------------------------------------------------------------------------
During the year under review, a booming U.S. economy, renewed European economic
growth, a strengthening of Asian economies (especially Japan's) and an upswing
in many Latin American economies all contributed to concerns about inflation
and rising interest rates. Global bond markets generally performed dismally,
with the J.P. Morgan Global Government Bond Index declining 5.08% in U.S.
dollar terms.(1)

[This chart shows in pie format the geographic distribution of the Templeton
Bond Fund, based on total net assets as of 12/31/99.]

Europe 38.3%
North America 26.2%
Latin America 14.1%
Australia & New Zealand 5.9%
Asia 5.0%
Short-Term Investments & Other Net Assets 10.5%

The overall decline in bond prices was led by the United States, whose economy
expanded for a ninth consecutive year--the longest expansion in the nation's
history. Although the Consumer Price Index (CPI), a commonly used measure of
inflation, wasn't much above the five-year average, the U.S. Federal Reserve
Board (the Fed) raised interest rates on three separate occasions in an effort
to cool the buoyant economy. Despite the Fed's credit tightening, the economy,
as measured by gross domestic product (GDP), continued at a blistering 5.7%
annualized rate through the third quarter, increasing to 5.8% in the fourth.
The 30-year Treasury bond posted a -12.98% total return for the year, and the
J.P. Morgan U.S. Government Bond Index posted a return of -2.88%.(1)

European bond markets also fell throughout most of the reporting period as
deregulation, restructuring and economic expansion took hold in much of the
region. In addition, the European Monetary Union's (EMU) new currency, the
euro, plummeted 14% against the U.S. dollar over the course of the reporting
period due to outperformance of U.S. economic growth and equity markets
compared to European countries. As a result of slumping bond prices and the
declining value of the euro, yields generally trended higher. The EMU
Government Bond Index fell 16.89% in U.S. dollar terms, and the UK Bond Index
plunged following the Bank of England's interest rate increases in the second
half of 1999. German, Italian, Spanish, Danish and Swedish bond prices also
fell significantly.(1)

1. Source: J.P. Morgan Government Bond Index Monitor. 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. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

TB-1
<PAGE>

In Asia, many nations recovered from their economic woes of previous years, and
the Japanese economy bounced back impressively after a decade in the doldrums.
Though most foreign bonds offered dismal returns in 1999, Japan's bucked the
trend, returning 5.01% in local currency terms, mostly as a result of investor
expectations of an economic recovery, stable interest rates, and a stronger
yen. For the year, the yen was up 29% against the euro and 10% against the U.S.
dollar.

However, the Japanese bond market slid toward the end of the reporting period
amid concerns surrounding the larger-than-expected magnitude of the
government's fiscal package for the fourth quarter, coupled with the
possibility that Moody's (an agency that assigns credit ratings to bonds) might
downgrade Japanese government debt. Elsewhere in the Pacific Rim, the
dollar-bloc countries (Australia and New Zealand) realized vigorous economic
growth, and despite plummeting bond prices in the second half of the reporting
period, they remained slightly ahead of abysmal U.S. and European results for
the year.

Despite troubling economic developments in Ecuador and Brazil during the
summer, Latin American economies generally continued to rally during the year.
Thanks to its high level of trade and connections with the U.S., Mexico's
performed best. Latin American bonds and emerging debt in general fared better
than the U.S., and the J.P. Morgan Emerging Market Bond Index Plus rose 26.00%
in 1999.(2)

During the 12 months under review, we attempted to maximize the Fund's return
by allocating about 75% of total net assets to intermediate- and long-term
bonds in developed industrial markets, and about 15% to what we believed to be
the highest quality and most liquid bonds available in emerging markets. In our
opinion, this combination offered opportunity for higher long-term returns at
the cost of modestly increased short-term volatility.

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

TB-2
<PAGE>

On December 31, 1998, 43.4% of the portfolio was dedicated to North American
issues. By the end of the year, we trimmed our position to just over 26%
because we believed there would be better opportunities for total return in
emerging markets and Europe. We also reduced the Fund's stake in the Pacific
Rim dollar-bloc countries (Australia and New Zealand) by about 2.5% and
initiated a 4.4% position in Japan. Our Latin American stake nearly doubled
over the year, from 7.7% to 14.1% of total net assets, most of which was
invested in Mexico. Most Latin bonds in the portfolio were U.S.
dollar-denominated sovereign Eurobonds with fixed coupons, issued by countries
with strong repayment capacity. The Fund's allocation to emerging markets added
positively to its 1999 performance, and we expect this trend to continue into
the first half of 2000. Although we anticipate emerging market bond prices to
experience some volatility, we believe these positions may offer superior
returns during the next two to five years.

Looking forward, the critical issue for global interest rates will continue to
be the balance between global growth and inflation. Although U.S. economic
growth is expected to decrease slightly to around 3.0% to 3.5% in 2000, we
believe the trend in world economic growth is clearly positive, and global
inflation may pick up slightly in the near future. Although this is not
considered an ideal environment for high-quality bonds, the management team
believes a diversified global fixed-income portfolio should still perform
positively over the intermediate term.

TB-3
<PAGE>

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

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

Sincerely,

Templeton Global Bond Managers
Portfolio Management Team
Templeton Bond Fund

This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.

TB-4
<PAGE>

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)

The graph below compares the performance of Templeton Bond Fund -- Class 2 and
the J.P. Morgan Global Government Bond Index, including reinvested interest, as
well as the Consumer Price Index (CPI). The Fund's total return represents the
change in value of an investment over the periods shown and assumes
reinvestment of dividends and capital gains at net asset value. The J.P. Morgan
Global Government Bond Index includes only actively traded, fixed-rate bonds
with a remaining maturity of one year or longer. It is an aggregate of
government securities issued in 13 countries and includes reinvested interest.
The index is unhedged and expressed in terms of U.S. dollars. The CPI is a
commonly used measure of inflation. The Fund's performance differs from an
index's because an index is not managed, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management expenses. Of course, one cannot invest directly
in an index, nor is an index representative of the Fund's portfolio. The
indexes' sources are J.P. Morgan and Standard & Poor's/R/ Micropal (U.S.
Bureau of Labor Statistics).

[The following line graph compares th performance of the Templeton Bond Fund -
Class 2 to that of the J.P. Morgan Global Government Bond Index and the Consumer
Price Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]

TEMPLETON J.P. MORGAN
BOND FUND - GLOBAL GOVERNMENT
CLASS 2 BOND INDEX CPI
----------------------------------------------------------
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,913 $9,851 $10,103
02/28/1990 $9,922 $9,744 $10,150
03/31/1990 $9,932 $9,685 $10,206
04/30/1990 $9,835 $9,647 $10,223
05/31/1990 $10,078 $9,955 $10,246
06/30/1990 $10,214 $10,135 $10,301
07/31/1990 $10,321 $10,433 $10,341
08/31/1990 $10,204 $10,352 $10,436
09/30/1990 $10,262 $10,449 $10,523
10/31/1990 $10,389 $10,861 $10,587
11/30/1990 $10,544 $11,053 $10,610
12/31/1990 $10,633 $11,176 $10,610
01/31/1991 $10,797 $11,429 $10,674
02/28/1991 $10,849 $11,440 $10,690
03/31/1991 $10,910 $11,083 $10,706
04/30/1991 $10,993 $11,217 $10,722
05/31/1991 $11,065 $11,226 $10,754
06/30/1991 $11,003 $11,076 $10,785
07/31/1991 $11,127 $11,310 $10,801
08/31/1991 $11,425 $11,546 $10,832
09/30/1991 $11,682 $11,967 $10,880
10/31/1991 $11,847 $12,085 $10,896
11/30/1991 $11,991 $12,282 $10,928
12/31/1991 $12,320 $12,902 $10,936
01/31/1992 $12,028 $12,650 $10,952
02/29/1992 $12,051 $12,613 $10,992
03/31/1992 $11,939 $12,496 $11,048
04/30/1992 $11,984 $12,600 $11,063
05/31/1992 $12,264 $12,958 $11,079
06/30/1992 $12,555 $13,311 $11,118
07/31/1992 $12,925 $13,605 $11,142
08/31/1992 $13,037 $13,967 $11,173
09/30/1992 $12,992 $13,953 $11,204
10/31/1992 $12,892 $13,605 $11,243
11/30/1992 $12,813 $13,363 $11,259
12/31/1992 $13,002 $13,490 $11,251
01/31/1993 $13,264 $13,718 $11,306
02/28/1993 $13,609 $13,939 $11,346
03/31/1993 $13,621 $14,154 $11,386
04/30/1993 $13,681 $14,411 $11,418
05/31/1993 $13,693 $14,503 $11,434
06/30/1993 $13,907 $14,515 $11,450
07/31/1993 $14,122 $14,521 $11,450
08/31/1993 $14,349 $14,951 $11,482
09/30/1993 $14,289 $15,109 $11,506
10/31/1993 $14,432 $15,101 $11,553
11/30/1993 $14,229 $14,991 $11,561
12/31/1993 $14,492 $15,144 $11,561
01/31/1994 $14,778 $15,287 $11,592
02/28/1994 $14,313 $15,119 $11,632
03/31/1994 $13,835 $15,050 $11,671
04/30/1994 $13,772 $15,038 $11,688
05/31/1994 $13,696 $14,914 $11,696
06/30/1994 $13,619 $15,091 $11,736
07/31/1994 $13,696 $15,233 $11,767
08/31/1994 $13,721 $15,194 $11,814
09/30/1994 $13,721 $15,269 $11,846
10/31/1994 $13,886 $15,497 $11,854
11/30/1994 $13,797 $15,302 $11,870
12/31/1994 $13,784 $15,338 $11,870
01/31/1995 $13,861 $15,648 $11,917
02/28/1995 $14,121 $16,051 $11,965
03/31/1995 $14,361 $16,868 $12,005
04/30/1995 $14,641 $17,137 $12,044
05/31/1995 $15,014 $17,615 $12,068
06/30/1995 $15,068 $17,725 $12,092
07/31/1995 $15,121 $17,809 $12,092
08/31/1995 $15,014 $17,314 $12,124
09/30/1995 $15,254 $17,704 $12,148
10/31/1995 $15,508 $17,877 $12,188
11/30/1995 $15,601 $18,076 $12,180
12/31/1995 $15,841 $18,300 $12,171
01/31/1996 $15,748 $18,112 $12,243
02/29/1996 $15,668 $18,007 $12,282
03/31/1996 $15,713 $17,979 $12,346
04/30/1996 $15,802 $17,913 $12,394
05/31/1996 $15,877 $17,931 $12,418
06/30/1996 $16,070 $18,088 $12,425
07/31/1996 $16,130 $18,420 $12,449
08/31/1996 $16,339 $18,497 $12,472
09/30/1996 $16,548 $18,599 $12,512
10/31/1996 $16,890 $18,968 $12,552
11/30/1996 $17,308 $19,239 $12,576
12/31/1996 $17,338 $19,105 $12,576
01/31/1997 $17,129 $18,627 $12,616
02/28/1997 $17,081 $18,498 $12,655
03/31/1997 $17,001 $18,358 $12,687
04/30/1997 $17,113 $18,254 $12,702
05/31/1997 $17,210 $18,685 $12,695
06/30/1997 $17,403 $18,897 $12,710
07/31/1997 $17,499 $18,828 $12,725
08/31/1997 $17,451 $18,805 $12,749
09/30/1997 $17,772 $19,222 $12,781
10/31/1997 $17,644 $19,630 $12,813
11/30/1997 $17,660 $19,394 $12,806
12/31/1997 $17,772 $19,373 $12,790
01/31/1998 $17,965 $19,568 $12,814
02/28/1998 $18,126 $19,713 $12,839
03/31/1998 $18,204 $19,564 $12,863
04/30/1998 $18,255 $19,865 $12,886
05/31/1998 $18,238 $19,951 $12,910
06/30/1998 $18,238 $20,006 $12,925
07/31/1998 $18,290 $20,061 $12,941
08/31/1998 $17,584 $20,615 $12,956
09/30/1998 $18,393 $21,691 $12,972
10/31/1998 $18,806 $22,177 $13,003
11/30/1998 $18,961 $21,927 $13,003
12/31/1998 $19,047 $22,340 $12,995
01/31/1999 $19,098 $22,156 $13,026
02/28/1999 $18,427 $21,416 $13,042
03/31/1999 $18,539 $21,469 $13,081
04/30/1999 $18,629 $21,463 $13,176
05/31/1999 $18,234 $21,086 $13,176
06/30/1999 $18,001 $20,733 $13,176
07/31/1999 $18,055 $21,188 $13,216
08/31/1999 $17,875 $21,243 $13,248
09/30/1999 $18,019 $21,549 $13,311
10/31/1999 $17,929 $21,522 $13,335
11/30/1999 $17,804 $21,266 $13,343
12/31/1999 $17,829 $21,205 $13,343

The historical performance figures shown pertain only to the Fund's Class 2
shares.
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 19, 1999,
historical results of Class 1 shares; and (b) for periods after January 19,
1999, Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

TEMPLETON BOND FUND
- -- CLASS 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but
does NOT 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 performance does not guarantee future results.

TB-5
<PAGE>

TEMPLETON BOND FUND
- -- CLASS 2

EXPENSES: 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. Changes in issuers' financial strength may affect debt securities'
values and, thus, impact the value of Fund shares. You may have a gain or loss
when you sell your shares.

PERFORMANCE

<TABLE>
<CAPTION>
Templeton Bond Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* 5-YEAR* 10-YEAR* (8/31/88)*
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return -6.06% 29.81% 78.29% 96.28%
Average Annual Total Return -6.06% 5.36% 5.95% 6.12%
Value of $10,000 Investment $9,394 $12,981 $17,829 $19,628
</TABLE>

*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 19, 1999,
historical results of Class 1 shares; and (b) for periods after January 19,
1999, Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

Past performance does not guarantee future results.

TB-6
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND

Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.07 $11.06 $11.63 $11.88 $10.86
-------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .59 .79 .80 .85 .80
Net realized and unrealized gains (losses) .......... (1.23) (.03) (.53) .14 .76
-------------------------------------------------------------
Total from investment operations ...................... (.64) .76 .27 .99 1.56
-------------------------------------------------------------
Less distributions from net investment income ......... (.44) (.75) (.84) (1.24) ( .54)
-------------------------------------------------------------
Net asset value, end of year .......................... $9.99 $11.07 $11.06 $11.63 $11.88
=============================================================
Total Return* ......................................... (5.87)% 7.17% 2.51% 9.45% 14.92%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $20,492 $30,207 $31,826 $34,046 $ 32,910
Ratios to average net assets:
Expenses ............................................ .71% .73% .68% .68% .78%
Net investment income ............................... 5.74% 6.83% 6.90% 7.35% 7.14%
Portfolio turnover rate ............................... 65.48% 89.86% 154.23% 141.19% 188.11%
</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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

TB-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND

Financial Highlights (CONTINUED)

<TABLE>
<CAPTION>
CLASS 2
--------------------------
YEAR ENDED
DECEMBER 31, 1999/dagger/
--------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................... $11.11
-------
Income from investment operations:
Net investment income ............................... .53
Net realized and unrealized loss .................... (1.23)
-------
Total from investment operations ...................... (.70)
-------
Less distributions from net investment income ......... (.44)
-------
Net asset value, end of year .......................... $9.97
=======
Total Return* ......................................... (6.39)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $520
Ratios to average net assets:
Expenses ............................................ .86%**
Net investment income ............................... 5.54%**
Portfolio turnover rate ............................... 65.48%
</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 DECEMBER 31,
1999. BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

See Notes to Financial Statements.

TB-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES 89.5%
ARGENTINA 1.4%
Republic of Argentina, 11.75%, 4/07/09 ........................ $ 290,000 $ 289,637
-----------
AUSTRALIA 3.5%
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 .......... 800,000 AUD 524,481
Queensland Treasury Corp., 6.50%, 6/14/05 ..................... 318,000 204,278
-----------
728,759
-----------
BELGIUM 1.8%
Kingdom of Belgium, 7.75%, 10/15/04 ........................... 331,000 EUR 371,039
-----------
BRAZIL .6%
Republic of Brazil, FRN, 7.00%, 4/15/09 ....................... 170,000 136,956
-----------
BULGARIA 2.3%
Republic of Bulgaria, Series A, FRN, 6.50%, 7/28/24 ........... 605,000 485,894
-----------
CANADA 1.6%
Government of Canada:
8.75%, 12/01/05 .............................................. 210,000 CAD 162,879
7.00%, 12/01/06 .............................................. 249,000 CAD 179,232
-----------
342,111
-----------
COLOMBIA .9%
Republic of Columbia, 9.75%, 4/23/09 .......................... 200,000 191,661
-----------
DENMARK 2.1%
Kingdom of Denmark, 7.00%, 12/15/04 ........................... 3,050,000 DKK 442,610
-----------
GERMANY 12.6%
Federal Republic of Germany:
3.25%, 2/17/04 ............................................... 1,004,000 EUR 955,281
4.50%, 7/04/09 ............................................... 1,792,000 EUR 1,692,234
-----------
2,647,515
-----------
INDIA .1%
/dagger/ Essar Steel Ltd., Reg. S, FRN, 7.635%, 7/20/99 ................ 50,000 30,250
-----------
ITALY 7.8%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00 .............................................. 612,000 EUR 634,058
7.75%, 11/01/06 .............................................. 877,975 EUR 1,001,456
-----------
1,635,514
-----------
JAPAN 4.4%
International Bank for Recon/Dev., 5.25%, 3/20/02 ............. 84,700,000 JPY 921,849
-----------
MEXICO 8.6%
United Mexican States:
9.75%, 4/06/05 ............................................... 650,000 676,812
11.375%, 9/15/16 ............................................. 175,000 198,546
6.25%, 12/31/19 .............................................. 800,000 630,500
11.50%, 5/15/26 .............................................. 250,000 297,812
-----------
1,803,670
-----------
NEW ZEALAND 2.4%
Government of New Zealand, 7.00%, 7/15/09 ..................... 990,000 NZD 506,123
-----------
PANAMA .7%
Republic of Panama, 8.875%, 9/30/27 ........................... 170,000 143,225
-----------
PERU .8%
Republic of Peru, FRN, 4.50%, 3/07/17 ......................... 235,000 162,738
-----------
SPAIN 2.5%
Bonos Y Oblig del Estado, 3.25%, 1/31/05 ...................... 567,000 EUR 523,275
-----------
</TABLE>
TB-9

<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

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

*SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
/dagger/REPRESENTS BOND IN DEFAULT.

