[FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS GRAPHIC]
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST ANNUAL REPORT
TABLE OF CONTENTS
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<S> <C>
LETTER TO CONTRACT OWNERS ................................................ 2
A WORD ABOUT RISK ........................................................ 5
PORTFOLIO GOALS AND PRIMARY INVESTMENTS .................................. 6
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Franklin Global Health Care Securities Fund ............................ 9
Franklin Large Cap Growth Securities Fund .............................. 11
Franklin Natural Resources Securities Fund ............................. 13
Franklin Small Cap Fund ................................................ 15
Mutual Discovery Securities Fund ....................................... 17
Templeton Developing Markets Equity Fund ............................... 19
Templeton Global Growth Fund ........................................... 22
Templeton International Equity Fund .................................... 25
Templeton International Smaller Companies Fund ......................... 28
Templeton Pacific Growth Fund .......................................... 30
Portfolios Seeking Growth and Income
Franklin Global Communications Securities Fund ......................... 32
Franklin Growth and Income Fund ........................................ 36
Franklin Income Securities Fund ........................................ 39
Franklin Real Estate Fund .............................................. 41
Franklin Rising Dividends Securities Fund .............................. 43
Franklin Value Securities Fund ......................................... 46
Mutual Shares Securities Fund .......................................... 48
Templeton Global Asset Allocation Fund ................................. 50
Portfolios Seeking Income
Franklin High Income Fund .............................................. 54
Franklin U.S. Government Fund .......................................... 56
Franklin Zero Coupon Funds ............................................. 58
Templeton Global Income Securities Fund ................................ 60
Portfolio Seeking Capital Preservation and Income
Franklin Money Market Fund ............................................. 63
IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ............................ 65
REPORT OF SPECIAL MEETINGS OF SHAREHOLDERS ............................... 66
INDEX DEFINITIONS ........................................................ 71
FINANCIAL HIGHLIGHTS & STATEMENT OF INVESTMENTS .......................... 78
FINANCIAL STATEMENTS ..................................................... 166
NOTES TO FINANCIAL STATEMENTS ............................................ 186
INDEPENDENT AUDITORS' REPORT ............................................. 203
TAX DESIGNATION .......................................................... 204
</TABLE>
Thank you for investing with Franklin Templeton Variable Insurance Products
Trust (Franklin Templeton VIP Trust). We encourage our investors to maintain a
long-term perspective, and remember that all securities markets move both up and
down, as do portfolio unit prices. We appreciate your past support and look
forward to serving your investment needs in the years ahead.
<PAGE>
LETTER TO CONTRACT OWNERS
Dear Contract Owners:
The year under review saw the world economy's resurgence, when many emerging
countries shook off many of the problems that confronted them for a better part
of the prior two years, and most developed countries' economies, including
long-floundering Japan, enjoyed stronger growth. The U.S. economy, benefiting
from low domestic inflation and insatiable consumer demand, continued its
sustained expansion for a ninth consecutive year. This type of environment is
generally favorable for equity markets, and many showed strong performances for
the period. However, such global growth was far less friendly to the
fixed-income markets, which endured one of the most difficult years on record,
as interest rates rose in response to the robust world economy.
Asian, European and Latin American emerging countries began to see the benefits
of their painful, economic restructurings induced by the International Monetary
Fund (IMF) during the past two years. In Asia, those countries that most
enthusiastically embraced reforms, Thailand and South Korea, witnessed solid
economic improvements and substantial stock market gains, with the Korean KOSPI
index rising 97.7% and the Thai SET Index gaining 36.3% for the 12-month period
ended December 31, 1999. However, almost all economies were recovering and their
market returns were strong, including those that suffered the least in the
1997-98 meltdown, Taiwan and Singapore, and those that bore the brunt of it,
most notably Indonesia.
Russia was a major beneficiary of better times in 1999. As a leading
oil-exporting country, with the world's seventh largest oil reserves, Russia's
fiscal condition quickly improved when oil prices increased 111.7% during the
period to $25.60 on December 31, 1999. In addition, the country once again found
foreign investors' favor in 1999, only a few months after its debt default threw
the world financial system into a state of panic. For the year, the Moscow Times
Index was up a surprising 234.4%.
In Latin America, Brazil was once again the center of attention, after its
ill-managed currency devaluation in January 1999. Contrary to most predictions,
the devaluation did not send Brazil into a deep recession as the government was
able to keep inflation below 10%, stabilize the currency and meet strict
IMF-mandated budget guidelines. Investors reacted positively, propelling the
Bovespa to a 76.6% yearly gain.
2
<PAGE>
Early in 1999, most of Europe slipped into an economic slowdown, surprising many
economists who had expected that the euro's launch on January 1 would lead to
stronger growth. However, toward the end of the period, many European
industrialized countries, most notably France, showed signs of returning to a
stronger footing. Greater labor flexibility, more confident consumers and a
flurry of merger and acquisition activity all suggest continued, faster growth
in the coming year. For the year, the France CAC was up 33.2%, leading the
Morgan Stanley Capital International (MSCI(R)) Europe Index to a 16.2% gain.
Perhaps most inspiring during the period were Japan's tentative, yet concrete,
steps to pull itself out of its worst recession since the 1940s. Facing enormous
pressures within and from the global community, Japan enacted measures designed
to open its economy and reform the financial industry to place the sector back
on solid ground. At the same time, many Japanese companies started to implement
restructuring efforts, shedding non-core businesses and ending the practice of
lifetime employment. For the one-year period, the Nikkei Index posted a 54.9%
return.
Domestically, the U.S. economy continued to surge ahead, with the fourth quarter
gross domestic product growing an annualized 5.8% despite three 0.25%
interest-rate increases by the Federal Reserve Board to slow the economy. This
environment was seemingly ideal for stocks, and the U.S. equity markets posted
another year of significant gains, with the Dow Jones(R) Industrial Average,
Nasdaq and Standard & Poor's 500(R) (S&P 500(R)) Indexes increasing 27.2%, 85.9%
and 21.0%, respectively. However, these returns were exceedingly deceptive as
fully 62.2% of stocks on the New York Stock Exchange and 37.8% on the Nasdaq
were lower at the end of 1999 than at the beginning. Nasdaq's brawny gains and
the S&P 500's much smaller increase were almost entirely due to the performance
of technology and Internet-related securities.
Although the backdrop was ideal for stocks, it was difficult for most
fixed-income investments. Strong growth, increasing inflation fears and tough
comparisons to 1998 (when many central banks pushed interest rates to multi-year
lows) meant that rates had nowhere to go but up. Since interest rates and bond
prices move in opposite directions, prices for most fixed-income securities
suffered during the period. The 30-year Treasury bond yield rose from 5.10% on
January 1, 1999, to 6.48% at the end of the period, while the price fell by
19.9% over the same 12-month period. Foreign government bonds followed a similar
path, with the J.P. Morgan Global Government Bond Index forfeiting 5.1% for the
year.
3
<PAGE>
It is important to remember, of course, that securities markets always have
been, and always will be, subject to volatility. No one can predict exactly how
they will perform in the future. For this reason, we urge you to exercise
patience and focus not on day-to-day market movements, but on your long-term
investment goals. As always, we appreciate your support, welcome your questions
and comments, and look forward to serving your investment needs in the years
ahead.
Sincerely,
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
Trustee and Vice President
Franklin Templeton Variable Insurance Products Trust
4
<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, historically have outperformed other asset
classes over the long term, but tend to rise and fall more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.
Bonds and other debt obligations are affected by the creditworthiness of their
issuers, and changes in interest rates, with prices declining as interest rates
increase. High yield, lower-rated ("junk") bonds generally have greater price
swings and higher default risks than investment grade bonds. An investment in
Franklin Money Market Fund is neither insured nor guaranteed by the U.S.
government. The portfolio attempts to maintain a stable net asset value of $1.00
per share, but there can be no assurance that it will.
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 geographical sectors or use of complex
securities, are discussed in the Franklin Templeton Variable Insurance Products
Trust (formerly, Franklin Valuemark Funds) prospectus. Your investment
representative can help you determine which portfolios may be right for you.
5
<PAGE>
PORTFOLIO GOALS AND PRIMARY INVESTMENTS
The portfolio descriptions are provided for your convenience. For more complete
information, including portfolio policies and risks, please refer to your funds'
prospectus or contact your investment representative.
PORTFOLIOS SEEKING CAPITAL GROWTH
GLOBAL GROWTH
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FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND Seeks capital appreciation. The
portfolio concentrates its
investments in U.S. and foreign
equity securities issued by large
and small capitalization health care
companies, including pharmaceutical,
biotechnology, medical and health
services, and medical supply
companies.
- --------------------------------------------------------------------------------
FRANKLIN NATURAL RESOURCES SECURITIES FUND Seeks capital appreciation, with
current income as a secondary goal.
The portfolio concentrates its
investments in U.S. and foreign
equity securities of companies,
including those in emerging markets,
that own, produce, refine, process
or market natural resources, as well
as those that provide support
services for natural resources
companies.
- --------------------------------------------------------------------------------
MUTUAL DISCOVERY SECURITIES FUND Seeks capital appreciation. Using a
value-driven approach, the portfolio
invests primarily in U.S. and
foreign equity securities.
Investments include securities of
small capitalization companies,
undervalued stocks, reorganizing
companies and distressed companies.
- --------------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS EQUITY FUND Seeks long-term capital
appreciation. The portfolio invests
primarily in emerging markets equity
securities.
- --------------------------------------------------------------------------------
TEMPLETON GLOBAL GROWTH FUND Seeks long-term capital growth. The
portfolio invests primarily in
equity securities of companies of
any nation, including the U.S. and
emerging markets.
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL EQUITY FUND Seeks long-term capital growth. The
portfolio invests primarily in
equity securities of companies with
primary operations outside the U.S.,
including emerging markets.
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL SMALLER Seeks long-term capital
COMPANIES FUND appreciation. The portfolio invests
primarily in equity securities of
smaller companies located outside
the U.S., including emerging
markets.
- --------------------------------------------------------------------------------
TEMPLETON PACIFIC GROWTH FUND Seeks long-term capital growth. The
portfolio invests primarily in
equity securities of companies with
primary operations in Pacific Rim
countries, most of which have
emerging markets.
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
PORTFOLIOS SEEKING CAPITAL GROWTH (CONT.)
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DOMESTIC GROWTH
- --------------------------------------------------------------------------------
FRANKLIN LARGE CAP GROWTH SECURITIES FUND Seeks capital appreciation. The
(FORMERLY, CAPITAL GROWTH FUND) portfolio invests primarily in U.S.
equity securities of large- or
medium-cap companies, with
significant positions expected in
the technology (including computers,
telecommunications and electronics),
health care and finance industries.
- --------------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND Seeks long-term capital growth. The
portfolio invests primarily in
equity securities of U.S. small
capitalization growth companies. The
portfolio may also invest a small
portion in foreign securities.
- --------------------------------------------------------------------------------
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PORTFOLIOS SEEKING GROWTH AND INCOME
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- --------------------------------------------------------------------------------
FRANKLIN GLOBAL COMMUNICATIONS Seeks both capital appreciation and
SECURITIES FUND current income. The portfolio
(FORMERLY, GLOBAL UTILITIES invests primarily in equity
SECURITIES FUND) securities of companies that are
primarily engaged in providing
communications services and
communications equipment in any
nation, including the U.S. and
emerging markets.
- --------------------------------------------------------------------------------
FRANKLIN GROWTH AND INCOME FUND Seeks capital appreciation, with
current income as a secondary goal.
The portfolio invests primarily in
common stocks offering above-market
current dividend yields, and may
invest a smaller portion in foreign
securities, including emerging
markets.
- --------------------------------------------------------------------------------
FRANKLIN INCOME SECURITIES FUND Seeks to maximize income while
maintaining prospects for capital
appreciation. The portfolio invests
in debt and equity securities,
including lower-rated "junk bonds."
May also invest in foreign
securities, including emerging
markets.
- --------------------------------------------------------------------------------
FRANKLIN REAL ESTATE FUND Seeks capital appreciation, with
current income as a secondary goal.
The portfolio concentrates its
investments in equity securities of
companies, including small
capitalization companies, in the
real estate industry, primarily real
estate investment trusts (REITs).
- --------------------------------------------------------------------------------
FRANKLIN RISING DIVIDENDS SECURITIES FUND Seeks long-term capital
appreciation. The portfolio invests
primarily in equity securities of
companies that have paid
consistently rising dividends over
the past ten years, including small
capitalization companies.
- --------------------------------------------------------------------------------
FRANKLIN VALUE SECURITIES FUND Seeks long-term total return. The
portfolio invests primarily in
equity securities of companies,
including small capitalization
companies, which in the portfolio
manager's opinion, are selling
substantially below the underlying
value of their assets or private
market value. Such companies may
include takeover candidates,
turnarounds and companies emerging
from bankruptcy. The portfolio may
also invest a small portion in
foreign securities.
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</TABLE>
7
<PAGE>
PORTFOLIOS SEEKING GROWTH AND INCOME (CONT.)
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- --------------------------------------------------------------------------------
MUTUAL SHARES SECURITIES FUND Seeks capital appreciation, with
income as a secondary goal. Using a
value-driven approach, the portfolio
invests primarily in U.S. equity
securities. Investments include
securities of small capitalization
companies, undervalued stocks,
reorganizing companies and
distressed companies. The portfolio
may also invest in foreign
securities.
- --------------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET ALLOCATION FUND Seeks high total return. The
portfolio will invest in equity
securities of companies of any
nation, debt securities of companies
and governments of any nation, and
in money market instruments. The
portfolio may invest to a lesser
extent in lower-rated "junk bonds."
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIOS SEEKING INCOME
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FRANKLIN HIGH INCOME FUND Seeks a high level of current
income, with capital appreciation as
a secondary goal. The portfolio
invests in debt securities,
including lower-rated "junk bonds,"
and dividend-paying common and
preferred stocks. The portfolio may
also invest in foreign securities,
including emerging markets.
- --------------------------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT FUND Seeks to earn income. The portfolio
invests exclusively in U.S.
government securities, primarily
fixed and variable-rate
mortgage-backed securities.
- --------------------------------------------------------------------------------
THREE FRANKLIN ZERO COUPON FUNDS The three zero coupon bond
(MATURITY DATES: 2000, 2005, 2010) portfolios seek a high investment
return consistent with capital
preservation. The portfolios invest
in dollar-denominated zero coupon
securities issued by the U.S.
government, its agencies and
authorities. Each zero coupon
portfolio seeks to return a
reasonably assured target dollar
amount, predictable at the time of
the investment, on a specific date
in the future. The portfolios may
not be appropriate for those who
intend to redeem units before the
maturity dates.
- --------------------------------------------------------------------------------
TEMPLETON GLOBAL INCOME SECURITIES FUND Seeks high current income, with
capital appreciation as a secondary
goal. The portfolio invests in debt
securities of governments and their
political subdivisions and agencies,
supranational organizations and
companies of any nation, including
emerging markets. The portfolio may
also invest in lower-rated "junk
bonds."
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
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FRANKLIN MONEY MARKET FUND Seeks high current income consistent
with capital preservation and
liquidity. The portfolio also tries
to maintain a stable share price of
$1.00. The portfolio invests in
high-quality U.S. dollar-denominated
money market debt instruments.
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
PORTFOLIO SUMMARIES
As you read the following portfolio summaries, please remember the discussions
accurately reflect 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. Keep
in mind that market and economic conditions are changing constantly, which can
be expected to affect our strategies and the portfolios' compositions. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
PORTFOLIOS SEEKING CAPITAL GROWTH
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
During the year under review, most health care-related securities posted
negative returns, in an environment where the Standard & Poor's 500 (S&P 500)
Index returned 21.0%. We believe that the primary reasons for the health care
sector's underperformance related to exceptional growth in non-health care
sectors and concerns about a Medicare Prescription Drug benefit and its impact
on pharmaceutical prices. Since 1994, most large health care companies have
posted above average earnings growth as measured by overall S&P earnings growth.
However, in 1999, the strong U.S. economy boosted near-term earnings growth
rates for more economically sensitive businesses, thus making health care
relatively less attractive as an investment. In the long term, we believe the
health care industry can continue growing earnings strongly, and that once the
economy cools, such stocks will likely return to favor.
Our largest sector throughout the year was the large-cap pharmaceutical group,
however, our actual weighting underwent two shifts during the year. We reduced
our positions in April and May due to rising concerns about valuation.
Subsequently, the group fell under significant selling pressure apparently due
to several proposals for a prescription drug benefit for seniors enrolled in the
Medicare program. While the sector's profitability is certainly threatened by
proposed government price controls on drugs, we believe that increased access to
drugs will generate substantially greater volume for such companies and result
in improved health care for the senior population. In the fall, we increased our
weighting as the stocks were trading at attractive valuations, and we felt that
any negative impact from political issues already was incorporated in the stock
prices. Subsequently, the group rallied in October as the drug benefit proposals
faded from the political forefront.
TOP 10 HOLDINGS
Franklin Global Health Care
Securities Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
<S> <C>
Inhale Therapeutic Systems Inc. 4.9%
Baxter International Inc. ........................................ 4.5%
Abgenix Inc. ..................................................... 3.8%
Warner-Lambert Co. ............................................... 3.8%
Eli Lilly & Co. .................................................. 3.6%
Schering-Plough Corp. ............................................ 3.4%
CIMA Labs Inc. ................................................... 2.9%
Vertex Pharmaceuticals Inc. ...................................... 2.8%
Shire Pharmaceuticals Group PLC .................................. 2.7%
American Home Products Corp. ..................................... 2.7%
</TABLE>
You will find a complete listing of the portfolios' securities including the
number of shares and dollar value beginning on page 84 of this report. 9
<PAGE>
Although the group finished the year on a down note, we do believe that,
although volatile, 2000 may be a better year overall for pharmaceutical stocks.
In November 1999, American Home Products and Warner-Lambert Co. agreed to merge
operations, and Pfizer Inc. launched its own hostile bid for Warner-Lambert. We
feel that this is the beginning of a trend and anticipate additional mergers,
which should be positive for the group. Also, while we expect the Medicare
Prescription Drug Benefit to be a major issue in the 2000 presidential campaign,
we do not anticipate its actual implementation for at least two more years. At
the reporting period's close, 25.0% of the fund's total net assets were invested
in large-cap pharmaceutical stocks.
Although most sectors within health care did perform poorly, the year's bright
spot was the biotechnology sector. Many biotech companies are beginning to reap
the benefits of many years of leading-edge research through product releases and
the turn to profitability. These companies launched several major products in
1999 and many more advanced to late-stage trials, which are needed for
government approval. One of these positions was Inhale Therapeutic Systems Inc.,
which made up 4.9% of total net assets at the end of the period. This company
has developed an inhaled insulin product that allows diabetics to reduce the
number of injections they must receive. The product is moving through Phase III
trials and should be on the market within a couple of years. We also held
several large-cap biotechnology bellwethers such as Genentech Inc. and Amgen
Inc., whose stock prices rose more than 85% during the period. Looking forward,
we think that the biotechnology sector will continue to be a strong performer
for us.
Although we steadily reduced our weighting in health care services over the past
two years, a handful of specific company declines and a general contraction in
these stocks' valuations negatively impacted the portfolio during the 12 months
under review. Perhaps our largest disappointment was McKesson HBOC Inc., a
position we sold during the period. The company is the result of a merger
between the leading drug distributor McKesson and health care information
systems vendor HBO & Co. During their year-end audit process, the company
learned of certain accounting improprieties that had occurred in the HBO
operations. The fund also was negatively impacted by earnings disappointments at
Serologicals Corp., a specialty blood products manufacturer, and Pediatrix
Medical Group Inc., a leading operator of neonatal intensive care units. We
subsequently liquidated our position in Pediatrix.
Looking forward, we are excited about the prospects for health care companies in
the years to come. New product releases and increased merger and acquisition
activity, combined with positive demographics should allow many of these
companies to continue to grow. As always, we will adhere by our overriding goal
- -- to seize upon the investment opportunities that present themselves in the
health care sector in a timely and disciplined fashion. By following this
strategy, we feel that we can provide our shareholders with opportunities to
invest in many of today's newest and fastest growing health care companies.
10
<PAGE>
This graph compares the performance of Franklin Global Health Care Securities
Fund - Class 1 as tracked by the growth in value of a $10,000 investment to that
of the S&P 500 and the S&P Health Care Composite Index from 5/1/98-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
S&P Health
Global Health Care Care
Securities Fund - Composite
Class 1 S&P 500 Index
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 -4.40% $9,560 -1.72% $9,828 -1.93% $9,807
06/30/1998 5.33% $10,070 4.06% $10,227 7.31% $10,524
07/31/1998 -4.37% $9,630 -1.07% $10,118 0.53% $10,580
08/31/1998 -14.23% $8,260 -14.46% $8,655 -11.23% $9,392
09/30/1998 12.83% $9,320 6.41% $9,209 11.87% $10,506
10/31/1998 1.18% $9,430 8.13% $9,958 3.62% $10,887
11/30/1998 7.00% $10,090 6.06% $10,562 6.11% $11,552
12/31/1998 6.14% $10,710 5.76% $11,170 4.31% $12,050
01/31/1999 1.03% $10,820 4.18% $11,637 0.49% $12,109
02/28/1999 -11.46% $9,580 -3.11% $11,275 1.21% $12,255
03/31/1999 -1.46% $9,440 4.00% $11,726 2.67% $12,583
04/30/1999 -6.57% $8,820 3.87% $12,180 -6.22% $11,800
05/31/1999 -1.25% $8,710 -2.36% $11,892 -2.87% $11,461
06/30/1999 4.71% $9,120 5.55% $12,552 4.69% $11,999
07/31/1999 1.00% $9,211 -3.12% $12,161 -5.68% $11,317
08/31/1999 -2.61% $8,971 -0.50% $12,100 3.62% $11,727
09/30/1999 -8.27% $8,229 -2.74% $11,768 -7.86% $10,805
10/31/1999 2.19% $8,409 6.33% $12,513 12.05% $12,107
11/30/1999 7.15% $9,011 2.03% $12,767 0.36% $12,151
12/31/1999 9.23% $9,843 5.89% $13,519 -9.01% $11,056
</TABLE>
This graph compares the performance of Franklin Global Health Care Securities
Fund - Class 2 as tracked by the growth in value of a $10,000 investment to that
of the S&P 500 and the S&P Health Care Composite Index from 5/1/98-12/31/99.*
<TABLE>
<CAPTION>
Franklin Global S&P Health
Health Care Care
Securities Fund - Composite
Class 2 S&P 500 Index
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<S> <C> <C> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 -4.40% $9,560 -1.72% $9,828 -1.93% $9,807
06/30/1998 5.33% $10,070 4.06% $10,227 7.31% $10,524
07/31/1998 -4.37% $9,630 -1.07% $10,118 0.53% $10,580
08/31/1998 -14.23% $8,260 -14.46% $8,655 -11.23% $9,392
09/30/1998 12.83% $9,320 6.41% $9,209 11.87% $10,506
10/31/1998 1.18% $9,430 8.13% $9,958 3.62% $10,887
11/30/1998 7.00% $10,090 6.06% $10,562 6.11% $11,552
12/31/1998 6.14% $10,710 5.76% $11,170 4.31% $12,050
01/31/1999 1.03% $10,820 4.18% $11,637 0.49% $12,109
02/28/1999 -11.46% $9,580 -3.11% $11,275 1.21% $12,255
03/31/1999 -1.57% $9,430 4.00% $11,726 2.67% $12,583
04/30/1999 -6.57% $8,810 3.87% $12,180 -6.22% $11,800
05/31/1999 -1.25% $8,700 -2.36% $11,892 -2.87% $11,461
06/30/1999 4.60% $9,100 5.55% $12,552 4.69% $11,999
07/31/1999 1.11% $9,201 -3.12% $12,161 -5.68% $11,317
08/31/1999 -2.72% $8,951 -0.50% $12,100 3.62% $11,727
09/30/1999 -8.29% $8,209 -2.74% $11,768 -7.86% $10,805
10/31/1999 2.20% $8,390 6.33% $12,513 12.05% $12,107
11/30/1999 7.17% $8,991 2.03% $12,767 0.36% $12,151
12/31/1999 9.14% $9,813 5.89% $13,519 -9.01% $11,056
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
(formerly, Capital Growth Fund)
During the 12 months under review, major U.S. equity market indexes posted
strong results for the fifth consecutive year. A further widening in the
disparity in the rates of investment return among the stock market's various
segments also characterized the reporting period. Large-capitalization and
technology-related shares performed far better than most small-cap stocks and
stocks from traditional non-technology related industries. Initial public
offerings brought in a record $69 billion during the year, with many of them
soaring spectacularly in their first days of trading.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal. 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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -8.10%
Since Inception (5/1/98) -0.94%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year -8.38%
Since Inception (5/1/98) -1.13%
</TABLE>
Please see Important Endnotes to Performance Information on page 65.
11
<PAGE>
<TABLE>
<CAPTION>
TOP 10 INDUSTRY BREAKDOWN
Franklin Large Cap Growth
Securities Fund
12/31/99
% OF TOTAL
INDUSTRY NET ASSETS
<S> <C>
Electronic Technology 24.5%
Telecommunications/Utilities 13.5%
Health Technology 12.1%
Technology Services 9.6%
Finance 6.2%
Retail Trade 4.9%
Industrial Services 4.2%
Transportation 3.7%
Consumer Non-Durables 2.9%
Commercial Services 2.7%
</TABLE>
TOP 10 HOLDINGS
Franklin Large Cap Growth
Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
<S> <C>
JDS Uniphase Corp. 4.3%
Electronic Technology
Cisco Systems Inc. 2.9%
Electronic Technology
Microsoft Corp. 2.3%
Technology Services
Wal-Mart Stores Inc. 2.0%
Retail Trade
Genentech Inc. 2.0%
Health Technology
Applied Materials Inc. 1.7%
Electronic Technology
Oracle Corp. 1.6%
Technology Services
Medtronic Inc. 1.6%
Health Technology
Automatic Data Processing Inc. 1.6%
Technology Services
Qwest Communications International Inc. 1.6%
Utilities
</TABLE>
Supported by monetary policy easings and job-creating government policies, many
European economies also performed well, posting their greatest 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 $10.76 per barrel in 1998 to $25 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 5.10% at the beginning of the year under review, to 6.48% on
December 31, 1999. During the spring of 1999, global economic recovery
apparently 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.
During the period under review, Franklin Large Cap Growth Securities Fund
benefited significantly from the electronic technology sector's strong
performance. JDS Uniphase Corp., a leading provider of laser-based fiber-optic
networking components, and the portfolio's largest position on December 31,
1999, appreciated dramatically, and our investments in EMC Corp., Oracle Corp.,
Xilinx Inc., Microsoft Corp., Cisco Systems Inc., Applied Materials Inc. and
Hewlett-Packard Co. also proved to be strong performers. Outside the electronic
technology area, several holdings appreciated more than 40% during 1999 -- AES
Corp., Amgen Inc., Enron Corp., Genentech Inc., KPNQwest NV, Wal-Mart Stores
Inc., Global Crossing Ltd., Vodafone Airtouch PLC, De Beers Consolidated Mines
AG, Expeditors International of Washington Inc., Air Express International
Corp., and Qwest Communications International Inc.
As in any year, some of the portfolio's investments performed below our
expectations. For example, our holdings in health technology industry leaders
such as Eli Lilly & Co., Abbott Laboratories, Schering-Plough Corp. and American
Home Products 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 companies should eventually resume their upward trend. Other
consumer-related companies, such as Mattel Inc., Albertson's Inc. and Hershey
Foods Corp., also provided disappointing results when they failed to meet
earnings expectations.
As we enter 2000, we believe the portfolio's holdings should continue to benefit
from our economy's 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
12
<PAGE>
fundamentally strong companies with compelling long-term growth prospects. Our
holdings in GPU Inc., Maytag Corp., Albertson's and Waste Management Inc.
represent our belief that positioning a portion of the portfolio in stocks we
feel 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 trying to
purchase shares of outstanding growth companies when opportune and holding them
for the long term, as we seek to keep portfolio turnover low and provide
investors with consistent growth over time.