See Notes to Financial Statements.

TB-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $21,946,264)........................... $ 20,741,554
Cash ............................................................................ 50
Interest receivable ............................................................. 356,156
------------
Total assets .................................................................. 21,097,760
------------
Liabilities:
Payables:
Fund shares redeemed ........................................................... 14,739
To affiliates .................................................................. 10,884
Unrealized loss on forward exchange contracts (Note 6) .......................... 36,192
Accrued expenses ................................................................ 24,061
------------
Total liabilities ............................................................. 85,876
------------
Net assets, at value ............................................................. $ 21,011,884
============
Net assets consist of:
Undistributed net investment income ............................................. $ 681,677
Net unrealized depreciation ..................................................... (1,246,084)
Accumulated net realized loss ................................................... (2,715,912)
Beneficial shares ............................................................... 24,292,203
------------
Net assets, at value ............................................................. $ 21,011,884
============
CLASS 1:
Net asset value per share ($20,492,284 /divided by/ 2,052,007 shares outstanding) $ 9.99
============
CLASS 2:
Net asset value per share ($519,600 /divided by/ 52,109 shares outstanding)...... $ 9.97
============
</TABLE>

See Notes to Financial Statements.

TB-11
<PAGE>

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Interest Income .......................................................... $ 1,584,597
Expenses:
Management fees (Note 3) ................................................ 122,550
Administrative fees (Note 3) ............................................ 23,758
Distribution fees--Class 2 (Note 3) ..................................... 417
Custodian fees .......................................................... 5,800
Reports to shareholders ................................................. 7,500
Professional fees ....................................................... 14,100
Trustees' fees and expenses ............................................. 700
Other ................................................................... 216
-------
Total expenses ......................................................... 175,041
------------
Net investment income ................................................. 1,409,556
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................ (1,224,498)
Foreign currency transactions .......................................... 27,937
----------
Net realized loss ..................................................... (1,196,561)
Net unrealized depreciation on:
Investments ............................................................ (1,757,294)
Translation of assets and liabilities denominated in foreign currencies (46,136)
----------
Net unrealized depreciation ........................................... (1,803,430)
------------
Net realized and unrealized loss ......................................... (2,999,991)
------------
Net decrease in net assets resulting from operations ..................... $ (1,590,435)
============
</TABLE>

See Notes to Financial Statements.

TB-12
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 1,409,556 $ 2,078,728
Net realized loss from investments and foreign currency transactions ................... (1,196,561) (1,004,448)
Net unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies ........................................ (1,803,430) 1,014,416
------------------------------
Net increase (decrease) in net assets resulting from operations ....................... (1,590,435) 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 ................................................................................ (7,003,085) (1,644,280)
Class 2 ................................................................................ 534,148 --
------------------------------
Net decrease in net assets ............................................................ (9,195,003) (1,619,287)
Net assets:
Beginning of year ....................................................................... 30,206,887 31,826,174
------------------------------
End of year ............................................................................. $ 21,011,884 $ 30,206,887
==============================
Undistributed net investment income included in net assets:
End of year ............................................................................. $ 681,677 $ 1,116,147
==============================
</TABLE>

See Notes to Financial Statements.

TB-13
<PAGE>

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Bond Fund (the Fund) is a separate, non-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. 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. Distributions to shareholders are recorded on the
ex-dividend date.

D. INDEXED SECURITIES:

TB-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND

Notes to Financial Statements (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. INDEXED SECURITIES: (CONT.)

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.

E. FOREIGN EXCHANGE CONTRACTS:

F. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 128,190 $ 1,330,175 371,187 $ 3,983,652
Shares issued on reinvestment of distributions 110,872 1,132,000 195,983 2,063,703
Shares redeemed ............................... (915,796) (9,465,260) (716,054) (7,691,635)
----------------------------------------------------------
Net decrease .................................. (676,734) $ (7,003,085) (148,884) $ (1,644,280)
==========================================================
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999*
--------------------------
SHARES AMOUNT
CLASS 2 SHARES: --------------------------
<S> <C> <C>
Shares sold ................................... 65,282 $ 669,680
Shares issued on reinvestment of distributions 355 3,631
Shares redeemed ............................... (13,528) (139,163)
----------------------
Net increase .................................. 52,109 $ 534,148
======================
</TABLE>

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

TB-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND

Notes to Financial Statements (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

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

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

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ----------------------------------------------------------------
<S> <C>
0.50% 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:

<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 0.15% 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

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.

The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At December 31, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 233,705
Unrealized depreciation ............. (1,438,415)
-------------
Net unrealized depreciation ......... $ (1,204,710)
=============
</TABLE>

At December 31, 1999, 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:

At December 31, 1999 the Fund has deferred capital and currency losses
occurring subsequent to October 31, 1999 of $385,000. For tax purposes, such
losses will be reflected in the year ending December 31, 2000.

TB-16
<PAGE>

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

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $15,191,484 and $21,068,203,
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.

As of December 31, 1999, the Fund had the following forward exchange contracts
outstanding:

<TABLE>
<CAPTION>
NET
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE LOSS
- ------------------ ---------------------------------------------
<S> <C> <C> <C>
92,984,000 Japanese Yen ......... U.S. $884,770 3/14/00 U.S. $(36,192)
-------------
</TABLE>

7. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton Bond Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.

8. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Income
Securities Fund.

TB-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND
INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Bond Fund, series of
Templeton Variable Products Series Fund at December 31, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian, provides
a reasonable basis for the opinion expressed above. The financial statements
for the year ended December 31, 1998, including the financial highlights for
each of the four years in the period then ended were audited by other
independent accountants whose report dated January 28,1999 expressed an
unqualified opinion on those financial statements.

/s/PRICEWATERHOUSECOOPERS LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000.

TB-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON BOND FUND

CHANGE IN INDEPENDENT AUDITOR

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

TB-19
<PAGE>

TEMPLETON DEVELOPING MARKETS FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON DEVELOPING MARKETS FUND
SEEKS LONG-TERM CAPITAL APPRECIATION. THE FUND SEEKS TO ACHIEVE THIS OBJECTIVE
BY INVESTING PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN COUNTRIES HAVING
DEVELOPING MARKETS.
- --------------------------------------------------------------------------------
This annual report of Templeton Developing Markets Fund covers the 12 months
ended December 31, 1999. During this period, many emerging markets recovered
substantially in 1999 despite the war in Kosovo, tensions between China and
Taiwan, military conflicts between India and Pakistan, the near collapse of one
of South Korea's largest conglomerates, the floating of Brazil's currency and
earthquakes in Turkey, Greece and Taiwan. Political change was also widespread
throughout emerging markets as citizens of Indonesia, South Africa and
Argentina elected new leadership, while a military coup put a new government in
charge of Pakistan. The stability of the Polish and Czech governments appeared
to be in question for most of the year, and questions about Boris Yeltsin were
not laid to rest until December 31, 1999, when he resigned and handed over
control of Russia to Vladimir Putin.

[This chart shows in pie format the geographic distribution of the Templeton
Developing Markets Fund, based on total net assets as of 12/31/99.]

Asia 36.5%
Latin America 35.6%
Middle East & Africa 15.0%
Europe 9.4%
Short-Term Investments & Other Net Assets 3.5%

Asia led the economic recovery, as many Asian nations shifted to economies led
by domestic consumption rather than by trade. The recovery strengthened
throughout the year as domestic consumption began showing signs of improvement
and import growth outpaced that of exports.

In Latin America, most economies were relatively weak, but improved commodity
prices led many investors to believe that these economies were bottoming out.
Brazil's currency devaluation had only moderately adverse effects on inflation
and economic growth. Although the election of a new president in Argentina
combined with concerns about the currency peg and the level of national debt
appeared to affect the equity market there, the government is expected to
reduce the fiscal deficit in the near future. And continued reform in Brazil,
coupled with Venezuela's restructuring and a new government in Chile, led many
to conclude that these economies could return to growth in 2000.

TD-1
<PAGE>

[This chart lists the top 10 countries represented in the Templeton Developing
Markets Fund, based on total net assets as of 12/31/99.]

<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton Developing Markets Fund
12/31/99

% OF TOTAL
COUNTRY NET ASSETS
================= ============
<S> <C>
Brazil 16.5%
South Africa 14.0%
Mexico 9.8%
Singapore 6.6%
Thailand 6.3%
Indonesia 5.9%
South Korea 5.4%
Argentina 5.1%
Hong Kong 4.5%
Turkey 3.4%
</TABLE>

Convergence with European Union admission standards proved beneficial for
eastern and southern European economies during the year. Although natural
disasters in Turkey and Greece coupled with stalled privatization attempts in
other eastern European countries hampered economic growth in the region, the
long-term outlook for emerging Europe seems bright as European Union membership
prompts these countries to reform their economies.

In South Africa, the strengthening of gold prices during the year in addition
to greater demand for diamonds and other natural resources helped propel the
nation's economy forward. The ongoing streamlining of large South African
corporations and increased international demand for their products further
fueled economic strength.

During the fiscal year, strong growth in the South African stock market
resulted in an increase in the portfolio's exposure to Africa, which made up
14.0% of total net assets on December 31, 1999. Because we felt we could find
better value elsewhere, we sold holdings in Ghana, Zimbabwe, Croatia,
Kazakhstan, Shenzhen (China), Sri Lanka, Ecuador and Jordan. Our Asian exposure
also decreased slightly, principally because we sold a number of Indian and
Malaysian companies.

TD-2
<PAGE>

Varying individual performances led to a substantial change in the Fund's top
ten holdings during the reporting period. Tele Centro Sul Participacoes SA,
pfd. (Brazil), Tele Norte Leste Participacoes SA, pfd. (Brazil), Anglo American
PLC (South Africa), Grupo Financiero Banamex Accival SA de CV (Mexico),
Telecomunicacoes de Sao Paulo SA, ADR, pfd. (Brazil), PT Telekomunikasi
Indonesia (Persero), B (Indonesia), Akbank (Turkey), and Centrais Electricas
Brasileiras SA (Eletrobras) (Brazil) replaced Hana Bank (South Korea),
Telecomunicacoes Brasileiras SA (Telebras) (Brazil), Thai Farmers Bank Public
Co. Ltd. (Thailand), Investimentos Itau SA (Brazil), Public Bank Bhd.
(Malaysia), Korea Electric Power Corp. (South Korea), Compania de
Telecomunicaciones de Chile SA (Chile), and Belle Corp. (Philippines) among the
Fund's top 10 positions.

Looking forward, we believe that the recovery in emerging market economies has
just begun. Interest rates have fallen in many of these countries, but many
markets' indexes and valuations are still below their all-time highs. The major
Asian countries have increased their foreign exchange reserves, and some
emerging market currencies are still undervalued, which should increase the
competitiveness of their exports. Furthermore, elections in Chile, India,
Russia, Mexico, Malaysia, Argentina and Indonesia reduced some of the political
risk, making rapid economic and social reform more likely going forward.
Finally, many emerging markets countries continue to overhaul their financial
systems. We see many banks recapitalizing their balance sheets and companies
making efforts to rectify the problem of excessive borrowings as well as
streamlining their work forces in response to the changing economic
environment. In our opinion, rising domestic and international demand should
continue to spur economic growth, and we are excited about the potential
emerging markets can offer to the Fund's shareholders.

[This chart lists the top 10 equity holdings, including industry and country, of
the Templeton Developing Markets Fund, based on total net assets as of
12/31/99.]

<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton Developing Markets Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------- ------------
<S> <C>
Cemex SA,
BUILDING MATERIALS &
COMPONENTS, MEXICO 3.6%

Tele Centro Sul
Participacoes SA, pfd.,
TELECOMMUNICATIONS,
BRAZIL 2.8%

Tele Norte Leste
Participacoes SA, pfd.,
TELECOMMUNICATIONS,
BRAZIL 2.6%

Anglo American PLC,
METALS & MINING, SOUTH
AFRICA 2.5%

Grupo Financiero
Banamex Accival SA de
CV, BANKING, MEXICO 2.4%

Telecomunicacoes de Sao
Paulo SA, ADR, pfd.,
TELECOMMUNICATIONS,
BRAZIL 2.0%

PT Telekomunikasi
Indonesia (Persero), B,
TELECOMMUNICATIONS,
INDONESIA 2.0%

Akbank, BANKING, TURKEY 1.9%

Telefonos de Mexico
(Telmex), L, ADR,
TELECOMMUNICATIONS,
MEXICO 1.8%

Centrais Electricas
Brasileiras SA
(Electrobras), B, pfd.,
UTILITIES ELECTRICAL & GAS,
BRAZIL 1.7%
</TABLE>

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

TD-3
<PAGE>

Of course, investing in any 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. While short-term volatility can be
disconcerting, declines in excess of 50% are not unusual in emerging markets. In
fact, the Taiwan equity market has increased 1,164% in the last 15 years, but
has suffered six declines of more than 20% during that time.(1) These special
risks and other considerations are discussed in the Fund's prospectus.

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

Sincerely,

/s/J. MARK MOBIUS

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

1. Source: Taiwan Weighted Index. Based on quarterly percentage price change
over 15 years ended December 31, 1999. Market return is measured in U.S. dollar
terms and does not include reinvested dividends.

TD-4
<PAGE>

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (3/4/96 -- 12/31/99)

The graph below compares the performance of Templeton Developing Markets Fund --
Class 2 and the Morgan Stanley Capital International (MSCI/R/) Emerging Markets
Free Index and International Finance Corporation's (IFC) Investable Composite
Index, including reinvested dividends, as well as the Consumer Price Index
(CPI). Although we use MSCI Emerging Markets Free Index as the portfolio's
benchmark, we retained the MSCI World Index in the graph to show how global
developed markets have performed. The Fund's total return represents the change
in value of an investment over the periods shown and assumes reinvestment of
dividends and capital gains at net asset value. The MSCI Emerging Markets Free
Index covers 27 emerging markets and takes into account local market
restrictions on share ownership by foreigners. The IFC Investable Composite
Index was designed to reflect the performance of emerging market investments and
includes approximately 2,000 companies that foreigners can buy in 30 countries.
The CPI is a commonly used measure of inflation. The Fund's performance differs
from an index's because an index is not managed, does not contain cash (the Fund
generally carries a certain percentage of cash at any given time), and includes
no sales charges or management expenses. Of course, one cannot invest directly
in an index, nor is an index representative of the Fund's portfolio. The
indexes' sources are MSCI, International Finance Corporation, and Standard &
Poor's/R/ Micropal (U.S. Bureau of Labor Statistics).

[The following line graph compares the performance of the Templeton Developing
Markets Fund - Class 2 to that of the Morgan Stanley Capital International
Emerging Markets Free Index, the Morgan Stanley Capital International World
Index, the International Finance Corporation's Investable Composite Index, and
the Consumer Price Index, based on a $10,000 investment from 3/4/96 - 12/31/99.]