This graph compares the performance of Franklin Large Cap Growth Securities Fund
- - Class 1 as tracked by the growth in value of a $10,000 investment, to that of
the S&P 500 from 5/1/96-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Large Cap
Growth Securities
Fund - Class 1 S&P 500
---------------------------------------------------------
<S> <C> <C> <C> <C>
05/01/1996 $10,000 $10,000
05/31/1996 2.20% $10,220 2.58% $10,258
06/30/1996 -0.39% $10,180 0.38% $10,297
07/31/1996 -3.83% $9,790 -4.42% $9,842
08/31/1996 3.98% $10,180 2.11% $10,050
09/30/1996 7.17% $10,910 5.63% $10,615
10/31/1996 -0.27% $10,880 2.76% $10,908
11/30/1996 8.00% $11,750 7.56% $11,733
12/31/1996 -3.32% $11,360 -1.98% $11,501
01/31/1997 4.84% $11,910 6.25% $12,219
02/28/1997 -3.69% $11,470 0.78% $12,315
03/31/1997 -5.23% $10,870 -4.11% $11,809
04/30/1997 3.86% $11,290 5.97% $12,514
05/31/1997 8.68% $12,270 6.09% $13,276
06/30/1997 1.70% $12,479 4.48% $13,870
07/31/1997 6.50% $13,290 7.96% $14,974
08/31/1997 -2.49% $12,959 -5.60% $14,136
09/30/1997 6.03% $13,740 5.48% $14,911
10/31/1997 -4.66% $13,099 -3.34% $14,413
11/30/1997 1.68% $13,320 4.63% $15,080
12/31/1997 0.90% $13,440 1.72% $15,339
01/31/1998 -0.60% $13,360 1.11% $15,509
02/28/1998 7.65% $14,381 7.21% $16,628
03/31/1998 2.16% $14,692 5.12% $17,479
04/30/1998 2.04% $14,992 1.01% $17,656
05/31/1998 -3.21% $14,512 -1.72% $17,352
06/30/1998 3.93% $15,081 4.06% $18,056
07/31/1998 -2.13% $14,759 -1.07% $17,863
08/31/1998 -12.94% $12,849 -14.46% $15,280
09/30/1998 5.09% $13,503 6.41% $16,260
10/31/1998 7.74% $14,548 8.13% $17,582
11/30/1998 4.28% $15,172 6.06% $18,647
12/31/1998 6.56% $16,167 5.76% $19,721
01/31/1999 3.61% $16,751 4.18% $20,545
02/28/1999 -3.54% $16,158 -3.11% $19,906
03/31/1999 2.80% $16,610 4.00% $20,703
04/30/1999 3.63% $17,213 3.87% $21,504
05/31/1999 -1.23% $17,001 -2.36% $20,996
06/30/1999 6.80% $18,157 5.55% $22,162
07/31/1999 -1.74% $17,841 -3.12% $21,470
08/31/1999 -0.51% $17,750 -0.50% $21,363
09/30/1999 -2.39% $17,326 -2.74% $20,778
10/31/1999 6.18% $18,397 6.33% $22,093
11/30/1999 6.20% $19,538 2.03% $22,541
12/31/1999 8.94% $21,284 5.89% $23,869
</TABLE>
This graph compares the performance of Franklin Large Cap Growth Securities Fund
- - Class 2 as tracked by the growth in value of a $10,000 investment, to that of
the S&P 500 from 5/1/96-12/31/99.*
<TABLE>
<CAPTION>
Franklin Large Cap
Growth Securities
Fund - Class 2 S&P 500
-------------------------------------------------------
<S> <C> <C> <C> <C>
05/01/1996 $10,000 $10,000
05/31/1996 2.20% $10,220 2.58% $10,258
06/30/1996 -0.39% $10,180 0.38% $10,297
07/31/1996 -3.83% $9,790 -4.42% $9,842
08/31/1996 3.98% $10,180 2.11% $10,050
09/30/1996 7.17% $10,910 5.63% $10,615
10/31/1996 -0.27% $10,880 2.76% $10,908
11/30/1996 8.00% $11,750 7.56% $11,733
12/31/1996 -3.32% $11,360 -1.98% $11,501
01/31/1997 4.84% $11,910 6.25% $12,219
02/28/1997 -3.69% $11,470 0.78% $12,315
03/31/1997 -5.23% $10,870 -4.11% $11,809
04/30/1997 3.86% $11,290 5.97% $12,514
05/31/1997 8.68% $12,270 6.09% $13,276
06/30/1997 1.70% $12,479 4.48% $13,870
07/31/1997 6.50% $13,290 7.96% $14,974
08/31/1997 -2.49% $12,959 -5.60% $14,136
09/30/1997 6.03% $13,740 5.48% $14,911
10/31/1997 -4.66% $13,099 -3.34% $14,413
11/30/1997 1.68% $13,320 4.63% $15,080
12/31/1997 0.90% $13,440 1.72% $15,339
01/31/1998 -0.60% $13,360 1.11% $15,509
02/28/1998 7.65% $14,381 7.21% $16,628
03/31/1998 2.16% $14,692 5.12% $17,479
04/30/1998 2.04% $14,992 1.01% $17,656
05/31/1998 -3.21% $14,512 -1.72% $17,352
06/30/1998 3.93% $15,081 4.06% $18,056
07/31/1998 -2.13% $14,759 -1.07% $17,863
08/31/1998 -12.94% $12,849 -14.46% $15,280
09/30/1998 5.09% $13,503 6.41% $16,260
10/31/1998 7.74% $14,548 8.13% $17,582
11/30/1998 4.28% $15,172 6.06% $18,647
12/31/1998 6.56% $16,167 5.76% $19,721
01/31/1999 3.54% $16,739 4.18% $20,545
02/28/1999 -3.54% $16,147 -3.11% $19,906
03/31/1999 2.80% $16,599 4.00% $20,703
04/30/1999 3.57% $17,191 3.87% $21,504
05/31/1999 -1.29% $16,970 -2.36% $20,996
06/30/1999 6.81% $18,125 5.55% $22,162
07/31/1999 -1.75% $17,808 -3.12% $21,470
08/31/1999 -0.57% $17,707 -0.50% $21,363
09/30/1999 -2.45% $17,273 -2.74% $20,778
10/31/1999 6.20% $18,344 6.33% $22,093
11/30/1999 6.16% $19,474 2.03% $22,541
12/31/1999 8.92% $21,213 5.89% $23,869
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN NATURAL RESOURCES SECURITIES FUND During the first half of the year
under review, Franklin Natural Resources Securities Fund benefited from signs of
a continued Asian economic recovery and interest rate cuts by European central
banks. These events apparently bolstered investors' enthusiasm about the global
economy and preceded a partial recovery in commodities and commodity-related
companies' stock prices. However, such stocks fell during the third and fourth
quarters of 1999, providing a disconnection between some companies' improving
fundamentals (increasing cash flow and earnings) and declining stock prices.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
<S> <C>
1-Year +31.65%
3-Year +23.28%
Since Inception (5/1/96) +22.85%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
<S> <C>
1-Year +31.21%
3-Year +23.14%
Since Inception (5/1/96) +22.73%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
13
<PAGE>
TOP 10 HOLDINGS
Franklin Natural Resources
Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Conoco Inc. 3.6%
Energy Minerals, U.S.
Transocean Sedco Forex Inc. 3.3%
Industrial Services, U.S.
Newfield Exploration Co. 3.2%
Energy Minerals, U.S.
Weatherford International Inc. 3.2%
Industrial Services, U.S.
Barrett Resources Corp. 3.1%
Energy Minerals, U.S.
ISPAT International NV 2.6%
Non-Energy Minerals,
Netherlands
Diamond Offshore Drilling Inc. 2.5%
Industrial Services, U.S.
Enron Corp. 2.5%
Utilities, U.S.
Tosco Corp. 2.4%
Energy Minerals, U.S.
Abitibi-Consolidated Inc. 2.4%
Process Industries, Canada
</TABLE>
By combining top-down industry research, to determine the industries we believe
are the most compelling, with bottom-up stock specific analysis, we identified a
portfolio of companies that we felt were likely to outperform our benchmark. We
capitalized on the summer's seasonal correction to increase specific sector
weightings in the pulp and paper, oil and gas exploration and production (E&P)
and to a lesser extent oilfield services industries.
In the energy arena, the portfolio focused primarily on natural-gas related
securities. We felt these securities exhibited the best underlying fundamentals,
offering a better value for the risk compared with oil-related securities.
Although we were optimistic about crude oil prices, we felt there was greater
risk in forecasting future oil prices due to OPEC's historical inconsistency in
abiding by its oil-producing quotas.
We have maintained a large portion of the portfolio in energy-related
securities. Although this position negatively affected the portfolio, as
investors generally sold E&P companies' stocks in the fourth quarter, we remain
positive on the group for the intermediate term. Apache Corp. and Barrett
Resources Corp. were two of the portfolio's E&P stocks that we regard to be high
quality. Apache is a diversified E&P company with 50% of its production and
reserves in natural gas. Apache also has been able to capitalize on two
attractive acquisitions from Royal Dutch/Shell Group. Barrett Resources is
primarily a Rocky Mountain-focused exploration company based in Wyoming, with
approximately 90% of its reserves in natural gas.
We increased our weighting in pulp and paper stocks during the third quarter of
1999, with an emphasis on paper, pulp and newsprint producers. We found some
investment ideas that we believe are very compelling in this sector due to the
favorable pricing environment and company-imposed supply restraints.
Over the last several months, we have seen a rebound in the Asian economies that
were hurt in the severe, 1997 downturn of commodity prices. Partially because of
this, several economists are predicting the global gross domestic product growth
in 2000 and 2001 will be approximately 3.9% and 4.5%, respectively, higher than
in 1999.(1) We believe this rebound very likely will have a positive impact on
commodity prices. Even if the U.S. economy slows, we feel the natural resource
sectors will perform strongly given that Asian economies appear to be returning
to growth. Looking forward, we anticipate greater demand for commodities
combined with a smaller supply that should lead to moderately faster growth and
sustained levels of profitability for commodity-related industries.
1. Source: Morgan Stanley Dean Witter.
14
<PAGE>
This graph compares the performance of Franklin Natural Resources Securities
Fund - Class 1 as tracked by the growth in value of a $10,000 investment, to
that of the S&P 500 and FT/S&P Actuaries World: Energy 50%/Basic Industries 50%
Composite Index from 1/1/90-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
FT/S&P Actuaries
Franklin Natural World: Energy
Resources 50%/Basic
Securities Fund - Industries 50%
Class 1 S&P 500 Composite Index
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 3.94% $10,394 -6.71% $9,329 -3.20% $9,680
02/28/1990 -5.73% $9,799 1.29% $9,449 -2.44% $9,444
03/31/1990 -1.17% $9,685 2.65% $9,700 -5.91% $8,886
04/30/1990 -6.48% $9,057 -2.49% $9,458 -2.37% $8,675
05/31/1990 6.12% $9,611 9.75% $10,380 9.62% $9,510
06/30/1990 -4.75% $9,155 -0.67% $10,311 -1.81% $9,338
07/31/1990 5.78% $9,685 -0.32% $10,278 6.58% $9,952
08/31/1990 -2.86% $9,408 -9.04% $9,349 -6.70% $9,285
09/30/1990 -1.65% $9,253 -4.87% $8,893 -8.52% $8,494
10/31/1990 -9.15% $8,406 -0.43% $8,855 5.82% $8,988
11/30/1990 -2.52% $8,194 6.46% $9,427 -2.89% $8,729
12/31/1990 4.57% $8,569 2.79% $9,690 0.57% $8,778
01/31/1991 -7.70% $7,909 4.36% $10,113 -0.21% $8,760
02/28/1991 8.86% $8,609 7.15% $10,836 11.49% $9,766
03/31/1991 -0.85% $8,536 2.42% $11,098 -3.61% $9,414
04/30/1991 -0.48% $8,495 0.24% $11,125 1.95% $9,597
05/31/1991 2.78% $8,732 4.31% $11,604 0.38% $9,634
06/30/1991 3.73% $9,057 -4.58% $11,073 -5.14% $9,139
07/31/1991 1.10% $9,157 4.66% $11,589 4.99% $9,595
08/31/1991 -4.99% $8,700 2.37% $11,863 -0.97% $9,502
09/30/1991 0.19% $8,716 -1.67% $11,665 2.73% $9,761
10/31/1991 3.62% $9,032 1.34% $11,822 2.09% $9,965
11/30/1991 1.20% $9,140 -4.03% $11,345 -6.92% $9,276
12/31/1991 -6.55% $8,542 11.44% $12,643 4.17% $9,662
01/31/1992 6.81% $9,123 -1.86% $12,408 -1.97% $9,472
02/29/1992 -1.55% $8,982 1.29% $12,568 -2.32% $9,252
03/31/1992 -3.70% $8,650 -1.95% $12,323 -3.62% $8,917
04/30/1992 -1.34% $8,533 2.94% $12,685 4.86% $9,351
05/31/1992 4.87% $8,949 0.49% $12,747 4.76% $9,796
06/30/1992 2.55% $9,177 -1.49% $12,557 -4.55% $9,350
07/31/1992 0.74% $9,245 4.09% $13,071 -0.54% $9,300
08/31/1992 -3.23% $8,946 -2.05% $12,803 2.01% $9,486
09/30/1992 -1.24% $8,835 1.17% $12,953 -0.85% $9,406
10/31/1992 -6.09% $8,297 0.34% $12,997 -5.05% $8,931
11/30/1992 -6.80% $7,733 3.40% $13,439 -0.83% $8,857
12/31/1992 3.43% $7,998 1.23% $13,604 0.99% $8,944
01/31/1993 -0.75% $7,938 0.84% $13,718 0.59% $8,997
02/28/1993 4.95% $8,331 1.36% $13,905 4.15% $9,371
03/31/1993 9.54% $9,125 2.11% $14,198 6.40% $9,970
04/30/1993 6.74% $9,741 -2.42% $13,855 5.82% $10,551
05/31/1993 12.81% $10,988 2.67% $14,225 2.18% $10,781
06/30/1993 0.58% $11,052 0.29% $14,266 -2.39% $10,523
07/31/1993 8.88% $12,033 -0.40% $14,209 2.48% $10,784
08/31/1993 -7.58% $11,121 3.79% $14,747 3.73% $11,186
09/30/1993 -8.20% $10,208 -0.77% $14,634 -2.01% $10,961
10/31/1993 9.44% $11,172 2.07% $14,937 1.72% $11,150
11/30/1993 -0.85% $11,078 -0.95% $14,795 -5.69% $10,515
12/31/1993 12.35% $12,446 1.21% $14,974 4.54% $10,993
01/31/1994 0.69% $12,532 3.40% $15,483 7.71% $11,840
02/28/1994 -4.19% $12,007 -2.71% $15,063 -1.55% $11,657
03/31/1994 1.15% $12,145 -4.36% $14,407 -3.50% $11,249
04/30/1994 -4.68% $11,577 1.28% $14,591 5.19% $11,833
05/31/1994 3.27% $11,956 1.64% $14,830 0.29% $11,867
06/30/1994 -2.12% $11,703 -2.45% $14,467 -0.36% $11,824
07/31/1994 1.92% $11,928 3.28% $14,941 3.82% $12,276
08/31/1994 4.43% $12,456 4.10% $15,554 2.70% $12,607
09/30/1994 6.53% $13,269 -2.44% $15,174 -1.85% $12,374
10/31/1994 -3.57% $12,795 2.25% $15,516 4.39% $12,917
11/30/1994 -7.98% $11,774 -3.64% $14,951 -5.74% $12,176
12/31/1994 3.60% $12,198 1.48% $15,172 -0.02% $12,173
01/31/1995 -11.78% $10,761 2.59% $15,565 -1.25% $12,021
02/28/1995 4.51% $11,246 3.90% $16,172 0.79% $12,116
03/31/1995 9.31% $12,293 2.95% $16,650 5.24% $12,751
04/30/1995 0.99% $12,414 2.94% $17,139 4.23% $13,291
05/31/1995 -0.70% $12,328 4.00% $17,825 -0.10% $13,277
06/30/1995 -0.10% $12,316 2.32% $18,238 -2.11% $12,997
07/31/1995 3.24% $12,715 3.32% $18,844 4.87% $13,630
08/31/1995 -0.63% $12,635 0.25% $18,891 -2.96% $13,227
09/30/1995 0.42% $12,688 4.22% $19,688 1.10% $13,372
10/31/1995 -11.18% $11,270 -0.36% $19,617 -2.09% $13,093
11/30/1995 8.73% $12,254 4.39% $20,478 3.49% $13,550
12/31/1995 1.88% $12,484 1.93% $20,873 3.73% $14,055
01/31/1996 16.55% $14,550 3.40% $21,583 1.86% $14,316
02/29/1996 0.73% $14,657 0.93% $21,784 0.68% $14,414
03/31/1996 0.48% $14,728 0.96% $21,993 4.16% $15,013
04/30/1996 0.54% $14,807 1.47% $22,316 2.69% $15,417
05/31/1996 3.83% $15,375 2.58% $22,892 -0.42% $15,352
06/30/1996 -11.83% $13,556 0.38% $22,979 -0.29% $15,308
07/31/1996 -2.08% $13,275 -4.42% $21,963 -3.34% $14,797
08/31/1996 3.83% $13,783 2.11% $22,427 1.88% $15,075
09/30/1996 -5.60% $13,011 5.63% $23,689 3.08% $15,539
10/31/1996 0.70% $13,102 2.76% $24,343 2.12% $15,869
11/30/1996 -0.90% $12,984 7.56% $26,184 3.56% $16,433
12/31/1996 0.00% $12,984 -1.98% $25,665 -0.50% $16,351
01/31/1997 -4.97% $12,339 6.25% $27,269 0.52% $16,436
02/28/1997 11.41% $13,747 0.78% $27,482 -0.77% $16,310
03/31/1997 -10.44% $12,311 -4.11% $26,352 1.40% $16,538
04/30/1997 -5.54% $11,630 5.97% $27,926 0.01% $16,540
05/31/1997 6.17% $12,348 6.09% $29,626 5.79% $17,497
06/30/1997 -3.83% $11,875 4.48% $30,954 3.52% $18,113
07/31/1997 0.39% $11,921 7.96% $33,417 3.59% $18,764
08/31/1997 1.86% $12,143 -5.60% $31,546 -4.63% $17,895
09/30/1997 6.68% $12,954 5.48% $33,275 4.22% $18,650
10/31/1997 -8.04% $11,912 -3.34% $32,163 -5.97% $17,537
11/30/1997 -11.22% $10,575 4.63% $33,653 -3.61% $16,903
12/31/1997 -0.52% $10,520 1.72% $34,231 -1.87% $16,587
01/31/1998 -4.56% $10,041 1.11% $34,611 -0.13% $16,566
02/28/1998 5.33% $10,575 7.21% $37,107 5.70% $17,510
03/31/1998 5.23% $11,129 5.12% $39,007 4.22% $18,249
04/30/1998 3.89% $11,562 1.01% $39,401 2.69% $18,740
05/31/1998 -9.57% $10,456 -1.72% $38,723 -2.12% $18,343
06/30/1998 -6.84% $9,740 4.06% $40,295 -2.77% $17,835
07/31/1998 -10.85% $8,683 -1.07% $39,864 -5.89% $16,784
08/31/1998 -24.46% $6,559 -14.46% $34,100 -13.63% $14,496
09/30/1998 20.11% $7,878 6.41% $36,285 8.07% $15,666
10/31/1998 7.24% $8,449 8.13% $39,236 5.13% $16,470
11/30/1998 -6.87% $7,869 6.06% $41,613 1.51% $16,719
12/31/1998 -0.24% $7,850 5.76% $44,010 -0.93% $16,563
01/31/1999 -5.48% $7,420 4.18% $45,850 -4.95% $15,743
02/28/1999 -3.15% $7,186 -3.11% $44,424 0.24% $15,781
03/31/1999 15.62% $8,309 4.00% $46,201 11.00% $17,517
04/30/1999 19.48% $9,927 3.87% $47,989 14.38% $20,036
05/31/1999 -4.90% $9,441 -2.36% $46,856 -5.58% $18,918
06/30/1999 7.43% $10,142 5.55% $49,457 3.63% $19,605
07/31/1999 2.36% $10,381 -3.12% $47,914 3.46% $20,283
08/31/1999 1.65% $10,553 -0.50% $47,674 -0.17% $20,248
09/30/1999 -2.16% $10,325 -2.74% $46,368 -2.11% $19,821
10/31/1999 -5.06% $9,802 6.33% $49,303 -0.28% $19,766
11/30/1999 0.10% $9,812 2.03% $50,304 0.32% $19,829
12/31/1999 5.81% $10,381 5.89% $53,267 4.34% $20,690
</TABLE>
This graph compares the performance of Franklin Natural Resources Securities
Fund - Class 2 as tracked by the growth in value of a $10,000 investment, to
that of the S&P 500 and FT/S&P Actuaries World: Energy 50%/Basic Industries 50%
Composite Index from 1/1/90-12/31/99.*
<TABLE>
<CAPTION>
FT/S&P
Actuaries
World: Energy
50%/Basic
Franklin Natural Industries
Resources Securities 50% Composite
Fund - Class 2 S&P 500 Index
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 3.94% $10,394 -6.71% $9,329 -3.20% $9,680
02/28/1990 -5.73% $9,799 1.29% $9,449 -2.44% $9,444
03/31/1990 -1.17% $9,685 2.65% $9,700 -5.91% $8,886
04/30/1990 -6.48% $9,057 -2.49% $9,458 -2.37% $8,675
05/31/1990 6.12% $9,611 9.75% $10,380 9.62% $9,510
06/30/1990 -4.75% $9,155 -0.67% $10,311 -1.81% $9,338
07/31/1990 5.78% $9,685 -0.32% $10,278 6.58% $9,952
08/31/1990 -2.86% $9,408 -9.04% $9,349 -6.70% $9,285
09/30/1990 -1.65% $9,253 -4.87% $8,893 -8.52% $8,494
10/31/1990 -9.15% $8,406 -0.43% $8,855 5.82% $8,988
11/30/1990 -2.52% $8,194 6.46% $9,427 -2.89% $8,729
12/31/1990 4.57% $8,569 2.79% $9,690 0.57% $8,778
01/31/1991 -7.70% $7,909 4.36% $10,113 -0.21% $8,760
02/28/1991 8.86% $8,609 7.15% $10,836 11.49% $9,766
03/31/1991 -0.85% $8,536 2.42% $11,098 -3.61% $9,414
04/30/1991 -0.48% $8,495 0.24% $11,125 1.95% $9,597
05/31/1991 2.78% $8,732 4.31% $11,604 0.38% $9,634
06/30/1991 3.73% $9,057 -4.58% $11,073 -5.14% $9,139
07/31/1991 1.10% $9,157 4.66% $11,589 4.99% $9,595
08/31/1991 -4.99% $8,700 2.37% $11,863 -0.97% $9,502
09/30/1991 0.19% $8,716 -1.67% $11,665 2.73% $9,761
10/31/1991 3.62% $9,032 1.34% $11,822 2.09% $9,965
11/30/1991 1.20% $9,140 -4.03% $11,345 -6.92% $9,276
12/31/1991 -6.55% $8,542 11.44% $12,643 4.17% $9,662
01/31/1992 6.81% $9,123 -1.86% $12,408 -1.97% $9,472
02/29/1992 -1.55% $8,982 1.29% $12,568 -2.32% $9,252
03/31/1992 -3.70% $8,650 -1.95% $12,323 -3.62% $8,917
04/30/1992 -1.34% $8,533 2.94% $12,685 4.86% $9,351
05/31/1992 4.87% $8,949 0.49% $12,747 4.76% $9,796
06/30/1992 2.55% $9,177 -1.49% $12,557 -4.55% $9,350
07/31/1992 0.74% $9,245 4.09% $13,071 -0.54% $9,300
08/31/1992 -3.23% $8,946 -2.05% $12,803 2.01% $9,486
09/30/1992 -1.24% $8,835 1.17% $12,953 -0.85% $9,406
10/31/1992 -6.09% $8,297 0.34% $12,997 -5.05% $8,931
11/30/1992 -6.80% $7,733 3.40% $13,439 -0.83% $8,857
12/31/1992 3.43% $7,998 1.23% $13,604 0.99% $8,944
01/31/1993 -0.75% $7,938 0.84% $13,718 0.59% $8,997
02/28/1993 4.95% $8,331 1.36% $13,905 4.15% $9,371
03/31/1993 9.54% $9,125 2.11% $14,198 6.40% $9,970
04/30/1993 6.74% $9,741 -2.42% $13,855 5.82% $10,551
05/31/1993 12.81% $10,988 2.67% $14,225 2.18% $10,781
06/30/1993 0.58% $11,052 0.29% $14,266 -2.39% $10,523
07/31/1993 8.88% $12,033 -0.40% $14,209 2.48% $10,784
08/31/1993 -7.58% $11,121 3.79% $14,747 3.73% $11,186
09/30/1993 -8.20% $10,208 -0.77% $14,634 -2.01% $10,961
10/31/1993 9.44% $11,172 2.07% $14,937 1.72% $11,150
11/30/1993 -0.85% $11,078 -0.95% $14,795 -5.69% $10,515
12/31/1993 12.35% $12,446 1.21% $14,974 4.54% $10,993
01/31/1994 0.69% $12,532 3.40% $15,483 7.71% $11,840
02/28/1994 -4.19% $12,007 -2.71% $15,063 -1.55% $11,657
03/31/1994 1.15% $12,145 -4.36% $14,407 -3.50% $11,249
04/30/1994 -4.68% $11,577 1.28% $14,591 5.19% $11,833
05/31/1994 3.27% $11,956 1.64% $14,830 0.29% $11,867
06/30/1994 -2.12% $11,703 -2.45% $14,467 -0.36% $11,824
07/31/1994 1.92% $11,928 3.28% $14,941 3.82% $12,276
08/31/1994 4.43% $12,456 4.10% $15,554 2.70% $12,607
09/30/1994 6.53% $13,269 -2.44% $15,174 -1.85% $12,374
10/31/1994 -3.57% $12,795 2.25% $15,516 4.39% $12,917
11/30/1994 -7.98% $11,774 -3.64% $14,951 -5.74% $12,176
12/31/1994 3.60% $12,198 1.48% $15,172 -0.02% $12,173
01/31/1995 -11.78% $10,761 2.59% $15,565 -1.25% $12,021
02/28/1995 4.51% $11,246 3.90% $16,172 0.79% $12,116
03/31/1995 9.31% $12,293 2.95% $16,650 5.24% $12,751
04/30/1995 0.99% $12,414 2.94% $17,139 4.23% $13,291
05/31/1995 -0.70% $12,328 4.00% $17,825 -0.10% $13,277
06/30/1995 -0.10% $12,316 2.32% $18,238 -2.11% $12,997
07/31/1995 3.24% $12,715 3.32% $18,844 4.87% $13,630
08/31/1995 -0.63% $12,635 0.25% $18,891 -2.96% $13,227
09/30/1995 0.42% $12,688 4.22% $19,688 1.10% $13,372
10/31/1995 -11.18% $11,270 -0.36% $19,617 -2.09% $13,093
11/30/1995 8.73% $12,254 4.39% $20,478 3.49% $13,550
12/31/1995 1.88% $12,484 1.93% $20,873 3.73% $14,055
01/31/1996 16.55% $14,550 3.40% $21,583 1.86% $14,316
02/29/1996 0.73% $14,657 0.93% $21,784 0.68% $14,414
03/31/1996 0.48% $14,728 0.96% $21,993 4.16% $15,013
04/30/1996 0.54% $14,807 1.47% $22,316 2.69% $15,417
05/31/1996 3.83% $15,375 2.58% $22,892 -0.42% $15,352
06/30/1996 -11.83% $13,556 0.38% $22,979 -0.29% $15,308
07/31/1996 -2.08% $13,275 -4.42% $21,963 -3.34% $14,797
08/31/1996 3.83% $13,783 2.11% $22,427 1.88% $15,075
09/30/1996 -5.60% $13,011 5.63% $23,689 3.08% $15,539
10/31/1996 0.70% $13,102 2.76% $24,343 2.12% $15,869
11/30/1996 -0.90% $12,984 7.56% $26,184 3.56% $16,433
12/31/1996 0.00% $12,984 -1.98% $25,665 -0.50% $16,351
01/31/1997 -4.97% $12,339 6.25% $27,269 0.52% $16,436
02/28/1997 11.41% $13,747 0.78% $27,482 -0.77% $16,310
03/31/1997 -10.44% $12,311 -4.11% $26,352 1.40% $16,538
04/30/1997 -5.54% $11,630 5.97% $27,926 0.01% $16,540
05/31/1997 6.17% $12,348 6.09% $29,626 5.79% $17,497
06/30/1997 -3.83% $11,875 4.48% $30,954 3.52% $18,113
07/31/1997 0.39% $11,921 7.96% $33,417 3.59% $18,764
08/31/1997 1.86% $12,143 -5.60% $31,546 -4.63% $17,895
09/30/1997 6.68% $12,954 5.48% $33,275 4.22% $18,650
10/31/1997 -8.04% $11,912 -3.34% $32,163 -5.97% $17,537
11/30/1997 -11.22% $10,575 4.63% $33,653 -3.61% $16,903
12/31/1997 -0.52% $10,520 1.72% $34,231 -1.87% $16,587
01/31/1998 -4.56% $10,041 1.11% $34,611 -0.13% $16,566
02/28/1998 5.33% $10,575 7.21% $37,107 5.70% $17,510
03/31/1998 5.23% $11,129 5.12% $39,007 4.22% $18,249
04/30/1998 3.89% $11,562 1.01% $39,401 2.69% $18,740
05/31/1998 -9.57% $10,456 -1.72% $38,723 -2.12% $18,343
06/30/1998 -6.84% $9,740 4.06% $40,295 -2.77% $17,835
07/31/1998 -10.85% $8,683 -1.07% $39,864 -5.89% $16,784
08/31/1998 -24.46% $6,559 -14.46% $34,100 -13.63% $14,496
09/30/1998 20.11% $7,878 6.41% $36,285 8.07% $15,666
10/31/1998 7.24% $8,449 8.13% $39,236 5.13% $16,470
11/30/1998 -6.87% $7,869 6.06% $41,613 1.51% $16,719
12/31/1998 -0.24% $7,850 5.76% $44,010 -0.93% $16,563
01/31/1999 -5.48% $7,420 4.18% $45,850 -4.95% $15,743
02/28/1999 -3.15% $7,186 -3.11% $44,424 0.24% $15,781
03/31/1999 15.62% $8,309 4.00% $46,201 11.00% $17,517
04/30/1999 19.48% $9,927 3.87% $47,989 14.38% $20,036
05/31/1999 -5.00% $9,431 -2.36% $46,856 -5.58% $18,918
06/30/1999 7.44% $10,132 5.55% $49,457 3.63% $19,605
07/31/1999 2.36% $10,372 -3.12% $47,914 3.46% $20,283
08/31/1999 1.56% $10,533 -0.50% $47,674 -0.17% $20,248
09/30/1999 -2.07% $10,315 -2.74% $46,368 -2.11% $19,821
10/31/1999 -5.16% $9,783 6.33% $49,303 -0.28% $19,766
11/30/1999 0.10% $9,793 2.03% $50,304 0.32% $19,829
12/31/1999 5.82% $10,362 5.89% $53,267 4.34% $20,690
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN SMALL CAP FUND
Technology stocks' market outperformance characterized the year under review as
infrastructure investment, bandwidth demands and increasing use of electronics
in daily life appeared to drive such companies' earnings growth. However,
technology stocks' strength belied the general stock market's weakness. After
significant gains in 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, the gap widened between strong
technology and weak non-tech stock performances, possibly due to investors
chasing the best-performing technology stock to ever-higher valuations.