TEMPLETON MSCI IFC
DEVELOPING EMERGING INVESTABLE
MARKETS FUND - MARKETS MSCI COMPOSITE
CLASS 2 FREE INDEX WORLD INDEX INDEX CPI
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/04/1996 $10,000 $10,000 $10,000 $10,000 $10,000
03/31/1996 $10,020 $9,974 $10,169 $10,144 $10,045
04/30/1996 $9,980 $10,373 $10,409 $10,550 $10,084
05/31/1996 $10,010 $10,326 $10,420 $10,461 $10,104
06/30/1996 $9,800 $10,391 $10,475 $10,584 $10,110
07/31/1996 $9,250 $9,681 $10,107 $9,889 $10,129
08/31/1996 $9,250 $9,928 $10,225 $10,195 $10,148
09/30/1996 $9,370 $10,014 $10,627 $10,346 $10,181
10/31/1996 $9,140 $9,747 $10,703 $10,123 $10,213
11/30/1996 $9,460 $9,911 $11,305 $10,273 $10,233
12/31/1996 $9,430 $9,955 $11,126 $10,318 $10,233
01/31/1997 $10,110 $10,635 $11,261 $11,047 $10,265
02/28/1997 $10,349 $11,090 $11,393 $11,587 $10,297
03/31/1997 $10,138 $10,799 $11,170 $11,302 $10,323
04/30/1997 $9,896 $10,818 $11,537 $11,109 $10,335
05/31/1997 $9,816 $11,127 $12,251 $11,487 $10,329
06/30/1997 $9,977 $11,723 $12,864 $11,983 $10,341
07/31/1997 $10,369 $11,898 $13,458 $12,104 $10,354
08/31/1997 $9,363 $10,384 $12,560 $10,558 $10,374
09/30/1997 $9,604 $10,672 $13,244 $10,893 $10,400
10/31/1997 $7,863 $8,920 $12,549 $9,110 $10,426
11/30/1997 $7,067 $8,595 $12,773 $8,674 $10,419
12/31/1997 $6,665 $8,802 $12,931 $8,797 $10,407
01/31/1998 $6,252 $8,112 $13,293 $8,218 $10,427
02/28/1998 $6,967 $8,958 $14,195 $9,056 $10,446
03/31/1998 $7,123 $9,347 $14,796 $9,411 $10,466
04/30/1998 $6,887 $9,245 $14,943 $9,436 $10,485
05/31/1998 $5,808 $7,978 $14,758 $8,259 $10,504
06/30/1998 $5,098 $7,141 $15,110 $7,417 $10,516
07/31/1998 $5,129 $7,368 $15,088 $7,710 $10,529
08/31/1998 $3,947 $5,238 $13,078 $5,543 $10,542
09/30/1998 $4,153 $5,570 $13,312 $5,806 $10,554
10/31/1998 $4,739 $6,156 $14,518 $6,478 $10,580
11/30/1998 $5,345 $6,668 $15,383 $6,965 $10,580
12/31/1998 $5,263 $6,572 $16,137 $6,859 $10,573
01/31/1999 $5,057 $6,466 $16,493 $6,693 $10,599
02/28/1999 $4,975 $6,529 $16,056 $6,814 $10,611
03/31/1999 $5,680 $7,389 $16,727 $7,601 $10,643
04/30/1999 $6,910 $8,303 $17,389 $8,646 $10,721
05/31/1999 $6,722 $8,255 $16,756 $8,489 $10,721
06/30/1999 $7,514 $9,192 $17,540 $9,417 $10,721
07/31/1999 $7,003 $8,942 $17,490 $9,280 $10,753
08/31/1999 $6,732 $9,023 $17,461 $9,382 $10,779
09/30/1999 $6,399 $8,718 $17,294 $9,122 $10,831
10/31/1999 $6,576 $8,904 $18,196 $9,280 $10,850
11/30/1999 $7,003 $9,702 $18,709 $10,111 $10,857
12/31/1999 $8,066 $10,936 $20,227 $11,466 $10,857
</TABLE>

The historical performance figures shown pertain only to the Fund's Class 2
shares.

TEMPLETON DEVELOPING
MARKETS FUND
- -- CLASS 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had been
included, performance would be lower. These Contract charges and deductions,
particularly for variable life policies, can have a significant effect on
Contract values and insurance benefits. See the Contract prospectus for a
complete description of these expenses, including sales charges.

Past performance does not guarantee future results.

TD-5
<PAGE>

TEMPLETON DEVELOPING MARKETS FUND
- -- CLASS 2

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

<TABLE>
<CAPTION>
Templeton Developing Markets Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* 3-YEAR* (3/4/96)*
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return 53.27% -14.46% -19.34%
Average Annual Total Return 53.27% -5.08% -5.45%
Value of $10,000 Investment $15,327 $8,554 $8,066
</TABLE>

Past performance does not guarantee future results.

TD-6
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999/dagger//dagger/ 1998 1997 1996/dagger/
----------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ............................. $5.13 $6.63 $9.43 $10.00
----------------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .05 .07 .09 .05
Net realized and unrealized gains (losses) ................... 2.67 (1.42) (2.82) (.62)
----------------------------------------------------------------
Total from investment operations ............................... 2.72 (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 year ................................... $7.77 $5.13 $6.63 $9.43
================================================================
Total Return* .................................................. 53.84% (20.94)% (29.22)% (5.70)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $297,605 $180,684 $163,459 $72,245
Ratios to average net assets:
Expenses ..................................................... 1.50% 1.66% 1.58% 1.70%*
Expenses, excluding waiver and payments by affiliate ......... 1.50% 1.66% 1.58% 1.78%*
Net investment income ........................................ .82% 1.67% 1.63% 1.52%*
Portfolio turnover rate ........................................ 60.27% 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-7
<PAGE>

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

<TABLE>
<CAPTION>
CLASS 2
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
--------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year ................... $5.12 $6.62 $9.85
--------------------------------------------------------
Income from investment operations:
Net investment income .............................. .03 .07 .04
Net realized and unrealized gains (losses) ......... 2.66 (1.42) (3.27)
--------------------------------------------------------
Total from investment operations ..................... 2.69 (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 year ......................... $7.74 $5.12 $6.62
--------------------------------------------------------
Total Return* ........................................ 53.27% (21.03)% (32.79)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $49,654 $17,287 $9,569
Ratios to average net assets:
Expenses ........................................... 1.75% 1.91% 1.77%**
Net investment income .............................. .52% 1.44% 1.48%**
Portfolio turnover rate .............................. 60.27% 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-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES 96.5%
ARGENTINA 5.1%
Banco de Galicia y Buenos Aires SA de CV, B ....................... Banking 128,883 $ 640,639
Banco Frances SA .................................................. Banking 60,460 477,701
* Capex SA, A ....................................................... Utilities Electrical & Gas 22,486 127,064
Central Costanera SA, B ........................................... Utilities Electrical & Gas 8,360 18,980
* Molinos Rio de la Plata SA, B ..................................... Food & Household Products 85,684 210,812
Perez Companc SA, B ............................................... Energy Sources 629,970 3,225,898
Quilmes Industrial SA, ADR, pfd. .................................. Beverages & Tobacco 159,600 1,905,225
Telecom Argentina Stet-France SA (Teco), B, ADR ................... Telecommunications 168,387 5,767,255
Telefonica De Argentina SA, B, ADR ................................ Telecommunications 156,430 4,829,776
Transportadora de Gas del Sur SA, B, ADR, Reg S ................... Utilities Electrical & Gas 71,700 658,744
------------
17,862,094
------------
AUSTRIA 1.6%
Austria Tabak AG .................................................. Beverages & Tobacco 22,870 1,105,165
Bank Austria AG ................................................... Banking 42,000 2,367,865
OMV AG ............................................................ Energy Sources 22,200 2,156,750
------------
5,629,780
------------
BRAZIL 16.5%
Aracruz Celulose SA, ADR .......................................... Forest Products & Paper 177,300 4,654,125
Banco Bradesco SA, pfd. ........................................... Banking 104,980,889 823,459
* Banco Bradesco SA, pfd., rts., 2/09/00 ............................ Banking 6,816,838 27,056
Banco do Brasil SA ................................................ Banking 32,398,000 150,647
Brasmotor SA, pfd. ................................................ Multi-Industry 1,306,000 183,122
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. .......... Utilities Electrical & Gas 249,454,000 5,951,546
Cia Cervejaria Brahma, pfd. ....................................... Beverages & Tobacco 787,000 575,057
Cia Energetica de Minas Gerais (Cemig), Br., pfd. ................. Utilities Electrical & Gas 81,221,000 1,820,897
Cia Vale do Rio Doce, A, pfd. ..................................... Metals & Mining 199,700 5,527,263
Copene-Petroquimica do Nordeste SA, A, pfd. ....................... Chemicals 903,000 298,917
Duratex SA, pfd. .................................................. Forest Products & Paper 11,645,000 364,208
Embratel Participacoes SA, pfd. ................................... Telecommunications 61,116,000 1,573,149
Investimentos Itau SA, pfd. ....................................... Multi-Industry 4,615,000 4,777,221
Investimentos Itau SA, pfd., new .................................. Multi-Industry 212,359 211,595
* Mannesmann SA ..................................................... Machinery & Engineering 1,052,000 72,793
Petroleo Brasileiro SA (Petrobras), pfd. .......................... Energy Sources 85,000 21,644
Tele Centro Sul Participacoes SA, pfd. ............................ Telecommunications 530,844,000 9,694,184
Tele Norte Leste Participacoes SA, pfd. ........................... Telecommunications 337,535,000 9,061,969
Tele Sudeste Celular Participacoes SA, pfd. ....................... Telecommunications 400,626,000 2,960,618
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ....................... Telecommunications 290,700 7,103,981
Telesp Celular Participacoes SA, pfd. ............................. Telecommunications 51,816,000 917,859
Unibanco Uniao de Bancos Brasileiros SA, GDR ...................... Banking 18,822 567,013
------------
57,338,323
------------
CHILE 1.9%
Cia de Telecomunicaciones de Chile SA, ADR ........................ Telecommunications 202,014 3,686,756
Empresa Nacional de Electricidad SA, ADR .......................... Electrical & Electronics 110,715 1,570,769
Enersis SA, ADR ................................................... Utilities Electrical & Gas 48,753 1,145,696
Madeco Manufacturera de Cobre SA, ADR ............................. Industrial Components 4,000 44,500
------------
6,447,721
------------
CHINA .3%
Beijing Datang Power Generation Co. Ltd., H ....................... Multi-Industry 169,000 27,828
China Resources Enterprises Ltd. .................................. Multi-Industry 160,000 256,255
* China Telecom HK Ltd. ............................................. Telecommunications 112,000 700,225
Guangshen Railway Co. Ltd., H ..................................... Transportation 1,144,000 128,035
Shandong Huaneng Power Development Co. Ltd., ADR .................. Utilities Electrical & Gas 22,500 97,031
------------
1,209,374
------------
</TABLE>

TD-9

<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
CZECH REPUBLIC 1.3%
* Cesky Telecom AS .......................................... Telecommunications 107,740 $ 1,739,246
* CEZ AS .................................................... Utilities Electrical & Gas 1,149,475 2,841,182
Tabak AS .................................................. Beverages & Tobacco 260 52,443
------------
4,632,871
------------
EGYPT .3%
Commercial International Bank Ltd. ........................ Banking 60,700 886,700
Suez Cement Co. ........................................... Building Materials & Components 14,000 233,282
------------
1,119,982
------------
HONG KONG 4.5%
CDL Hotel International Ltd. .............................. Leisure & Tourism 6,160 2,457
Cheung Kong Holdings Ltd. ................................. Multi-Industry 268,000 3,404,515
Cheung Kong Infrastructure Holdings Ltd. .................. Multi-Industry 256,000 493,986
* China Overseas Land & Investment Ltd. ..................... Real Estate 441,000 63,539
Citic Pacific Ltd. ........................................ Multi-Industry 407,000 1,531,453
Cross Harbour Tunnel Co. Ltd. ............................. Transportation 18,000 12,851
Dairy Farm International Holdings Ltd. .................... Merchandising 1,522,233 1,370,010
Hang Lung Development Co. Ltd. ............................ Real Estate 771,000 872,811
Hong Kong & Shanghai Hotels Ltd. .......................... Leisure & Tourism 858,000 568,431
Hong Kong Land Holdings Ltd. .............................. Real Estate 279,000 412,920
HSBC Holdings PLC ......................................... Banking 98,585 1,382,359
Hutchison Whampoa Ltd. .................................... Multi-Industry 184,000 2,674,728
Jardine Matheson Holdings Ltd. ............................ Multi-Industry 411,604 1,621,720
Jardine Strategic Holdings Ltd. ........................... Multi-Industry 91,500 182,085
New World Development Co. Ltd. ............................ Real Estate 407,322 916,979
Shangri-La Asia Ltd. ...................................... Leisure & Tourism 6,222 7,124
------------
15,517,968
------------
HUNGARY 2.7%
Borsodchem RT ............................................. Chemicals 52,469 2,147,308
Egis RT ................................................... Multi-Industry 6,048 239,146
* Fotex First Hungarian American Photo Service Co. .......... Multi-Industry 45,385 16,510
Gedeon Richter Ltd. ....................................... Health & Personal Care 30,210 1,985,331
Mol Magyar Olay-Es Gazipari RT ............................ Energy Sources 108,560 2,253,618
OTP Bank .................................................. Banking 16,510 965,858
Tiszai Vegyi Kombinat RT .................................. Chemicals 86,612 1,650,731
------------
9,258,502
------------
INDIA 1.1%
Bajaj Auto Ltd. ........................................... Automobiles 150 1,134
Grasim Industries Ltd. .................................... Multi-Industry 19,377 181,743
ICICI Ltd. ................................................ Financial Services 200 423
* ICICI Ltd., ADR ........................................... Financial Services 4,400 61,050
* Mahanagar Telephone Nigam Ltd. ............................ Telecommunications 316,500 1,404,241
* NIIT Ltd. ................................................. Data Processing & Reproduction 2,890 220,274
Reliance Industries Ltd. .................................. Chemicals 346,000 1,858,855
------------
3,727,720
------------
</TABLE>

TD-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
INDONESIA 5.9%
* Asia Pulp & Paper Co. Ltd., ADR ......................... Forest Products & Paper 190,970 $ 1,503,889
* Asia Pulp & Paper Co. Ltd., ADR, wts., 7/27/00 .......... Forest Products & Paper 14,640 13,725
* PT Barito Pacific Timber TBK ............................ Forest Products & Paper 1,774,000 158,676
PT Gudang Garamm ........................................ Beverages & Tobacco 496,500 1,335,843
* PT Indah Kiat Pulp & Paper Corp. ........................ Forest Products & Paper 4,296,750 1,691,029
* PT Indocement Tunggal Prakarsa .......................... Building Materials & Components 1,746,000 774,612
* PT Indofoods Sukses Makmurr ............................. Food & Household Products 1,661,685 2,080,822
PT Indosat .............................................. Telecommunications 1,137,000 2,538,419
* PT Semen Cibinong ....................................... Building Materials & Components 4,240,500 303,435
PT Semen Gresik (Persero) ............................... Building Materials & Components 1,156,001 1,832,231
* PT Sinar Mas Agro Resources & Technology Corp. .......... Food & Household Products 417,800 236,180
PT Tambang Timah ........................................ Metals & Mining 1,109,500 774,070
PT Telekomunikasi Indonesia (Persero), B ................ Telecommunications 12,442,140 7,077,997
* PT Tjiwi Kimia .......................................... Forest Products & Paper 909,454 296,101
------------
20,617,029
------------
ISRAEL .7%
Bank Hapoalim BM ........................................ Financial Services 69,039 215,020
Discount Investment Corp. ............................... Financial Services 800 40,628
* Formula Systems Ltd. .................................... Data Processing & Reproduction 16,250 685,232
Koor Industries Ltd. .................................... Multi-Industry 2,416 241,321
Teva Pharmaceutical Industries Ltd., ADR ................ Health & Personal Care 15,050 1,078,897
------------
2,261,098
------------
MALAYSIA .1%
Resorts World Bhd. ...................................... Leisure & Tourism 129,000 370,026
------------
MEXICO 9.8%
Cemex SA ................................................ Building Materials & Components 2,213,997 12,384,363
* Cifra SA de CV, V ....................................... Merchandising 626,333 1,255,971
* DESC SA de CV DESC, B ................................... Multi-Industry 509,000 419,018
Fomento Economico Mexicano SA de CV Femsa, ADR .......... Beverages & Tobacco 24,000 1,068,000
* Grupo Carso SA de CV .................................... Multi-Industry 256,000 1,275,272
* Grupo Financiero Banamex Accival SA de CV ............... Banking 2,120,568 8,504,653
* Grupo Financiero Bancomer SA de CV ...................... Banking 3,531,000 1,475,753
* Grupo Televisa SA de CV, CPO ............................ Broadcasting & Publishing 17,800 601,161
Kimberly Clark de Mexico SA de CV, A .................... Forest Products & Paper 26,040 101,687
Panamerican Beverages Inc., A ........................... Food & Household Products 10,400 213,850
Telefonos de Mexico SA (Telmex), L, ADR ................. Telecommunications 54,500 6,131,250
Tubos de Acero de Mexico SA (Tamasa) .................... Machinery & Engineering 200 2,636
Vitro SA de CV, A ....................................... Food & Household Products 282,000 532,749
------------
33,966,363
------------
NEW ZEALAND
* Brierley Investments Ltd. ............................... Multi-Industry 713,000 149,017
------------
PAKISTAN .1%
Pakistan Telecommunications Corp., A .................... Telecommunications 886,500 371,264
------------
PERU .4%
Telefonica del Peru SA, B, ADR .......................... Telecommunications 106,300 1,421,763
------------
</TABLE>