Fortunately, we had previously established positions in many of these technology
stocks and were thus positioned to benefit from their robust fourth-quarter
performance.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
<S> <C>
1-Year +32.25%
5-Year -3.17%
10-Year +0.37%
Since Inception (1/24/89) +2.36%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
<S> <C>
1-Year +32.01%
5-Year -3.21%
10-Year +0.36%
Since Inception (1/24/89) +2.34%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65. 15
<PAGE>
TOP 10 INDUSTRY BREAKDOWN
Franklin Small Cap Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
<S> <C>
Technology Services 34.1%
Electronic Technology 22.7%
Telecommunications 9.4%
Finance 5.4%
Consumer Services 3.5%
Industrial Services 2.6%
Producer Manufacturing 2.5%
Transportation 2.5%
Real Estate 2.3%
Energy Minerals 2.1%
</TABLE>
During 1999, Franklin Small Cap Fund posted strong total returns, handily
beating its benchmark, the Russell 2000(R) Growth Index. The portfolio's
outperformance was primarily attributable to its significant positions in
technology stocks and its small allocation to financial and retail stocks. We
traditionally have found more growth potential in the technology sector and
anticipate maintaining large positions in this sector for the near future,
despite its inherent volatility. We also anticipate having relatively small
positions in retail and financials, two sectors in which we believe it is often
difficult to find small-cap companies that can sustain consistent revenue and
earnings growth.
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 underappreciated non-tech
growth stocks in sectors as disparate as health care and producer manufacturing.
Although mutual fund flows and investor interest still seem to favor technology
stocks, we find it encouraging that some investors are apparently appreciating
the strong fundamental growth potential that may exist in the uncovered nooks of
the market. In particular, we are optimistic about the stock performance and
fundamental improvements we see in the home builder and real estate investment
trust sectors. Accordingly, we added selectively to a handful of non-tech stocks
that we believe may be strong performers when the market eventually broadens.
As we look forward to the 21st century, we continue to see strong growth
potential for small-cap companies. We believe that such companies likely will be
prominent innovators in creating and delivering new products, services and
technologies in the next century. In our opinion, healthy growth prospects for
the global economy should set the stage for a broadening of small-cap stock
performance to include other sectors in addition to technology.
16
<PAGE>
This graph compares the performance of Franklin Small Cap Fund - Class 1, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500,
Russell 2500 Index and Russell 2000 Growth Index from 11/1/95-12/31/99.
We are replacing the Russell 2500 Index with the Russell 2000 Growth Index
because it more closely mirrors our growth style of investing. The Russell 2500
Index primarily represents value-oriented small cap names that are trading at
valuations reflecting their relatively slow or non-existent growth. Performance
shown reflects all fund operating expenses but does not include any fees,
charges or expenses imposed by the variable annuity or life insurance contracts
that use the Franklin Templeton Variable Insurance Products Trust. If they had
been included, performance would have been 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 the contract expenses, including any applicable sales
charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Russell
Franklin Small 2000
Cap Fund - Class Russell 2500 Growth
1 S&P 500 Index Index
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/01/1995 $10,000 $10,000 $10,000 $10,000
11/30/1995 -3.00% $9,700 4.39% $10,439 4.27% $10,427 4.41% $10,441
12/31/1995 5.46% $10,230 1.93% $10,640 1.71% $10,605 2.22% $10,673
01/31/1996 1.37% $10,370 3.40% $11,002 0.71% $10,681 -0.83% $10,584
02/29/1996 4.63% $10,850 0.93% $11,105 3.01% $11,002 4.56% $11,067
03/31/1996 2.67% $11,140 0.96% $11,211 2.04% $11,227 1.98% $11,286
04/30/1996 9.96% $12,250 1.47% $11,376 4.62% $11,745 7.68% $12,153
05/31/1996 4.16% $12,760 2.58% $11,669 2.71% $12,063 5.13% $12,776
06/30/1996 -4.75% $12,154 0.38% $11,714 -3.07% $11,693 -6.50% $11,946
07/31/1996 -9.05% $11,054 -4.42% $11,196 -7.32% $10,837 -12.21% $10,487
08/31/1996 9.59% $12,114 2.11% $11,432 5.75% $11,460 7.40% $11,263
09/30/1996 4.46% $12,654 5.63% $12,076 4.33% $11,957 5.15% $11,843
10/31/1996 -1.98% $12,404 2.76% $12,409 -0.66% $11,878 -4.31% $11,333
11/30/1996 4.52% $12,964 7.56% $13,347 4.83% $12,451 2.78% $11,648
12/31/1996 1.85% $13,204 -1.98% $13,083 1.37% $12,622 1.95% $11,875
01/31/1997 2.20% $13,494 6.25% $13,901 2.76% $12,970 2.50% $12,172
02/28/1997 -4.67% $12,864 0.78% $14,009 -1.49% $12,777 -6.04% $11,437
03/31/1997 -7.08% $11,954 -4.11% $13,433 -4.53% $12,198 -7.06% $10,629
04/30/1997 0.67% $12,034 5.97% $14,235 1.27% $12,353 -1.16% $10,506
05/31/1997 14.21% $13,744 6.09% $15,102 9.21% $13,491 15.03% $12,085
06/30/1997 3.81% $14,269 4.48% $15,779 4.09% $14,043 3.39% $12,495
07/31/1997 6.35% $15,175 7.96% $17,035 5.86% $14,866 5.12% $13,134
08/31/1997 1.02% $15,330 -5.60% $16,081 1.39% $15,072 3.00% $13,528
09/30/1997 9.68% $16,813 5.48% $16,962 6.54% $16,058 7.98% $14,608
10/31/1997 -4.23% $16,103 -3.34% $16,396 -4.49% $15,337 -6.01% $13,730
11/30/1997 -2.37% $15,721 4.63% $17,155 0.45% $15,406 -2.38% $13,403
12/31/1997 -1.38% $15,505 1.72% $17,450 1.89% $15,697 0.06% $13,411
01/31/1998 -0.40% $15,443 1.11% $17,644 -1.53% $15,457 -1.33% $13,233
02/28/1998 7.87% $16,659 7.21% $18,916 7.26% $16,579 8.83% $14,401
03/31/1998 3.96% $17,318 5.12% $19,884 4.39% $17,307 4.19% $15,005
04/30/1998 1.43% $17,565 1.01% $20,085 0.38% $17,373 0.61% $15,096
05/31/1998 -7.10% $16,319 -1.72% $19,740 -4.64% $16,567 -7.27% $13,999
06/30/1998 0.05% $16,327 4.06% $20,541 0.12% $16,586 1.02% $14,142
07/31/1998 -9.80% $14,726 -1.07% $20,321 -6.87% $15,447 -8.35% $12,961
08/31/1998 -23.48% $11,269 -14.46% $17,383 -18.86% $12,534 -23.08% $9,969
09/30/1998 9.53% $12,343 6.41% $18,497 7.10% $13,424 10.14% $10,980
10/31/1998 6.53% $13,149 8.13% $20,001 5.47% $14,158 5.22% $11,554
11/30/1998 7.57% $14,145 6.06% $21,213 4.95% $14,859 7.76% $12,450
12/31/1998 8.54% $15,353 5.76% $22,435 6.06% $15,759 9.05% $13,577
01/31/1999 4.23% $16,003 4.18% $23,372 -0.17% $15,732 4.50% $14,188
02/28/1999 -8.60% $14,626 -3.11% $22,646 -6.57% $14,699 -9.15% $12,890
03/31/1999 5.51% $15,432 4.00% $23,551 2.14% $15,013 3.56% $13,348
04/30/1999 7.83% $16,641 3.87% $24,463 8.95% $16,357 8.83% $14,527
05/31/1999 -0.20% $16,607 -2.36% $23,885 1.55% $16,610 0.16% $14,550
06/30/1999 7.68% $17,883 5.55% $25,211 5.20% $17,474 5.27% $15,317
07/31/1999 -0.01% $17,881 -3.12% $24,425 -1.97% $17,130 -3.09% $14,844
08/31/1999 1.38% $18,128 -0.50% $24,302 -3.13% $16,594 -3.74% $14,289
09/30/1999 3.60% $18,780 -2.74% $23,637 -1.49% $16,347 1.93% $14,565
10/31/1999 11.98% $21,030 6.33% $25,133 2.19% $16,705 2.56% $14,937
11/30/1999 16.64% $24,530 2.03% $25,643 5.65% $17,648 10.57% $16,516
12/31/1999 23.26% $30,236 5.89% $27,153 10.85% $19,563 17.63% $19,428
</TABLE>
This graph compares the performance of Franklin Small Cap Fund - Class 2, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500,
Russell 2500 Index and Russell 2000 Growth Index from 11/1/95-12/31/99.*
<TABLE>
<CAPTION>
Franklin Russell
Small Cap Russell 2000
Fund - 2500 Growth
Class 2 S&P 500 Index Index
---------------------------------------------------------
<S> <C> <C> <C> <C>
11/01/1995 $10,000 $10,000 $10,000 $10,000
11/30/1995 $9,700 $10,439 $10,427 $10,441
12/31/1995 $10,230 $10,640 $10,605 $10,673
01/31/1996 $10,370 $11,002 $10,681 $10,584
02/29/1996 $10,850 $11,105 $11,002 $11,067
03/31/1996 $11,140 $11,211 $11,227 $11,286
04/30/1996 $12,250 $11,376 $11,745 $12,153
05/31/1996 $12,760 $11,669 $12,063 $12,776
06/30/1996 $12,154 $11,714 $11,693 $11,946
07/31/1996 $11,054 $11,196 $10,837 $10,487
08/31/1996 $12,114 $11,432 $11,460 $11,263
09/30/1996 $12,654 $12,076 $11,957 $11,843
10/31/1996 $12,404 $12,409 $11,878 $11,333
11/30/1996 $12,964 $13,347 $12,451 $11,648
12/31/1996 $13,204 $13,083 $12,622 $11,875
01/31/1997 $13,494 $13,901 $12,970 $12,172
02/28/1997 $12,864 $14,009 $12,777 $11,437
03/31/1997 $11,954 $13,433 $12,198 $10,629
04/30/1997 $12,034 $14,235 $12,353 $10,506
05/31/1997 $13,744 $15,102 $13,491 $12,085
06/30/1997 $14,269 $15,779 $14,043 $12,495
07/31/1997 $15,175 $17,035 $14,866 $13,134
08/31/1997 $15,330 $16,081 $15,072 $13,528
09/30/1997 $16,813 $16,962 $16,058 $14,608
10/31/1997 $16,103 $16,396 $15,337 $13,730
11/30/1997 $15,721 $17,155 $15,406 $13,403
12/31/1997 $15,505 $17,450 $15,697 $13,411
01/31/1998 $15,443 $17,644 $15,457 $13,233
02/28/1998 $16,659 $18,916 $16,579 $14,401
03/31/1998 $17,318 $19,884 $17,307 $15,005
04/30/1998 $17,565 $20,085 $17,373 $15,096
05/31/1998 $16,319 $19,740 $16,567 $13,999
06/30/1998 $16,327 $20,541 $16,586 $14,142
07/31/1998 $14,726 $20,321 $15,447 $12,961
08/31/1998 $11,269 $17,383 $12,534 $9,969
09/30/1998 $12,343 $18,497 $13,424 $10,980
10/31/1998 $13,149 $20,001 $14,158 $11,554
11/30/1998 $14,145 $21,213 $14,859 $12,450
12/31/1998 $15,353 $22,435 $15,759 $13,577
01/31/1999 $16,003 $23,372 $15,732 $14,188
02/28/1999 $14,626 $22,646 $14,699 $12,890
03/31/1999 $15,421 $23,551 $15,013 $13,348
04/30/1999 $16,617 $24,463 $16,357 $14,527
05/31/1999 $16,584 $23,885 $16,610 $14,550
06/30/1999 $17,848 $25,211 $17,474 $15,317
07/31/1999 $17,858 $24,425 $17,130 $14,844
08/31/1999 $18,107 $24,302 $16,594 $14,289
09/30/1999 $18,737 $23,637 $16,347 $14,565
10/31/1999 $20,976 $25,133 $16,705 $14,937
11/30/1999 $24,474 $25,643 $17,648 $16,516
12/31/1999 $30,147 $27,153 $19,563 $19,428
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
MUTUAL DISCOVERY SECURITIES FUND
During the 12 months 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.
However, in the process, the market became increasingly two-tiered, and a select
group of companies achieved "over the top" success while the majority of
publicly-traded equities languished. For example, the tech-heavy Nasdaq market
rose 85.9% for the year. But while the top companies in that index comprised
half of that index's value, the other half of its value was divided between the
more than 4,700 other companies in the index. Furthermore, although the Dow
Jones Industrial Index rose more than 27%, and the S&P 500 climbed 21.0% during
the year, about 62% of the stocks listed on the New York Stock Exchange and 51%
of those comprising the S&P 500 fell in value during 1999.
The portfolio's impressive performance was achieved not by investing in volatile
emerging markets or high-flying Internet companies, but by sticking to our
longstanding, value strategy during a period when growth investing seemed
clearly in
We are replacing the Russell 2500 Index with the Russell 2000 Growth Index
because it more closely mirrors our growth style of investing. The Russell 2500
Index primarily represents value-oriented small cap names that are trading at
valuations reflecting their relatively slow or non-existent growth. PERFORMANCE
SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY FEES,
CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS
THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD
BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable sales
charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
<S> <C>
1-Year +96.94%
3-Year +31.81%
Since Inception (11/1/95) +30.41%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
<S> <C>
1-Year +96.36%
3-Year +31.68%
Since Inception (11/1/95) +30.32%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
17
<PAGE>
TOP 10 HOLDINGS
Mutual Discovery Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Lagardere SCA 4.1%
Multi-Industry, France
Aventis SA 3.2%
Health & Personal Care,
France
Investor AB, B 2.9%
Multi-Industry, Sweden
Modern Times Group AB 2.9%
Broadcasting & Publishing,
Sweden
Compagnie Generale
D'Industrie et de Participation 2.5%
Multi-Industry, France
Corporacion Financiera
Alba SA 2.5%
Multi-Industry, Spain
Suez Lyonnaise des Eaux SA 1.9%
Business &Public Services,
France
Invensys PLC 1.8%
Machinery & Engineering,
U.K
Compagnie Financiere
Richemont AG 1.6%
Multi-Industry, Switzerland
Total Fina SA, B 1.5%
Energy Sources, France
</TABLE>
favor with a majority of investors interested in buying "hot" stocks.
Throughout the reporting period, we conducted in-depth fundamental analysis and
bought securities only when we saw substantial upside with relatively little
risk. Many market participants appeared to be interested only in positive
momentum during 1999, and were unconcerned about valuations. But we believe risk
still matters. In addition to focusing our attention upon identifying
opportunities that we believed traded at a meaningful discount to their
intrinsic value, we linked our equity positions to the dollar seeking to
minimize the volatility of overseas currencies' unexpected movements.
The casino-like atmosphere of 1999 attracted many investors to index funds.
Unfortunately, many people often forget two vital aspects of index investing: 1)
an index is 100% of the risk of its market, and 2) most indexes are weighted to
very large companies. We try to lessen market risk by diversifying into special
situations such as distressed securities and arbitrage. Believing that the
large-cap universe was generally overvalued during 1999, we stayed away from
those stocks, opting instead to focus on out-of-favor mid- to small-cap
companies. After all, we feel that the best bargains can generally be purchased
in the most overlooked areas, and rarely in the most popular.
We recalibrated the portfolio somewhat during the year, cutting the number of
positions. For the most part, we did not eliminate any large positions, only
smaller ones. We did make some new purchases, adding to our stake in
pharmaceutical, defense, and media companies whose stocks were selling at 60
cents on the dollar -- well below our perception of their intrinsic values.
Continuing to focus on Europe, we increased our exposure to French stocks. The
European economy is a great restructuring story we expect to continue for
several years to come, with France in particular benefiting from a wave of
corporate consolidation.
A number of stocks contributed to the portfolio's success in 1999. Among them:
Lagardere SCA, a French conglomerate undergoing a restructuring; Compagnie
Financiere Richemont AG, a Swiss conglomerate we purchased at a substantial
discount to the sum of its pieces; and AMFM Inc., a radio business that is
merging with Capstar, another media company.
Looking forward, we see attractive values in mid-size companies around the
world. U.S. financial stocks have fallen considerably and we expect to find
great value in this sector. In Europe, we intend to take advantage of any
opportunities that arise as European companies react to the rapidly changing
business and market environment there. The U.K. continues to offer interesting
opportunities on the heels of a remarkable economic turnaround. We also believe
that Aventis SA, a life science company formed by the merger of France's
Rhone-Poulenc SA and Germany's Hoechst AG, and whose stock we purchased at a
huge discount, may continue to enjoy significant upside potential. In short, we
see no dearth of good companies trading with above-average earnings prospects at
below-average price-to-earnings ratios, and shall continue to concentrate on
mining overlooked, out-of-favor sectors for tomorrow's gems as we strive to
provide our shareholders the best risk-adjusted returns over the long term.
18
<PAGE>
This graph compares the performance of Mutual Discovery Securities Fund - Class
1, as tracked by the growth in value of a $10,000 investment, to that of the S&P
500 and the Russell 2000 Index from 11/8/96-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Mutual Discovery
Securities Fund - Russell 2000
Class 1 S&P 500 Index
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/08/1996 $10,000 $10,000 $10,000
11/30/1996 $10,140 5.54% $10,554 3.02% $10,302
12/31/1996 $10,200 -1.98% $10,345 2.62% $10,572
01/31/1997 $10,660 6.25% $10,992 2.00% $10,783
02/28/1997 $10,790 0.78% $11,078 -2.42% $10,523
03/31/1997 $10,690 -4.11% $10,622 -4.72% $10,026
04/30/1997 $10,630 5.97% $11,257 0.28% $10,054
05/31/1997 $10,910 6.09% $11,942 11.12% $11,172
06/30/1997 $11,325 4.48% $12,477 4.29% $11,651
07/31/1997 $11,735 7.96% $13,470 4.65% $12,193
08/31/1997 $11,715 -5.60% $12,716 2.29% $12,472
09/30/1997 $12,356 5.48% $13,413 7.32% $13,385
10/31/1997 $11,975 -3.34% $12,965 -4.39% $12,798
11/30/1997 $12,025 4.63% $13,565 -0.65% $12,714
12/31/1997 $12,175 1.72% $13,798 1.75% $12,937
01/31/1998 $12,155 1.11% $13,952 -1.58% $12,732
02/28/1998 $12,796 7.21% $14,958 7.39% $13,673
03/31/1998 $13,496 5.12% $15,723 4.12% $14,237
04/30/1998 $13,756 1.01% $15,882 0.55% $14,315
05/31/1998 $13,896 -1.72% $15,609 -5.39% $13,543
06/30/1998 $13,483 4.06% $16,243 0.21% $13,572
07/31/1998 $12,971 -1.07% $16,069 -8.10% $12,473
08/31/1998 $11,127 -14.46% $13,745 -19.42% $10,050
09/30/1998 $10,655 6.41% $14,626 7.83% $10,837
10/31/1998 $10,922 8.13% $15,816 4.08% $11,280
11/30/1998 $11,485 6.06% $16,774 5.24% $11,871
12/31/1998 $11,567 5.76% $17,740 6.19% $12,605
01/31/1999 $11,629 4.18% $18,482 1.33% $12,773
02/28/1999 $11,454 -3.11% $17,907 -8.10% $11,738
03/31/1999 $11,803 4.00% $18,623 1.56% $11,922
04/30/1999 $12,540 3.87% $19,344 8.96% $12,990
05/31/1999 $12,510 -2.36% $18,887 1.46% $13,179
06/30/1999 $12,961 5.55% $19,936 4.52% $13,775
07/31/1999 $12,786 -3.12% $19,314 -2.74% $13,398
08/31/1999 $12,638 -0.50% $19,217 -3.70% $12,902
09/30/1999 $12,501 -2.74% $18,691 0.02% $12,904
10/31/1999 $12,733 6.33% $19,874 0.41% $12,957
11/30/1999 $13,419 2.03% $20,277 5.97% $13,731
12/31/1999 $14,316 5.89% $21,471 11.32% $15,285
</TABLE>
This graph compares the performance of Mutual Discovery Securities Fund - Class
2, as tracked by the growth in value of a $10,000 investment, to that of the S&P
500 and the Russell 2000 Index from 11/8/96-12/31/99.*
<TABLE>
<CAPTION>
Mutual Discovery Russell 2000
Securities Fund - Class 2 S&P 500 Index
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/08/1996 $10,000 $10,000 $10,000
11/30/1996 $10,140 5.54% $10,554 3.02% $10,302
12/31/1996 $10,200 -1.98% $10,345 2.62% $10,572
01/31/1997 $10,660 6.25% $10,992 2.00% $10,783
02/28/1997 $10,790 0.78% $11,078 -2.42% $10,523
03/31/1997 $10,690 -4.11% $10,622 -4.72% $10,026
04/30/1997 $10,630 5.97% $11,257 0.28% $10,054
05/31/1997 $10,910 6.09% $11,942 11.12% $11,172
06/30/1997 $11,325 4.48% $12,477 4.29% $11,651
07/31/1997 $11,735 7.96% $13,470 4.65% $12,193
08/31/1997 $11,715 -5.60% $12,716 2.29% $12,472
09/30/1997 $12,356 5.48% $13,413 7.32% $13,385
10/31/1997 $11,975 -3.34% $12,965 -4.39% $12,798
11/30/1997 $12,025 4.63% $13,565 -0.65% $12,714
12/31/1997 $12,175 1.72% $13,798 1.75% $12,937
01/31/1998 $12,155 1.11% $13,952 -1.58% $12,732
02/28/1998 $12,796 7.21% $14,958 7.39% $13,673
03/31/1998 $13,496 5.12% $15,723 4.12% $14,237
04/30/1998 $13,756 1.01% $15,882 0.55% $14,315
05/31/1998 $13,896 -1.72% $15,609 -5.39% $13,543
06/30/1998 $13,483 4.06% $16,243 0.21% $13,572
07/31/1998 $12,971 -1.07% $16,069 -8.10% $12,473
08/31/1998 $11,127 -14.46% $13,745 -19.42% $10,050
09/30/1998 $10,655 6.41% $14,626 7.83% $10,837
10/31/1998 $10,922 8.13% $15,816 4.08% $11,280
11/30/1998 $11,485 6.06% $16,774 5.24% $11,871
12/31/1998 $11,567 5.76% $17,740 6.19% $12,605
01/31/1999 $11,628 4.18% $18,482 1.33% $12,773
02/28/1999 $11,454 -3.11% $17,907 -8.10% $11,738
03/31/1999 $11,802 4.00% $18,623 1.56% $11,922
04/30/1999 $12,529 3.87% $19,344 8.96% $12,990
05/31/1999 $12,497 -2.36% $18,887 1.46% $13,179
06/30/1999 $12,949 5.55% $19,936 4.52% $13,775
07/31/1999 $12,774 -3.12% $19,314 -2.74% $13,398
08/31/1999 $12,626 -0.50% $19,217 -3.70% $12,902
09/30/1999 $12,478 -2.74% $18,691 0.02% $12,904
10/31/1999 $12,700 6.33% $19,874 0.41% $12,957
11/30/1999 $13,386 2.03% $20,277 5.97% $13,731
12/31/1999 $14,285 5.89% $21,471 11.32% $15,285
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
TEMPLETON DEVELOPING MARKETS EQUITY FUND
The year 1999 saw a recovery in most emerging markets despite volatility caused
by such events as Brazil's floating its currency, 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, and earthquakes in
Turkey, Greece and Taiwan.
Political change was widespread throughout emerging markets countries 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, Czech and Russian governments was in question for most of the year in
Europe. In Poland, tax-reform debates characterized the year, and in the Czech
Republic, questions remained throughout the year, as friction between ruling
party leaders became more evident.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
<S> <C>
1-Year +23.76%
3-Year +11.96%
Since Inception (11/8/96) +12.08%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
<S> <C>
1-Year +23.49%
3-Year +11.88%
Since Inception (11/8/96) +12.01%
</TABLE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton Developing Markets Equity Fund
Based on Total Net Assets
12/31/99
Latin America 40.5%
Asia 35.95
Mid-East/Africa 13.9%
Europe 8.9%
Short Term Investments & Other Net Assets 0.8%
Please see Important Endnotes to Performance Information on page 65.
19
<PAGE>
TOP 10 HOLDINGS
Templeton Developing Markets
Equity Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Telefonos de Mexico SA
(Telmex) 6.9%
Telecommunications, Mexico
Cemex SA 4.6%
Building Materials &
Components, Mexico
Akbank 3.5%
Banking, Turkey
Centrais Eletricas Brasileiras SA
(Eletrobras) 3.1%
Utilities Electrical & Gas, Brazil
Grupo Financiero Banamex
Accival SA de CV 2.6%
Banking, Mexico
Anglo American PLC 2.4%
Metals & Mining, South Africa
PT Telekomunikasi Indonesia
(Persero) 2.1%
Telecommunications,
Indonesia
Cheung Kong Holdings Ltd. 2.0%
Multi-Industry, Hong Kong
CEZ AS 1.8%
Utilities Electrical & Gas,
Czech Republic
South African Breweries PLC 1.8%
Beverages & Tobacco,
South Africa
</TABLE>
Questions about the future of Boris Yeltsin were not laid to rest until December
31, 1999, when he resigned and handed over control of Russia to Vladimir Putin
Asia led the global economic recovery, with the improvement slowly shifting
gears to one apparently led by domestic consumption rather than by trade. Export
and import levels increased, with trade balances declining from 1998's huge
surpluses as import growth outpaced that of exports.
In Latin America, the rapid stock market advances early in the year continued,
seeming to signal forthcoming economic improvements. However, most Latin
American economies were weak, but improving commodity prices near year-end
contributed to the belief that the worst was over. In Brazil, the currency
devaluation's adverse effects on inflation and economic growth seemed modest.
The election of a new president in Argentina, questions concerning the currency
peg and debate over the level of national debt caused market concern, although
the government is expected to reduce the fiscal deficit. Continued reform in
Brazil, coupled with Venezuela's restructuring and new governments in Argentina
and Chile, led many to conclude that these economies will return to growth in
2000.
Efforts to meet European Union (E.U.) admission standards apparently proved
beneficial for eastern and southern European economies. However, natural
disasters in Turkey and Greece coupled with stalled privatization attempts in
other eastern European countries hampered economic growth. The long-term outlook
for emerging Europe seems bright as E.U. membership prompts these countries to
reform their economies.
Finally, African and Middle Eastern markets continued to develop toward
international importance. In South Africa, the strengthening of gold prices
during the year in addition to greater demand for diamonds and other natural
resources seemed to help propel the nation's economy. The ongoing streamlining
of large corporations and increased international demand for services provided
by other South African corporate leaders appears to have augmented this
strength.
During the 12 months under review, the portfolio posted a strong performance.
Varying individual stock performances resulted in some changes in the
portfolio's composition. We sold our holdings in Sri Lanka, Croatia, Shenzhen
(China) and Jordan as we felt better bargains could be found elsewhere, while we
added Austria. Strong growth in the Mexican, Brazilian and South African stock
markets resulted in increased exposure to these countries. However, the
portfolio's regional exposure remained largely unchanged except for Asia, which
decreased in favor of greater exposure to South Africa. At the end of the
12-month period, holdings in Mexico comprised the greatest portion of the
portfolio's total net assets at 15.1%, followed by holdings in South Africa at
13.5% and Brazil at 13.1%.
20
<PAGE>
Varying individual performances led to the replacement of four companies in the
portfolio's top ten holdings. South Africa's Anglo American PLC and South
African Breweries PLC replaced Hong Kong's New World Development Co. Ltd. and
Thailand's Thai Farmers Bank Public Co. Ltd. In addition, Grupo Financiero
Banamex Accival SA de CV (Mexico) and PT Telekomunikasi Indonesia-Persero
(Indonesia) replaced Compania de Telecomunicaciones de Chile SA (Chile) and
Molinos Rio de la Plata SA (Argentina). Telecommunications stocks' strong
performance caused them to become the portfolio's top sector, with 23.0% of
total net assets. The portfolio was virtually fully invested, with a cash level
of 0.8% of total net assets at year-end.
Looking forward, we are excited about the potential of emerging markets, as we
believe that the recovery has just begun, and our studies show that bull markets
generally last longer than bear markets. Interest rates have fallen in many
emerging countries, but most markets' indexes and valuations are still below
their all-time highs. Some of the emerging market currencies still appear to be
undervalued, which should help export competitiveness. The major Asian countries
have increased their foreign exchange reserves. Furthermore, successful
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 market countries continue to
overhaul their financial systems. Banks are recapitalizing their balance sheets
and companies are making efforts to rectify the problem of excessive borrowing
as well as streamlining their work forces in response to the changing economic
environment.
We believe that recovery and growth will drive the emerging markets.
Improvements in domestic and international demand should continue to spur
economic growth. We favor companies and countries most proactive in reform, as
improved corporate governance and better corporate efficiency should benefit
stock prices for years to come.
This graph compares the performance of Templeton Developing Markets Equity Fund
- - Class 1, as tracked by the growth in value of a $10,000 investment, to that of
the MSCI Emerging Markets Free Index, MSCI World Index and IFC Investable
Composite Index from 3/15/94-12/31/99.
Although we use MSCI Emerging Markets Free Index as the portfolio's benchmark
index, we retained MSCI World Index in the graph to show how global developed
markets have performed.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and the International Finance Corporation.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton
Developing IFC
Markets MSCI Emerging Investable
Equity Fund - Markets Free MSCI World Composite
Class 1 Index Index Index
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/15/1994 $10,000 $10,000 $10,000 $10,000
03/31/1994 $10,000 $9,512 $9,774 $9,452
04/30/1994 $10,060 $9,321 $10,077 $9,272
05/31/1994 $10,040 $9,640 $10,105 $9,491
06/30/1994 $9,990 $9,375 $10,079 $9,154
07/31/1994 $10,250 $9,958 $10,272 $9,811
08/31/1994 $10,530 $11,193 $10,583 $11,073
09/30/1994 $10,520 $11,321 $10,307 $11,347
10/31/1994 $10,410 $11,116 $10,602 $10,972
11/30/1994 $10,000 $10,538 $10,144 $10,559
12/31/1994 $9,560 $9,692 $10,245 $9,434
01/31/1995 $8,910 $8,661 $10,093 $8,173
02/28/1995 $8,780 $8,439 $10,242 $8,067
03/31/1995 $9,150 $8,492 $10,737 $8,046
04/30/1995 $9,540 $8,873 $11,114 $8,385
05/31/1995 $9,800 $9,345 $11,211 $8,698
06/30/1995 $9,855 $9,373 $11,209 $8,749
07/31/1995 $10,438 $9,583 $11,773 $9,028
08/31/1995 $10,167 $9,358 $11,512 $8,786
09/30/1995 $10,096 $9,313 $11,850 $8,722
10/31/1995 $9,735 $8,957 $11,666 $8,391
11/30/1995 $9,664 $8,797 $12,073 $8,349
12/31/1995 $9,825 $9,187 $12,428 $8,639
01/31/1996 $10,880 $9,840 $12,655 $9,375
02/29/1996 $10,659 $9,684 $12,734 $9,156
03/31/1996 $10,860 $9,759 $12,949 $9,290
04/30/1996 $11,222 $10,149 $13,255 $9,662
05/31/1996 $11,382 $10,104 $13,269 $9,580
06/30/1996 $11,390 $10,167 $13,339 $9,693
07/31/1996 $10,782 $9,472 $12,870 $9,056
08/31/1996 $10,957 $9,715 $13,021 $9,336
09/30/1996 $11,194 $9,799 $13,533 $9,474
10/31/1996 $11,184 $9,538 $13,629 $9,271
11/30/1996 $11,617 $9,697 $14,396 $9,408
12/31/1996 $11,947 $9,741 $14,168 $9,449
01/31/1997 $12,833 $10,406 $14,340 $10,117
02/28/1997 $13,214 $10,851 $14,508 $10,611
03/31/1997 $12,957 $10,566 $14,224 $10,350
04/30/1997 $13,101 $10,585 $14,691 $10,174
05/31/1997 $13,730 $10,888 $15,601 $10,519
06/30/1997 $14,275 $11,471 $16,381 $10,974
07/31/1997 $14,826 $11,642 $17,138 $11,084
08/31/1997 $13,449 $10,160 $15,994 $9,669
09/30/1997 $14,243 $10,442 $16,865 $9,976
10/31/1997 $11,573 $8,729 $15,980 $8,343
11/30/1997 $10,958 $8,410 $16,265 $7,943
12/31/1997 $10,905 $8,613 $16,466 $8,057
01/31/1998 $9,951 $7,937 $16,928 $7,526
02/28/1998 $11,032 $8,766 $18,076 $8,294
03/31/1998 $11,499 $9,146 $18,842 $8,619
04/30/1998 $11,636 $9,046 $19,029 $8,641
05/31/1998 $9,877 $7,807 $18,793 $7,564
06/30/1998 $8,932 $6,988 $19,242 $6,793
07/31/1998 $8,981 $7,209 $19,213 $7,061
08/31/1998 $6,631 $5,125 $16,654 $5,076
09/30/1998 $7,088 $5,450 $16,952 $5,317
10/31/1998 $8,152 $6,024 $18,487 $5,933
11/30/1998 $8,895 $6,525 $19,590 $6,379
12/31/1998 $8,548 $6,430 $20,550 $6,281
01/31/1999 $8,016 $6,327 $21,003 $6,130
02/28/1999 $8,165 $6,388 $20,446 $6,240
03/31/1999 $9,303 $7,230 $21,301 $6,961
04/30/1999 $11,035 $8,124 $22,143 $7,918
05/31/1999 $10,812 $8,077 $21,337 $7,774
06/30/1999 $11,616 $8,994 $22,335 $8,624
07/31/1999 $11,140 $8,750 $22,272 $8,499
08/31/1999 $10,724 $8,829 $22,235 $8,592
09/30/1999 $10,421 $8,530 $22,023 $8,354
10/31/1999 $10,724 $8,712 $23,171 $8,499
11/30/1999 $11,530 $9,493 $23,825 $9,259
12/31/1999 $13,219 $10,700 $25,757 $10,500
</TABLE>
Although we use MSCI Emerging Markets Free Index as the portfolio's benchmark
index, we retained MSCI World Index in the graph to show how global developed
markets have performed.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and the International Finance Corporation.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
<S> <C>
1-Year +54.64%
5-Year +6.70%
Since Inception (3/15/94) +4.93%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
21
<PAGE>
For an explanation of performance calculations, please see page 21.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
<S> <C>
1-Year +54.20%
5-Year +6.64%
Since Inception (3/15/94) +4.88%
</TABLE>
[Pie Chart]
Geographic Distribution
Templeton Global Growth Fund
Based on Total Net Assets
12/31/99
Europe 37.6%
North America 24.2%
Asia 20.0%
Latin America 7.9%
Australia/
New Zealand 3.9%
Mid-East/Africa 1.5%
Short-Term
Investments &
Other Net Assets 4.9%
This graph compares the performance of Templeton Developing Markets Equity Fund
- - Class 2, as tracked by the growth in value of a $10,000 investment, to that of
the MSCI Emerging Markets Free Index, MSCI World Index and IFC Investable
Composite Index from 3/15/94-12/31/99.*
<TABLE>
<CAPTION>
Templeton
Developing IFC
Markets MSCI Emerging Investable
Equity Fund - Markets Free MSCI World Composite
Class 2 Index Index Index
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/15/1994 $10,000 $10,000 $10,000 $10,000
03/31/1994 $10,000 $9,512 $9,774 $9,452
04/30/1994 $10,060 $9,321 $10,077 $9,272
05/31/1994 $10,040 $9,640 $10,105 $9,491
06/30/1994 $9,990 $9,375 $10,079 $9,154
07/31/1994 $10,250 $9,958 $10,272 $9,811
08/31/1994 $10,530 $11,193 $10,583 $11,073
09/30/1994 $10,520 $11,321 $10,307 $11,347
10/31/1994 $10,410 $11,116 $10,602 $10,972
11/30/1994 $10,000 $10,538 $10,144 $10,559
12/31/1994 $9,560 $9,692 $10,245 $9,434
01/31/1995 $8,910 $8,661 $10,093 $8,173
02/28/1995 $8,780 $8,439 $10,242 $8,067
03/31/1995 $9,150 $8,492 $10,737 $8,046
04/30/1995 $9,540 $8,873 $11,114 $8,385
05/31/1995 $9,800 $9,345 $11,211 $8,698
06/30/1995 $9,855 $9,373 $11,209 $8,749
07/31/1995 $10,438 $9,583 $11,773 $9,028
08/31/1995 $10,167 $9,358 $11,512 $8,786
09/30/1995 $10,096 $9,313 $11,850 $8,722
10/31/1995 $9,735 $8,957 $11,666 $8,391
11/30/1995 $9,664 $8,797 $12,073 $8,349
12/31/1995 $9,825 $9,187 $12,428 $8,639
01/31/1996 $10,880 $9,840 $12,655 $9,375
02/29/1996 $10,659 $9,684 $12,734 $9,156
03/31/1996 $10,860 $9,759 $12,949 $9,290
04/30/1996 $11,222 $10,149 $13,255 $9,662
05/31/1996 $11,382 $10,104 $13,269 $9,580
06/30/1996 $11,390 $10,167 $13,339 $9,693
07/31/1996 $10,782 $9,472 $12,870 $9,056
08/31/1996 $10,957 $9,715 $13,021 $9,336
09/30/1996 $11,194 $9,799 $13,533 $9,474
10/31/1996 $11,184 $9,538 $13,629 $9,271
11/30/1996 $11,617 $9,697 $14,396 $9,408
12/31/1996 $11,947 $9,741 $14,168 $9,449
01/31/1997 $12,833 $10,406 $14,340 $10,117
02/28/1997 $13,214 $10,851 $14,508 $10,611
03/31/1997 $12,957 $10,566 $14,224 $10,350
04/30/1997 $13,101 $10,585 $14,691 $10,174
05/31/1997 $13,730 $10,888 $15,601 $10,519
06/30/1997 $14,275 $11,471 $16,381 $10,974
07/31/1997 $14,826 $11,642 $17,138 $11,084
08/31/1997 $13,449 $10,160 $15,994 $9,669
09/30/1997 $14,243 $10,442 $16,865 $9,976
10/31/1997 $11,573 $8,729 $15,980 $8,343
11/30/1997 $10,958 $8,410 $16,265 $7,943
12/31/1997 $10,905 $8,613 $16,466 $8,057
01/31/1998 $9,951 $7,937 $16,928 $7,526
02/28/1998 $11,032 $8,766 $18,076 $8,294
03/31/1998 $11,499 $9,146 $18,842 $8,619
04/30/1998 $11,636 $9,046 $19,029 $8,641
05/31/1998 $9,877 $7,807 $18,793 $7,564
06/30/1998 $8,932 $6,988 $19,242 $6,793
07/31/1998 $8,981 $7,209 $19,213 $7,061
08/31/1998 $6,631 $5,125 $16,654 $5,076
09/30/1998 $7,088 $5,450 $16,952 $5,317
10/31/1998 $8,152 $6,024 $18,487 $5,933
11/30/1998 $8,895 $6,525 $19,590 $6,379
12/31/1998 $8,548 $6,430 $20,550 $6,281
01/31/1999 $8,016 $6,327 $21,003 $6,130
02/28/1999 $8,165 $6,388 $20,446 $6,240
03/31/1999 $9,303 $7,230 $21,301 $6,961
04/30/1999 $11,022 $8,124 $22,143 $7,918
05/31/1999 $10,811 $8,077 $21,337 $7,774
06/30/1999 $11,603 $8,994 $22,335 $8,624
07/31/1999 $11,113 $8,750 $22,272 $8,499
08/31/1999 $10,710 $8,829 $22,235 $8,592
09/30/1999 $10,395 $8,530 $22,023 $8,354
10/31/1999 $10,710 $8,712 $23,171 $8,499
11/30/1999 $11,503 $9,493 $23,825 $9,259
12/31/1999 $13,181 $10,700 $25,757 $10,500
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
TEMPLETON GLOBAL GROWTH FUND
With most markets around the world well into positive territory for the 12
months under review, 1999 turned out to be lucrative for many investors.
Templeton Global Growth Fund also posted solid returns for the year; however, it
lagged its benchmark, the Morgan Stanley Capital International (MSCI(R)) AC
World Free Index, which increased 26.8% for the period.
We believe the major reason for the portfolio's underperformance was investors'
focus on a small number of stocks, primarily those of technology and
telecommunications companies. On December 31, 1999, only 20 stocks accounted for
nearly half of the MSCI AC World Free Index's 12-month return. Yet, those same
companies made up less than 1% of the more than 2,000 stocks that comprise the
index. Of these 20 names, only 4 were not involved in technology or
telecommunications-related businesses, which we feel shows how infatuated
investors were with these areas.
The fund's shareholders can rightly question why we did not participate to a
greater extent in the rapid appreciation of such companies (of which we only
held two). Quite simply our analysis indicated that many of these companies'
share prices were too high when compared with other investment opportunities
around the world. The 20 stocks described above had a median price-to-earnings
ratio of 90 and price-to-book value of 17.2, hardly fitting our criteria of
undervalued or unloved companies. Even given some of these companies' sizable
growth rates, such extremely high valuations were difficult for us to justify.
Nowhere did the trend toward momentum-based buying seem greater than in the U.S.
market, where growth stocks with the strongest price momentum widened the gap
over value names during the course of the year. Since 1954, the stocks with the
greatest momentum generally were valued at a 23% premium to the overall market
on a
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
22
<PAGE>
price-to-earnings basis. However, at the beginning of 1999, such stocks
were valued at a 120% premium to the overall market; so high that many analysts
concluded this valuation gap would not persist. To many investors' surprise,
these leading growth stocks' premiums widened to 240% above the overall market
in December 1999.
At Templeton, we have always felt that to achieve superior long-term investment
performance, we must go against the crowd. At a time when the crowd looks so
successful, this philosophy may be hard to follow. However, as valuations become
progressively more stretched we question whether these momentum stocks will
continue to live up to expectations. History has shown this long-term value
focus generally serves our shareholders well, especially in a more difficult
economic environment. During the period, we continued to follow our disciplined
approach, which uncovered some investments in the U.S. we believed were
attractive among the names that were neglected by the recent narrow market.
These are companies whose current valuations we believe are low in relation to
their future growth prospects.
In fact, we feel that 1999 provided first-hand evidence of how well a contrarian
approach still works in today's global environment. In 1998, our analysis
uncovered a number of apparently undervalued companies in Hong Kong. As a
result, we increased the portfolio's Asian weighting at a time when many other
investors were pulling money out of the region. Although these investments
initially hurt our performance, we were substantially rewarded in 1999 as Asian
markets overall increased 72.6%, as measured by IFCTAsia Index, while Hong
Kong's market, the Hang Seng, increased roughly 2.5 times from its low during
the Asian crisis in 1998 and was back into record territory at the end of the
reporting period.
Asia continued its rebuilding process during the year. We expect growth in 1999
to have more than doubled to approximately 5.5%, after gross domestic product
(GDP) growth outside of Japan hit a low of 2.7% in 1998. However, this
improvement masks some of the even more dramatic turnarounds in individual
countries. For example, Korea's GDP fell 6% in 1998 but is expected to have
risen nearly 7% in 1999. In Thailand, GDP collapsed nearly 10% in 1998, but is
projected to have expanded by more than 3.5% in 1999.
Japan seemed to be one of the principal countries to benefit from this rebound,
as regional demand provided some support for its economy, whose domestic
consumption has yet to show a sustained rebound. Our visits with Japanese
corporations painted a mixed picture of the underlying economy. However, these
visits also suggested to us that some subtle changes were taking place at the
corporate management level, again on a specific company-by-company basis. During
the period, we took advantage of opportunities to make investments in companies
we believe had made real changes that were beneficial to the shareholder and
unappreciated by the market.
TOP 10 HOLDINGS
Templeton Global Growth Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Cheung Kong Holdings Ltd. 2.1%
Multi-Industry, Hong Kong
Sony Corp. 1.7%
Appliances & Household
Durables, Japan
Marconi PLC 1.6%
Electrical & Electronics, U.K
Anglo American Platinum
Corp. Ltd. 1.5%
Metals & Mining, South Africa
Alcatel SA 1.4%
Electrical & Electronics, France
HSBC Holdings PLC 1.4%
Banking, Hong Kong
Telefonos de Mexico SA
(Telmex), ADR 1.3%
Telecommunications, Mexico
Singapore Airlines Ltd. 1.3%
Transportation, Singapore
Hong Kong Electric
Holdings Ltd. 1.3%
Utilities Electrical & Gas,
Hong Kong
Corus Group PLC 1.3%
Metals & Mining, U.K
</TABLE>
23
<PAGE>
Like Asia's, our Latin American holdings also saw a resurgence during the past
12 months. Mexico proved to be the region's best-performing market, apparently
thanks to improved commodity prices, particularly oil, a strong U.S. economy,
and increasing investor comfort over the upcoming elections. In Brazil, currency
stabilization toward the end of the year seemed to have helped boost investor
sentiment about this country's companies. Our Brazilian holdings were primarily
concentrated in the telecommunications sector where we believed the prospects
for continued growth remained strong due to these companies' expanding customer
bases and increasing services.
Looking to Europe, we believe that more signs of an economic acceleration
emerged during the past year. European unemployment fell below 10% in October
for the first time in seven years. Furthermore, falling tax rates and continued
productivity gains could be beneficial to European companies looking ahead.
However, European stocks generally did not perform as well as their global
peers, despite signs of an improving economic outlook. This provided us with
some opportunities to uncover stocks we felt were bargains on the continent
instead of the U.K., where we focused much of our buying over the past year.
Another trend we believe will benefit our European holdings is accelerating
consolidation through merger and acquisition (M&A) activity. In 1999, there was
an estimated $150 billion-plus worth of buyouts compared with less than $12
billion in 1994. This was particularly evident in the metals and energy sectors,
where recent activity included Total Fina SA's bid for portfolio holding Societe
Elf Aquitaine SA, portfolio holding Veba AG's merger with The Viag Group, and
our former holding Pechiney SA's tie up with Alcan Aluminum Ltd. and A.L. Group
SA.
M&A activity offers shareholders a number of possible benefits in addition to
the potential for substantial price appreciation. Such activity can force an
underperforming management to focus on increasing shareholder value or else risk
being taken over by a better-performing competitor. It can also improve price
discipline in certain fragmented industries while offering cost-cutting
potential and better economies of scale for others. Since some M&A activity can
be detrimental, our industry analysts work to determine the implications for
each of our investments.
Looking forward, we are confident we have invested your portfolio in what we
believe to be the most fundamentally undervalued companies around the world. We
remain self-critical, striving to find ways to improve and enhance a research
approach that is the foundation of our organization. We believe that this
approach combined with our analytical team's diligence and experience will
produce above-average long-term returns for your portfolio despite occasionally
difficult short-term periods.
24
<PAGE>
This graph compares the performance of Templeton Global Growth Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the MSCI
All Countries World Free Index from 3/15/94-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton
Global Growth MSCI All
Fund - Countries
Class 1 World Index
--------------------------------------------
<S> <C> <C>
03/15/1994 $10,000 $10,000
03/31/1994 $10,030 $9,763
04/30/1994 $10,079 $10,028
05/31/1994 $10,118 $10,088
06/30/1994 $10,020 $10,039
07/31/1994 $10,295 $10,261
08/31/1994 $10,551 $10,626
09/30/1994 $10,482 $10,377
10/31/1994 $10,492 $10,643
11/30/1994 $10,285 $10,180
12/31/1994 $10,315 $10,216
01/31/1995 $10,226 $10,008
02/28/1995 $10,335 $10,115
03/31/1995 $10,335 $10,578
04/30/1995 $10,630 $10,963
05/31/1995 $10,896 $11,084
06/30/1995 $11,053 $11,087
07/31/1995 $11,498 $11,623
08/31/1995 $11,399 $11,368
09/30/1995 $11,617 $11,681
10/31/1995 $11,231 $11,486
11/30/1995 $11,310 $11,847
12/31/1995 $11,627 $12,204
01/31/1996 $12,132 $12,475
02/29/1996 $12,181 $12,527
03/31/1996 $12,379 $12,720
04/30/1996 $12,706 $13,031
05/31/1996 $12,894 $13,044
06/30/1996 $12,886 $13,116
07/31/1996 $12,416 $12,626
08/31/1996 $12,814 $12,782
09/30/1996 $12,988 $13,254
10/31/1996 $13,080 $13,307
11/30/1996 $13,672 $14,018
12/31/1996 $14,102 $13,815
01/31/1997 $14,510 $14,047
02/28/1997 $14,592 $14,238
03/31/1997 $14,561 $13,953
04/30/1997 $14,623 $14,402
05/31/1997 $15,287 $15,261
06/30/1997 $16,058 $16,042
07/31/1997 $16,684 $16,767
08/31/1997 $16,245 $15,591
09/30/1997 $17,164 $16,422
10/31/1997 $15,891 $15,444
11/30/1997 $15,839 $15,681
12/31/1997 $16,006 $15,887
01/31/1998 $15,912 $16,236
02/28/1998 $17,185 $17,347
03/31/1998 $18,103 $18,087
04/30/1998 $18,155 $18,257
05/31/1998 $17,644 $17,910
06/30/1998 $17,395 $18,233
07/31/1998 $17,407 $18,239
08/31/1998 $14,891 $15,684
09/30/1998 $14,998 $15,996
10/31/1998 $16,391 $17,456
11/30/1998 $17,135 $18,516
12/31/1998 $17,442 $19,376
01/31/1999 $17,194 $19,772
02/28/1999 $16,663 $19,275
03/31/1999 $17,548 $20,142
04/30/1999 $19,379 $21,012
05/31/1999 $18,564 $20,270
06/30/1999 $19,532 $21,279
07/31/1999 $19,410 $21,192
08/31/1999 $19,329 $21,167
09/30/1999 $18,883 $20,938
10/31/1999 $18,748 $21,999
11/30/1999 $19,640 $22,682
12/31/1999 $21,112 $24,572
</TABLE>
This graph compares the performance of Templeton Global Growth Fund - Class 2,
as tracked by the growth in value of a $10,000 investment, to that of the MSCI
All Countries World Free Index from 3/15/94-12/31/99.*
<TABLE>
<CAPTION>
Templeton MSCI All
Global Growth Countries
Fund - Class 2 World Index
------------------------------------------
<S> <C> <C>
03/15/1994 $10,000 $10,000
03/31/1994 $10,030 $9,763
04/30/1994 $10,079 $10,028
05/31/1994 $10,118 $10,088
06/30/1994 $10,020 $10,039
07/31/1994 $10,295 $10,261
08/31/1994 $10,551 $10,626
09/30/1994 $10,482 $10,377
10/31/1994 $10,492 $10,643
11/30/1994 $10,285 $10,180
12/31/1994 $10,315 $10,216
01/31/1995 $10,226 $10,008
02/28/1995 $10,335 $10,115
03/31/1995 $10,335 $10,578
04/30/1995 $10,630 $10,963
05/31/1995 $10,896 $11,084
06/30/1995 $11,053 $11,087
07/31/1995 $11,498 $11,623
08/31/1995 $11,399 $11,368
09/30/1995 $11,617 $11,681
10/31/1995 $11,231 $11,486
11/30/1995 $11,310 $11,847
12/31/1995 $11,627 $12,204
01/31/1996 $12,132 $12,475
02/29/1996 $12,181 $12,527
03/31/1996 $12,379 $12,720
04/30/1996 $12,706 $13,031
05/31/1996 $12,894 $13,044
06/30/1996 $12,886 $13,116
07/31/1996 $12,416 $12,626
08/31/1996 $12,814 $12,782
09/30/1996 $12,988 $13,254
10/31/1996 $13,080 $13,307
11/30/1996 $13,672 $14,018
12/31/1996 $14,102 $13,815
01/31/1997 $14,510 $14,047
02/28/1997 $14,592 $14,238
03/31/1997 $14,561 $13,953
04/30/1997 $14,623 $14,402
05/31/1997 $15,287 $15,261
06/30/1997 $16,058 $16,042
07/31/1997 $16,684 $16,767
08/31/1997 $16,245 $15,591
09/30/1997 $17,164 $16,422
10/31/1997 $15,891 $15,444
11/30/1997 $15,839 $15,681
12/31/1997 $16,006 $15,887
01/31/1998 $15,912 $16,236
02/28/1998 $17,185 $17,347
03/31/1998 $18,103 $18,087
04/30/1998 $18,155 $18,257
05/31/1998 $17,644 $17,910
06/30/1998 $17,395 $18,233
07/31/1998 $17,407 $18,239
08/31/1998 $14,891 $15,684
09/30/1998 $14,998 $15,996
10/31/1998 $16,391 $17,456
11/30/1998 $17,135 $18,516
12/31/1998 $17,442 $19,376
01/31/1999 $17,182 $19,772
02/28/1999 $16,651 $19,275
03/31/1999 $17,526 $20,142
04/30/1999 $19,368 $21,012
05/31/1999 $18,541 $20,270
06/30/1999 $19,508 $21,279
07/31/1999 $19,387 $21,192
08/31/1999 $19,320 $21,167
09/30/1999 $18,860 $20,938
10/31/1999 $18,737 $21,999
11/30/1999 $19,616 $22,682
12/31/1999 $21,077 $24,572
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
TEMPLETON INTERNATIONAL EQUITY FUND
The 12 months under review will go down as a year of contrasts. January 1999
ushered in the euro, a currency devaluation in Brazil, worries of a U.S.
slowdown, Year 2000 (Y2K) bug fears and a growing optimism in Asia. As we exited
the year, we believed unbridled optimism reigned in most markets -- inflation
was well under control, the Internet was revolutionizing global economies, Y2K
concerns diminished and cash was flowing into the equity markets. Unfortunately
for value investors, the bulk of the money went toward growth sectors such as
telecommunications and technology, pushing those stock prices to unprecedented
levels, while, except for a brief second quarter flurry, largely bypassing
shares in economically sensitive companies.
In Europe, the introduction of the euro, the 11-country common currency, did not
live up to its fanfare apparently due to worries over most European economies'
health and concerns such governments would continue to interfere in the free
market, principally by bailing out struggling companies. However, the currency
weakness seemed to benefit export-oriented companies' operations, as a less
valuable currency meant that their products were more price-competitive. In
addition, the weak currency appeared to help companies in commodity industries.
Commodity prices are generally
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +21.04%
5-Year +15.40%
Since Inception (3/15/94) +13.76%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- -------------------------------------------------------------------------------
<S> <C>
1-Year +20.84%
5-Year +15.36%
Since Inception (3/15/94) +13.73%
</TABLE>
[PIE CHART]
<TABLE>
<S> <C>
Europe 58.8%
Asia 16.2%
Latin America 9.4%
Australia/New Zealand 6.3%
North America 2.7%
Short-Term Investments & Other New Assets 6.5%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
25
<PAGE>
TOP 10 HOLDINGS
Templeton International Equity Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Nippon Telegraph &
Telephone Corp. 2.9%
Telecommunications, Japan
Marconi PLC 2.7%
Electrical & Electronics, U.K
Amadeus Global Travel
Distribution SA 2.7%
Leisure & Tourism, Spain
Koninklijke Philips
Electronics NV 2.6%
Electrical & Electronics,
Netherlands
Sony Corp. 2.5%
Electrical & Electronics, Japan
Total Fina SA 2.4%
Energy Sources, France
Muenchener Rueck
Versicherungs-Geselschaft 2.2%
Insurance, Germany
Telecomunicacoes Brasileiras
SA (Telebras) 2.1%
Telecommunications, Brazil
Nokia Corp. 2.1%
Telecommunications, Finland
Alcatel SA 1.8%
Electrical & Electronics, France
</TABLE>
U.S.-dollar denominated, which enables such companies to earn revenues in the
stronger U.S. dollar, but pay expenses in the weaker euro. Consequently, the
portfolio's holdings in oil, metals, and paper and forest shares boosted its
performance.
The most significant hurdle for value investors in 1999 was the "Internet fever"
that appeared to grip European investors and their willingness to pay seemingly
high multiples to invest in telecommunications and technology stocks. While the
portfolio owned many of these shares in prior years, we sold most in early 1999
and missed out on the second half technology rally. In general, the portfolio
was a net seller of European equities during the year, reducing its exposure
from 68.7% of total net assets on January 1, 1999, to 58.8% at the end of the
period, as we felt there was better value elsewhere. However, with economic
indicators picking up across the continent, we believe European cyclical shares,
which we consider to be value stocks, could perform well in the first half of
2000.