TD-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
PHILIPPINES 2.2%
* A Soriano Corp. ...................................... Multi-Industry 1,496,500 $ 22,280
* Belle Corp. .......................................... Real Estate 18,655,000 879,516
* Filinvest Development Corp. .......................... Real Estate 2,356,000 152,000
Philippine Long Distance Telephone Co., ADR .......... Telecommunications 59,720 1,545,255
* Philippine National Bank ............................. Banking 1,403,861 3,309,350
RFM Corp. ............................................ Food & Household Products 1,251,715 130,452
San Miguel Corp., B .................................. Food & Household Products 1,214,200 1,717,355
------------
7,756,208
------------
POLAND 1.6%
Bank Rozwoju Eksportu SA ............................. Banking 15,750 498,972
Bank Slaski SA W Katowicach .......................... Banking 24,720 1,679,884
Impexmetal SA ........................................ Metals & Mining 93,892 458,674
Prokom Software SA. .................................. Data Processing & Reproduction 5,991 185,453
Telekomunikacja Polska SA ............................ Telecommunications 335,000 2,195,526
Warta SA ............................................. Insurance 14,709 423,306
------------
5,441,815
------------
RUSSIA 2.1%
Aeroflot - Russia International Airlines ............. Transportation 1,654,800 239,532
GAZ Auto Works ....................................... Automobiles 1,270 44,450
Irkutskenergo ........................................ Utilities Electrical & Gas 950,120 95,012
Lukoil Holdings, ADR ................................. Energy Sources 30,340 1,577,680
Mosenergo, ADR ....................................... Utilities Electrical & Gas 38,930 171,292
* Mosenergo, GDR ....................................... Utilities Electrical & Gas 57,600 148,741
Novorosissk Sea Shipping ............................. Transportation 28,000 2,870
Novorosissk Sea Shipping, pfd. ....................... Transportation 224,000 8,960
* Red October .......................................... Food & Household Products 3,000 14,325
* Rostelecom, ADR ...................................... Telecommunications 149,260 2,518,762
* Rostelecom, pfd. ..................................... Telecommunications 257,300 213,559
Tsum Trade House ..................................... Merchandising 131,500 22,355
Unified Energy Systems ............................... Utilities Electrical & Gas 3,400,000 408,000
Unified Energy Systems, ADR .......................... Utilities Electrical & Gas 9,900 111,524
Unified Energy Systems, pfd. ......................... Utilities Electrical & Gas 38,000 1,900
* Vimpel Communications, ADR ........................... Telecommunications 40,360 1,801,065
------------
7,380,027
------------
SINGAPORE 6.6%
City Developments Ltd. ............................... Real Estate 155,500 910,312
Creative Technology Ltd. ............................. Electrical & Electronics 6,900 125,116
Cycle & Carriage Ltd. ................................ Automobiles 66,000 204,083
DBS Group Holdings Ltd. .............................. Banking 67,630 1,108,555
First Capital Corp. Ltd. ............................. Real Estate 544,000 725,116
Fraser and Neave Ltd. ................................ Beverages & Tobacco 618,000 2,282,017
* Golden Agri-Resources Ltd. ........................... Misc Materials & Commodities 2,004,000 782,107
Jurong Shipyard Ltd. ................................. Machinery & Engineering 193,000 967,607
Keppel Corp., Ltd. ................................... Transportation 995,000 2,604,743
MCL Land Ltd. ........................................ Real Estate 436,000 403,146
Natsteel Ltd. ........................................ Metals & Mining 1,254,000 2,499,718
Overseas Chinese Banking Corp. Ltd. .................. Banking 240,450 2,208,877
Overseas Union Enterprise Ltd. ....................... Leisure & Tourism 106,400 357,754
Sembcorp Industries Ltd. ............................. Multi-Industry 1,136,925 1,549,577
Singapore Telecommunications Ltd. .................... Telecommunications 360,000 743,560
United Industrial Corporation Ltd. ................... Multi-Industry 1,604,000 905,290
United Overseas Bank Ltd. ............................ Banking 491,040 4,334,007
United Overseas Land Ltd. ............................ Real Estate 99,000 92,729
------------
22,804,314
------------
</TABLE>

TD-12
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
SLOVAK REPUBLIC .1%
Nafta Gbely AS ..................................... Utilities Electrical & Gas 6,695 $ 57,505
* Slovnaft AS ........................................ Chemicals 11,000 156,600
* Vychodoslovenske Zeleziarne AS ..................... Metals & Mining 22,857 78,096
------------
292,201
------------
SOUTH AFRICA 14.0%
AECI Ltd. .......................................... Chemicals 90,300 184,121
Anglo American Platinum Corp. Ltd. ................. Metals & Mining 12,240 371,873
Anglo American PLC ................................. Metals & Mining 132,878 8,570,685
Barlow Ltd. ........................................ Multi-Industry 548,000 3,944,175
BOE Ltd. ........................................... Financial Services 1,578,000 1,538,262
CG Smith Ltd. ...................................... Multi-Industry 811,100 3,261,531
Comparex Holdings Ltd. ............................. Data Processing & Reproduction 74,000 518,180
De Beers/Centenary AG Linked Units ................. Misc Materials & Commodities 61,900 1,800,179
Del Monte Royal Foods Ltd. ......................... Food & Household Products 1,396,300 1,111,595
Edgars Consolidated Stores Ltd. .................... Textiles & Apparel 16,563 211,511
Fedsure Holdings Ltd. .............................. Insurance 9,000 73,111
Firstrand Ltd. ..................................... Insurance 1,169,000 1,671,357
Iscor Ltd. ......................................... Metals & Mining 759,989 2,876,969
Johnnies Industrial Corporation Ltd. ............... Multi-Industry 104,300 1,220,081
Kersaf Investments Ltd. ............................ Leisure & Tourism 266,867 1,062,267
Liberty Life Association of Africa Ltd. ............ Insurance 284,392 3,280,558
Palabora Mining Co. Ltd. ........................... Metals & Mining 22,900 166,495
Rembrandt Group Ltd. ............................... Multi-Industry 191,600 1,824,169
Sappi Ltd. ......................................... Forest Products & Paper 184,573 1,823,239
Sasol Ltd. ......................................... Energy Sources 585,600 4,861,764
South African Breweries PLC ........................ Beverages & Tobacco 542,380 5,516,326
Standard Bank Investment Corp. Ltd. ................ Financial Services 199,645 828,748
Tongaat-Hulett Group Ltd. .......................... Multi-Industry 211,952 1,790,659
------------
48,507,855
------------
SOUTH KOREA 5.4%
Hana Bank .......................................... Banking 434,544 3,386,803
Korea Electric Power Corp. ......................... Utilities Electrical & Gas 187,770 5,820,787
LG Electronics Inc. ................................ Electrical & Electronics 7,826 323,930
Samsung Electronics Co. Ltd. ....................... Electrical & Electronics 25,295 5,925,557
* Samsung Heavy Industries Co. Ltd. .................. Machinery & Engineering 309,215 1,495,016
Samsung SDI Co. Ltd. ............................... Electrical & Electronics 42,937 1,784,789
------------
18,736,882
------------
TAIWAN .6%
China Steel Corp. .................................. Metals & Mining 450,000 332,643
Mitac International Corp. .......................... Data Processing & Reproduction 294,000 450,578
* Silicon Integrated Systems Co. Ltd. ................ Electrical & Electronics 22,000 74,303
* Siliconware Precision Industries Co. Ltd. .......... Electronic Components & Instruments 328,000 836,068
* Sunplus Technology Company Ltd. .................... Electrical & Electronics 20,000 95,587
UNI-President Enterprises Corp. .................... Food & Household Products 519,000 410,107
------------
2,199,286
------------
</TABLE>

TD-13
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
INDUSTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
THAILAND 6.3%
Advanced Info Service Public Co. Ltd., fgn. ............... Telecommunications 29,000 $ 488,356
Ayudhya Insurance Public Co. Ltd., fgn. ................... Insurance 1,500 3,957
* Bangkok Bank Public Co. Ltd. .............................. Banking 423,687 688,647
* Bangkok Bank Public Co. Ltd., fgn. ........................ Banking 18,900 47,842
* Bangkok Insurance Public Co. Ltd. ......................... Insurance 22,000 72,689
BEC World Public Co Ltd., fgn. ............................ Telecommunications 81,000 574,101
* Charoen Pokphand Feedmill Public Co. Ltd., fgn. ........... Food & Household Products 587,080 1,720,725
* Hana Microelectronics Co. Ltd., fgn. ...................... Electrical & Electronics 78,900 382,622
Italian-Thai Development Public Co. Ltd., fgn. ............ Construction & Housing 50,300 56,291
* Jasmine International Public Co. Ltd., fgn. ............... Telecommunications 675,700 468,111
* Land and House Public Co. Ltd., fgn. ...................... Real Estate 484,933 461,933
* PTT Exploration & Production Public Co. Ltd., fgn. ........ Energy Sources 25,600 158,252
Saha Pathanapibul Public Co. Ltd., fgn. ................... Food & Household Products 153,800 177,241
Saha Union Public Co. Ltd., fgn. .......................... Multi-Industry 391,394 130,360
* Serm Suk Public Co. Ltd. .................................. Food & Household Products 31,100 112,699
Serm Suk Public Co. Ltd., fgn. ............................ Food & Household Products 4,900 24,742
* Shin Corporations Public Company Ltd., fgn. ............... Electrical & Electronics 236,000 2,238,636
* Siam Cement Public Co. Ltd. ............................... Building Materials & Components 19,850 391,394
Siam Cement Public Co. Ltd., fgn. ......................... Building Materials & Components 101,650 3,391,042
* Siam Commercial Bank, 144A, 5.25%, cvt. pfd., fgn. ........ Banking 1,388,000 1,701,252
* Siam Commercial Bank, fgn., wts., 6/22/04 ................. Banking 162,926 67,289
Siam Makro Public Company Ltd., fgn. ...................... Merchandising 298,000 420,837
* Telecomasia Corp. Public Co. Ltd., fgn. ................... Telecommunications 442,300 577,477
* Thai Airways International Public Co. Ltd., fgn. .......... Transportation 402,000 610,552
* Thai Farmers Bank Public Co. Ltd. ......................... Banking 1,893,016 2,168,923
* Thai Farmers Bank Public Co. Ltd., fgn. ................... Banking 1,122,050 1,883,537
* Thai Telephone & Telecommunication Public Co. Ltd.,fgn. ... Telecommunications 23,500 9,236
Thai Wacoal Public Co. Ltd., fgn. ......................... Textiles & Apparel 23,700 53,046
* Total Access Communication Public Co. Ltd. ................ Telecommunications 607,200 2,392,368
* United Communications Industries, fgn. .................... Telecommunications 281,500 281,275
------------
21,755,432
------------
TURKEY 3.4%
Akbank .................................................... Banking 229,529,552 6,770,783
Arcelik AS, Br. ........................................... Appliances & Household Durables 20,972,200 1,372,627
* Dogan Sirketler Grubu Holding AS .......................... Multi-Industry 64,405,000 1,899,853
* Ford Otomotiv Sanayi AS ................................... Automobiles 1,490,000 65,929
Haci Omer Sabanci Holding AS .............................. Multi-Industry 12,396,000 719,900
Koc Holding AS ............................................ Multi-Industry 4,650,000 857,301
* Yapi Ve Kredi Bankasi AS .................................. Banking 1,820,000 56,204
------------
11,742,597
------------
VENEZUELA 1.9%
Compania Anonima Nacional Telefonos de Venezuela, ADR ..... Telecommunications 128,600 3,166,775
Electricidad de Caracas Saica Saca, ADR ................... Utilities Electrical & Gas 201,871 3,189,484
Mavesa SA, ADR ............................................ Food & Household Products 48,100 147,306
------------
6,503,565
------------
TOTAL LONG TERM SECURITIES (COST $270,196,332)............. 335,021,077
------------
</TABLE>

TD-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS (COST $11,738,728) 3.4%
U.S. Treasury Bills, 4.990% to 5.405%, with maturities to 3/30/00 $11,800,000 11,743,725
----------
TOTAL INVESTMENTS (COST $281,935,060) 99.9%....................... 346,764,802
OTHER ASSETS, LESS LIABILITIES .1% ............................... 493,804
-----------
TOTAL NET ASSETS 100.0% .......................................... $347,258,606
============
</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.

See Notes to Financial Statements.

TD-15
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON DEVELOPING MARKETS FUND

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $281,935,060)............................ $ 346,764,802
Receivables:
Investment securities sold ....................................................... 1,261,321
Fund shares sold ................................................................. 23,232
Dividends and interest ........................................................... 671,146
-------------
Total assets .................................................................... 348,720,501
-------------
Liabilities:
Payables:
Investment securities purchased .................................................. 185,978
Fund shares redeemed ............................................................. 82,694
To affiliates .................................................................... 388,417
Funds advanced by custodian ....................................................... 576,057
Accrued expenses .................................................................. 228,749
-------------
Total liabilities ............................................................... 1,461,895
-------------
Net assets, at value ............................................................... $ 347,258,606
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 1,649,089
Net unrealized appreciation ....................................................... 64,829,742
Accumulated net realized loss ..................................................... (72,122,123)
Beneficial shares ................................................................. 352,901,898
-------------
Net assets, at value ............................................................... $ 347,258,606
=============
CLASS 1:
Net asset value per share ($297,604,586 /divided by/ 38,298,961 shares outstanding) $ $7.77
=============
CLASS 2:
Net asset value per share ($49,654,020 /divided by/ 6,416,075 shares outstanding).. $ 7.74
=============
</TABLE>

See Notes to Financial Statements.

TD-16
<PAGE>

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $576,126)...........................
Dividends ................................................... $ 5,801,893
Interest .................................................... 291,952
-------------
Total investment income ................................... $ 6,093,845
Expenses:
Management fees (Note 3) .................................... 3,292,465
Administrative fees (Note 3) ................................ 254,273
Distribution fees - Class 2 (Note 3) ........................ 76,418
Custodian fees .............................................. 331,100
Reports to shareholders ..................................... 23,800
Professional fees ........................................... 49,100
Trustees' fees and expenses ................................. 2,600
Other ....................................................... 5,266
-------------
Total expenses ............................................ 4,035,022
-------------
Net investment income ................................... 2,058,823
-------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments (net of foreign taxes of $280,564).............. (41,624,843)
Foreign currency transactions .............................. (302,440)
-------------
Net realized loss ......................................... (41,927,283)
Net unrealized appreciation on investments ................ 153,871,630
-------------
Net realized and unrealized gain ............................. 111,944,347
-------------
Net increase in net assets resulting from operations ......... $ 114,003,170
=============
</TABLE>

See Notes to Financial Statements.

TD-17
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................... $ 2,058,823 $ 2,988,307
Net realized loss from investments and foreign currency transactions ..... (41,927,283) (24,805,823)
Net unrealized appreciation (depreciation) on investments ................ 153,871,630 (20,073,422)
--------------------------------
Net increase (decrease) in net assets resulting from operations ........ 114,003,170 (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 ................................................................. 18,804,002 60,604,424
Class 2 ................................................................. 19,412,917 10,581,714
--------------------------------
Net increase in net assets ............................................. 149,287,864 24,942,489
Net assets:
Beginning of year ......................................................... 197,970,742 173,028,253
--------------------------------
End of year ............................................................... $ 347,258,606 $ 197,970,742
================================
Undistributed net investment income included in net assets:
End of year ............................................................... $ 1,649,089 $ 2,509,738
================================
</TABLE>

See Notes to Financial Statements.

TD-18
<PAGE>

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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 December 31, 1999, the Fund has investments with a value of approximately $1
million in countries with restrictions on the repatriation of their currencies
or formal exchange controls currently in place.

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

TD-19
<PAGE>

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

D. ACCOUNTING ESTIMATES:

2. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 5,134,763 $ 32,419,782 11,021,993 $ 62,483,672
Shares issued on reinvestment of distributions 562,601 2,683,606 591,604 4,070,234
Shares redeemed ............................... (2,600,039) (16,299,386) (1,052,335) (5,949,482)
-----------------------------------------------------------
Net increase .................................. 3,097,325 $ 18,804,002 10,561,262 $ 60,604,424
===========================================================
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 9,564,512 $ 65,272,741 4,365,526 $ 23,618,013
Shares issued on reinvestment of distributions 52,231 248,619 41,058 282,477
Shares redeemed ............................... (6,579,693) (46,108,443) (2,472,343) (13,318,776)
------------------------------------------------------------
Net increase .................................. 3,037,050 $ 19,412,917 1,934,241 $ 10,581,714
============================================================
</TABLE>

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:

TD-20
<PAGE>

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

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

The Fund 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

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.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $286,689,349 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 81,973,739
Unrealized depreciation ............. (21,898,286)
-------------
Net unrealized appreciation ......... $ 60,075,453
=============
</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, 1999, 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:

At December 31, 1999, the Fund had deferred capital and currency losses
occurring subsequent to October 31, 1999 of $3,500,000. For tax purposes, such
losses will be reflected in the year ending December 31, 2000.

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $182,868,345 and $153,443,658,
respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton Developing Markets Fund,
are participants in a $750 million senior unsecured credit agreement for
temporary borrowing purposes. The termination date of the agreement is March 1,
2000. Interest is calculated on the Fund's borrowings at market rates. At
December 31, 1999, the Fund had not utilized this credit facility.

7. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Developing
Markets Equity Fund.

TD-21
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND
INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Developing Markets Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended December 31, 1998, including the
financial highlights for each of the periods prior to December 31, 1999 were
audited by other independent accountants whose report dated January 28, 1999
expressed an unqualified opinion on those financial statements.

/s/PRICEWATERHOUSECOOPERS LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000

TD-22
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON DEVELOPING MARKETS FUND

CHANGE IN INDEPENDENT AUDITOR

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

TD-23
<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.
- --------------------------------------------------------------------------------
During the year under review, global investors had to contend with the
uncertainties related to introduction of the euro, currency devaluation in
Brazil, and Y2K fears. On the plus side, many Asian economies improved
markedly, inflation appeared to be under control, and the Internet was
revolutionizing many global economies. As we exited the year, unbridled
optimism appeared to reign, as money flowed into most equity markets. However,
this money pushed growth sectors such as telecommunications and technology to
unprecedented levels, while bypassing (except for a brief second quarter
flurry) value investors like us.

[This chart shows in pie format the geographic distribution of the Templeton
International Fund, based on total net assets as of 12/31/99.]

Europe 53.0%
Asia 18.6%
Latin America 11.2%
Australia 5.7%
North America 3.9%
Middle East & Africa 2.5%
Short-Term Investments & Other Net Assets 5.1%

EUROPE

The introduction of the euro on January 1, 1999, proved disappointing,
apparently due to investor concerns that European governments might interfere
in the free market by bailing out struggling companies there. The euro's
weakness benefited the operations of export-oriented companies, and the Fund's
performance was helped by its holdings in European oil, metals, and paper
companies. If economic indicators pick up across the continent, such cyclical
shares could continue to perform well in the first half of 2000. The most
significant hurdle for value investors during the year was "Internet fever" and
the willingness of investors to pay increasingly higher prices for shares of
telecommunications and technology companies. Fund holdings included such
companies at the beginning of the reporting period, but we sold many of them in
early 1999, missing out on much of the technology rally during the latter part
of the year. On December 31, 1999, the Fund's European exposure was 53.0%,
compared with 58.6% 12 months earlier.

TI-1
<PAGE>

[This chart lists the top 10 countries represented in the Templeton
International Fund, based on total net assets as of 12/31/99.]

<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton International Fund
12/31/99

% OF TOTAL
COUNTRY NET ASSETS
- ------------------- ------------
<S> <C>
United Kingdom 14.7%
Japan 10.5%
France 8.5%
Netherlands 7.0%
Australia 5.7%
Hong Kong 5.1%
Brazil 4.9%
Finland 4.1%
Germany 4.1%
Switzerland 3.3%
</TABLE>

ASIA

In Asia, many equity markets turned in strong performances, as the region
continued to rebound from 1997-98 economic crises. Helped by robust exports to
developed countries, many Asian firms appeared to successfully restructure
operations and improve their balance sheets. During the period, we initiated
positions in a handful of Japanese companies which, combined with share price
appreciation in many of our other Asian holdings, increased our weighting in
Asia from 12.5% to 18.6%.

LATIN AMERICA

Although most Latin American stock markets were extremely volatile during 1999,
the key markets of Mexico and Brazil turned in relatively strong performances.
Aided by its proximity to the booming U.S. economy, Mexico was the
best-performing market in the region. After months of currency-induced turmoil,
Brazilian interest rates stabilized, and its stock market recovered during the
latter part of the year. Driven by increasing market value, our holdings in
Latin America increased from 9.2% to 11.2% during 1999.

FUND SPECIFICS

During the reporting period, performance of the Templeton International Fund was
similar to that of the Morgan Stanley Capital International/R/ Europe,
Australasia, Far East Index. Strong showings by our technology and
telecommunication stocks (Koninklijke Philips Electronics NV, Sony Corp.,
Hutchison Whampoa Ltd., British Telecommunications PLC, and Alcatel SA) and
emerging market holdings (Telefonos de Mexico SA (Telmex), L, ADR, Pohang Iron
and Steel Co. Ltd., and Anglo American Platinum Corp. Ltd.) were offset by poor
performance in our interest rate sensitive holdings (Scor SA, XL Capital Ltd.,
A, Zurich Allied AG, Thames Water Group PLC, and Ace Ltd.). However, we believe
that concerns about potentially rising interest rates were overstated and that
some sectors, notably insurance, offer attractive value.

TI-2
<PAGE>

Attempting to take advantage of what we believed were unsustainably high
valuations during the period, we took profits in several positions -- most
notably British Telecommunications PLC, BG PLC, Cable and Wireless Optus Ltd.,
Hutchison Whampoa Ltd., and Koninklijke Philips Electronic NV. We used the
proceeds from such sales to purchase a number of stocks, including Hitachi
Ltd., Nippon Telegraph & Telephone Corp., Nintendo Co. Ltd., Nomura Securities
Co. Ltd., Australia and New Zealand Banking Group Ltd., Portugal Telecom SA,
CLP Holdings Ltd., Akzo Nobel NV, Repsol SA, Br., and BASF AG.

LOOKING FORWARD

Despite concerns about short-term valuations, we are optimistic about long-term
prospects for international equity markets. Although we acknowledge the
tremendous growth offered by the Internet, we believe many "old economy" shares
are undervalued, and we intend to maintain the Fund's diversification, reduce
its volatility, and position it for strong long-term performance by continuing
to purchase out-of-favor securities trading at low valuations.

It is important to remember that investments in foreign securities involve
special risks including change in currency values, market price swings, and
economic, social, and political developments in the countries where the
portfolios are invested. Developing markets involve similar but heightened
risks related to their smaller size and lesser liquidity. Small-company
securities may have greater price swings than mid- or large-company securities.
These risks are discussed in the prospectus.

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

Sincerely,

/s/PETER A. NORI

Peter A. Nori
Portfolio Manager
Templeton International Fund

This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.

[This chart lists the top 10 equity holdings, including industry and country, of
the Templeton International Fund, based on total net assets as of 12/31/99.]

<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
Templeton International Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------ ------------
<S> <C>
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 3.8%

Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.7%

Koninklijke Philips
Electronics NV,
ELECTRICAL & ELECTRONICS,
NETHERLANDS 2.5%

Nomura Securities
Co. Ltd.,
FINANCIAL SERVICES, JAPAN 1.9%

Telefonos de Mexico SA
(Telmex), L, ADR,
TELECOMMUNICATIONS,
MEXICO 1.9%

Nippon Telegraph &
Telephone Corp.,
TELECOMMUNICATIONS,
JAPAN 1.8%

Total Fina SA, B,
ENERGY SOURCES, FRANCE 1.8%

Telecomunicacoes
Brasileiras SA (Telebras),
ADR, pfd.,
TELECOMMUNICATIONS,
BRAZIL 1.7%

Merita AS,
BANKING, FINLAND 1.7%

Cheung Kong
Holdings Ltd.,
MULTI-INDUSTRY, HONG
KONG 1.7%
</TABLE>

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

TI-3
<PAGE>

TEMPLETON
INTERNATIONAL FUND
- -- CLASS 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges.

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (5/1/92 -- 12/31/99)

The graph below compares the performance of Templeton International Fund --
Class 2 and the Morgan Stanley Capital International Europe, Australasia, Far
East (MSCI/R/ EAFE/R/) Index, as well as the Consumer Price Index (CPI). The
Fund's total return represents the change in value of an investment over the
period shown and assumes reinvestment of dividends and capital gains at net
asset value. The MSCI EAFE Index includes approximately 1,000 companies
representing the stock markets of 21 countries, and includes reinvested
dividends. The CPI is a commonly used measure of inflation. The Fund's
performance differs from an index's because an index is not managed, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. The indexes' sources are MSCI and Standard & Poor's/R/
Micropal (U.S. Bureau of Labor Statistics).

[The following line graph compares the performance of the Templeton
International Fund - Class 2 to that of the Morgan Stanley Capital International
Europe, Australasia, Far East Index and the Consumer Price Index, based on a
$10,000 investment from 5/1/92 - 12/31/99.

TEMPLETON
INTERNATIONAL MSCI
FUND - CLASS 2 EAFE INDEX CPI
---------------------------------------------------------------
<S> <C> <C> <C>
05/01/1992 $10,000 $10,000 $10,000
05/31/1992 $9,960 $10,650 $10,014
06/30/1992 $9,720 $10,148 $10,050
07/31/1992 $9,570 $9,891 $10,071
08/31/1992 $9,470 $10,515 $10,099
09/30/1992 $9,270 $10,311 $10,128
10/31/1992 $9,170 $9,773 $10,163
11/30/1992 $9,250 $9,868 $10,177
12/31/1992 $9,390 $9,922 $10,170
01/31/1993 $9,440 $9,924 $10,220
02/28/1993 $9,740 $10,227 $10,256
03/31/1993 $10,040 $11,121 $10,292
04/30/1993 $10,370 $12,179 $10,320
05/31/1993 $10,640 $12,440 $10,335
06/30/1993 $10,580 $12,249 $10,349
07/31/1993 $10,770 $12,680 $10,349
08/31/1993 $11,610 $13,367 $10,378
09/30/1993 $11,570 $13,069 $10,400
10/31/1993 $12,460 $13,475 $10,443
11/30/1993 $12,510 $12,300 $10,450
12/31/1993 $13,830 $13,191 $10,450
01/31/1994 $14,610 $14,309 $10,478
02/28/1994 $14,040 $14,273 $10,514
03/31/1994 $13,328 $13,661 $10,550
04/30/1994 $13,461 $14,243 $10,565
05/31/1994 $13,543 $14,165 $10,572
06/30/1994 $13,113 $14,368 $10,608
07/31/1994 $13,880 $14,510 $10,636
08/31/1994 $14,402 $14,856 $10,679
09/30/1994 $14,105 $14,391 $10,708
10/31/1994 $14,290 $14,874 $10,715
11/30/1994 $13,666 $14,163 $10,729
12/31/1994 $13,522 $14,254 $10,729
01/31/1995 $13,164 $13,710 $10,772
02/28/1995 $13,338 $13,675 $10,815
03/31/1995 $13,338 $14,531 $10,851
04/30/1995 $13,990 $15,082 $10,887
05/31/1995 $14,425 $14,906 $10,909
06/30/1995 $14,611 $14,648 $10,930
07/31/1995 $15,335 $15,564 $10,930
08/31/1995 $14,953 $14,974 $10,959
09/30/1995 $15,335 $15,270 $10,981
10/31/1995 $14,963 $14,864 $11,017
11/30/1995 $15,232 $15,281 $11,009
12/31/1995 $15,656 $15,901 $11,002
01/31/1996 $16,122 $15,970 $11,066
02/29/1996 $16,349 $16,028 $11,102
03/31/1996 $16,391 $16,372 $11,160
04/30/1996 $16,993 $16,853 $11,203
05/31/1996 $17,225 $16,547 $11,224
06/30/1996 $17,362 $16,644 $11,231
07/31/1996 $16,740 $16,161 $11,252
08/31/1996 $17,331 $16,201 $11,274
09/30/1996 $17,668 $16,635 $11,310
10/31/1996 $18,017 $16,469 $11,346
11/30/1996 $18,967 $17,129 $11,368
12/31/1996 $19,421 $16,912 $11,368
01/31/1997 $19,684 $16,325 $11,404
02/28/1997 $19,926 $16,595 $11,439
03/31/1997 $20,080 $16,659 $11,468
04/30/1997 $20,080 $16,752 $11,482
05/31/1997 $20,957 $17,846 $11,475
06/30/1997 $22,207 $18,835 $11,489
07/31/1997 $23,161 $19,143 $11,502
08/31/1997 $22,054 $17,717 $11,524
09/30/1997 $23,863 $18,714 $11,553
10/31/1997 $21,955 $17,280 $11,582
11/30/1997 $21,845 $17,107 $11,575
12/31/1997 $22,087 $17,261 $11,561
01/31/1998 $22,240 $18,054 $11,583
02/28/1998 $23,929 $19,216 $11,605
03/31/1998 $25,540 $19,813 $11,627
04/30/1998 $25,879 $19,974 $11,648
05/31/1998 $25,540 $19,882 $11,669
06/30/1998 $25,237 $20,036 $11,683
07/31/1998 $25,459 $20,244 $11,697
08/31/1998 $21,835 $17,740 $11,711
09/30/1998 $21,052 $17,201 $11,725
10/31/1998 $22,723 $18,999 $11,753
11/30/1998 $24,021 $19,977 $11,753
12/31/1998 $24,091 $20,770 $11,746
01/31/1999 $23,799 $20,714 $11,774
02/28/1999 $23,121 $20,224 $11,789
03/31/1999 $24,282 $21,074 $11,824
04/30/1999 $26,281 $21,932 $11,910
05/31/1999 $25,261 $20,808 $11,910
06/30/1999 $26,522 $21,624 $11,910
07/31/1999 $26,670 $22,272 $11,946
08/31/1999 $26,643 $22,357 $11,975
09/30/1999 $26,160 $22,588 $12,032
10/31/1999 $26,267 $23,439 $12,054
11/30/1999 $27,287 $24,258 $12,061
12/31/1999 $29,688 $26,440 $12,061
</TABLE>

The historical performance figures shown pertain only to the Fund's Class 2
shares.

Past performance does not guarantee future results.

TI-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Templeton International Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* 5-YEAR* (5/1/92)*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return 23.23% 119.55% 196.88%
Average Annual Total Return 23.23% 17.03% 15.25%
Value of $10,000 Investment $12,323 $21,955 $29,688
</TABLE>

TEMPLETON
INTERNATIONAL FUND
- -- CLASS 2

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.

Past performance does not guarantee future results.

TI-5
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $20.69 $20.18 $18.40 $15.13 $13.22
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ..................... .33 .60 .49 .43 .23
Net realized and unrealized gains ......... 3.78 1.29 2.01 3.15 1.83
-------------------------------------------------------------------------
Total from investment operations ............ 4.11 1.89 2.50 3.58 2.06
-------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... (.57) (.49) (.51) (.24) (.10)
Net realized gains ........................ (1.98) (.89) (.21) (.07) (.05)
-------------------------------------------------------------------------
Total distributions ......................... (2.55) (1.38) (.72) (.31) (.15)
-------------------------------------------------------------------------
Net asset value, end of year ................ $22.25 $20.69 $20.18 $18.40 $15.13
=========================================================================
Total Return* ............................... 23.61% 9.33% 13.95% 24.04% 15.78%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $1,056,798 $980,470 $938,410 $682,984 $353,141
Ratios to average net assets:
Expenses .................................. .85% .86% .81% .65% .71%
Net investment income ..................... 1.69% 2.81% 2.70% 3.23% 2.36%
Portfolio turnover rate ..................... 30.04% 29.56% 16.63% 9.46% 5.19%
</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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

TI-6
<PAGE>

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

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $20.61 $20.14 $18.40
----------------------------------------------------
Income from investment operations:
Net investment income ..................... .25 .59 .07
Net realized and unrealized gains ......... 3.78 1.25 1.67
----------------------------------------------------
Total from investment operations ............ 4.03 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 year ................ $22.13 $20.61 $ 20.14
====================================================
Total Return* ............................... 23.23% 9.08% 9.46%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $101,365 $39,886 $17,606
Ratios to average net assets:
Expenses .................................. 1.10% 1.11% 1.13%**
Net investment income ..................... 1.26% 2.69% 1.14%**
Portfolio turnover rate ..................... 30.04% 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-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 90.0%
AEROSPACE & MILITARY TECHNOLOGY .2%
Hong Kong Aircraft Engineering Co. Ltd. ............. Hong Kong 1,160,200 $ 1,925,333
--------------
APPLIANCES & HOUSEHOLD DURABLES 3.8%
Sony Corp. .......................................... Japan 147,030 43,597,485
--------------
AUTOMOBILES 3.4%
Autoliv Inc., SDR ................................... Sweden 358,450 10,494,303
Fiat SpA ............................................ Italy 255,250 7,285,148
Volkswagen AG ....................................... Germany 156,000 8,794,926
Volvo AB, B ......................................... Sweden 475,580 12,301,893
--------------
38,876,270
--------------
BANKING 8.1%
Australia & New Zealand Banking Group Ltd. .......... Australia 1,745,350 12,696,850
Bank Austria AG, 144A ............................... Austria 230,146 12,975,109
Credicorp Ltd. ...................................... Peru 292,160 3,505,920
Foreningssparbanken AB, A ........................... Sweden 228,000 3,350,970
HSBC Holdings PLC, ADR .............................. Hong Kong 180,600 12,890,325
* Merita AS ........................................... Finland 3,400,000 19,989,933
National Bank of Canada ............................. Canada 440,000 5,629,712
National Westminster Bank PLC ....................... United Kingdom 574,342 12,372,899
Unidanmark AS, A .................................... Denmark 150,000 10,550,093
--------------
93,961,811
--------------
BROADCASTING & PUBLISHING 1.0%
Wolters Kluwer NV ................................... Netherlands 345,050 11,671,882
--------------
BUILDING MATERIALS & COMPONENTS .7%
Caradon PLC ......................................... United Kingdom 3,265,240 8,232,097
--------------
CHEMICALS 4.3%
Akzo Nobel NV ....................................... Netherlands 352,800 17,687,949
BASF AG ............................................. Germany 273,530 14,291,963
* Clariant AG ......................................... Switzerland 24,700 11,772,245
Kemira OY ........................................... Finland 1,088,632 6,630,649
--------------
50,382,806
--------------
DATA PROCESSING & REPRODUCTION .8%
* Newbridge Networks Corp. ............................ Canada 418,260 9,436,991
--------------
ELECTRICAL & ELECTRONICS 7.4%
* ABB Ltd. ............................................ Switzerland 64,840 7,929,413
Alcatel SA .......................................... France 134,405 30,851,042
Hitachi Ltd. ........................................ Japan 1,067,000 17,124,627
Koninklijke Philips Electronics NV .................. Netherlands 210,312 28,583,630
* Thomson Multimedia .................................. France 33,800 1,820,497
--------------
86,309,209
--------------
ENERGY SOURCES 5.3%
Perez Companc SA, B ................................. Argentina 1,135,000 5,812,014
Repsol SA, Br. ...................................... Spain 807,000 18,702,446
Shell Transport & Trading Co. PLC ................... United Kingdom 1,913,742 15,904,808
Total Fina SA, B .................................... France 155,135 20,694,038
--------------
61,113,306
--------------
</TABLE>