Asian markets turned in strong performances as the region appeared to continue
to rebound from the 1997-1998 "Asian Crisis." Fueled by growing domestic
consumption and strong exports to the developed world, many companies seemed to
have successfully restructured operations and repaired their balance sheets. We
initiated positions in a handful of Japanese names, which combined with their
strong performances, increased our Asia weighting, from 2.8% of total net assets
at the beginning of the period, to 16.2% on December 31, 1999.
In Latin America, the key Mexican and Brazilian markets provided extremely
volatile yet generally strong performances. Aided by its proximity to the
booming U.S. economy, Mexico was the best-performing market in the region.
Brazil, after months of currency-induced turmoil, recovered in the final months
of the year as interest rates finally stabilized. Driven by strong performance,
our holdings in Latin America increased from 8.6% of total net assets on January
1, 1999, to 9.4% at the end of the year under review.
For the year, the portfolio's performance tracked that of the unmanaged MSCI All
Country World ex-U.S. Free Index. The portfolio's technology- and
telecommunications-related names posted the period's strongest performances,
particularly Koninklijke Philips Electronics NV, Finnish wireless phone
manufacturer Nokia Corp. and U.K. communications and information technology
company Marconi PLC. In addition, many of the portfolio's emerging markets
positions did well, including Brazilian bank Uniao de Bancos Brasileiros SA
(Unibanco). However, these were partially offset by
26
<PAGE>
poor performances in our U.K. retail holdings Safeway PLC and Storehouse, whose
stocks still looked extremely inexpensive to us relative to fixed assets at the
end of the period. The utilities industry was another relatively weak sector, as
rising interest rates seemed to hurt portfolio holdings such as Thames Water
Group PLC and Iberdrola SA.
We made a handful of portfolio changes during the year to take advantage of what
we believed were unsustainable valuation discrepancies. While we acknowledge the
Internet's tremendous growth, we believed that on a longer-term basis, investors
were severely undervaluing "old economy" stocks. Therefore, during the year, we
sold several stocks based on valuations we believed to be high, most notably
telephone operator British Telecommunications PLC, international energy company
BG PLC, German investment bank Deutsche Bank AG, and Electrolux AB, a Swedish
household appliance maker. We then reallocated these assets across a number of
stocks, which we felt offered greater value.
The largest buys in the period included Chinese electric utility CLP Holdings
Ltd., British financial services firm Zurich Allied PLC, Dutch publisher Wolters
Kluwer NV, and several Japanese companies -- electronics firms Hitachi Ltd. and
Sony Corp., telecommunications services company Nippon Telegraph & Telephone
Corp., and investment bank Nomura Securities Co. Ltd. In some cases, we invested
in different companies within the same industry to take advantage of apparent
valuation gaps. Most notably, we reinvested our freed-up assets from Telefonica
SA into Nippon Telegraph & Telephone.
The strategies employed by the portfolio are consistent with the methods used by
the Templeton organization for more than 50 years. Our team of 35 analysts
scours the globe looking for out-of-favor securities we believe are trading at
depressed levels relative to long-term "normalized" earnings. To us, normalized
earnings represent what a company can earn in the middle of a typical economic
cycle, which requires us to forecast earnings and cash flow out five years. We
then purchase stocks that seem inexpensive on a five-year basis and on average
hold them for the same period. We do this because we believe that over the long
term a bottom-up value-based contrarian approach produces superior returns.
Going forward, we remain positive regarding the international markets'
longer-term outlook, but are concerned in the short-term due to many stocks'
high valuations. By seeking to purchase out-of-favor securities trading at low
valuations and maintaining a diversified portfolio, we are attempting to reduce
short-term volatility while positioning the portfolio for strong long-term
performance.
27
<PAGE>
In an effort to be consistent with other funds that have similar investment
goals, we are replacing MSCI AC World ex-US Free Index with MSCI EAFE(R) Index.
MSCI EAFE is a widely recognized index whose components match the portfolio's
primary investments.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- ---------------------------------------------------------------------------------
<S> <C>
1-Year +26.63%
5-Year +15.22%
Since Inception (1/27/92) +12.64%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +26.04%
5-Year +15.11%
Since Inception (1/27/92) +12.57%
</TABLE>
TOTAL RETURN INDEX COMPARISON
Templeton International Equity Fund - Class 1
$10,000 Investment (1/27/92-12/31/99)
[BAR GRAPH]
This graph compares the performance of Templeton International Equity Fund -
Class 1, as tracked by the growth in value of a $10,000 investment, to that of
MSCI EAFE Index and MSCI All Country World Ex-U.S. Free Index from
1/27/92-12/31/99.
In an effort to be consistent with other funds that have similar investment
goals, we are replacing MSCI AC World ex-US Free Index with MSCI EAFE(R) Index.
MSCI EAFE is a widely recognized index whose components match the portfolio's
primary investments. Performance shown reflects all fund operating expenses but
does not include any fees, charges or expenses imposed by the variable annuity
or life insurance contracts that use the Franklin Templeton Variable Insurance
Products Trust. If they had been included, performance would have been 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 the contract expenses, including any
applicable sales charges. Index source is MSCI.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton MSCI All
International Country World
Equity Fund - MSCI EAFE Free Ex-U.S.
Class 1 Index Index
--------------------------------------------------------------
<S> <C> <C> <C>
01/27/1992 $10,000 $10,000 $10,000
01/31/1992 $10,000 $9,972 $9,982
02/29/1992 $10,000 $9,618 $9,675
03/31/1992 $10,000 $8,986 $9,090
04/30/1992 $10,010 $9,031 $9,120
05/31/1992 $10,270 $9,638 $9,674
06/30/1992 $10,040 $9,184 $9,207
07/31/1992 $9,760 $8,952 $9,011
08/31/1992 $9,860 $9,516 $9,492
09/30/1992 $9,740 $9,332 $9,297
10/31/1992 $9,570 $8,845 $8,889
11/30/1992 $9,670 $8,931 $8,938
12/31/1992 $9,760 $8,980 $9,012
01/31/1993 $9,630 $8,981 $9,011
02/28/1993 $9,770 $9,255 $9,287
03/31/1993 $9,930 $10,064 $10,052
04/30/1993 $10,200 $11,022 $10,940
05/31/1993 $10,410 $11,258 $11,183
06/30/1993 $10,218 $11,085 $11,049
07/31/1993 $10,419 $11,476 $11,417
08/31/1993 $11,132 $12,098 $12,029
09/30/1993 $11,042 $11,828 $11,782
10/31/1993 $11,694 $12,196 $12,208
11/30/1993 $11,403 $11,132 $11,279
12/31/1993 $12,547 $11,938 $12,158
01/31/1994 $13,461 $12,950 $13,158
02/28/1994 $13,230 $12,917 $13,059
03/31/1994 $12,748 $12,363 $12,461
04/30/1994 $12,868 $12,890 $12,883
05/31/1994 $12,939 $12,819 $12,888
06/30/1994 $12,601 $13,003 $12,979
07/31/1994 $13,117 $13,131 $13,190
08/31/1994 $13,512 $13,445 $13,634
09/30/1994 $13,249 $13,024 $13,296
10/31/1994 $13,461 $13,461 $13,654
11/30/1994 $12,885 $12,817 $12,995
12/31/1994 $12,652 $12,900 $12,965
01/31/1995 $12,389 $12,408 $12,377
02/28/1995 $12,571 $12,376 $12,309
03/31/1995 $12,531 $13,151 $13,004
04/30/1995 $13,087 $13,649 $13,512
05/31/1995 $13,330 $13,490 $13,452
06/30/1995 $13,624 $13,257 $13,266
07/31/1995 $14,202 $14,086 $14,019
08/31/1995 $13,897 $13,552 $13,533
09/30/1995 $14,202 $13,820 $13,764
10/31/1995 $13,792 $13,452 $13,396
11/30/1995 $13,824 $13,830 $13,711
12/31/1995 $13,992 $14,391 $14,253
01/31/1996 $14,464 $14,453 $14,449
02/29/1996 $14,801 $14,506 $14,449
03/31/1996 $15,032 $14,817 $14,718
04/30/1996 $15,473 $15,252 $15,165
05/31/1996 $15,693 $14,975 $14,937
06/30/1996 $15,714 $15,063 $15,013
07/31/1996 $15,235 $14,626 $14,514
08/31/1996 $15,692 $14,662 $14,599
09/30/1996 $15,848 $15,055 $14,961
10/31/1996 $16,137 $14,905 $14,812
11/30/1996 $16,750 $15,502 $15,383
12/31/1996 $17,207 $15,306 $15,205
01/31/1997 $17,507 $14,774 $14,926
02/28/1997 $17,786 $15,019 $15,199
03/31/1997 $18,042 $15,077 $15,167
04/30/1997 $17,886 $15,161 $15,295
05/31/1997 $18,565 $16,151 $16,240
06/30/1997 $19,587 $17,046 $17,136
07/31/1997 $20,100 $17,325 $17,483
08/31/1997 $19,683 $16,034 $16,108
09/30/1997 $21,077 $16,936 $16,979
10/31/1997 $19,659 $15,638 $15,533
11/30/1997 $19,194 $15,482 $15,339
12/31/1997 $19,218 $15,621 $15,516
01/31/1998 $19,098 $16,339 $15,980
02/28/1998 $20,303 $17,391 $17,046
03/31/1998 $21,638 $17,931 $17,635
04/30/1998 $22,174 $18,077 $17,761
05/31/1998 $22,019 $17,993 $17,439
06/30/1998 $21,790 $18,133 $17,373
07/31/1998 $21,881 $18,321 $17,539
08/31/1998 $18,600 $16,055 $15,065
09/30/1998 $18,117 $15,567 $14,747
10/31/1998 $19,332 $17,195 $16,292
11/30/1998 $20,182 $18,080 $17,167
12/31/1998 $20,287 $18,797 $17,759
01/31/1999 $19,738 $18,746 $17,740
02/28/1999 $19,515 $18,303 $17,343
03/31/1999 $20,744 $19,072 $18,180
04/30/1999 $22,535 $19,849 $19,089
05/31/1999 $21,515 $18,831 $18,193
06/30/1999 $22,600 $19,570 $19,029
07/31/1999 $22,468 $20,156 $19,475
08/31/1999 $22,328 $20,234 $19,542
09/30/1999 $22,090 $20,443 $19,674
10/31/1999 $22,356 $21,213 $20,407
11/30/1999 $23,491 $21,954 $21,223
12/31/1999 $25,699 $23,929 $23,247
</TABLE>
TOTAL RETURN INDEX COMPARISON
Templeton International Equity Fund - Class 2*
$10,000 Investment (1/27/92-12/31/99)
[BAR GRAPH]
This graph compares the performance of Templeton International Equity Fund -
Class 2, as tracked by the growth in value of a $10,000 investment, to that of
MSCI EAFE Index and MSCI All Country World Ex-U.S. Free Index from
1/27/92-12/31/99.*
<TABLE>
<CAPTION>
Templeton MSCI All
International Country World
Equity Fund MSCI EAFE Free Ex-U.S.
- Class 2 Index Index
---------------------------------------------------------------
<S> <C> <C> <C>
01/27/1992 $10,000 $10,000 $10,000
01/31/1992 $10,000 $9,972 $9,982
02/29/1992 $10,000 $9,618 $9,675
03/31/1992 $10,000 $8,986 $9,090
04/30/1992 $10,010 $9,031 $9,120
05/31/1992 $10,270 $9,638 $9,674
06/30/1992 $10,040 $9,184 $9,207
07/31/1992 $9,760 $8,952 $9,011
08/31/1992 $9,860 $9,516 $9,492
09/30/1992 $9,740 $9,332 $9,297
10/31/1992 $9,570 $8,845 $8,889
11/30/1992 $9,670 $8,931 $8,938
12/31/1992 $9,760 $8,980 $9,012
01/31/1993 $9,630 $8,981 $9,011
02/28/1993 $9,770 $9,255 $9,287
03/31/1993 $9,930 $10,064 $10,052
04/30/1993 $10,200 $11,022 $10,940
05/31/1993 $10,410 $11,258 $11,183
06/30/1993 $10,218 $11,085 $11,049
07/31/1993 $10,419 $11,476 $11,417
08/31/1993 $11,132 $12,098 $12,029
09/30/1993 $11,042 $11,828 $11,782
10/31/1993 $11,694 $12,196 $12,208
11/30/1993 $11,403 $11,132 $11,279
12/31/1993 $12,547 $11,938 $12,158
01/31/1994 $13,461 $12,950 $13,158
02/28/1994 $13,230 $12,917 $13,059
03/31/1994 $12,748 $12,363 $12,461
04/30/1994 $12,868 $12,890 $12,883
05/31/1994 $12,939 $12,819 $12,888
06/30/1994 $12,601 $13,003 $12,979
07/31/1994 $13,117 $13,131 $13,190
08/31/1994 $13,512 $13,445 $13,634
09/30/1994 $13,249 $13,024 $13,296
10/31/1994 $13,461 $13,461 $13,654
11/30/1994 $12,885 $12,817 $12,995
12/31/1994 $12,652 $12,900 $12,965
01/31/1995 $12,389 $12,408 $12,377
02/28/1995 $12,571 $12,376 $12,309
03/31/1995 $12,531 $13,151 $13,004
04/30/1995 $13,087 $13,649 $13,512
05/31/1995 $13,330 $13,490 $13,452
06/30/1995 $13,624 $13,257 $13,266
07/31/1995 $14,202 $14,086 $14,019
08/31/1995 $13,897 $13,552 $13,533
09/30/1995 $14,202 $13,820 $13,764
10/31/1995 $13,792 $13,452 $13,396
11/30/1995 $13,824 $13,830 $13,711
12/31/1995 $13,992 $14,391 $14,253
01/31/1996 $14,464 $14,453 $14,449
02/29/1996 $14,801 $14,506 $14,449
03/31/1996 $15,032 $14,817 $14,718
04/30/1996 $15,473 $15,252 $15,165
05/31/1996 $15,693 $14,975 $14,937
06/30/1996 $15,714 $15,063 $15,013
07/31/1996 $15,235 $14,626 $14,514
08/31/1996 $15,692 $14,662 $14,599
09/30/1996 $15,848 $15,055 $14,961
10/31/1996 $16,137 $14,905 $14,812
11/30/1996 $16,750 $15,502 $15,383
12/31/1996 $17,207 $15,306 $15,205
01/31/1997 $17,507 $14,774 $14,926
02/28/1997 $17,786 $15,019 $15,199
03/31/1997 $18,042 $15,077 $15,167
04/30/1997 $17,886 $15,161 $15,295
05/31/1997 $18,565 $16,151 $16,240
06/30/1997 $19,587 $17,046 $17,136
07/31/1997 $20,100 $17,325 $17,483
08/31/1997 $19,683 $16,034 $16,108
09/30/1997 $21,077 $16,936 $16,979
10/31/1997 $19,659 $15,638 $15,533
11/30/1997 $19,194 $15,482 $15,339
12/31/1997 $19,218 $15,621 $15,516
01/31/1998 $19,098 $16,339 $15,980
02/28/1998 $20,303 $17,391 $17,046
03/31/1998 $21,638 $17,931 $17,635
04/30/1998 $22,174 $18,077 $17,761
05/31/1998 $22,019 $17,993 $17,439
06/30/1998 $21,790 $18,133 $17,373
07/31/1998 $21,881 $18,321 $17,539
08/31/1998 $18,600 $16,055 $15,065
09/30/1998 $18,117 $15,567 $14,747
10/31/1998 $19,332 $17,195 $16,292
11/30/1998 $20,182 $18,080 $17,167
12/31/1998 $20,287 $18,797 $17,759
01/31/1999 $19,738 $18,746 $17,740
02/28/1999 $19,515 $18,303 $17,343
03/31/1999 $20,730 $19,072 $18,180
04/30/1999 $22,509 $19,849 $19,089
05/31/1999 $21,476 $18,831 $18,193
06/30/1999 $22,573 $19,570 $19,029
07/31/1999 $22,415 $20,156 $19,475
08/31/1999 $22,261 $20,234 $19,542
09/30/1999 $22,009 $20,443 $19,674
10/31/1999 $22,275 $21,213 $20,407
11/30/1999 $23,398 $21,954 $21,223
12/31/1999 $25,578 $23,929 $23,247
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Spurred on by persistent strength in the global economic environment,
particularly by signs of sustained recovery in Asia, international stock markets
performed strongly for the year. In Asia, economic recovery, following the 1997
currency crisis, appeared firmly established. Returns from Japan were
impressive, buoyed by the yen's strength and a rising stock market, as hopes
rose that corporate Japan would, at last, implement the necessary restructuring.
In Latin America, the Brazilian and Mexican stock market indexes ended
significantly higher as investors appeared to regain confidence in the region's
economic fundamentals. European market performance for the year was mixed -- the
better economic outlook pushed share prices higher, although this was partially
offset in U.S.-dollar terms by the fall in the euro's value. Overall, Europe
underperformed other international regions.
For the year under review, the portfolio's performance was below that of our
benchmark, the Salomon Global ex-U.S. less than $1 Billion Index, which had a
return of 30.3%. Most of the underperformance was due to our low exposure to
Japan and the technology sector. However, for the last three months of 1999, the
fund outperformed
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
28
<PAGE>
our benchmark despite our continuing low exposure to both the technology sector
and to Japan.
Although the portfolio benefited significantly from strong performances in Hong
Kong, South Korea and Singapore, the underweight position in Japan hurt results.
While the Nikkei posted a 54.5% return, sector performances differed widely.
Almost all sectors underperformed the local market indexes; however, the
parabolic rise in the richly priced communications and securities sectors more
than made up for this. As value investors, we did not find these two sectors
attractive at either the beginning or the end of the period.
A number of the portfolio's European companies performed well, yet investor
preferences for larger, technology-related companies held back overall results.
In addition, certain companies fell into the "value trap," whereby they were
recognized as inexpensive, but were simply too small for investors to take a
meaningful position. We are optimistic about prospects for 2000, and note that
the growing pace of merger and acquisition (M&A) activity should help to improve
the stock performances in some of these undervalued businesses.
Within the portfolio, a number of stocks performed particularly well. These
included trading company Li & Fung Ltd. and retailer Giordano International Ltd.
in Hong Kong, Indian cement manufacturer Gujarat Ambuja Cements Ltd.,
telecommunications services provider Telemig Celular Participacoes SA and steel
producer Confab Industrial SA in Brazil, French retailer SA de Galeries
Lafayette, Swedish furniture manufacturer Granges AB, and Swedish research and
consulting firm Sifo Group AB. However, during the period we took the
opportunity to trim positions in some of these stocks where we felt stock prices
fully reflected business prospects.
Given the rise in the world's markets throughout the period, we were
particularly selective in buying shares during the fourth quarter of 1999.
However, we did find some values we believed were compelling. We increased our
positions in a few classic value stocks, such as Orient Overseas International
Ltd. of Hong Kong. In Europe, we added to our small weighting in Sifo Group.
In the coming year, we will continue to focus on company fundamentals as the
basis for stock selection. We will concentrate our search on small companies we
believe are able to avert the threat of pricing pressure as we focus on
value-added rather than commodity-product companies. Furthermore, we believe
that based on the divergence in valuations between the small- and large-cap
sectors, small-cap stocks worldwide have tremendous upside potential.
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton International
Smaller Companies Fund
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
Europe 44.2%
Asia 31.7%
Latin America 6.1%
North Amarica 6.0%
Australia/New Zealand 4.5%
MidEast/Africa 0.9%
Short-Term Investment & Other Net Assets 6.6%
</TABLE>
TOP 10 HOLDINGS
Templeton International Smaller Companies Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Li & Fung Ltd. 4.7%
Merchandising, Hong Kong
Giordano International Ltd. 3.8%
Merchandising, Hong Kong
GTC Transcontinental
Group Ltd., B 3.4%
Broadcasting & Publishing,
Canada
SA des Galeries Lafayette 2.8%
Merchandising, France
Gujarat Ambuja Cements Ltd. 2.8%
Building Materials &
Components, India
Siam City Cement
Public Co. Ltd., fgn 2.4%
Building Materials &
Components, Thailand
Elkem ASA, A 2.2%
Metals & Mining, Norway
Dah Sing Financial Holdings Ltd. 2.1%
Financial Services, Hong Kong
Telemig Celular
Participacoes SA, ADR 1.9%
Telecommunications, Brazil
Kardex AG, Br 1.8%
Business & Public Services,
Switzerland
</TABLE>
29
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Salomon Smith Barney.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +23.90%
3-Year +2.30%
Since Inception (5/1/96) +5.20%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +23.90%
3-Year +2.30%
Since Inception (5/1/96) +5.20%
</TABLE>
Regionally, we believe Europe will continue to have immense possibilities. In
Japan, we plan to focus on newer, entrepreneurial companies, although we
continue to remain cautious about the country's overall economic fundamentals.
In India, recent elections appear to signal the end of a period of unstable
government and usher in possibilities for meaningful economic reform. Similarly
in China, we believe the agreement with the U.S. concerning entry into the World
Trade Organization during the fourth quarter will likely provide interesting
investment opportunities as foreign direct investment returns to Asia's largest
nation.
TOTAL RETURN INDEX COMPARISON
Templeton International Smaller Companies Fund - Class 1
$10,000 Investment (5/1/96-12/31/99)
[BAR GRAPH]
This graph compares the performance of Templeton International Smaller Companies
Fund - Class 1, as tracked by the growth in value of a $10,000 investment, to
that of the Salomon Global ex-U.S. less than $1 Billion Index from
5/1/96-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Salomon Smith Barney.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton International Salomon Global
Smaller Companies Fund - ex-U.S. less than
Class 1 $1 Billion Index
-----------------------------------------------
<S> <C> <C>
05/01/1996 $10,000 $10,000
05/31/1996 $10,150 $9,929
06/30/1996 $10,330 $9,908
07/31/1996 $10,210 $9,465
08/31/1996 $10,330 $9,637
09/30/1996 $10,410 $9,694
10/31/1996 $10,690 $9,704
11/30/1996 $10,890 $9,890
12/31/1996 $11,250 $9,721
01/31/1997 $11,330 $9,791
02/28/1997 $11,450 $10,022
03/31/1997 $11,490 $9,803
04/30/1997 $11,440 $9,611
05/31/1997 $11,670 $10,127
06/30/1997 $11,936 $10,341
07/31/1997 $12,026 $10,188
08/31/1997 $12,117 $9,652
09/30/1997 $12,569 $9,672
10/31/1997 $11,574 $9,092
11/30/1997 $11,232 $8,426
12/31/1997 $11,081 $8,170
01/31/1998 $10,689 $8,345
02/28/1998 $11,684 $9,047
03/31/1998 $12,227 $9,364
04/30/1998 $12,328 $9,396
05/31/1998 $12,066 $9,206
06/30/1998 $11,327 $8,739
07/31/1998 $11,105 $8,552
08/31/1998 $9,362 $7,292
09/30/1998 $9,066 $7,290
10/31/1998 $9,404 $7,796
11/30/1998 $9,805 $8,127
12/31/1998 $9,721 $8,273
01/31/1999 $9,467 $8,144
02/28/1999 $9,425 $8,026
03/31/1999 $9,827 $8,643
04/30/1999 $10,820 $9,494
05/31/1999 $10,756 $9,343
06/30/1999 $11,380 $9,988
07/31/1999 $11,565 $10,202
08/31/1999 $11,729 $10,373
09/30/1999 $11,359 $10,212
10/31/1999 $11,272 $10,105
11/30/1999 $11,424 $10,306
12/31/1999 $12,040 $10,779
</TABLE>
TOTAL RETURN INDEX COMPARISON
Templeton International Smaller Companies Fund - Class 2*
$10,000 Investment (5/1/96-12/31/99)
[BAR GRAPH]
This graph compares the performance of Templeton International Smaller Companies
Fund - Class 2, as tracked by the growth in value of a $10,000 investment, to
that of the Salomon Global ex-U.S. less than $1 Billion Index from
5/1/96-12/31/99.*
<TABLE>
<CAPTION>
Templeton International Salomon Global
Smaller Companies Fund ex-U.S. less than
- Class 2 $1 Billion Index
----------------------------------------------
<S> <C> <C>
05/01/1996 $10,000 $10,000
05/31/1996 $10,150 $9,929
06/30/1996 $10,330 $9,908
07/31/1996 $10,210 $9,465
08/31/1996 $10,330 $9,637
09/30/1996 $10,410 $9,694
10/31/1996 $10,690 $9,704
11/30/1996 $10,890 $9,890
12/31/1996 $11,250 $9,721
01/31/1997 $11,330 $9,791
02/28/1997 $11,450 $10,022
03/31/1997 $11,490 $9,803
04/30/1997 $11,440 $9,611
05/31/1997 $11,670 $10,127
06/30/1997 $11,936 $10,341
07/31/1997 $12,026 $10,188
08/31/1997 $12,117 $9,652
09/30/1997 $12,569 $9,672
10/31/1997 $11,574 $9,092
11/30/1997 $11,232 $8,426
12/31/1997 $11,081 $8,170
01/31/1998 $10,689 $8,345
02/28/1998 $11,684 $9,047
03/31/1998 $12,227 $9,364
04/30/1998 $12,328 $9,396
05/31/1998 $12,066 $9,206
06/30/1998 $11,327 $8,739
07/31/1998 $11,105 $8,552
08/31/1998 $9,362 $7,292
09/30/1998 $9,066 $7,290
10/31/1998 $9,404 $7,796
11/30/1998 $9,805 $8,127
12/31/1998 $9,721 $8,273
01/31/1999 $9,467 $8,144
02/28/1999 $9,424 $8,026
03/31/1999 $9,815 $8,643
04/30/1999 $10,809 $9,494
05/31/1999 $10,745 $9,343
06/30/1999 $11,368 $9,988
07/31/1999 $11,553 $10,202
08/31/1999 $11,716 $10,373
09/30/1999 $11,346 $10,212
10/31/1999 $11,270 $10,105
11/30/1999 $11,422 $10,306
12/31/1999 $12,040 $10,779
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
TEMPLETON PACIFIC GROWTH FUND
The Asian economies' broad-based recovery fueled a strong rebound in those
equity markets during 1999. Although deflation underscored the fragility of the
upturn in the third quarter, economic and equity market performance ended the
year on a resoundingly positive note. Your portfolio benefited from this
recovery, as its largest weightings on December 31, 1999, were Hong Kong, Japan
and Singapore at 26.2%, 19.8%, and 17.5% respectively.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
30
<PAGE>
Japan clearly delivered the most impressive returns for the year under review.
Policymakers took action to shore up its deflating and floundering economy,
while corporate restructuring announcements signaled to investors that business
executives seemed serious about putting their houses in order. In one example of
an unprecedented move in Japanese corporate history, Sony Corp. announced its
intention to trim its headquarters staff by two-thirds. This combination of
government and business initiatives made Japan the fourth-best performing
developed market for the past year. Within this environment, we focused on
purchasing stock in companies where we perceived there was value. Such companies
included Nomura Securities Co. Ltd., Fuji Photo Film Co. Ltd. and Kurita Water
Industries Ltd.
Looking ahead, a key question facing investors after such a huge market rally is
how much more upward pressure is on the yen. As of the end of the reporting
period, the Japanese economy exhibited positive momentum, while the Bank of
Japan had not yet capitulated to pressure for an interest-rate reduction.
Consequently, the yen strengthened further. Although we do not know what the
Bank of Japan will ultimately do, we are confident that corporate Japan will
likely continue restructuring and that ongoing fiscal stimulus should help the
Japanese economy remain firm.
Along with Japan, Hong Kong experienced improving economic fundamentals in 1999.
Declining interest rates, firming real estate prices and falling business
inventories underpinned this revitalization. In an environment of mounting
consumer confidence and falling unemployment, consumption and exports primarily
contributed to Hong Kong's economic recovery. Although Hong Kong's corporate
sector has passed the peak of the restructuring process, in our opinion, China's
is just developing. China is now in a position to exert considerable influence
on Hong Kong's economy. As of the end of the reporting period, signs pointed to
a possible 10% Chinese currency devaluation in the near future. As the
surrounding region stabilizes, the central government's incentive to maintain
its currency, the renminbi, at recent levels should recede. Although we do not
believe devaluation would destroy regional economic recovery, we would expect a
corresponding pullback in Chinese and Hong Kong equity shares. Seeking to take
advantage of the Hong Kong market's recent strength, we sold our position in
Cathay Pacific Airways Ltd., and took some profits in Cheung Kong Holdings Ltd.
and Cable and Wireless HKT Ltd. (Hong Kong Telecommunications Ltd.).
Among our smaller holdings, we saw opportunity in the political turmoil between
Pakistan and India. We purchased an Indian natural gas transmission company, Gas
Authority of India Ltd., and initiated a position in an Indian cement producer,
Gujarat Ambuja Cements Ltd. The latter position performed extremely well, due to
the Indian market's sharp recovery.