TI-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 5.8%
AXA SA .............................................. France 130,000 $ 18,113,360
ING Groep NV ........................................ Netherlands 214,846 12,964,733
Lend Lease Corp. Ltd. ............................... Australia 1,040,000 14,570,091
Nomura Securities Co. Ltd. .......................... Japan 1,210,000 21,847,140
------------
67,495,324
------------
FOOD & HOUSEHOLD PRODUCTS 2.0%
Northern Foods PLC .................................. United Kingdom 3,278,607 5,219,109
Panamerican Beverages Inc., A ....................... Mexico 290,000 5,963,125
Tate & Lyle PLC ..................................... United Kingdom 1,763,000 11,567,755
------------
22,749,989
------------
FOREST PRODUCTS & PAPER 1.9%
Stora Enso OYJ, R, fgn. ............................. Finland 435,426 7,474,685
UPM-Kymmene Corporation ............................. Finland 351,000 14,134,703
------------
21,609,388
------------
HEALTH & PERSONAL CARE 3.8%
Aventis SA .......................................... France 279,800 16,253,358
Medeva PLC .......................................... United Kingdom 3,190,000 9,073,484
Teva Pharmaceutical Industries Ltd., ADR ............ Israel 253,940 18,204,324
------------
43,531,166
------------
INDUSTRIAL COMPONENTS .4%
Madeco Manufacturera de Cobre SA, ADR ............... Chile 190,000 2,113,750
Yamato Kogyo Co. Ltd. ............................... Japan 446,000 2,012,096
------------
4,125,846
------------
INSURANCE 5.4%
Ace Ltd. ............................................ Bermuda 320,545 5,349,095
Muenchener Rueckversicherungs-Gesellschaft .......... Germany 54,520 13,886,600
Partnerre Ltd. ...................................... Bermuda 169,000 5,481,938
Scor SA ............................................. France 250,000 11,023,860
XL Capital Ltd., A .................................. Bermuda 170,450 8,842,094
Zurich Allied AG .................................... Switzerland 32,300 18,416,578
------------
63,000,165
------------
MACHINERY & ENGINEERING .6%
Invensys PLC ........................................ United Kingdom 1,318,675 7,096,640
------------
MERCHANDISING 2.6%
David Jones Ltd. .................................... Australia 2,225,500 2,016,235
Marks & Spencer PLC ................................. United Kingdom 3,138,000 14,922,451
Safeway PLC ......................................... United Kingdom 3,247,408 11,178,595
Storehouse .......................................... United Kingdom 3,498,781 2,530,350
------------
30,647,631
------------
</TABLE>

TI-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING 6.1%
Angang New Steel Company Ltd., H, 144A .............. China 22,414,000 $ 1,787,699
Anglo American Platinum Corp. Ltd. .................. South Africa 349,009 10,603,523
Barrick Gold Corp. .................................. Canada 605,900 10,790,459
Boehler Uddeholm AG ................................. Austria 31,505 1,452,662
Boehler Uddeholm AG, 144A ........................... Austria 33,800 1,558,482
Chongqing Iron & Steel Ltd., H ...................... China 25,564,000 1,233,228
Corus Group PLC ..................................... United Kingdom 4,090,000 10,674,968
Industrias Penoles SA ............................... Mexico 1,893,000 5,454,237
Ispat International NV, A ........................... Netherlands 227,600 3,670,050
Pohang Iron & Steel Co. Ltd. ........................ South Korea 85,000 9,715,769
WMC Ltd. ............................................ Australia 2,399,500 13,232,276
------------
70,173,353
------------
MULTI-INDUSTRY 4.5%
Broken Hill Proprietary Co. Ltd. .................... Australia 1,210,543 15,895,216
Cheung Kong Holdings Ltd. ........................... Hong Kong 1,520,000 19,309,191
Elementis PLC ....................................... United Kingdom 2,092,174 2,721,852
Next PLC ............................................ United Kingdom 775,500 7,444,559
Saab AB, B .......................................... Sweden 726,900 7,008,325
------------
52,379,143
------------
REAL ESTATE .1%
New Asia Realty and Trust Co. Ltd., A ............... Hong Kong 1,373,000 1,704,438
------------
RECREATION & OTHER CONSUMER GOODS 1.0%
Nintendo Co. Ltd. ................................... Japan 67,200 11,067,926
------------
TELECOMMUNICATIONS 8.9%
Cia de Telecomunicaciones de Chile SA, ADR .......... Chile 431,500 7,874,875
Korea Telecom Corp., ADR ............................ South Korea 104,200 7,788,950
Nippon Telegraph & Telephone Corp. .................. Japan 1,210 20,722,219
Portugal Telecom SA ................................. Portugal 1,644,050 18,024,468
Telecom Italia SpA, di Risp ......................... Italy 1,887,750 11,505,526
Telefonica de Argentina SA, B, ADR .................. Argentina 368,800 11,386,700
Telefonica del Peru SA, B ........................... Peru 3,000,000 3,907,653
Telefonica del Peru SA, B, ADR ...................... Peru 29,000 387,875
Telefonos de Mexico SA (Telmex), L, ADR ............. Mexico 191,300 21,521,250
------------
103,119,516
------------
TRANSPORTATION 4.4%
British Airways PLC ................................. United Kingdom 1,400,000 9,118,089
Hitachi Zosen Corp. ................................. Japan 3,342,000 2,518,315
Koninklijke Nedlloyd Groep NV ....................... Netherlands 216,300 6,053,700
Mayne Nickless Ltd., A .............................. Australia 3,227,820 8,327,917
Peninsular & Oriental Steam Navigation Co. .......... United Kingdom 833,414 13,846,011
Seino Transportation Co. Ltd. ....................... Japan 552,000 2,927,866
Singapore Airlines Ltd., fgn. ....................... Singapore 736,500 8,357,760
------------
51,149,658
------------
</TABLE>

TI-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

(A) REPURCHASE AGREEMENT (COST $46,236,000) 4.0%
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $46,247,559)
Collaterized by U.S. Treasury Notes and Bonds ............................. United States $ 46,236,000 46,236,000
--------------
TOTAL INVESTMENTS (COST $897,629,878) 98.9%................................ 1,145,980,075
OTHER ASSETS, LESS LIABILITIES 1.1% ....................................... 12,182,392
--------------
TOTAL NET ASSETS 100.0% ................................................... $1,158,162,467
==============

</TABLE>

*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS.
(A)AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See Notes to Financial Statements.

TI-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $851,393,878).............................. $ 1,099,744,075
Repurchase agreement, at value and cost ............................................. 46,236,000
Cash ................................................................................ 1,378,810
Receivables:
Fund shares sold ................................................................... 9,285,773
Dividends and interest ............................................................. 2,904,928
---------------
Total assets ...................................................................... 1,159,549,586
---------------
Liabilities:
Payables:
Fund shares redeemed ............................................................... 276,530
To affiliates ...................................................................... 768,409
Accrued expenses .................................................................... 342,180
---------------
Total liabilities ................................................................. 1,387,119
---------------
Net assets, at value ................................................................. $ 1,158,162,467
---------------
Net assets consist of:
Undistributed net investment income ................................................. $ 16,772,639
Net unrealized appreciation ......................................................... 248,350,197
Accumulated net realized gain ....................................................... 85,993,533
Beneficial shares ................................................................... 807,046,098
---------------
Net assets, at value ................................................................. $ 1,158,162,467
===============
CLASS 1:
Net asset value per share ($1,056,797,780 /divided by/ 47,499,837 shares outstanding) $ 22.25
===============
CLASS 2:
Net asset value per share ($101,364,687 /divided by/ 4,579,718 shares outstanding)... $ 22.13
===============
</TABLE>

See Notes to Financial Statements.

TI-12
<PAGE>

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $2,498,891)
Dividends ................................................... $ 24,736,406
Interest .................................................... 1,596,969
------------
Total investment income ................................... $ 26,333,375
Expenses:
Management fees (Note 3) .................................... 7,168,839
Administrative fees (Note 3) ................................ 1,004,768
Distribution fees - Class 2 (Note 3) ........................ 163,550
Custodian fees .............................................. 379,800
Reports to shareholders ..................................... 239,500
Professional fees ........................................... 51,500
Trustees' fees and expenses ................................. 3,700
Other ....................................................... 840
------------
Total expenses ............................................ 9,012,497
------------
Net investment income .................................... 17,320,878
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 86,278,283
Foreign currency transactions .............................. (1,280,740)
------------
Net realized gain ......................................... 84,997,543
Net unrealized appreciation on investments ................ 128,046,409
------------
Net realized and unrealized gain ............................. 213,043,952
------------
Net increase in net assets resulting from operations ......... $230,364,830
============
</TABLE>

See Notes to Financial Statements.

TI-13
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 17,320,878 $ 28,896,330
Net realized gain from investments and foreign currency transactions 84,997,543 95,878,753
Net unrealized appreciation (depreciation) on investments ........... 128,046,409 (37,191,402)
-----------------------------------
Net increase in net assets resulting from operations .............. 230,364,830 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 ............................................................ (14,797,710) 22,012,097
Class 2 ............................................................ 45,319,734 20,066,468
-----------------------------------
Net increase in net assets ........................................ 137,806,303 64,339,309
Net assets:
Beginning of year .................................................... 1,020,356,164 956,016,855
-----------------------------------
End of year .......................................................... $1,158,162,467 $1,020,356,164
===================================
Undistributed net investment income included in net assets:
End of year .......................................................... $ 16,772,639 $ 28,186,871
===================================
</TABLE>

See Notes to Financial Statements.

TI-14
<PAGE>

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

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

D. ACCOUNTING ESTIMATES:

TI-15
<PAGE>

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

2. BENEFICIAL SHARES

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

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 4,898,075 $ 98,598,572 6,749,923 $ 142,271,216
Shares issued on reinvestment of distributions 6,924,615 118,133,938 3,071,524 63,887,704
Shares redeemed ............................... (11,722,543) (231,530,220) (8,923,288) (184,146,823)
----------------------------------------------------------------
Net increase (decrease) ....................... 100,147 $ (14,797,710) 898,159 $ 22,012,097
================================================================
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 57,320,488 $ 1,117,974,227 8,195,067 $ 161,830,748
Shares issued on reinvestment of distributions 290,806 4,946,613 69,167 1,435,233
Shares redeemed ............................... (54,967,087) (1,077,601,106) (7,203,053) (143,199,513)
-----------------------------------------------------------------
Net increase .................................. 2,644,207 $ 45,319,734 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>

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:

TICI and FT Services have agreed in advance to limit total expenses of the Fund
to an annual rate of 0.86% and 1.11% of average daily net assets of Class 1 and
Class 2 shares, respectively, through December 31, 2000. For the year ended
December 31, 1999, no reimbursement was necessary under the agreement.

TI-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND

Notes to Financial Statements (CONTINUED)

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

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

4. 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.

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 339,116,693
Unrealized depreciation ............. (90,766,496)
-------------
Net unrealized appreciation ......... $ 248,350,197
=============
</TABLE>

5. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $298,953,559 and $349,592,711,
respectively.

6. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton International Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.

7. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton International
Equity Fund.

TI-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton International Fund,
series of Templeton Variable Products Series Fund at December 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian, provides
a reasonable basis for the opinion expressed above. The financial statements
for the year ended December 31, 1998, including the financial highlights for
each of the four years in the period then ended were audited by other
independent accountants whose report dated January 28, 1999 expressed an
unqualified opinion on those financial statements.

PricewaterhouseCoopers LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 7, as to which the date is February 8, 2000.

TI-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND

CHANGE IN INDEPENDENT AUDITOR

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

TI-19
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON INTERNATIONAL FUND

Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $66,672,660 as a capital gain dividend for the fiscal year ended
December 31, 1999.

TI-20
<PAGE>

TEMPLETON STOCK FUND

- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON STOCK FUND
SEEKS CAPITAL GROWTH THROUGH A POLICY OF INVESTING PRIMARILY IN COMMON STOCKS
ISSUED BY COMPANIES, LARGE AND SMALL, IN VARIOUS NATIONS THROUGHOUT THE WORLD.
- --------------------------------------------------------------------------------
During the 12 months under review, global equity markets provided generally
strong results. The U.S. experienced its ninth consecutive year of growth,
while many European economies improved, a number of Asian nations rebounded
from their recent crises, and most Latin American economies enjoyed an upswing
due to increasing commodity prices.

[This chart shows in pie format the geographic distribution of Templeton Stock
Fund, based on total net assets as of 12/31/99.]

Europe 38.4%
North America 24.8%
Asia 17.8%
Latin America 7.0%
Australia & New Zealand 5.2%
Fixed-Income Securities 0.5%
Short-Term Investments & Other Net Assets 6.3%

NORTH AMERICA

In the U.S., employment and consumer confidence reached new highs, raising
concerns that inflation might reappear. Rising crude oil prices also
contributed to inflation worries during the year and, in an attempt to ward of
potential future inflation, the Federal Reserve Board (the Fed) raised
short-term interest rates three times in 1999.

This, however, did not seem to deter the U.S. equity market, which rose to new
heights by the end of the year. Some of the Fund's holdings, including
Motorola, a communication equipment manufacturer, and retailer Home Depot, rose
significantly during the period, and we took the opportunity to realize
considerable gains by selling our shares of Antec, a telecommunications
equipment provider. Because we believed that U.S. stocks were generally
overvalued, we remained underweighted in such stocks versus the Morgan Stanley
Capital International (MSCI/R/) World Index.

EUROPE

During the reporting period, Europe began to enjoy economic growth as many
European exporters appeared to benefit from improving Asian economies. This
strength was particularly evident in the Scandinavian region and the United
Kingdom. Along with this general economic recovery, many European industries
began to participate in a trend toward consolidation. Scandinavian and German
banks merged; French pharmaceutical company Rhone-Poulenc and Germany's Hoechst
AG combined; and two French giants, Total Fina SA and Societe Elf Aquitaine SA,
agreed to consolidate into the world's fourth largest oil company. During the
fiscal year, we found European equities increasingly attractive, and we
continued to be overweighted in Europe versus the MSCI World Index.

TS-1
<PAGE>

[This chart lists the top 10 countries represented in the Templeton Stock Fund,
based on total net assets as of 12/31/99.]

<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton Stock Fund
12/31/99

% OF TOTAL
COUNTRY NET ASSETS
- --------------------------------
<S> <C>
United States 19.7%
United Kingdom 13.5%
Japan 9.5%
Hong Kong 6.8%
Netherlands 6.7%
France 5.8%
Australia 4.5%
Germany 3.8%
Brazil 3.7%
Canada 3.1%
</TABLE>

ASIA

Asian equity markets, especially Japan's, performed extremely well during the
reporting period. Having found several investment opportunities during the
financial crises in the region in 1997-1998, we became overweighted in Hong
Kong compared to the MSCI World Index. However, the same is not true of Japan,
where we were underweighted because we believed share prices of companies there
were expensive relative to other companies in the world.

In our opinion, Japanese stock prices rose during 1999 because of an improved
outlook for its economy, which has been mired in recession for the past 10
years. However, we believe the obstacle to Japanese recovery is twofold. First,
Japan appears to suffer from chronic overcapacity in many industries, causing
prices to remain depressed, forcing companies to charge lower prices, and
ultimately affecting profitability. Second, Japan is experiencing a lack of
consumer spending, probably as a result of employment concerns for most
Japanese. Nevertheless, during the year under review, our holdings in Japan's
Nippon Telegraph & Telephone and Hong Kong's Hutchison Whampoa Ltd., a large
telecommunications and shipping conglomerate, appreciated significantly in
value, and we took the opportunity to capture profits by liquidating some
shares in our Sony Corp. position.

LATIN AMERICA

During the reporting period, most Latin American economies experienced an
upswing which, along with improved commodity prices, appeared to increase
investors' confidence in the region. Mexico, which exports oil, and Chile,
which exports copper, reaped significant benefits from this pickup in world
demand for raw materials. Mexico also benefited from the growth of the U.S.
economy, which created a strong U.S. demand for Mexican exports. During the
reporting period, the Fund's holdings of Telefonos de Mexico (Telmex)
appreciated dramatically.