Top 10 Holdings
Templeton Pacific Growth Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Singapore Airlines Ltd. 5.1%
Transportation, Singapore
DBS Group Holdings Ltd. 5.0%
Banking, Singapore
South China Morning Post Ltd. 4.3%
Broadcasting & Publishing,
Hong Kong
Commerce-Asset Holding Bhd. 4.2%
Financial Services, Malaysia
City Developments Ltd. 3.9%
Real Estate, Singapore
Overseas Union Bank Ltd. 3.6%
Banking, Singapore
Cheung Kong Holdings Ltd. 3.5%
Multi-Industry, Hong Kong
Philippine National Bank 3.5%
Banking, Philippines
Fuji Heavy Industries Ltd. 3.4%
Industrial Components, Japan
Carter Holt Harvey Ltd. 3.3%
Forest Products & Paper,
New Zealand
</TABLE>
31
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +37.02%
5-Year -1.77%
Since Inception (1/27/92) +2.53%
</TABLE>
<TABLE>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +36.89%
5-Year -1.79%
Since Inception (1/27/92) +2.51%
</TABLE>
Going forward, we expect greater volatility across all Asian markets, as
investors delve deeper into the details of those countries' restructurings to
establish their long-term outlook for various securities. Japan provides one
example of a country where restructuring continues, yet many policymakers remain
unsure about future monetary and fiscal policies. For Asia as a whole, we
believe that some restructuring has been cosmetic and that not all changes have
cut to the region's core problems, such as underutilization of capital assets
and labor. Therefore, we expect a mixed picture with regard to regional equity
performance in the future.
[BAR CHART]
This graph compares the performance of Templeton Pacific Growth Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of MSCI
Pacific Index from 1/27/92-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton Pacific MSCI Pacific Index
Growth Fund - Class
1
-----------------------------------------
<S> <C> <C>
01/27/1992 $10,000 $10,000
01/31/1992 $10,000 $9,949
02/29/1992 $10,000 $9,253
03/31/1992 $10,000 $8,375
04/30/1992 $10,010 $7,993
05/31/1992 $10,210 $8,618
06/30/1992 $10,450 $7,942
07/31/1992 $9,900 $7,834
08/31/1992 $9,570 $8,908
09/30/1992 $9,790 $8,706
10/31/1992 $10,230 $8,401
11/30/1992 $10,110 $8,561
12/31/1992 $9,880 $8,465
01/31/1993 $9,980 $8,450
02/28/1993 $10,330 $8,862
03/31/1993 $10,270 $9,935
04/30/1993 $10,920 $11,519
05/31/1993 $11,290 $11,856
06/30/1993 $11,100 $11,664
07/31/1993 $11,230 $12,355
08/31/1993 $11,770 $12,723
09/30/1993 $11,840 $12,249
10/31/1993 $13,110 $12,522
11/30/1993 $12,970 $10,757
12/31/1993 $14,610 $11,509
01/31/1994 $14,720 $12,843
02/28/1994 $14,300 $13,177
03/31/1994 $13,330 $12,451
04/30/1994 $13,520 $12,991
05/31/1994 $14,080 $13,302
06/30/1994 $13,704 $13,739
07/31/1994 $13,956 $13,446
08/31/1994 $14,549 $13,682
09/30/1994 $14,006 $13,342
10/31/1994 $14,097 $13,681
11/30/1994 $13,191 $12,920
12/31/1994 $13,322 $13,009
01/31/1995 $12,356 $12,189
02/28/1995 $12,869 $11,889
03/31/1995 $13,191 $12,804
04/30/1995 $13,372 $13,351
05/31/1995 $13,895 $12,820
06/30/1995 $13,639 $12,279
07/31/1995 $14,166 $13,166
08/31/1995 $14,001 $12,672
09/30/1995 $14,259 $12,792
10/31/1995 $13,691 $12,172
11/30/1995 $13,763 $12,772
12/31/1995 $14,384 $13,398
01/31/1996 $15,552 $13,423
02/29/1996 $15,500 $13,273
03/31/1996 $15,531 $13,683
04/30/1996 $16,224 $14,381
05/31/1996 $16,276 $13,759
06/30/1996 $16,132 $13,764
07/31/1996 $15,255 $13,134
08/31/1996 $15,634 $12,790
09/30/1996 $15,862 $13,210
10/31/1996 $15,353 $12,599
11/30/1996 $16,176 $12,943
12/31/1996 $15,981 $12,272
01/31/1997 $15,732 $11,241
02/28/1997 $15,797 $11,477
03/31/1997 $15,201 $11,059
04/30/1997 $15,299 $11,291
05/31/1997 $16,165 $12,397
06/30/1997 $16,457 $13,167
07/31/1997 $16,733 $12,854
08/31/1997 $14,030 $11,581
09/30/1997 $14,350 $11,538
10/31/1997 $11,714 $10,139
11/30/1997 $10,688 $9,582
12/31/1997 $10,236 $9,163
01/31/1998 $9,387 $9,661
02/28/1998 $10,688 $10,009
03/31/1998 $10,390 $9,459
04/30/1998 $9,673 $9,273
05/31/1998 $8,339 $8,645
06/30/1998 $7,530 $8,630
07/31/1998 $7,293 $8,481
08/31/1998 $6,062 $7,480
09/30/1998 $6,630 $7,457
10/31/1998 $8,288 $8,749
11/30/1998 $8,880 $9,153
12/31/1998 $8,892 $9,409
01/31/1999 $8,560 $9,479
02/28/1999 $8,300 $9,295
03/31/1999 $8,986 $10,469
04/30/1999 $10,987 $11,170
05/31/1999 $10,573 $10,506
06/30/1999 $11,449 $11,474
07/31/1999 $11,555 $12,350
08/31/1999 $11,496 $12,226
09/30/1999 $11,058 $12,792
10/31/1999 $11,437 $13,289
11/30/1999 $11,662 $13,950
12/31/1999 $12,187 $14,863
</TABLE>
[BAR CHART]
This graph compares the performance of Templeton Pacific Growth Fund - Class 2,
as tracked by the growth in value of a $10,000 investment, to that of MSCI
Pacific Index from 1/27/92-12/31/99.*
<TABLE>
<CAPTION>
Templeton Pacific MSCI Pacific Index
Growth Fund - Class 2
--------------------------------------------
<S> <C> <C>
01/27/1992 $10,000 $10,000
01/31/1992 $10,000 $9,949
02/29/1992 $10,000 $9,253
03/31/1992 $10,000 $8,375
04/30/1992 $10,010 $7,993
05/31/1992 $10,210 $8,618
06/30/1992 $10,450 $7,942
07/31/1992 $9,900 $7,834
08/31/1992 $9,570 $8,908
09/30/1992 $9,790 $8,706
10/31/1992 $10,230 $8,401
11/30/1992 $10,110 $8,561
12/31/1992 $9,880 $8,465
01/31/1993 $9,980 $8,450
02/28/1993 $10,330 $8,862
03/31/1993 $10,270 $9,935
04/30/1993 $10,920 $11,519
05/31/1993 $11,290 $11,856
06/30/1993 $11,100 $11,664
07/31/1993 $11,230 $12,355
08/31/1993 $11,770 $12,723
09/30/1993 $11,840 $12,249
10/31/1993 $13,110 $12,522
11/30/1993 $12,970 $10,757
12/31/1993 $14,610 $11,509
01/31/1994 $14,720 $12,843
02/28/1994 $14,300 $13,177
03/31/1994 $13,330 $12,451
04/30/1994 $13,520 $12,991
05/31/1994 $14,080 $13,302
06/30/1994 $13,704 $13,739
07/31/1994 $13,956 $13,446
08/31/1994 $14,549 $13,682
09/30/1994 $14,006 $13,342
10/31/1994 $14,097 $13,681
11/30/1994 $13,191 $12,920
12/31/1994 $13,322 $13,009
01/31/1995 $12,356 $12,189
02/28/1995 $12,869 $11,889
03/31/1995 $13,191 $12,804
04/30/1995 $13,372 $13,351
05/31/1995 $13,895 $12,820
06/30/1995 $13,639 $12,279
07/31/1995 $14,166 $13,166
08/31/1995 $14,001 $12,672
09/30/1995 $14,259 $12,792
10/31/1995 $13,691 $12,172
11/30/1995 $13,763 $12,772
12/31/1995 $14,384 $13,398
01/31/1996 $15,552 $13,423
02/29/1996 $15,500 $13,273
03/31/1996 $15,531 $13,683
04/30/1996 $16,224 $14,381
05/31/1996 $16,276 $13,759
06/30/1996 $16,132 $13,764
07/31/1996 $15,255 $13,134
08/31/1996 $15,634 $12,790
09/30/1996 $15,862 $13,210
10/31/1996 $15,353 $12,599
11/30/1996 $16,176 $12,943
12/31/1996 $15,981 $12,272
01/31/1997 $15,732 $11,241
02/28/1997 $15,797 $11,477
03/31/1997 $15,201 $11,059
04/30/1997 $15,299 $11,291
05/31/1997 $16,165 $12,397
06/30/1997 $16,457 $13,167
07/31/1997 $16,733 $12,854
08/31/1997 $14,030 $11,581
09/30/1997 $14,350 $11,538
10/31/1997 $11,714 $10,139
11/30/1997 $10,688 $9,582
12/31/1997 $10,236 $9,163
01/31/1998 $9,387 $9,661
02/28/1998 $10,688 $10,009
03/31/1998 $10,390 $9,459
04/30/1998 $9,673 $9,273
05/31/1998 $8,339 $8,645
06/30/1998 $7,530 $8,630
07/31/1998 $7,293 $8,481
08/31/1998 $6,062 $7,480
09/30/1998 $6,630 $7,457
10/31/1998 $8,288 $8,749
11/30/1998 $8,880 $9,153
12/31/1998 $8,892 $9,409
01/31/1999 $8,560 $9,479
02/28/1999 $8,288 $9,295
03/31/1999 $8,975 $10,469
04/30/1999 $10,964 $11,170
05/31/1999 $10,562 $10,506
06/30/1999 $11,426 $11,474
07/31/1999 $11,532 $12,350
08/31/1999 $11,485 $12,226
09/30/1999 $11,058 $12,792
10/31/1999 $11,438 $13,289
11/30/1999 $11,651 $13,950
12/31/1999 $12,175 $14,863
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
PORTFOLIOS SEEKING GROWTH AND INCOME
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
(formerly, Global Utilities Securities Fund)
Global communications stocks performed very well for the 12-month period ended
December 31, 1999, principally due to the continued rise in telecommunications
stock prices. Growing demand for data, Internet, wireless and long-distance
services caused revenue and earnings estimates to increase rapidly during the
past year. Data traffic expanded as a proportion of total telecommunications
traffic as Internet usage
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
32
<PAGE>
weaves its way deeper into our everyday lives. The robust demand for wireless
phone service that has existed in Europe for the past several years is starting
to be replicated in other parts of the world. At the end of the period, the U.S.
had more than 75 million wireless telecom subscribers, representing close to 30%
of the population. Some of the portfolio's largest telecommunications holdings
appreciated significantly over the period with Sprint Corp. PCS Group (+343%),
Vodafone AirTouch PLC, ADR (+53%), Nextel Communications Inc., A (+337%) and
VoiceStream Wireless Corp. (+421%) among the top performers.
Telecommunications stocks grew as a percentage of the portfolio's total net
assets as a result of their relatively strong performance. On December 31, 1999,
such stocks represented 72% of total net assets, compared with 25.1% at the
beginning of the period. The percentage of these holdings should continue to
increase over the next year in accordance with the portfolio's name and
investment strategy change on November 15, 1999.
Electric and gas utility stocks turned in mixed performances over the period
with electric stocks falling around 19% and gas utilities remaining more or less
flat since the beginning of the year. We trimmed our holdings in such stocks as
a result of their relatively poor performance when individual equity valuations
warranted. At the end of the period, electric utilities made up 9.0% of the
portfolio's total net assets and gas utility stocks were 2.0% of total net
assets. We expect that the percentage of the portfolio invested in these
industries will continue to decline.
Over the period, the U.S., Europe and Asia experienced solid performances with
Latin America producing mixed results. The portfolio's largest weightings at the
end of the period were the U.S. at 54.8%, Europe at 20.3%, while Asia comprised
6.7% and Latin America represented 0% of total net assets compared with 73.9%,
17.9%, 2.0% and 2.2%, respectively, one year earlier.
U.S.
In the U.S., telecommunications stocks were strong performers during the past 12
months apparently driven by increasing traffic volumes, continued deregulation
and strong growth in wireless services. One of the larger portfolio holdings,
Sprint Corp (PCS Group), is a good example of the type of company we look for
when making investments. We believe the company is uniquely positioned to take
advantage of wireless communications growth due to its state-of-the-art digital
network, well-known brand name and strong balance sheet.
The past 12 months have been challenging for electric and gas utility investors.
Strong U.S.-economic growth caused investors to seek opportunities in other,
more economically sensitive, industries. However, many of these companies
continued to restructure
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Franklin Global Communications
Securities Fund
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
North America 57.6%
Europe 20.3%
Asia 6.7%
Short-Term Investments & Other Net Assets 15.4%
</TABLE>
33
<PAGE>
TOP 10 HOLDINGS
Franklin Global Communications
Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Global Crossing Ltd. 4.1%
Other Telecommunications,
Bermuda
Vodafone AirTouch PLC 3.0%
Cellular Telephone, U.K
AT&T Corp. 2.9%
Major U.S. Telecommunications,
U.S.
Global TeleSystems Group Inc. 2.8%
Other Telecommunications, U.S.
MCI Worldcom Inc. 2.7%
Major U.S. Telecommunications,
U.S.
VoiceStream Wireless Corp. 2.7%
Cellular Telephone, U.S.
Equant NV, N.Y. shares 2.6%
EDP Service, Netherlands
Sprint Corp. (PCS Group) 2.6%
Cellular Telephone, U.S.
Telecom Italia SpA 2.5%
Other Telecommunications,
Italy
GTE Corp. 2.3%
Major U.S. Telecommunications,
U.S.
</TABLE>
their organizations, streamlining their financial and operational structures to
prepare for an increase in competition that should result from deregulation,
which should create substantial shareholder value over the coming years.
EUROPE
European telecommunication companies were solid performers over the past year.
Both incumbent providers and new entrants moved quickly to improve Europe's
underdeveloped telecommunications infrastructure. However, many regions still
have a significant amount of pent-up demand for basic phone service. Telecom
Italia SpA, a portfolio holding, is an example of a former monopoly provider
that is streamlining its existing operations and achieving success in new areas
such as wireless communications. The portfolio also has investments in emerging
companies that are capitalizing on the growing need for bandwidth, such as
Equant NV. European communications is one of the global utilities sector's
fastest growing areas and we remain very optimistic about this area's
opportunities over the next several years.
ASIA
Asian economies and stock markets underwent significant volatility during the
past year as the region attempted to recover from the financial crisis that
began in late 1997. The widespread negative investor sentiment that seemed to
envelop Asian stocks allowed us to find a few companies whose equities we felt
were undervalued. One example was Nippon Telegraph & Telephone Corp. (NTT) of
Japan, the world's largest telephone company in terms of sales, which is poised
to benefit from the Japanese telecommunications industry deregulation. NTT could
make significant gains in efficiency as competition arrives and the company is
forced to match the new marketplace standards.
We believe the worst of the Asian crisis has passed and that the region will
begin to deliver improved returns to equity investors. We will continue to
follow our contrarian approach of investing in undervalued Asian companies that
we feel have upside commensurate with their risks and strong management teams
capable of navigating these difficult times.
LATIN AMERICA
For most of the past year, Latin America's financial markets were prone to
significant volatility, repeatedly whipsawed by the latest economic news from
Asia and Eastern Europe. We remain optimistic toward Latin America's long-term
prospects, but are cautiously investing new funds only in stocks whose
valuations we believe provide ample upside potential to compensate for the risks
inherent to the region.
34
<PAGE>
LOOKING AHEAD
We are very optimistic about the potential of global telecommunications and
utility stocks to deliver strong shareholder returns over the long term. Global
utility companies are selling services into a rapidly expanding segment of the
economy in both developed and emerging nations. New Internet applications must
be accompanied by improvements in telecom infrastructure that will allow the
content to reach the end users. Wireless telecommunications growth should
continue to drive the need for network construction, new handsets and additional
functionality. Utilities servicing the developing world also have an enormous
opportunity to provide more basic necessities such as electricity, clean water
and basic phone service. These countries' ongoing economic development depends
on such rudimentary utility services, which should present global utility
investors with excellent investment opportunities for many years into the
future.
NAME & OBJECTIVE CHANGE
Franklin Global Utilities Fund officially changed its name and investment
strategy to Franklin Global Communications Securities Fund on November 15, 1999.
As was communicated to investors earlier in the year, the change was a result of
a shift in the global markets as well as management's belief that communications
stocks offered superior growth prospects and reasonable valuations relative to
other sectors with comparable growth rates.
Investors should consider carefully the substantial risks involved in a
portfolio that concentrates in a single industry sector rather than diversifying
across many different sectors.
[BAR GRAPH]
This graph compares the performance of Franklin Global Communications Securities
Fund - Class 1, as tracked by the growth in value of a $10,000 investment, to
that of S&P 500 Index, the FT/S&P Actuaries World Utilities Index and the
Consumer Price Index from 1/1/90-12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Global S&P 500 FT S&P Actuaries World CPI
Communications Utilities Index
Securities Fund -
Class 1
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 -3.79% $9,621 -6.71% $9,329 -7.60% $9,240 1.03% $10,103
02/28/1990 0.60% $9,679 1.29% $9,449 -2.82% $8,979 0.47% $10,150
03/31/1990 -0.70% $9,611 2.65% $9,700 -4.78% $8,550 0.55% $10,206
04/30/1990 -4.41% $9,187 -2.49% $9,458 -2.51% $8,336 0.16% $10,223
05/31/1990 4.07% $9,561 9.75% $10,380 9.98% $9,167 0.23% $10,246
06/30/1990 0.61% $9,619 -0.67% $10,311 -2.87% $8,904 0.54% $10,301
07/31/1990 1.38% $9,752 -0.32% $10,278 -0.57% $8,854 0.38% $10,341
08/31/1990 -6.22% $9,146 -9.04% $9,349 -7.81% $8,162 0.92% $10,436
09/30/1990 0.09% $9,154 -4.87% $8,893 -4.93% $7,760 0.84% $10,523
10/31/1990 7.08% $9,802 -0.43% $8,855 11.70% $8,668 0.60% $10,587
11/30/1990 2.46% $10,043 6.46% $9,427 -0.07% $8,662 0.22% $10,610
12/31/1990 1.41% $10,184 2.79% $9,690 2.07% $8,841 0.00% $10,610
01/31/1991 -1.06% $10,076 4.36% $10,113 1.94% $9,012 0.60% $10,674
02/28/1991 3.63% $10,441 7.15% $10,836 4.71% $9,437 0.15% $10,690
03/31/1991 1.67% $10,616 2.42% $11,098 -2.08% $9,241 0.15% $10,706
04/30/1991 0.78% $10,699 0.24% $11,125 0.88% $9,322 0.15% $10,722
05/31/1991 -0.16% $10,682 4.31% $11,604 0.83% $9,399 0.30% $10,754
06/30/1991 -0.75% $10,602 -4.58% $11,073 -4.21% $9,004 0.29% $10,785
07/31/1991 3.95% $11,021 4.66% $11,589 5.57% $9,505 0.15% $10,801
08/31/1991 2.71% $11,319 2.37% $11,863 1.71% $9,668 0.29% $10,832
09/30/1991 3.47% $11,712 -1.67% $11,665 3.44% $10,000 0.44% $10,880
10/31/1991 1.46% $11,883 1.34% $11,822 1.40% $10,140 0.15% $10,896
11/30/1991 1.94% $12,113 -4.03% $11,345 -1.60% $9,978 0.29% $10,928
12/31/1991 3.88% $12,583 11.44% $12,643 7.02% $10,678 0.07% $10,936
01/31/1992 -3.39% $12,156 -1.86% $12,408 -4.29% $10,220 0.15% $10,952
02/29/1992 -0.21% $12,130 1.29% $12,568 -1.24% $10,094 0.36% $10,992
03/31/1992 -0.63% $12,054 -1.95% $12,323 -3.20% $9,771 0.51% $11,048
04/30/1992 2.97% $12,412 2.94% $12,685 3.38% $10,101 0.14% $11,063
05/31/1992 1.93% $12,651 0.49% $12,747 2.45% $10,348 0.14% $11,079
06/30/1992 1.20% $12,803 -1.49% $12,557 -1.18% $10,226 0.36% $11,118
07/31/1992 5.38% $13,491 4.09% $13,071 3.85% $10,620 0.21% $11,142
08/31/1992 -0.39% $13,439 -2.05% $12,803 2.45% $10,880 0.28% $11,173
09/30/1992 0.45% $13,500 1.17% $12,953 -1.82% $10,682 0.28% $11,204
10/31/1992 -0.65% $13,413 0.34% $12,997 -2.07% $10,461 0.35% $11,243
11/30/1992 0.13% $13,430 3.40% $13,439 2.05% $10,675 0.14% $11,259
12/31/1992 2.66% $13,788 1.23% $13,604 2.55% $10,948 -0.07% $11,251
01/31/1993 1.58% $14,005 0.84% $13,718 1.35% $11,095 0.49% $11,306
02/28/1993 5.41% $14,764 1.36% $13,905 5.05% $11,656 0.35% $11,346
03/31/1993 0.89% $14,894 2.11% $14,198 5.76% $12,327 0.35% $11,386
04/30/1993 0.06% $14,903 -2.42% $13,855 1.93% $12,565 0.28% $11,418
05/31/1993 -0.41% $14,842 2.67% $14,225 1.74% $12,784 0.14% $11,434
06/30/1993 2.44% $15,205 0.29% $14,266 1.94% $13,032 0.14% $11,450
07/31/1993 1.99% $15,507 -0.40% $14,209 2.45% $13,351 0.00% $11,450
08/31/1993 2.75% $15,934 3.79% $14,747 4.25% $13,918 0.28% $11,482
09/30/1993 -0.50% $15,854 -0.77% $14,634 -1.53% $13,705 0.21% $11,506
10/31/1993 -0.62% $15,756 2.07% $14,937 1.78% $13,949 0.41% $11,553
11/30/1993 -4.74% $15,009 -0.95% $14,795 -5.21% $13,223 0.07% $11,561
12/31/1993 1.54% $15,240 1.21% $14,974 3.13% $13,636 0.00% $11,561
01/31/1994 -2.04% $14,929 3.40% $15,483 3.45% $14,107 0.27% $11,592
02/28/1994 -5.06% $14,173 -2.71% $15,063 -4.16% $13,520 0.34% $11,632
03/31/1994 -3.51% $13,675 -4.36% $14,407 -3.88% $12,995 0.34% $11,671
04/30/1994 2.34% $13,996 1.28% $14,591 1.81% $13,231 0.14% $11,688
05/31/1994 -5.21% $13,266 1.64% $14,830 -1.63% $13,015 0.07% $11,696
06/30/1994 -3.85% $12,756 -2.45% $14,467 -2.24% $12,723 0.34% $11,736
07/31/1994 5.13% $13,410 3.28% $14,941 2.62% $13,057 0.27% $11,767
08/31/1994 0.98% $13,541 4.10% $15,554 2.22% $13,347 0.40% $11,814
09/30/1994 -2.48% $13,205 -2.44% $15,174 -2.77% $12,977 0.27% $11,846
10/31/1994 1.93% $13,460 2.25% $15,516 1.46% $13,166 0.07% $11,854
11/30/1994 0.56% $13,534 -3.64% $14,951 -4.07% $12,631 0.13% $11,870
12/31/1994 -0.41% $13,478 1.48% $15,172 -0.71% $12,541 0.00% $11,870
01/31/1995 5.83% $14,263 2.59% $15,565 0.81% $12,642 0.40% $11,917
02/28/1995 0.39% $14,320 3.90% $16,172 0.14% $12,660 0.40% $11,965
03/31/1995 -1.44% $14,114 2.95% $16,650 2.81% $13,016 0.33% $12,005
04/30/1995 2.12% $14,413 2.94% $17,139 3.52% $13,474 0.33% $12,044
05/31/1995 5.51% $15,208 4.00% $17,825 1.35% $13,656 0.20% $12,068
06/30/1995 -0.10% $15,192 2.32% $18,238 0.56% $13,732 0.20% $12,092
07/31/1995 0.20% $15,222 3.32% $18,844 2.87% $14,127 0.00% $12,092
08/31/1995 0.97% $15,370 0.25% $18,891 -0.32% $14,081 0.26% $12,124
09/30/1995 5.66% $16,240 4.22% $19,688 4.80% $14,757 0.20% $12,148
10/31/1995 2.25% $16,606 -0.36% $19,617 -0.93% $14,620 0.33% $12,188
11/30/1995 1.67% $16,883 4.39% $20,478 1.29% $14,809 -0.07% $12,180
12/31/1995 4.86% $17,704 1.93% $20,873 3.38% $15,309 -0.07% $12,171
01/31/1996 1.79% $18,021 3.40% $21,583 1.40% $15,524 0.59% $12,243
02/29/1996 -1.81% $17,694 0.93% $21,784 -1.09% $15,354 0.32% $12,282
03/31/1996 -0.06% $17,684 0.96% $21,993 -0.94% $15,210 0.52% $12,346
04/30/1996 -2.07% $17,319 1.47% $22,316 2.68% $15,618 0.39% $12,394
05/31/1996 2.23% $17,704 2.58% $22,892 -0.86% $15,483 0.19% $12,418
06/30/1996 4.42% $18,487 0.38% $22,979 1.29% $15,683 0.06% $12,425
07/31/1996 -5.25% $17,517 -4.42% $21,963 -4.87% $14,919 0.19% $12,449
08/31/1996 2.14% $17,893 2.11% $22,427 0.05% $14,927 0.19% $12,472
09/30/1996 0.58% $17,997 5.63% $23,689 1.28% $15,118 0.32% $12,512
10/31/1996 3.24% $18,581 2.76% $24,343 2.42% $15,484 0.32% $12,552
11/30/1996 1.80% $18,915 7.56% $26,184 4.89% $16,241 0.19% $12,576
12/31/1996 0.22% $18,956 -1.98% $25,665 2.22% $16,601 0.00% $12,576
01/31/1997 2.15% $19,363 6.25% $27,269 0.79% $16,732 0.32% $12,616
02/28/1997 -0.11% $19,342 0.78% $27,482 0.55% $16,825 0.31% $12,655
03/31/1997 -3.29% $18,706 -4.11% $26,352 -2.83% $16,348 0.25% $12,687
04/30/1997 -0.95% $18,529 5.97% $27,926 1.46% $16,587 0.12% $12,702
05/31/1997 6.36% $19,707 6.09% $29,626 6.61% $17,683 -0.06% $12,695
06/30/1997 3.28% $20,354 4.48% $30,954 4.62% $18,500 0.12% $12,710
07/31/1997 2.38% $20,838 7.96% $33,417 1.41% $18,761 0.12% $12,725
08/31/1997 -3.40% $20,129 -5.60% $31,546 -4.86% $17,850 0.19% $12,749
09/30/1997 5.23% $21,181 5.48% $33,275 6.72% $19,049 0.25% $12,781
10/31/1997 -1.67% $20,826 -3.34% $32,163 -1.45% $18,773 0.25% $12,813
11/30/1997 6.64% $22,209 4.63% $33,653 7.00% $20,087 -0.06% $12,806
12/31/1997 8.20% $24,030 1.72% $34,231 4.16% $20,922 -0.12% $12,790
01/31/1998 -3.05% $23,297 1.11% $34,611 3.27% $21,607 0.19% $12,814
02/28/1998 4.36% $24,313 7.21% $37,107 2.58% $22,164 0.19% $12,839
03/31/1998 7.58% $26,157 5.12% $39,007 8.96% $24,150 0.19% $12,863
04/30/1998 -3.21% $25,318 1.01% $39,401 -2.18% $23,624 0.18% $12,886
05/31/1998 -2.43% $24,703 -1.72% $38,723 -1.16% $23,350 0.18% $12,910
06/30/1998 3.61% $25,594 4.06% $40,295 3.25% $24,108 0.12% $12,925
07/31/1998 -2.91% $24,849 -1.07% $39,864 3.12% $24,861 0.12% $12,941
08/31/1998 -6.73% $23,176 -14.46% $34,100 -7.88% $22,902 0.12% $12,956
09/30/1998 5.41% $24,431 6.41% $36,285 5.24% $24,102 0.12% $12,972
10/31/1998 1.93% $24,901 8.13% $39,236 5.88% $25,519 0.24% $13,003
11/30/1998 2.36% $25,489 6.06% $41,613 3.84% $26,499 0.00% $13,003
12/31/1998 4.82% $26,718 5.76% $44,010 7.91% $28,595 -0.06% $12,995
01/31/1999 -1.52% $26,312 4.18% $45,850 3.86% $29,698 0.24% $13,026
02/28/1999 -4.12% $25,228 -3.11% $44,424 -2.33% $29,006 0.12% $13,042
03/31/1999 1.45% $25,594 4.00% $46,201 -1.03% $28,708 0.30% $13,081
04/30/1999 7.30% $27,462 3.87% $47,989 4.11% $29,888 0.73% $13,176
05/31/1999 1.81% $27,959 -2.36% $46,856 0.54% $30,049 0.00% $13,176
06/30/1999 4.21% $29,136 5.55% $49,457 3.81% $31,194 0.00% $13,176
07/31/1999 -0.59% $28,964 -3.12% $47,914 -0.22% $31,125 0.30% $13,216
08/31/1999 -2.43% $28,261 -0.50% $47,674 -4.04% $29,868 0.24% $13,248
09/30/1999 0.32% $28,351 -2.74% $46,368 2.28% $30,549 0.48% $13,311
10/31/1999 8.51% $30,764 6.33% $49,303 7.04% $32,699 0.18% $13,335
11/30/1999 6.97% $32,908 2.03% $50,304 7.57% $35,175 0.06% $13,343
12/31/1999 13.21% $37,249 5.89% $53,267 7.52% $37,820 0.00% $13,343
</TABLE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +39.42%
5-Year +22.55%
10-Year +14.05%
Since Inception (1/24/89) +14.80%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
35
<PAGE>
For an explanation of performance calculations, please see page 35.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +39.00%
5-Year +22.47%
10-Year +14.02%
Since Inception (1/24/89) +14.77%
</TABLE>
[BAR GRAPH]
This graph compares the performance of Franklin Global Communications Securities
Fund - Class 2, as tracked by the growth in value of a $10,000 investment, to
that of S&P 500 Index, the FT/S&P Actuaries World Utilities Index and the
Consumer Price Index from 1/1/90-12/31/99.*
<TABLE>
<CAPTION>
Franklin Global S&P 500 FT S&P Actuaries World CPI
Communications Securities Utilities Index
Fund - Class 2
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,621 -6.71% $9,329 $9,240 1.03% $10,103
02/28/1990 $9,679 1.29% $9,449 $8,979 0.47% $10,150
03/31/1990 $9,611 2.65% $9,700 $8,550 0.55% $10,206
04/30/1990 $9,187 -2.49% $9,458 $8,336 0.16% $10,223
05/31/1990 $9,561 9.75% $10,380 $9,167 0.23% $10,246
06/30/1990 $9,619 -0.67% $10,311 $8,904 0.54% $10,301
07/31/1990 $9,752 -0.32% $10,278 $8,854 0.38% $10,341
08/31/1990 $9,146 -9.04% $9,349 $8,162 0.92% $10,436
09/30/1990 $9,154 -4.87% $8,893 $7,760 0.84% $10,523
10/31/1990 $9,802 -0.43% $8,855 $8,668 0.60% $10,587
11/30/1990 $10,043 6.46% $9,427 $8,662 0.22% $10,610
12/31/1990 $10,184 2.79% $9,690 $8,841 0.00% $10,610
01/31/1991 $10,076 4.36% $10,113 $9,012 0.60% $10,674
02/28/1991 $10,441 7.15% $10,836 $9,437 0.15% $10,690
03/31/1991 $10,616 2.42% $11,098 $9,241 0.15% $10,706
04/30/1991 $10,699 0.24% $11,125 $9,322 0.15% $10,722
05/31/1991 $10,682 4.31% $11,604 $9,399 0.30% $10,754
06/30/1991 $10,602 -4.58% $11,073 $9,004 0.29% $10,785
07/31/1991 $11,021 4.66% $11,589 $9,505 0.15% $10,801
08/31/1991 $11,319 2.37% $11,863 $9,668 0.29% $10,832
09/30/1991 $11,712 -1.67% $11,665 $10,000 0.44% $10,880
10/31/1991 $11,883 1.34% $11,822 $10,140 0.15% $10,896
11/30/1991 $12,113 -4.03% $11,345 $9,978 0.29% $10,928
12/31/1991 $12,583 11.44% $12,643 $10,678 0.07% $10,936
01/31/1992 $12,156 -1.86% $12,408 $10,220 0.15% $10,952
02/29/1992 $12,130 1.29% $12,568 $10,094 0.36% $10,992
03/31/1992 $12,054 -1.95% $12,323 $9,771 0.51% $11,048
04/30/1992 $12,412 2.94% $12,685 $10,101 0.14% $11,063
05/31/1992 $12,651 0.49% $12,747 $10,348 0.14% $11,079
06/30/1992 $12,803 -1.49% $12,557 $10,226 0.36% $11,118
07/31/1992 $13,491 4.09% $13,071 $10,620 0.21% $11,142
08/31/1992 $13,439 -2.05% $12,803 $10,880 0.28% $11,173
09/30/1992 $13,500 1.17% $12,953 $10,682 0.28% $11,204
10/31/1992 $13,413 0.34% $12,997 $10,461 0.35% $11,243
11/30/1992 $13,430 3.40% $13,439 $10,675 0.14% $11,259
12/31/1992 $13,788 1.23% $13,604 $10,948 -0.07% $11,251
01/31/1993 $14,005 0.84% $13,718 $11,095 0.49% $11,306
02/28/1993 $14,764 1.36% $13,905 $11,656 0.35% $11,346
03/31/1993 $14,894 2.11% $14,198 $12,327 0.35% $11,386
04/30/1993 $14,903 -2.42% $13,855 $12,565 0.28% $11,418
05/31/1993 $14,842 2.67% $14,225 $12,784 0.14% $11,434
06/30/1993 $15,205 0.29% $14,266 $13,032 0.14% $11,450
07/31/1993 $15,507 -0.40% $14,209 $13,351 0.00% $11,450
08/31/1993 $15,934 3.79% $14,747 $13,918 0.28% $11,482
09/30/1993 $15,854 -0.77% $14,634 $13,705 0.21% $11,506
10/31/1993 $15,756 2.07% $14,937 $13,949 0.41% $11,553
11/30/1993 $15,009 -0.95% $14,795 $13,223 0.07% $11,561
12/31/1993 $15,240 1.21% $14,974 $13,636 0.00% $11,561
01/31/1994 $14,929 3.40% $15,483 $14,107 0.27% $11,592
02/28/1994 $14,173 -2.71% $15,063 $13,520 0.34% $11,632
03/31/1994 $13,675 -4.36% $14,407 $12,995 0.34% $11,671
04/30/1994 $13,996 1.28% $14,591 $13,231 0.14% $11,688
05/31/1994 $13,266 1.64% $14,830 $13,015 0.07% $11,696
06/30/1994 $12,756 -2.45% $14,467 $12,723 0.34% $11,736
07/31/1994 $13,410 3.28% $14,941 $13,057 0.27% $11,767
08/31/1994 $13,541 4.10% $15,554 $13,347 0.40% $11,814
09/30/1994 $13,205 -2.44% $15,174 $12,977 0.27% $11,846
10/31/1994 $13,460 2.25% $15,516 $13,166 0.07% $11,854
11/30/1994 $13,534 -3.64% $14,951 $12,631 0.13% $11,870
12/31/1994 $13,478 1.48% $15,172 $12,541 0.00% $11,870
01/31/1995 $14,263 2.59% $15,565 $12,642 0.40% $11,917
02/28/1995 $14,320 3.90% $16,172 $12,660 0.40% $11,965
03/31/1995 $14,114 2.95% $16,650 $13,016 0.33% $12,005
04/30/1995 $14,413 2.94% $17,139 $13,474 0.33% $12,044
05/31/1995 $15,208 4.00% $17,825 $13,656 0.20% $12,068
06/30/1995 $15,192 2.32% $18,238 $13,732 0.20% $12,092
07/31/1995 $15,222 3.32% $18,844 $14,127 0.00% $12,092
08/31/1995 $15,370 0.25% $18,891 $14,081 0.26% $12,124
09/30/1995 $16,240 4.22% $19,688 $14,757 0.20% $12,148
10/31/1995 $16,606 -0.36% $19,617 $14,620 0.33% $12,188
11/30/1995 $16,883 4.39% $20,478 $14,809 -0.07% $12,180
12/31/1995 $17,704 1.93% $20,873 $15,309 -0.07% $12,171
01/31/1996 $18,021 3.40% $21,583 $15,524 0.59% $12,243
02/29/1996 $17,694 0.93% $21,784 $15,354 0.32% $12,282
03/31/1996 $17,684 0.96% $21,993 $15,210 0.52% $12,346
04/30/1996 $17,319 1.47% $22,316 $15,618 0.39% $12,394
05/31/1996 $17,704 2.58% $22,892 $15,483 0.19% $12,418
06/30/1996 $18,487 0.38% $22,979 $15,683 0.06% $12,425
07/31/1996 $17,517 -4.42% $21,963 $14,919 0.19% $12,449
08/31/1996 $17,893 2.11% $22,427 $14,927 0.19% $12,472
09/30/1996 $17,997 5.63% $23,689 $15,118 0.32% $12,512
10/31/1996 $18,581 2.76% $24,343 $15,484 0.32% $12,552
11/30/1996 $18,915 7.56% $26,184 $16,241 0.19% $12,576
12/31/1996 $18,956 -1.98% $25,665 $16,601 0.00% $12,576
01/31/1997 $19,363 6.25% $27,269 $16,732 0.32% $12,616
02/28/1997 $19,342 0.78% $27,482 $16,825 0.31% $12,655
03/31/1997 $18,706 -4.11% $26,352 $16,348 0.25% $12,687
04/30/1997 $18,529 5.97% $27,926 $16,587 0.12% $12,702
05/31/1997 $19,707 6.09% $29,626 $17,683 -0.06% $12,695
06/30/1997 $20,354 4.48% $30,954 $18,500 0.12% $12,710
07/31/1997 $20,838 7.96% $33,417 $18,761 0.12% $12,725
08/31/1997 $20,129 -5.60% $31,546 $17,850 0.19% $12,749
09/30/1997 $21,181 5.48% $33,275 $19,049 0.25% $12,781
10/31/1997 $20,826 -3.34% $32,163 $18,773 0.25% $12,813
11/30/1997 $22,209 4.63% $33,653 $20,087 -0.06% $12,806
12/31/1997 $24,030 1.72% $34,231 $20,922 -0.12% $12,790
01/31/1998 $23,297 1.11% $34,611 $21,607 0.19% $12,814
02/28/1998 $24,313 7.21% $37,107 $22,164 0.19% $12,839
03/31/1998 $26,157 5.12% $39,007 $24,150 0.19% $12,863
04/30/1998 $25,318 1.01% $39,401 $23,624 0.18% $12,886
05/31/1998 $24,703 -1.72% $38,723 $23,350 0.18% $12,910
06/30/1998 $25,594 4.06% $40,295 $24,108 0.12% $12,925
07/31/1998 $24,849 -1.07% $39,864 $24,861 0.12% $12,941
08/31/1998 $23,176 -14.46% $34,100 $22,902 0.12% $12,956
09/30/1998 $24,431 6.41% $36,285 $24,102 0.12% $12,972
10/31/1998 $24,901 8.13% $39,236 $25,519 0.24% $13,003
11/30/1998 $25,489 6.06% $41,613 $26,499 0.00% $13,003
12/31/1998 $26,718 5.76% $44,010 $28,595 -0.06% $12,995
01/31/1999 $26,312 4.18% $45,850 $29,698 0.24% $13,026
02/28/1999 $25,215 -3.11% $44,424 $29,006 0.12% $13,042
03/31/1999 $25,568 4.00% $46,201 $28,708 0.30% $13,081
04/30/1999 $27,424 3.87% $47,989 $29,888 0.73% $13,176
05/31/1999 $27,934 -2.36% $46,856 $30,049 0.00% $13,176
06/30/1999 $29,085 5.55% $49,457 $31,194 0.00% $13,176
07/31/1999 $28,911 -3.12% $47,914 $31,125 0.30% $13,216
08/31/1999 $28,205 -0.50% $47,674 $29,868 0.24% $13,248
09/30/1999 $28,295 -2.74% $46,368 $30,549 0.48% $13,311
10/31/1999 $30,678 6.33% $49,303 $32,699 0.18% $13,335
11/30/1999 $32,822 2.03% $50,304 $35,175 0.06% $13,343
12/31/1999 $37,139 5.89% $53,267 $37,820 0.00% $13,343
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN GROWTH AND INCOME FUND
The year under review perhaps could be best described as a tale of two stock
markets. To borrow from the author Charles Dickens, "It was the best of times;
it was the worst of times." Namely, the major U.S. stock market indexes recorded
double-digit percentage gains for an unprecedented five consecutive years, yet
the average stock in the market has been in a decline since April 1998, or for
some 20 months. During that time, the Value Line geometric composite of 1,625
stocks, a widely used proxy for the average stock, fell 13.9%. Also, more stocks
in the S&P 500 Index fell than advanced in 1999 as its median return was -0.4%
for the year.
The "new-economy technology stocks," many of which are not profitable and do not
pay dividends, performed extremely well in the past year, whereas the balance of
the stock market, especially high dividend-paying stocks, yielded mixed results.
For example, according to our research, the top 25% of stocks in the S&P 500 as
measured by dividend yield, declined an average 3.5%, while the 25%
lowest-yielding stocks gained an average 41.5% in 1999. Franklin Growth and
Income Fund, which invests in above-average yielding stocks, reflected these
market trends.
Thus, while most major market indexes registered positive results, in our view a
stealth bear market ensued for most stocks in 1999. Influencing the financial
markets, in our opinion, were several sequential factors. Unlike in 1998, the
economies in the U.S. and abroad experienced faster-than-expected growth. The
Federal Reserve Board responded by reversing the previous year's actions with
three separate interest-rate hikes, causing rates to rise worldwide. These
higher interest rates put pressure on stock market valuations, which had been at
the upper end of historical norms.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
36
<PAGE>
The portfolio seeks to invest in stocks that offer current income and sell at
attractive valuations. We look for stocks selling at bargain prices according to
measurements such as relative dividend yields, book value, revenues and
normalized earnings. This generally entails investing in stocks of quality
companies at what we feel are temporarily depressed prices. At the same time, we
collect current investment returns, in the form of dividends, which can provide
a cushion against possible stock declines. Our investments typically fall into
three categories: cyclical stocks, "special situation" stocks, and traditional,
high dividend-paying stocks such as utilities and real estate investment trusts
(REITs).
Our increased investments in cyclical stocks more than one year ago paid off in
1999, as many of these companies responded to the past year's
stronger-than-expected economy. Our mineral and metal holdings DeBeers
Consolidated Mines AG and Corus Group PLC both gained over 100% during the
period. Forest product company Weyerhaeuser Co. and chemical producers Dow
Chemical Co., E.I. duPont de Nemours and Co. and Imperial Chemical Industries
PLC also performed well. Energy stocks, which represented 8.1% of the
portfolio's total net assets at year-end, also experienced generally favorable
results in 1999. We added to existing positions and initiated an investment in
Royal Dutch Petroleum Co., one of the world's largest oil companies, during
weakness early in the year. We subsequently took profits in the company and
other holdings as prices rose sharply during the period's final quarter.
We also became more active in our "special situation" investments in 1999. We
determined that our traditional dividend-yield requirements were too restrictive
for sectors that offer above-average growth potential, such as technology and
health care. Thus, we took advantage of some weakness and modified our criteria
to allow for greater participation in these exciting areas. New technology
positions included Motorola Inc., Raytheon Co., Hewlett-Packard Co., Automatic
Data Processing Inc. and International Business Machines Corp. In our opinion,
each of these investments offered excellent long-term value, current income and
attractive long-term growth prospects. New health care investments included
Baxter International Inc., Abbott Laboratories and American Home Products Corp.
Uncertainty over Medicare reform apparently resulted in weak performances for
these and many other health care companies during the year. Unfortunately, we
expect to see this trend continuing over the near term. However, looking forward
over the next few years, we believe that the industry's growth potential remains
favorable, and we look to add to our investments as opportunities arise in 2000.
Our investments in the financial sector generally yielded disappointing results
in 1999. We responded to rising interest rate trends by reducing our investments
in banks and insurance companies during the second half of the year. While many
of these stocks recently offered potentially attractive valuations in terms of
price to earnings
TOP 10 HOLDINGS
Franklin Growth and Income Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
U.S. West Inc. 3.2%
Telecommunications
Bell Atlantic Corp. 3.2%
Telecommunications
GTE Corp. 2.8%
Telecommunications
AT&T Corp. 2.4%
Telecommunications
General Electric Co. 2.1%
Process Industries
St. Paul Cos. Inc. 2.1%
Insurance
Exxon Mobil Corp. 2.0%
Energy Minerals
General Mills Inc. 2.0%
Consumer Non-Durables
Pharmacia & Upjohn Inc. 1.9%
Health Technology
Texaco Inc. 1.8%
Energy Minerals
</TABLE>
37
<PAGE>
and dividend yields, we will remain underweighted in these investments compared
with other sectors until signs of rising interest rate trends abate.
The portfolio's holdings in REITs and high yielding utilities also experienced
generally disappointing returns for the period. REITs performed poorly despite
mostly favorable fundamentals. We maintained a large position in these
investments as their combination of high dividend yields averaging 8% and
continued solid cash-flow growth were very attractive in our opinion. We reduced
our overall weighting in electric utilities, which represented 4.0% of total net
assets on December 31, 1999. However, gas utilities and telephone investments
were bright spots for the portfolio in 1999. Two of our gas companies -- MCN
Energy Group Inc. and Consolidated Natural Gas Co. -- rose in response to
acquisition bids during the year. Likewise, three of our telephone investments
- -- Ameritech Corp., GTE Corp. and U.S. West Inc. -- were subject to merger
activity as well. Telephone stocks represented our biggest investment at 13.3%
of the portfolio's total net assets at year-end. We believed that attractive
growth prospects, current income and reasonable valuations supported our
continued significant investment in this sector.
Looking forward, we anticipate continued high levels of financial market
volatility. Although we believe there are many bargains to be found among our
high dividend-yielding stocks, general market valuations remain at historically
high levels and could continue to be affected by rising interest-rate trends.
Our investment discipline attempts to take advantage of such volatility. Growth
style investing has outperformed traditional value investing for five
consecutive years, a long period by historical standards. While it is impossible
to predict when or if this cycle will reverse itself, we believe our strategy
and the portfolio's investments are well positioned to benefit if the market
returns to a value style of investing.
TOTAL RETURN INDEX COMPARISON
Franklin Growth & Income Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
[BAR GRAPH]
This graph compares the performance of Franklin Growth and Income Fund - Class
1, as tracked by the growth in value of a $10,000 investment, to that of the S&P
500 Index, Russell 3000 Value Index and the Consumer Price Index from
1/1/90-12/31/99.
We are replacing the S&P 500 Index with the Russell 3000 Value Index because
this index more closely matches our investment characteristics then the S&P 500,
in terms of dividend yield, industry representation and market capitalization.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Growth S&P 500 Russell 3000 CPI
& Income Fund - Value Index
Class 1
------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,485 $9,329 $9,371 $10,103
02/28/1990 $9,640 $9,449 $9,607 $10,150
03/31/1990 $9,873 $9,700 $9,720 $10,206
04/30/1990 $9,677 $9,458 $9,342 $10,223
05/31/1990 $10,519 $10,380 $10,097 $10,246
06/30/1990 $10,392 $10,311 $9,882 $10,301
07/31/1990 $10,323 $10,278 $9,777 $10,341
08/31/1990 $9,461 $9,349 $8,899 $10,436
09/30/1990 $9,079 $8,893 $8,453 $10,523
10/31/1990 $8,982 $8,855 $8,315 $10,587
11/30/1990 $9,501 $9,427 $8,888 $10,610
12/31/1990 $9,765 $9,690 $9,116 $10,610
01/31/1991 $10,382 $10,113 $9,545 $10,674
02/28/1991 $10,813 $10,836 $10,199 $10,690
03/31/1991 $10,833 $11,098 $10,379 $10,706
04/30/1991 $10,862 $11,125 $10,456 $10,722
05/31/1991 $11,273 $11,604 $10,851 $10,754
06/30/1991 $10,547 $11,073 $10,391 $10,785
07/31/1991 $10,926 $11,589 $10,815 $10,801
08/31/1991 $11,295 $11,863 $11,020 $10,832
09/30/1991 $11,215 $11,665 $10,945 $10,880
10/31/1991 $11,335 $11,822 $11,123 $10,896
11/30/1991 $10,847 $11,345 $10,560 $10,928
12/31/1991 $11,714 $12,643 $11,432 $10,936
01/31/1992 $12,222 $12,408 $11,511 $10,952
02/29/1992 $12,232 $12,568 $11,812 $10,992
03/31/1992 $11,784 $12,323 $11,644 $11,048
04/30/1992 $11,804 $12,685 $12,098 $11,063
05/31/1992 $11,873 $12,747 $12,177 $11,079
06/30/1992 $11,606 $12,557 $12,079 $11,118
07/31/1992 $11,949 $13,071 $12,544 $11,142
08/31/1992 $11,778 $12,803 $12,172 $11,173
09/30/1992 $12,070 $12,953 $12,344 $11,204
10/31/1992 $12,301 $12,997 $12,378 $11,243
11/30/1992 $12,765 $13,439 $12,812 $11,259
12/31/1992 $12,886 $13,604 $13,136 $11,251
01/31/1993 $12,987 $13,718 $13,544 $11,306
02/28/1993 $12,906 $13,905 $13,985 $11,346
03/31/1993 $13,269 $14,198 $14,407 $11,386
04/30/1993 $13,097 $13,855 $14,210 $11,418
05/31/1993 $13,450 $14,225 $14,509 $11,434
06/30/1993 $13,291 $14,266 $14,813 $11,450
07/31/1993 $13,098 $14,209 $14,986 $11,450
08/31/1993 $13,585 $14,747 $15,532 $11,482
09/30/1993 $13,504 $14,634 $15,588 $11,506
10/31/1993 $13,707 $14,937 $15,611 $11,553
11/30/1993 $13,595 $14,795 $15,282 $11,561
12/31/1993 $14,215 $14,974 $15,588 $11,561
01/31/1994 $15,018 $15,483 $16,174 $11,592
02/28/1994 $14,825 $15,063 $15,669 $11,632
03/31/1994 $13,941 $14,407 $15,075 $11,671
04/30/1994 $14,022 $14,591 $15,351 $11,688
05/31/1994 $14,063 $14,830 $15,509 $11,696
06/30/1994 $13,609 $14,467 $15,135 $11,736
07/31/1994 $14,003 $14,941 $15,586 $11,767
08/31/1994 $14,470 $15,554 $16,051 $11,814
09/30/1994 $14,044 $15,174 $15,557 $11,846
10/31/1994 $14,250 $15,516 $15,720 $11,854
11/30/1994 $13,720 $14,951 $15,085 $11,870
12/31/1994 $13,928 $15,172 $15,287 $11,870
01/31/1995 $14,042 $15,565 $15,700 $11,917
02/28/1995 $14,602 $16,172 $16,317 $11,965
03/31/1995 $15,018 $16,650 $16,646 $12,005
04/30/1995 $15,464 $17,139 $17,169 $12,044
05/31/1995 $15,941 $17,825 $17,857 $12,068
06/30/1995 $16,039 $18,238 $18,136 $12,092
07/31/1995 $16,309 $18,844 $18,771 $12,092
08/31/1995 $16,504 $18,891 $19,065 $12,124
09/30/1995 $17,216 $19,688 $19,714 $12,148
10/31/1995 $17,086 $19,617 $19,459 $12,188
11/30/1995 $17,756 $20,478 $20,425 $12,180
12/31/1995 $18,500 $20,873 $20,949 $12,171
01/31/1996 $18,878 $21,583 $21,553 $12,243
02/29/1996 $18,684 $21,784 $21,732 $12,282
03/31/1996 $18,878 $21,993 $22,110 $12,346
04/30/1996 $18,975 $22,316 $22,243 $12,394
05/31/1996 $19,170 $22,892 $22,547 $12,418
06/30/1996 $19,525 $22,979 $22,538 $12,425
07/31/1996 $18,803 $21,963 $21,650 $12,449
08/31/1996 $19,068 $22,427 $22,302 $12,472
09/30/1996 $19,573 $23,689 $23,158 $12,512
10/31/1996 $20,151 $24,343 $23,987 $12,552
11/30/1996 $21,114 $26,184 $25,681 $12,576
12/31/1996 $21,126 $25,665 $25,470 $12,576
01/31/1997 $21,728 $27,269 $26,616 $12,616
02/28/1997 $22,234 $27,482 $26,994 $12,655
03/31/1997 $21,752 $26,352 $26,050 $12,687
04/30/1997 $22,041 $27,926 $27,071 $12,702
05/31/1997 $23,209 $29,626 $28,646 $12,695
06/30/1997 $23,879 $30,954 $29,898 $12,710
07/31/1997 $25,112 $33,417 $32,048 $12,725
08/31/1997 $24,611 $31,546 $31,064 $12,749
09/30/1997 $25,986 $33,275 $32,959 $12,781
10/31/1997 $25,228 $32,163 $32,039 $12,813
11/30/1997 $26,358 $33,653 $33,350 $12,806
12/31/1997 $26,988 $34,231 $34,340 $12,790
01/31/1998 $26,795 $34,611 $33,842 $12,814
02/28/1998 $27,925 $37,107 $36,096 $12,839
03/31/1998 $29,441 $39,007 $38,233 $12,863
04/30/1998 $28,953 $39,401 $38,481 $12,886
05/31/1998 $28,529 $38,723 $37,835 $12,910
06/30/1998 $28,446 $40,295 $38,255 $12,925
07/31/1998 $27,729 $39,864 $37,371 $12,941
08/31/1998 $25,259 $34,100 $31,784 $12,956
09/30/1998 $26,795 $36,285 $33,605 $12,972
10/31/1998 $28,159 $39,236 $36,075 $13,003
11/30/1998 $29,093 $41,613 $37,699 $13,003
12/31/1998 $29,236 $44,010 $38,973 $12,995
01/31/1999 $28,605 $45,850 $39,191 $13,026
02/28/1999 $28,101 $44,424 $38,474 $13,042
03/31/1999 $28,433 $46,201 $39,190 $13,081
04/30/1999 $30,801 $47,989 $42,846 $13,176
05/31/1999 $31,032 $46,856 $42,499 $13,176
06/30/1999 $31,535 $49,457 $43,757 $13,176
07/31/1999 $30,775 $47,914 $42,493 $13,216
08/31/1999 $29,993 $47,674 $40,920 $13,248
09/30/1999 $29,247 $46,368 $39,533 $13,311
10/31/1999 $29,960 $49,303 $41,585 $13,335
11/30/1999 $29,610 $50,304 $41,294 $13,343
12/31/1999 $29,559 $53,267 $41,562 $13,343
</TABLE>
We are replacing the S&P 500 Index with the Russell 3000 Value Index because
this index more closely matches our investment characteristics then the S&P 500,
in terms of dividend yield, industry representation and market capitalization.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +1.10%
5-Year +16.24%
10-Year +11.45%
Since Inception (1/24/89) +10.71%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
38
<PAGE>
TOTAL RETURN INDEX COMPARISON
Franklin Growth & Income Fund - Class 2*
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
This graph compares the performance of Franklin Growth and Income Fund - Class
2, as tracked by the growth in value of a $10,000 investment, to that of the S&P
500 Index, Russell 3000 Value Index and the Consumer Price Index from
1/1/90-12/31/99.*
<TABLE>
<CAPTION>
Franklin Growth S&P 500 Russell 3000 CPI
& Income Fund - Value Index
Class 2
----------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,485 $9,329 $9,371 $10,103
02/28/1990 $9,640 $9,449 $9,607 $10,150
03/31/1990 $9,873 $9,700 $9,720 $10,206
04/30/1990 $9,677 $9,458 $9,342 $10,223
05/31/1990 $10,519 $10,380 $10,097 $10,246
06/30/1990 $10,392 $10,311 $9,882 $10,301
07/31/1990 $10,323 $10,278 $9,777 $10,341
08/31/1990 $9,461 $9,349 $8,899 $10,436
09/30/1990 $9,079 $8,893 $8,453 $10,523
10/31/1990 $8,982 $8,855 $8,315 $10,587
11/30/1990 $9,501 $9,427 $8,888 $10,610
12/31/1990 $9,765 $9,690 $9,116 $10,610
01/31/1991 $10,382 $10,113 $9,545 $10,674
02/28/1991 $10,813 $10,836 $10,199 $10,690
03/31/1991 $10,833 $11,098 $10,379 $10,706
04/30/1991 $10,862 $11,125 $10,456 $10,722
05/31/1991 $11,273 $11,604 $10,851 $10,754
06/30/1991 $10,547 $11,073 $10,391 $10,785
07/31/1991 $10,926 $11,589 $10,815 $10,801
08/31/1991 $11,295 $11,863 $11,020 $10,832
09/30/1991 $11,215 $11,665 $10,945 $10,880
10/31/1991 $11,335 $11,822 $11,123 $10,896
11/30/1991 $10,847 $11,345 $10,560 $10,928
12/31/1991 $11,714 $12,643 $11,432 $10,936
01/31/1992 $12,222 $12,408 $11,511 $10,952
02/29/1992 $12,232 $12,568 $11,812 $10,992
03/31/1992 $11,784 $12,323 $11,644 $11,048
04/30/1992 $11,804 $12,685 $12,098 $11,063
05/31/1992 $11,873 $12,747 $12,177 $11,079
06/30/1992 $11,606 $12,557 $12,079 $11,118
07/31/1992 $11,949 $13,071 $12,544 $11,142
08/31/1992 $11,778 $12,803 $12,172 $11,173
09/30/1992 $12,070 $12,953 $12,344 $11,204
10/31/1992 $12,301 $12,997 $12,378 $11,243
11/30/1992 $12,765 $13,439 $12,812 $11,259
12/31/1992 $12,886 $13,604 $13,136 $11,251
01/31/1993 $12,987 $13,718 $13,544 $11,306
02/28/1993 $12,906 $13,905 $13,985 $11,346
03/31/1993 $13,269 $14,198 $14,407 $11,386
04/30/1993 $13,097 $13,855 $14,210 $11,418
05/31/1993 $13,450 $14,225 $14,509 $11,434
06/30/1993 $13,291 $14,266 $14,813 $11,450
07/31/1993 $13,098 $14,209 $14,986 $11,450
08/31/1993 $13,585 $14,747 $15,532 $11,482
09/30/1993 $13,504 $14,634 $15,588 $11,506
10/31/1993 $13,707 $14,937 $15,611 $11,553
11/30/1993 $13,595 $14,795 $15,282 $11,561
12/31/1993 $14,215 $14,974 $15,588 $11,561
01/31/1994 $15,018 $15,483 $16,174 $11,592
02/28/1994 $14,825 $15,063 $15,669 $11,632
03/31/1994 $13,941 $14,407 $15,075 $11,671
04/30/1994 $14,022 $14,591 $15,351 $11,688
05/31/1994 $14,063 $14,830 $15,509 $11,696
06/30/1994 $13,609 $14,467 $15,135 $11,736
07/31/1994 $14,003 $14,941 $15,586 $11,767
08/31/1994 $14,470 $15,554 $16,051 $11,814
09/30/1994 $14,044 $15,174 $15,557 $11,846
10/31/1994 $14,250 $15,516 $15,720 $11,854
11/30/1994 $13,720 $14,951 $15,085 $11,870
12/31/1994 $13,928 $15,172 $15,287 $11,870
01/31/1995 $14,042 $15,565 $15,700 $11,917
02/28/1995 $14,602 $16,172 $16,317 $11,965
03/31/1995 $15,018 $16,650 $16,646 $12,005
04/30/1995 $15,464 $17,139 $17,169 $12,044
05/31/1995 $15,941 $17,825 $17,857 $12,068
06/30/1995 $16,039 $18,238 $18,136 $12,092
07/31/1995 $16,309 $18,844 $18,771 $12,092
08/31/1995 $16,504 $18,891 $19,065 $12,124
09/30/1995 $17,216 $19,688 $19,714 $12,148
10/31/1995 $17,086 $19,617 $19,459 $12,188
11/30/1995 $17,756 $20,478 $20,425 $12,180
12/31/1995 $18,500 $20,873 $20,949 $12,171
01/31/1996 $18,878 $21,583 $21,553 $12,243
02/29/1996 $18,684 $21,784 $21,732 $12,282
03/31/1996 $18,878 $21,993 $22,110 $12,346
04/30/1996 $18,975 $22,316 $22,243 $12,394
05/31/1996 $19,170 $22,892 $22,547 $12,418
06/30/1996 $19,525 $22,979 $22,538 $12,425
07/31/1996 $18,803 $21,963 $21,650 $12,449
08/31/1996 $19,068 $22,427 $22,302 $12,472
09/30/1996 $19,573 $23,689 $23,158 $12,512
10/31/1996 $20,151 $24,343 $23,987 $12,552
11/30/1996 $21,114 $26,184 $25,681 $12,576
12/31/1996 $21,126 $25,665 $25,470 $12,576
01/31/1997 $21,728 $27,269 $26,616 $12,616
02/28/1997 $22,234 $27,482 $26,994 $12,655
03/31/1997 $21,752 $26,352 $26,050 $12,687
04/30/1997 $22,041 $27,926 $27,071 $12,702
05/31/1997 $23,209 $29,626 $28,646 $12,695
06/30/1997 $23,879 $30,954 $29,898 $12,710
07/31/1997 $25,112 $33,417 $32,048 $12,725
08/31/1997 $24,611 $31,546 $31,064 $12,749
09/30/1997 $25,986 $33,275 $32,959 $12,781
10/31/1997 $25,228 $32,163 $32,039 $12,813
11/30/1997 $26,358 $33,653 $33,350 $12,806
12/31/1997 $26,988 $34,231 $34,340 $12,790
01/31/1998 $26,795 $34,611 $33,842 $12,814
02/28/1998 $27,925 $37,107 $36,096 $12,839
03/31/1998 $29,441 $39,007 $38,233 $12,863
04/30/1998 $28,953 $39,401 $38,481 $12,886
05/31/1998 $28,529 $38,723 $37,835 $12,910
06/30/1998 $28,446 $40,295 $38,255 $12,925
07/31/1998 $27,729 $39,864 $37,371 $12,941
08/31/1998 $25,259 $34,100 $31,784 $12,956
09/30/1998 $26,795 $36,285 $33,605 $12,972
10/31/1998 $28,159 $39,236 $36,075 $13,003
11/30/1998 $29,093 $41,613 $37,699 $13,003
12/31/1998 $29,236 $44,010 $38,973 $12,995
01/31/1999 $28,590 $45,850 $39,191 $13,026
02/28/1999 $28,087 $44,424 $38,474 $13,042
03/31/1999 $28,402 $46,201 $39,190 $13,081
04/30/1999 $30,770 $47,989 $42,846 $13,176
05/31/1999 $30,986 $46,856 $42,499 $13,176
06/30/1999 $31,488 $49,457 $43,757 $13,176
07/31/1999 $30,710 $47,914 $42,493 $13,216
08/31/1999 $29,930 $47,674 $40,920 $13,248
09/30/1999 $29,182 $46,368 $39,533 $13,311
10/31/1999 $29,897 $49,303 $41,585 $13,335
11/30/1999 $29,532 $50,304 $41,294 $13,343
12/31/1999 $29,482 $53,267 $41,562 $13,343
</TABLE>
* Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN INCOME SECURITIES FUND
Aside from temporary weakness in the third quarter, the U.S. stock market
continued its relentless climb in 1999, driven in part by healthy economic
growth and a benign inflationary environment. Improved stability abroad also
helped fuel equity market optimism. However, these very same factors weighed on
the U.S. bond market, driving up the 30-year U.S. Treasury bond yield from 5.10%
on December 31, 1998, to 6.48% on December 31, 1999. The interest-rate increase
negatively affected the portfolio's rate-sensitive sectors such as Treasury
bonds and utility stocks.