TS-2
<PAGE>

LOOKING FORWARD

We remain optimistic about long-term prospects for global equity markets and
Templeton Stock Fund. However, if inflation re-emerges and the financial
markets reach more extreme valuations, then the Fed may aggressively raise
interest rates. If U.S. interest rates increase, Latin American economies would
likely suffer. In Asia, we believe economies need to grow further to maintain
the recent luster in stock markets there. We feel that Hong Kong and South
Korean shares have become expensive and would not be surprised to see some
setback in Asia in 2000. As always, we will continue to monitor these
conditions as we search the globe for undervalued stocks in an effort to
benefit the Fund's shareholders.

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 Fund is invested.
Developing markets involve similar but heightened risks related to their
smaller size and lesser liquidity. These risks are discussed in the prospectus.

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

Sincerely,

/s/MARK R. BEVERIDGE

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

This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.

[This chart lists the top 10 holdings, including industry and country, of the
Templeton Stock Fund, based on total net assets as of 12/31/99.]

<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Templeton Stock Fund
12/31/99

COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------ ------------
<S> <C>
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 4.2%

Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.6%

Nomura Securities
Co. Ltd.,
FINANCIAL SERVICES, JAPAN 2.5%

Koninklijke Philips
Electronics NV,
ELECTRICAL & ELECTRONICS,
NETHERLANDS 2.4%

Australia & New Zealan d
Banking Group Ltd.,
BANKING, AUSTRALIA 2.0%

Hutchison Whampoa Ltd. ,
MULTI-INDUSTRY,
HONG KONG 1.7%

Portugal Telecom SA,
TELECOMMUNICATIONS,
PORTUGAL 1.6%

Home Depot Inc.,
MERCHANDISING, U.S. 1.5%

Cheung Kong
Holdings Ltd,
MULTI-INDUSTRY, HONG
KONG 1.5%

3Com Corp.,
DATA PROCESSING &
REPRODUCTION,
UNITED STATES 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 2

EXPENSES: Performance reflects the Fund's Class 2 operating expenses, but does
NOT include any Contract fees, expenses or sales charges. If they had been
included, performance would be lower. These Contract charges and deductions,
particularly for variable life policies, can have a significant effect on
Contract values and insurance benefits. See the Contract prospectus for a
complete description of these expenses, including sales charges.

PERFORMANCE SUMMARY AS OF 12/31/99

TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)

The graph below compares the performance of Templeton Stock Fund -- Class 2 and
the Morgan Stanley Capital International (MSCI/R/) World Index, including
reinvested dividends, as well as the Consumer Price Index (CPI). The Fund's
total return represents the change in value of an investment over the periods
shown and assumes reinvestment of dividends and capital gains at net asset
value. The MSCI World Index includes approximately 1,450 companies representing
the stock markets of 22 countries, including the U.S., Europe, Canada,
Australia, New Zealand, and the Far East. The CPI is a commonly used measure of
inflation. The Fund's performance differs from an index's because an index is
not managed, does not contain cash (the Fund generally carries a certain
percentage of cash at any given time), and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index, nor is
an index representative of the Fund's portfolio. The indexes' sources are MSCI
and Standard & Poor's/R/ Micropal (U.S. Bureau of Labor Statistics).

[The following line graph compares the performance of the Templeton Stock Fund-
Class 2 to that of the Morgan Stanley Capital International World Index and the
Consumer Price Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]

TEMPLETON
STOCK FUND -
CLASS 2 MSCI WORLD CPI
-----------------------------------------------------------
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,634 $9,535 $10,103
02/28/1990 $9,694 $9,127 $10,150
03/31/1990 $9,866 $8,578 $10,206
04/30/1990 $9,493 $8,456 $10,223
05/31/1990 $10,213 $9,348 $10,246
06/30/1990 $10,221 $9,283 $10,301
07/31/1990 $10,221 $9,369 $10,341
08/31/1990 $9,484 $8,493 $10,436
09/30/1990 $8,617 $7,599 $10,523
10/31/1990 $8,505 $8,310 $10,587
11/30/1990 $8,765 $8,175 $10,610
12/31/1990 $8,912 $8,348 $10,610
01/31/1991 $9,398 $8,655 $10,674
02/28/1991 $10,030 $9,458 $10,690
03/31/1991 $9,961 $9,181 $10,706
04/30/1991 $9,970 $9,254 $10,722
05/31/1991 $10,291 $9,465 $10,754
06/30/1991 $9,765 $8,882 $10,785
07/31/1991 $10,354 $9,303 $10,801
08/31/1991 $10,505 $9,275 $10,832
09/30/1991 $10,595 $9,520 $10,880
10/31/1991 $10,728 $9,676 $10,896
11/30/1991 $10,434 $9,256 $10,928
12/31/1991 $11,344 $9,932 $10,936
01/31/1992 $11,379 $9,750 $10,952
02/29/1992 $11,745 $9,583 $10,992
03/31/1992 $11,505 $9,133 $11,048
04/30/1992 $11,887 $9,262 $11,063
05/31/1992 $12,325 $9,632 $11,079
06/30/1992 $12,024 $9,311 $11,118
07/31/1992 $12,051 $9,336 $11,142
08/31/1992 $11,796 $9,565 $11,173
09/30/1992 $11,805 $9,479 $11,204
10/31/1992 $11,696 $9,225 $11,243
11/30/1992 $11,906 $9,391 $11,259
12/31/1992 $12,152 $9,469 $11,251
01/31/1993 $12,316 $9,502 $11,306
02/28/1993 $12,598 $9,729 $11,346
03/31/1993 $13,005 $10,295 $11,386
04/30/1993 $13,209 $10,774 $11,418
05/31/1993 $13,627 $11,024 $11,434
06/30/1993 $13,701 $10,933 $11,450
07/31/1993 $13,906 $11,160 $11,450
08/31/1993 $14,816 $11,674 $11,482
09/30/1993 $14,928 $11,460 $11,506
10/31/1993 $15,559 $11,777 $11,553
11/30/1993 $15,169 $11,113 $11,561
12/31/1993 $16,284 $11,659 $11,561
01/31/1994 $17,185 $12,430 $11,592
02/28/1994 $16,572 $12,271 $11,632
03/31/1994 $15,803 $11,744 $11,671
04/30/1994 $16,048 $12,109 $11,688
05/31/1994 $16,264 $12,142 $11,696
06/30/1994 $15,794 $12,111 $11,736
07/31/1994 $16,593 $12,343 $11,767
08/31/1994 $17,195 $12,717 $11,814
09/30/1994 $16,668 $12,385 $11,846
10/31/1994 $16,837 $12,739 $11,854
11/30/1994 $16,123 $12,190 $11,870
12/31/1994 $15,925 $12,310 $11,870
01/31/1995 $15,728 $12,127 $11,917
02/28/1995 $16,203 $12,307 $11,965
03/31/1995 $16,490 $12,902 $12,005
04/30/1995 $17,122 $13,354 $12,044
05/31/1995 $17,763 $13,471 $12,068
06/30/1995 $18,174 $13,469 $12,092
07/31/1995 $19,074 $14,146 $12,092
08/31/1995 $18,873 $13,833 $12,124
09/30/1995 $19,409 $14,239 $12,148
10/31/1995 $18,969 $14,018 $12,188
11/30/1995 $19,418 $14,507 $12,180
12/31/1995 $19,945 $14,934 $12,171
01/31/1996 $20,337 $15,206 $12,243
02/29/1996 $20,671 $15,301 $12,282
03/31/1996 $21,109 $15,559 $12,346
04/30/1996 $21,568 $15,928 $12,394
05/31/1996 $21,888 $15,944 $12,418
06/30/1996 $22,048 $16,028 $12,425
07/31/1996 $21,109 $15,465 $12,449
08/31/1996 $21,845 $15,646 $12,472
09/30/1996 $22,368 $16,261 $12,512
10/31/1996 $22,710 $16,377 $12,552
11/30/1996 $23,916 $17,298 $12,576
12/31/1996 $24,417 $17,024 $12,576
01/31/1997 $25,442 $17,231 $12,616
02/28/1997 $25,351 $17,433 $12,655
03/31/1997 $25,481 $17,091 $12,687
04/30/1997 $25,339 $17,653 $12,702
05/31/1997 $26,576 $18,746 $12,695
06/30/1997 $28,013 $19,683 $12,710
07/31/1997 $29,333 $20,593 $12,725
08/31/1997 $27,672 $19,219 $12,749
09/30/1997 $30,016 $20,265 $12,781
10/31/1997 $27,342 $19,202 $12,813
11/30/1997 $27,059 $19,545 $12,806
12/31/1997 $27,271 $19,786 $12,790
01/31/1998 $26,953 $20,341 $12,814
02/28/1998 $28,803 $21,720 $12,839
03/31/1998 $30,690 $22,640 $12,863
04/30/1998 $30,926 $22,865 $12,886
05/31/1998 $30,480 $22,582 $12,910
06/30/1998 $30,126 $23,121 $12,925
07/31/1998 $30,060 $23,087 $12,941
08/31/1998 $24,510 $20,012 $12,956
09/30/1998 $23,775 $20,369 $12,972
10/31/1998 $25,953 $22,214 $13,003
11/30/1998 $27,672 $23,539 $13,003
12/31/1998 $27,541 $24,693 $12,995
01/31/1999 $27,672 $25,237 $13,026
02/28/1999 $26,911 $24,568 $13,042
03/31/1999 $28,036 $25,595 $13,081
04/30/1999 $30,709 $26,608 $13,176
05/31/1999 $29,467 $25,639 $13,176
06/30/1999 $30,971 $26,838 $13,176
07/31/1999 $30,957 $26,762 $13,216
08/31/1999 $30,811 $26,718 $13,248
09/30/1999 $30,227 $26,463 $13,311
10/31/1999 $31,059 $27,842 $13,335
11/30/1999 $32,899 $28,628 $13,343
12/31/1999 $35,925 $30,950 $13,343

The historical performance figures shown pertain only to the Fund's Class 2
shares.
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on May 1, 1997,
historical results of Class 1 shares; and (b) for periods after May 1, 1997,
Class 2's results reflecting an additional 12b-1 fee expense, which also
affects all future performance.

Past performance does not guarantee future results.

TS-4
<PAGE>

PERFORMANCE

<TABLE>
<CAPTION>
Templeton Stock Fund -- Class 2
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR* 5-YEAR* 10-YEAR* (8/31/88)*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return 28.79% 122.72% 259.25% 317.55%
Average Annual Total Return 28.79% 17.37% 13.64% 13.42%
Value of $10,000 Investment $12,879 $22,272 $35,925 $41,755
</TABLE>

TEMPLETON STOCK FUND
- -- CLASS 2

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.

Past performance does not guarantee future results.

TS-5
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $21.07 $23.19 $22.88 $20.83 $16.94
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .21 .39 .47 .41 .40
Net realized and unrealized gains .......... 5.22 .04 2.11 3.88 3.80
-------------------------------------------------------------------------
Total from investment operations ............ 5.43 .43 2.58 4.29 4.20
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.37) (.49) (.40) (.40) (.27)
Net realized gains ......................... (1.74) (2.06) (1.87) (1.84) (.04)
-------------------------------------------------------------------------
Total distributions ......................... (2.11) (2.55) (2.27) (2.24) (.31)
-------------------------------------------------------------------------
Net asset value, end of year ................ $24.39 $21.07 $ 23.19 $22.88 $20.83
=========================================================================
Total Return* ............................... 29.10% 1.26% 11.88% 22.48% 25.24%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $641,849 $646,865 $732,248 $644,366 $498,777
Ratios to average net assets:
Expenses ................................... .85% .89% .81% .65% .66%
Net investment income ...................... .99% 1.65% 2.05% 2.06% 2.18%
Portfolio turnover rate ..................... 45.63% 37.27% 25.82% 23.40% 33.93%
</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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.

TS-6
<PAGE>

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

<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $20.99 $23.15 $21.62
----------------------------------------------------
Income from investment operations:
Net investment income .............................. .13 .40 .06
Net realized and unrealized gains (losses) ......... 5.23 (.03) 1.47
----------------------------------------------------
Total from investment operations .................... 5.36 .37 1.53
----------------------------------------------------
Less distributions from:
Net investment income .............................. (.32) (.47) --
Net realized gains ................................. (1.74) (2.06) --
----------------------------------------------------
Total distributions ................................. (2.06) (2.53) --
----------------------------------------------------
Net asset value, end of year ........................ $24.29 $20.99 $23.15
====================================================
Total Return* ....................................... 28.79% .99% 7.08%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $47,741 $25,593 $16,414
Ratios to average net assets:
Expenses ........................................... 1.10% 1.14% 1.14%**
Net investment income .............................. .62% 1.37% .75%**
Portfolio turnover rate ............................. 45.63% 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-7
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 89.0%
AEROSPACE & MILITARY TECHNOLOGY 4.1%
BAE Systems PLC ...................................... United Kingdom 71,043 $ 470,160
Boeing Co. ........................................... United States 182,500 7,585,156
Lockheed Martin Corp. ................................ United States 330,700 7,234,063
Raytheon Co., A ...................................... United States 240,730 5,973,113
Rolls-Royce PLC ...................................... United Kingdom 1,986,100 6,852,827
-----------
28,115,319
-----------
APPLIANCES & HOUSEHOLD DURABLES 4.4%
Guangdong Kelon Electrical Holdings Ltd., H .......... China 1,123,000 852,345
Sony Corp. ........................................... Japan 98,800 29,296,276
-----------
30,148,621
-----------
AUTOMOBILES 3.3%
Fiat SpA ............................................. Italy 130,768 3,732,279
Ford Motor Co. ....................................... United States 117,000 6,252,187
Volkswagen AG ........................................ Germany 102,400 5,773,080
Volvo AB, B .......................................... Sweden 269,200 6,963,433
-----------
22,720,979
-----------
BANKING 6.6%
Australia & New Zealand Banking Group Ltd. ........... Australia 1,936,200 14,085,222
* Banca Nazionale del Lavoro SpA ....................... Italy 1,781,960 5,920,133
Bank Austria AG ...................................... Austria 84,650 4,772,375
Banque Nationale de Paris ............................ France 62,054 5,722,487
Deutsche Bank AG, Br. ................................ Germany 100,700 8,520,925
HSBC Holdings PLC .................................... Hong Kong 460,212 6,453,092
-----------
45,474,234
-----------
BROADCASTING & PUBLISHING 2.5%
* Gartner Group Inc., B ................................ United States 224,400 3,099,525
Television Broadcasts Ltd. ........................... Hong Kong 1,023,000 6,974,850
Wolters Kluwer NV .................................... Netherlands 215,100 7,276,110
-----------
17,350,485
-----------
BUSINESS & PUBLIC SERVICES 1.4%
Kurita Water Industries Ltd. ......................... Japan 604,000 9,599,217
-----------
CHEMICALS 2.3%
Akzo Nobel NV ........................................ Netherlands 195,200 9,786,530
BASF AG .............................................. Germany 112,300 5,867,683
-----------
15,654,213
-----------
DATA PROCESSING & REPRODUCTION 2.4%
* 3Com Corp. ........................................... United States 215,800 10,142,600
* Newbridge Networks Corp. ............................. Canada 274,200 6,186,638
-----------
16,329,238
-----------
ELECTRICAL & ELECTRONICS 6.2%
Alcatel SA ........................................... France 78,835 18,095,621
Koninklijke Philips Electronics NV ................... Netherlands 121,532 16,517,487
Motorola Inc. ........................................ United States 53,100 7,818,975
-----------
42,432,083
-----------
</TABLE>

TS-8
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 3.7%
* Agilent Technologies Inc. .................. United States 80,200 $ 6,200,462
Hewlett-Packard Co. ........................ United States 85,000 9,684,688
Intel Corp. ................................ United States 121,400 9,992,738
------------
25,877,888
------------
ENERGY EQUIPMENT & SERVICES .4%
TransCanada PipeLines Ltd. ................. Canada 323,900 2,800,159
------------
ENERGY SOURCES 3.4%
Burlington Resources Inc. .................. United States 213,400 7,055,537
Occidental Petroleum Corp. ................. United States 323,100 6,987,038
Perez Companc SA, B ........................ Argentina 415,400 2,127,146
Shell Transport & Trading Co. PLC .......... United Kingdom 866,800 7,203,838
------------
23,373,559
------------
FINANCIAL SERVICES 6.2%
AXA SA ..................................... France 46,391 6,463,822
ING Groep NV ............................... Netherlands 157,637 9,512,496
Lend Lease Corp. Ltd. ...................... Australia 485,500 6,801,711
Mutual Risk Management Ltd. ................ Bermuda 174,500 2,933,781
Nomura Securities Co. Ltd. ................. Japan 960,000 17,333,268
------------
43,045,078
------------
FOOD & HOUSEHOLD PRODUCTS .8%
Archer-Daniels-Midland Co. ................. United States 455,878 5,556,013
------------
FOREST PRODUCTS & PAPER .7%
* Asia Pulp & Paper Co. Ltd., ADR ............ Indonesia 423,500 3,335,062
Carter Holt Harvey Ltd. .................... New Zealand 1,155,252 1,509,045
------------
4,844,107
------------
HEALTH & PERSONAL CARE 4.8%
Astrazeneca PLC, fgn. ...................... United Kingdom 152,291 6,446,180
Aventis SA ................................. France 170,002 9,875,280
Medeva PLC ................................. United Kingdom 2,761,300 7,854,111
Nycomed Amersham PLC ....................... United Kingdom 791,920 4,932,511
* Skyepharma PLC ............................. United Kingdom 4,859,873 3,789,597
------------
32,897,679
------------
INDUSTRIAL COMPONENTS 1.9%
Goodyear Tire & Rubber Co. ................. United States 99,000 2,790,563
Granges AB ................................. Sweden 379,525 7,920,716
Yamato Kogyo Co. Ltd. ...................... Japan 539,000 2,431,658
------------
13,142,937
------------
INSURANCE 5.4%
Ace Ltd. ................................... Bermuda 176,500 2,945,344
Allstate Corp. ............................. United States 242,700 5,824,800
Partnerre Ltd. ............................. Bermuda 84,100 2,727,994
ReliaStar Financial Corp. .................. United States 204,700 8,021,681
Torchmark Corp. ............................ United States 113,400 3,295,688
XL Capital Ltd., A ......................... Bermuda 92,100 4,777,688
Zurich Allied PLC .......................... United Kingdom 826,000 9,798,213
------------
37,391,408
------------
</TABLE>

TS-9
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING 1.8%
CNH Global NV ................................................ Netherlands 259,400 $ 3,453,262
Invensys PLC ................................................. United Kingdom 1,621,958 8,728,801
------------
12,182,063
------------
MERCHANDISING 3.3%
Home Depot Inc. .............................................. United States 154,200 10,572,338
Marks & Spencer PLC .......................................... United Kingdom 1,644,100 7,818,356
Safeway PLC .................................................. United Kingdom 1,305,220 4,492,976
------------
22,883,670
------------
METALS & MINING 1.4%
AK Steel Holding Corp. ....................................... United States 195,400 3,688,175
Barrick Gold Corp. ........................................... Canada 348,800 6,169,400
------------
9,857,575
------------
MULTI-INDUSTRY 5.3%
Cheung Kong Holdings Ltd. .................................... Hong Kong 815,000 10,353,284
Cheung Kong Infrastructure Holdings Ltd. ..................... Hong Kong 963,000 1,858,236
* DESC SA de CV DESC, B ........................................ Mexico 5,237,300 4,311,445
* DESC SA de CV DESC, C ........................................ Mexico 2,671,800 2,227,675
Hutchison Whampoa Ltd. ....................................... Hong Kong 802,100 11,659,780
Swire Pacific Ltd., A ........................................ Hong Kong 1,042,000 6,152,673
------------
36,563,093
------------
REAL ESTATE .4%
National Health Investors Inc. ............................... United States 187,700 2,792,038
------------
TELECOMMUNICATIONS 7.1%
Cia de Telecomunicaciones de Chile SA, ADR ................... Chile 117,300 2,140,725
Korea Telecom Corp., ADR ..................................... South Korea 88,900 6,645,275
Nippon Telegraph & Telephone Corp. ........................... Japan 390 6,679,062
Portugal Telecom SA .......................................... Portugal 976,500 10,705,814
Telecom Corp. of New Zealand Ltd. ............................ New Zealand 745,000 3,503,354
Telecom Italia SpA, di Risp .................................. Italy 476,400 6,690,607
Telecomunicacoes Brasileiras SA (Telebras), ADR .............. Brazil 41,800 5,371,300
Telefonos de Mexico SA (Telmex), L, ADR ...................... Mexico 65,900 7,413,750
------------
49,149,887
------------
TRANSPORTATION 3.5%
British Airways PLC .......................................... United Kingdom 928,000 6,043,991
Burlington Northern Santa Fe Corp. ........................... United States 223,700 5,424,725
Canadian National Railway Co. ................................ Canada 227,600 6,013,085
Firstgroup PLC ............................................... United Kingdom 425,500 1,667,562
Peninsular & Oriental Steam Navigation Co. ................... United Kingdom 294,200 4,887,722
------------
24,037,085
------------
UTILITIES ELECTRICAL & GAS 5.7%
Centrais Eletricas Brasileiras SA (Eletrobras), ADR .......... Brazil 514,400 5,625,221
CLP Holdings Ltd. ............................................ Hong Kong 697,500 3,212,260
Evn AG ....................................................... Austria 32,995 4,982,634
Iberdrola SA, Br. ............................................ Spain 486,500 6,739,394
National Power PLC ........................................... United Kingdom 1,054,800 6,068,633
Thames Water Group PLC ....................................... United Kingdom 500,300 6,173,199
Veba AG ...................................................... Germany 129,600 6,327,998
------------
39,129,339
------------
TOTAL COMMON STOCKS (COST $466,374,382)....................... 613,347,967
------------
</TABLE>

TS-10
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCKS 4.2%
Banco Itau SA, pfd. ....................................................... Brazil 63,094,000 $ 5,413,546
Embotelladora Andina SA, B, ADR, pfd. ..................................... Chile 302,900 4,429,912
News Corp. Ltd., pfd. ..................................................... Australia 1,177,909 10,091,524
Petroleo Brasileiro SA (Petrobras), pfd. .................................. Brazil 15,747,000 4,009,754
* Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..................... Brazil 41,800 652
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............................... Brazil 205,300 5,017,019
------------
TOTAL PREFERRED STOCKS (COST $22,497,583).................................. 28,962,407
------------
PRINCIPAL
AMOUNT**
---------
BONDS (COST $3,911,844) .5%
AXA SA, cvt., 144A, 2.50%, 1/01/14 ........................................ France 3,445,200 EUR 3,512,231
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $492,783,809)......... 645,822,605
------------

(A) REPURCHASE AGREEMENTS 6.3%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $14,003,500)
Collaterized by U.S. Treasury Notes and Bonds ............................United States 14,000,000 14,000,000
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $29,594,397)
Collaterized by U.S. Treasury Notes and Bonds ............................United States 29,587,000 29,587,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $43,587,000)............................. 43,587,000
------------
TOTAL INVESTMENTS (COST $536,370,809) 100.0%............................... 689,409,605
OTHER ASSETS, LESS LIABILITIES ............................................ 180,068
------------
TOTAL NET ASSETS 100.0% ................................................... $689,589,673
============
</TABLE>

CURRENCY ABBREVIATION:
EUR--European Unit

*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
(A)AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.

See Notes to Financial Statements.

TS-11
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $492,783,809)............................ $ 645,822,605
Repurchase agreements, at value and cost .......................................... 43,587,000
Receivables:
Investment securities sold ....................................................... 34,682,380
Fund shares sold ................................................................. 22,452
Dividends and interest ........................................................... 1,437,543
-------------
Total assets .................................................................... 725,551,980
-------------
Liabilities:
Payables:
Investment securities purchased .................................................. 510,791
Fund shares redeemed ............................................................. 563,320
To affiliates .................................................................... 467,340
Funds advanced by custodian ....................................................... 34,138,994
Accrued expenses .................................................................. 281,862
-------------
Total liabilities ............................................................... 35,962,307
-------------
Net assets, at value ............................................................... $ 689,589,673
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 5,470,586
Net unrealized appreciation ....................................................... 153,038,796
Accumulated net realized gain ..................................................... 109,151,709
Beneficial shares ................................................................. 421,928,582
-------------
Net assets, at value ............................................................... $ 689,589,673
=============
CLASS 1:
Net asset value per share ($641,848,812 /divided by/ 26,312,122 shares outstanding) $ 24.39
=============
CLASS 2:
Net asset value per share ($47,740,861 /divided by/ 1,965,579 shares outstanding).. $ 24.29
=============
</TABLE>

See Notes to Financial Statements.

TS-12
<PAGE>

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

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,032,325)
Dividends ................................................... $ 11,337,859
Interest .................................................... 406,650
------------
Total investment income ................................... $ 11,744,509
Expenses:
Management fees (Note 4) .................................... 4,458,962
Administrative fees (Note 4) ................................ 616,251
Distribution fees - Class 2 (Note 4) ........................ 77,935
Custodian fees .............................................. 137,300
Reports to shareholders ..................................... 151,300
Professional fees ........................................... 68,500
Trustees' fees and expenses ................................. 400
Other ....................................................... 1,182
------------
Total expenses ............................................ 5,511,830
------------
Net investment income .................................... 6,232,679
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 113,535,358
Foreign currency transactions .............................. (992,164)
------------
Net realized gain ......................................... 112,543,194
Net unrealized appreciation on investments ................ 45,757,412
------------
Net realized and unrealized gain ............................. 158,300,606
------------
Net increase in net assets resulting from operations ......... $164,533,285
============
</TABLE>

See Notes to Financial Statements.

TS-13
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

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 ............................................................. (49,890,491) (63,413,199)
Class 2 ............................................................. (1,972,049) (1,560,086)

Fund share transactions (Note 3):
Class 1 ............................................................. (100,093,706) (19,220,136)
Class 2 ............................................................. 15,710,115 11,228,384
--------------------------------
Net increase (decrease) in net assets .............................. 17,131,661 (76,203,967)
Net assets:
Beginning of year .................................................... 672,458,012 748,661,979
--------------------------------
End of year .......................................................... $ 689,589,673 $ 672,458,012
================================
Undistributed net investment income included in net assets:
End of year .......................................................... $ 5,470,586 $ 11,403,074
================================
</TABLE>

See Notes to Financial Statements.

TS-14
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND

Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

A. SECURITY VALUATION:

B. FOREIGN CURRENCY TRANSLATION:

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. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

D. ACCOUNTING ESTIMATES:

TS-15
<PAGE>

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

2. MERGER OF TEMPLETON VARIABLE ANNUITY FUND

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

3. BENEFICIAL SHARES

At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 3,853,882 $ 81,887,246 1,862,209 $ 34,187,929
Shares issued on reinvestment of distributions 3,313,694 60,673,738 3,523,201 78,496,920
Shares issued on merger ....................... -- -- 699,965 16,687,175
Shares redeemed ............................... (11,555,092) (242,654,690) (6,963,562) (148,592,160)
-----------------------------------------------------------------
Net decrease .................................. (4,387,516) $ (100,093,706) (878,187) $ (19,220,136)
=================================================================
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 912,104 $ 19,443,978 641,741 $ 14,204,072
Shares issued on reinvestment of distributions 128,314 2,344,295 86,200 1,917,088
Shares redeemed ............................... (294,245) (6,078,158) (217,530) (4,892,776)
--------------------------------------------------------
Net increase .................................. 746,173 $ 15,710,115 510,411 $ 11,228,384
========================================================
</TABLE>

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:

TS-16
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND

Notes to Financial Statements (CONTINUED)

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

The Fund pays 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.

5. 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.

At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $537,940,376 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation ............. $ 197,659,684
Unrealized depreciation ............. (46,190,455)
-------------
Net unrealized appreciation ......... $ 151,469,229
=============
</TABLE>

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

At December 31, 1999, the Fund has deferred currency losses occurring
subsequent to October 31, 1999 of $596,000. For tax purposes, such losses will
be reflected in the year ending December 31, 2000.

6. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $286,049,156 and $471,031,775,
respectively.

7. CREDIT FACILITY

Certain Franklin Templeton Funds, including Templeton Stock Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.

8. SUBSEQUENT EVENT

On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Growth
Fund.

TS-17
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND

INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund

In our opinion, the accompanying statement of asset and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Stock Fund, series of
Templeton Variable Products Series Fund at December 31, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended December 31, 1998, including the
financial highlights for each of the four years in the period then ended were
audited by other independent accountants whose report dated January 28, 1999
expressed an unqualified opinion on those financial statements.

/s/PRICEWATERHOUSECOOPERS LLP

Ft. Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000.

TS-18
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND

CHANGE IN INDEPENDENT AUDITOR

On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.

TS-19
<PAGE>

TEMPLETON VARIABLE PRODUCTS SERIES FUND

TEMPLETON STOCK FUND
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $88,455,613 as a capital gain dividend for the fiscal year ended
December 31, 1999.

Under Section 854 (b)(2) of the Internal Revenue Code, the Fund hereby
designates 11.63% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.

TS-20
<PAGE>

REPORT OF SPECIAL MEETING
OF SHAREHOLDERS

At a Special Meeting on February 8, 2000, the shareholders of Templeton
Variable Products Series Fund (TVP) approved an Agreement and Plan of
Reorganization (Reorganization) pursuant to which each TVP fund will merge with
the similar, corresponding fund of the Franklin Templeton Variable Insurance
Products Trust (VIP), to be effective as of May 1, 2000. The Reorganization
provides that TVP shareholders will receive VIP shares equal in value to their
current TVP shares.

In addition, at a Special Meeting of shareholders of Templeton Developing
Markets Equity, Templeton Global Asset Allocation, and Templeton International
Equity Funds, each a series of VIP, shareholders approved new investment
advisory agreements and changes to, and elimination of, certain of the
fundamental investment restrictions of each series, to be effective as of May
1, 2000.

The VIP Board of Trustees approved name changes for several of
the combined TVP/VIP funds which will also take effect, as of
May 1, 2000.

<TABLE>
<CAPTION>
NEW VIP COMBINED FUND NAME
YOUR CURRENT TVP FUND NAME AS OF MAY 1, 2000
- ---------------------------------------------------------------------------------------------
<S> <C>
Franklin Strategic Income Investments Fund Franklin Strategic Income Securities Fund
Templeton Asset Allocation Fund Templeton Asset Strategy Fund
Templeton Developing Markets Fund Templeton Developing Markets Securities Fund
Templeton International Fund Templeton International Securities Fund
</TABLE>

R-1
<PAGE>

At the Special Meeting of Shareholders of each series of Templeton Variable
Products Series Fund (TVP) held on February 8, 2000, shareholders voted as
follows:

1. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Large Cap Growth Investments Fund and the Franklin Large Cap
Growth Securities Fund, a series of the Franklin Templeton Variable Insurance
Products Trust:

<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>
88,108.591 82,549.531 93.691% 0.000 0.000% 5,559.060 6.309%
</TABLE>

2. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Small Cap Investments Fund and the Franklin Small Cap Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:

<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>
3,910,681.268 3,676,403.633 94.009% 44,760.236 1.145% 189,517.399 4.846%
</TABLE>

3. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin S&P 500 Index Fund and the Franklin S&P 500 Index Fund, a series
of the Franklin Templeton Variable Insurance Products Trust:

<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>
666,529.442 627,225.217 94.103% 13,207.807 1.982% 26,096.418 3.915%
</TABLE>

4. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Strategic Income Investments Fund and the Franklin Strategic
Income Securities Fund, a series of the Franklin Templeton Variable Insurance
Products Trust:

<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>
413,690.850 410,740.206 99.287% 0.000 0.000% 2,950.644 0.713%
</TABLE>

R-2
<PAGE>

5. Regarding the approval of the Agreement and Plan of Reorganization between
the Mutual Shares Investments Fund and the Mutual Shares Securities Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:

<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>
481,079.686 462,972.399 96.236% 5,433.373 1.130% 12,673.914 2.634%
</TABLE>

6. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Asset Allocation Fund and the Templeton Global Asset Allocation
Fund, a series of the Franklin Templeton Variable Insurance Products Trust:

<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>
30,053,798.611 27,094,661.662 90.154% 1,263,049.081 4.202% 1,696,087.868 5.644%
</TABLE>

7. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Bond Fund -- Class 1 and the Templeton Global Income Securities
Fund -- Class 1, a series of the Franklin Templeton Variable Insurance Products
Trust:

<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>
2,085,176.738 1,838,325.020 88.162% 92,878.521 4.454% 153,973.197 7.384%
</TABLE>

8. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Bond Fund -- Class 2 and the Templeton Global Income Securities
Fund -- Class 2, a series of the Franklin Templeton Variable Insurance Products
Trust:

<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>
50,207.875 44,120.171 87.875% 4,594.020 9.150% 1,493.684 2.975%
</TABLE>

R-3
<PAGE>

9. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Developing Markets Fund and the Templeton Developing Markets
Equity Fund, a series of the Franklin Templeton Variable Insurance Products
Trust:

<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>
43,104,307.479 38,032,307.453 88.233% 995,683.149 2.310% 4,076,316.877 9.457%
</TABLE>

10. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton International Fund and the Templeton International Equity Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:

<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>
50,011,973.703 44,879,630.867 89.738% 1,787,919.242 3.575% 3,344,423.594 6.687%
</TABLE>

11. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Stock Fund and the Templeton Global Growth Fund, a series of the
Franklin Templeton Variable Insurance Products Trust:

<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>
28,354,704.714 25,499,530.878 89.931% 973,896.763 3.434% 1,881,277.073 6.635%
</TABLE>

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

R-4

<PAGE>

ANNUAL REPORT
December 31, 1999

Templeton
Variable Products
Series Fund

100 Fountain Parkway
St. Petersburg, Florida 33716-1205

ANNUAL REPORT
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 A 02/00

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