Corporate bonds increased from 23.7% to 29.2% of the portfolio's total net
assets during the period under review, resulting from a combination of solid
performance and additional investment. Although this sector's total return was
only slightly positive, we believe it performed well given the rise in Treasury
bond rates. Several new portfolio purchases focused on the telecommunications
sector, which we believe offered strong growth and attractive total return
potential. Recent purchases included issues from PSINet Inc., Crown Castle
International Corp., Level 3 Communications Inc., Microcell Telecommunications
Inc., NEXTLINK Communications Inc., VoiceStream Wireless Corp., and Williams
Communications Group Inc. In addition to telecommunications, we also initiated
positions in the cable television sector, with new issues from Cablevision SA,
Charter Communications Holdings LLC, and United Pan-Europe Communications NV.
The portfolio's foreign bonds bounced back during the year, as several
developing countries made progress on economic and political reforms. For
example, we believe the South Korean government's success with economic reforms
allowed the country's growth to exceed expectations. We also feel the Brazilian
government made great strides toward restoring economic growth, while Russia's
recently elected parliament will likely be more supportive of the president than
its predecessor, hopefully paving
For an explanation of performance calculations, please see page 38.
<TABLE>
Average Annual Total Return - Class 2*
- ------------------------------------------------------------------------------------
<S> <C>
1-Year +0.84%
5-Year +16.18%
10-Year +11.42%
Since Inception (1/24/89) +10.68%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
39
<PAGE>
TOP FIVE STOCK HOLDINGS
Franklin Income Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Philip Morris Cos. Inc. 1.9%
Consumer Non-Durables
Florida Progress Corp. 1.6%
Utilities
Texas Utilities Co. 1.3%
Utilities
Entergy Corp. 1.3%
Utilities
New England Electric System 1.3%
Utilities
</TABLE>
TOP FIVE BOND HOLDINGS
Franklin Income Securities Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
ISSUER NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury Bonds 9.7%
Republic of Brazil 5.7%
Republic of Argentina 4.3%
Republic of Korea 2.6%
Consoltex Group Inc. 1.3%
</TABLE>
the way for further political and economic reforms. Moreover, our new position
in Turkey benefited from the country's progress toward eventually joining the
European Union. We took advantage of regional market strength by trimming bond
positions in Russia, Korea, Argentina and South Africa.
U.S. Treasury bonds suffered price declines based on strong domestic economic
growth and the Federal Reserve Board's three interest-rate increases during the
reporting period. Although we believe the lack of inflationary pressures should
keep interest rates from rising significantly, we trimmed our U.S. government
holdings to provide funds for other, more attractive investments.
The portfolio's equity sectors delivered mixed results during the past 12
months, with the fund's largest equity sector, utility stocks, performing poorly
due to the rise in interest rates. We felt relative utility stock valuations and
yields were very attractive at recent levels, and going forward believe the
sector should benefit from future consolidation and industry deregulation.
Energy stocks, for their part, rebounded in March after OPEC's announced
production cuts pushed oil prices higher. We added to the portfolio's energy
sector throughout the period with new convertible positions in Key Energy
Services Inc., Parker Drilling Co., Newfield Financial Trust I and Kerr-McGee
Corp. (convertible into Devon Energy Corp.). Real estate was another investment
category that looked good to us, taking into account recent valuations that
seemed attractive. After strong performance in the first part of the year, the
sector languished amid concerns related to oversupply and rising interest rates.
We sought to take advantage of this weakness by adding to the portfolio's
existing real estate positions and initiating a position in Apartment Investment
& Management Co. convertible preferred stock.
Finally, gold-related companies experienced volatility during the year, as the
price of gold bullion ranged between $253 and $326 an ounce. Although the fund's
gold positions delivered disappointing returns during the review period, our
platinum sector holdings performed extremely well, with returns in excess of
100%.
Looking ahead, with the stock market apparently continuing to display an extreme
divergence between growth- and value-oriented sectors, we remain committed to
our value-oriented approach. We believe the portfolio is well diversified, and
will continue to search for new investment opportunities across asset classes
and industries.
40
<PAGE>
[BAR GRAPH]
This graph compares the performance of Franklin Income Securities Fund -Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the Lehman
Brothers Government/Corporate Bond Index, the S&P 500 Index, the Lipper Income
Funds Objective Average and the Lipper Annuity Income Funds Objective Average
from 1/1/90-12/31/99.
We are replacing the Lipper Income Funds Objective Average with the Lipper
Annuity Income Funds Objective Average because the former is based on a peer
group of mutual funds, while the latter is based on a peer group of annuity
sub-accounts and better reflects the portfolio's performance.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges.
Index source is Standard & Poor's Micropal and Lipper, Inc.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Income S&P 500 Lehman Brothers Lipper Annuity Lipper Income
Securities Fund Government/ Income Funds Funds
- Class 1 Corporate Bond Objective Objective
Index Average Average
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,761 $9,329 $9,863 $9,692 $9,661
02/28/1990 $9,661 $9,449 $9,885 $9,731 $9,704
03/31/1990 $9,810 $9,700 $9,886 $9,820 $9,764
04/30/1990 $9,604 $9,458 $9,795 $9,672 $9,529
05/31/1990 $9,960 $10,380 $10,079 $10,133 $9,982
06/30/1990 $10,119 $10,311 $10,241 $10,198 $10,047
07/31/1990 $10,316 $10,278 $10,368 $10,229 $10,060
08/31/1990 $9,745 $9,349 $10,218 $9,739 $9,542
09/30/1990 $9,267 $8,893 $10,303 $9,451 $9,327
10/31/1990 $8,855 $8,855 $10,439 $9,368 $9,308
11/30/1990 $9,136 $9,427 $10,666 $9,715 $9,681
12/31/1990 $9,258 $9,690 $10,827 $9,896 $9,866
01/31/1991 $9,520 $10,113 $10,948 $10,203 $10,089
02/28/1991 $10,456 $10,836 $11,043 $10,668 $10,593
03/31/1991 $10,784 $11,098 $11,119 $10,846 $10,786
04/30/1991 $11,177 $11,125 $11,247 $10,969 $10,892
05/31/1991 $11,401 $11,604 $11,298 $11,220 $11,108
06/30/1991 $11,424 $11,073 $11,286 $10,997 $10,856
07/31/1991 $11,918 $11,589 $11,427 $11,383 $11,233
08/31/1991 $12,119 $11,863 $11,690 $11,650 $11,520
09/30/1991 $12,338 $11,665 $11,934 $11,672 $11,647
10/31/1991 $12,682 $11,822 $12,040 $11,859 $11,839
11/30/1991 $12,773 $11,345 $12,161 $11,661 $11,676
12/31/1991 $12,843 $12,643 $12,571 $12,429 $12,345
01/31/1992 $13,318 $12,408 $12,385 $12,433 $12,318
02/29/1992 $13,631 $12,568 $12,450 $12,628 $12,487
03/31/1992 $13,702 $12,323 $12,382 $12,470 $12,344
04/30/1992 $13,854 $12,685 $12,456 $12,607 $12,560
05/31/1992 $14,116 $12,747 $12,698 $12,783 $12,759
06/30/1992 $14,234 $12,557 $12,883 $12,747 $12,699
07/31/1992 $14,599 $13,071 $13,213 $13,104 $13,115
08/31/1992 $14,589 $12,803 $13,330 $13,003 $13,038
09/30/1992 $14,546 $12,953 $13,513 $13,134 $13,145
10/31/1992 $14,395 $12,997 $13,306 $13,135 $13,065
11/30/1992 $14,481 $13,439 $13,294 $13,398 $13,268
12/31/1992 $14,664 $13,604 $13,523 $13,588 $13,486
01/31/1993 $14,986 $13,718 $13,818 $13,836 $13,717
02/28/1993 $15,287 $13,905 $14,105 $13,998 $14,005
03/31/1993 $15,577 $14,198 $14,153 $14,264 $14,321
04/30/1993 $15,706 $13,855 $14,262 $14,198 $14,291
05/31/1993 $15,910 $14,225 $14,255 $14,422 $14,476
06/30/1993 $16,212 $14,266 $14,579 $14,581 $14,652
07/31/1993 $16,487 $14,209 $14,672 $14,668 $14,761
08/31/1993 $16,751 $14,747 $15,009 $15,035 $15,147
09/30/1993 $16,850 $14,634 $15,062 $15,091 $15,185
10/31/1993 $17,147 $14,937 $15,124 $15,263 $15,264
11/30/1993 $17,048 $14,795 $14,953 $15,083 $15,029
12/31/1993 $17,389 $14,974 $15,018 $15,321 $15,214
01/31/1994 $17,543 $15,483 $15,244 $15,663 $15,517
02/28/1994 $17,301 $15,063 $14,911 $15,412 $15,132
03/31/1994 $16,652 $14,407 $14,546 $14,899 $14,614
04/30/1994 $16,619 $14,591 $14,425 $14,912 $14,682
05/31/1994 $16,498 $14,830 $14,399 $14,932 $14,720
06/30/1994 $16,369 $14,467 $14,366 $14,715 $14,542
07/31/1994 $16,631 $14,941 $14,654 $15,033 $14,843
08/31/1994 $16,847 $15,554 $14,659 $15,316 $15,114
09/30/1994 $16,699 $15,174 $14,438 $15,063 $14,889
10/31/1994 $16,743 $15,516 $14,422 $15,158 $14,926
11/30/1994 $16,538 $14,951 $14,396 $14,829 $14,574
12/31/1994 $16,299 $15,172 $14,491 $14,925 $14,625
01/31/1995 $16,470 $15,565 $14,770 $15,085 $14,897
02/28/1995 $16,754 $16,172 $15,112 $15,497 $15,278
03/31/1995 $16,971 $16,650 $15,213 $15,746 $15,523
04/30/1995 $17,461 $17,139 $15,426 $16,066 $15,821
05/31/1995 $18,064 $17,825 $16,073 $16,662 $16,337
06/30/1995 $18,266 $18,238 $16,201 $16,960 $16,513
07/31/1995 $18,520 $18,844 $16,138 $17,294 $16,800
08/31/1995 $18,702 $18,891 $16,345 $17,424 $16,955
09/30/1995 $19,126 $19,688 $16,511 $17,748 $17,353
10/31/1995 $19,114 $19,617 $16,754 $17,721 $17,255
11/30/1995 $19,429 $20,478 $17,031 $18,202 $17,793
12/31/1995 $19,950 $20,873 $17,281 $18,407 $18,127
01/31/1996 $20,519 $21,583 $17,388 $18,770 $18,457
02/29/1996 $20,180 $21,784 $17,020 $18,719 $18,417
03/31/1996 $20,168 $21,993 $16,877 $18,798 $18,500
04/30/1996 $20,083 $22,316 $16,760 $18,873 $18,570
05/31/1996 $20,313 $22,892 $16,732 $19,045 $18,730
06/30/1996 $20,755 $22,979 $16,954 $19,094 $18,848
07/31/1996 $20,381 $21,963 $16,993 $18,638 $18,393
08/31/1996 $20,691 $22,427 $16,951 $18,925 $18,706
09/30/1996 $21,103 $23,689 $17,252 $19,555 $19,181
10/31/1996 $21,465 $24,343 $17,654 $19,870 $19,532
11/30/1996 $22,097 $26,184 $17,979 $20,727 $20,198
12/31/1996 $22,200 $25,665 $17,780 $20,534 $20,099
01/31/1997 $22,535 $27,269 $17,801 $21,047 $20,455
02/28/1997 $22,884 $27,482 $17,838 $21,106 $20,568
03/31/1997 $22,380 $26,352 $17,626 $20,671 $20,144
04/30/1997 $22,458 $27,926 $17,883 $21,132 $20,432
05/31/1997 $23,206 $29,626 $18,050 $21,880 $21,149
06/30/1997 $23,673 $30,954 $18,266 $22,421 $21,682
07/31/1997 $24,267 $33,417 $18,825 $23,484 $22,567
08/31/1997 $24,126 $31,546 $18,614 $22,988 $22,201
09/30/1997 $24,904 $33,275 $18,907 $23,724 $22,963
10/31/1997 $24,480 $32,163 $19,209 $23,389 $22,712
11/30/1997 $25,159 $33,653 $19,311 $23,738 $23,051
12/31/1997 $25,994 $34,231 $19,514 $24,039 $23,438
01/31/1998 $25,739 $34,611 $19,789 $24,212 $23,506
02/28/1998 $26,135 $37,107 $19,749 $24,888 $24,138
03/31/1998 $26,942 $39,007 $19,811 $25,445 $24,691
04/30/1998 $26,602 $39,401 $19,910 $25,547 $24,743
05/31/1998 $26,291 $38,723 $20,123 $25,460 $24,597
06/30/1998 $26,326 $40,295 $20,328 $25,720 $24,776
07/31/1998 $25,686 $39,864 $20,344 $25,481 $24,514
08/31/1998 $24,312 $34,100 $20,741 $24,161 $23,004
09/30/1998 $25,733 $36,285 $21,334 $25,002 $23,694
10/31/1998 $25,827 $39,236 $21,183 $25,557 $24,161
11/30/1998 $26,467 $41,613 $21,310 $26,178 $24,767
12/31/1998 $26,420 $44,010 $21,363 $26,699 $25,240
01/31/1999 $25,984 $45,850 $21,515 $26,955 $25,369
02/28/1999 $25,220 $44,424 $21,003 $26,267 $24,882
03/31/1999 $25,533 $46,201 $21,108 $26,722 $25,292
04/30/1999 $26,891 $47,989 $21,160 $27,617 $26,124
05/31/1999 $26,891 $46,856 $20,942 $27,338 $25,915
06/30/1999 $26,891 $49,457 $20,877 $27,743 $26,273
07/31/1999 $26,579 $47,914 $20,819 $27,402 $25,960
08/31/1999 $26,651 $47,674 $20,802 $27,207 $25,701
09/30/1999 $26,403 $46,368 $20,990 $26,908 $25,511
10/31/1999 $26,438 $49,303 $21,044 $27,419 $25,960
11/30/1999 $25,925 $50,304 $21,032 $27,548 $26,017
12/31/1999 $25,941 $53,267 $20,903 $28,038 $26,519
</TABLE>
[BAR GRAPH]
This graph compares the performance of Franklin Income Securities Fund -Class 2,
as tracked by the growth in value of a $10,000 investment, to that of the Lehman
Brothers Government/Corporate Bond Index, the S&P 500 Index, the Lipper Income
Funds Objective Average and the Lipper Annuity Income Funds Objective Average
from 1/1/90-12/31/99.*
<TABLE>
<CAPTION>
Franklin S&P 500 Lehman Brothers Lipper Lipper
Income Government/ Annuity Income
Securities Corporate Bond Income Funds
Fund - Class 2 Index Funds Average
Average
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,761 $9,329 $9,863 $9,692 $9,661
02/28/1990 $9,661 $9,449 $9,885 $9,731 $9,704
03/31/1990 $9,810 $9,700 $9,886 $9,820 $9,764
04/30/1990 $9,604 $9,458 $9,795 $9,672 $9,529
05/31/1990 $9,960 $10,380 $10,079 $10,133 $9,982
06/30/1990 $10,119 $10,311 $10,241 $10,198 $10,047
07/31/1990 $10,316 $10,278 $10,368 $10,229 $10,060
08/31/1990 $9,745 $9,349 $10,218 $9,739 $9,542
09/30/1990 $9,267 $8,893 $10,303 $9,451 $9,327
10/31/1990 $8,855 $8,855 $10,439 $9,368 $9,308
11/30/1990 $9,136 $9,427 $10,666 $9,715 $9,681
12/31/1990 $9,258 $9,690 $10,827 $9,896 $9,866
01/31/1991 $9,520 $10,113 $10,948 $10,203 $10,089
02/28/1991 $10,456 $10,836 $11,043 $10,668 $10,593
03/31/1991 $10,784 $11,098 $11,119 $10,846 $10,786
04/30/1991 $11,177 $11,125 $11,247 $10,969 $10,892
05/31/1991 $11,401 $11,604 $11,298 $11,220 $11,108
06/30/1991 $11,424 $11,073 $11,286 $10,997 $10,856
07/31/1991 $11,918 $11,589 $11,427 $11,383 $11,233
08/31/1991 $12,119 $11,863 $11,690 $11,650 $11,520
09/30/1991 $12,338 $11,665 $11,934 $11,672 $11,647
10/31/1991 $12,682 $11,822 $12,040 $11,859 $11,839
11/30/1991 $12,773 $11,345 $12,161 $11,661 $11,676
12/31/1991 $12,843 $12,643 $12,571 $12,429 $12,345
01/31/1992 $13,318 $12,408 $12,385 $12,433 $12,318
02/29/1992 $13,631 $12,568 $12,450 $12,628 $12,487
03/31/1992 $13,702 $12,323 $12,382 $12,470 $12,344
04/30/1992 $13,854 $12,685 $12,456 $12,607 $12,560
05/31/1992 $14,116 $12,747 $12,698 $12,783 $12,759
06/30/1992 $14,234 $12,557 $12,883 $12,747 $12,699
07/31/1992 $14,599 $13,071 $13,213 $13,104 $13,115
08/31/1992 $14,589 $12,803 $13,330 $13,003 $13,038
09/30/1992 $14,546 $12,953 $13,513 $13,134 $13,145
10/31/1992 $14,395 $12,997 $13,306 $13,135 $13,065
11/30/1992 $14,481 $13,439 $13,294 $13,398 $13,268
12/31/1992 $14,664 $13,604 $13,523 $13,588 $13,486
01/31/1993 $14,986 $13,718 $13,818 $13,836 $13,717
02/28/1993 $15,287 $13,905 $14,105 $13,998 $14,005
03/31/1993 $15,577 $14,198 $14,153 $14,264 $14,321
04/30/1993 $15,706 $13,855 $14,262 $14,198 $14,291
05/31/1993 $15,910 $14,225 $14,255 $14,422 $14,476
06/30/1993 $16,212 $14,266 $14,579 $14,581 $14,652
07/31/1993 $16,487 $14,209 $14,672 $14,668 $14,761
08/31/1993 $16,751 $14,747 $15,009 $15,035 $15,147
09/30/1993 $16,850 $14,634 $15,062 $15,091 $15,185
10/31/1993 $17,147 $14,937 $15,124 $15,263 $15,264
11/30/1993 $17,048 $14,795 $14,953 $15,083 $15,029
12/31/1993 $17,389 $14,974 $15,018 $15,321 $15,214
01/31/1994 $17,543 $15,483 $15,244 $15,663 $15,517
02/28/1994 $17,301 $15,063 $14,911 $15,412 $15,132
03/31/1994 $16,652 $14,407 $14,546 $14,899 $14,614
04/30/1994 $16,619 $14,591 $14,425 $14,912 $14,682
05/31/1994 $16,498 $14,830 $14,399 $14,932 $14,720
06/30/1994 $16,369 $14,467 $14,366 $14,715 $14,542
07/31/1994 $16,631 $14,941 $14,654 $15,033 $14,843
08/31/1994 $16,847 $15,554 $14,659 $15,316 $15,114
09/30/1994 $16,699 $15,174 $14,438 $15,063 $14,889
10/31/1994 $16,743 $15,516 $14,422 $15,158 $14,926
11/30/1994 $16,538 $14,951 $14,396 $14,829 $14,574
12/31/1994 $16,299 $15,172 $14,491 $14,925 $14,625
01/31/1995 $16,470 $15,565 $14,770 $15,085 $14,897
02/28/1995 $16,754 $16,172 $15,112 $15,497 $15,278
03/31/1995 $16,971 $16,650 $15,213 $15,746 $15,523
04/30/1995 $17,461 $17,139 $15,426 $16,066 $15,821
05/31/1995 $18,064 $17,825 $16,073 $16,662 $16,337
06/30/1995 $18,266 $18,238 $16,201 $16,960 $16,513
07/31/1995 $18,520 $18,844 $16,138 $17,294 $16,800
08/31/1995 $18,702 $18,891 $16,345 $17,424 $16,955
09/30/1995 $19,126 $19,688 $16,511 $17,748 $17,353
10/31/1995 $19,114 $19,617 $16,754 $17,721 $17,255
11/30/1995 $19,429 $20,478 $17,031 $18,202 $17,793
12/31/1995 $19,950 $20,873 $17,281 $18,407 $18,127
01/31/1996 $20,519 $21,583 $17,388 $18,770 $18,457
02/29/1996 $20,180 $21,784 $17,020 $18,719 $18,417
03/31/1996 $20,168 $21,993 $16,877 $18,798 $18,500
04/30/1996 $20,083 $22,316 $16,760 $18,873 $18,570
05/31/1996 $20,313 $22,892 $16,732 $19,045 $18,730
06/30/1996 $20,755 $22,979 $16,954 $19,094 $18,848
07/31/1996 $20,381 $21,963 $16,993 $18,638 $18,393
08/31/1996 $20,691 $22,427 $16,951 $18,925 $18,706
09/30/1996 $21,103 $23,689 $17,252 $19,555 $19,181
10/31/1996 $21,465 $24,343 $17,654 $19,870 $19,532
11/30/1996 $22,097 $26,184 $17,979 $20,727 $20,198
12/31/1996 $22,200 $25,665 $17,780 $20,534 $20,099
01/31/1997 $22,535 $27,269 $17,801 $21,047 $20,455
02/28/1997 $22,884 $27,482 $17,838 $21,106 $20,568
03/31/1997 $22,380 $26,352 $17,626 $20,671 $20,144
04/30/1997 $22,458 $27,926 $17,883 $21,132 $20,432
05/31/1997 $23,206 $29,626 $18,050 $21,880 $21,149
06/30/1997 $23,673 $30,954 $18,266 $22,421 $21,682
07/31/1997 $24,267 $33,417 $18,825 $23,484 $22,567
08/31/1997 $24,126 $31,546 $18,614 $22,988 $22,201
09/30/1997 $24,904 $33,275 $18,907 $23,724 $22,963
10/31/1997 $24,480 $32,163 $19,209 $23,389 $22,712
11/30/1997 $25,159 $33,653 $19,311 $23,738 $23,051
12/31/1997 $25,994 $34,231 $19,514 $24,039 $23,438
01/31/1998 $25,739 $34,611 $19,789 $24,212 $23,506
02/28/1998 $26,135 $37,107 $19,749 $24,888 $24,138
03/31/1998 $26,942 $39,007 $19,811 $25,445 $24,691
04/30/1998 $26,602 $39,401 $19,910 $25,547 $24,743
05/31/1998 $26,291 $38,723 $20,123 $25,460 $24,597
06/30/1998 $26,326 $40,295 $20,328 $25,720 $24,776
07/31/1998 $25,686 $39,864 $20,344 $25,481 $24,514
08/31/1998 $24,312 $34,100 $20,741 $24,161 $23,004
09/30/1998 $25,733 $36,285 $21,334 $25,002 $23,694
10/31/1998 $25,827 $39,236 $21,183 $25,557 $24,161
11/30/1998 $26,467 $41,613 $21,310 $26,178 $24,767
12/31/1998 $26,420 $44,010 $21,363 $26,699 $25,240
01/31/1999 $25,968 $45,850 $21,515 $26,955 $25,369
02/28/1999 $25,202 $44,424 $21,003 $26,267 $24,882
03/31/1999 $25,515 $46,201 $21,108 $26,722 $25,292
04/30/1999 $26,872 $47,989 $21,160 $27,617 $26,124
05/31/1999 $26,856 $46,856 $20,942 $27,338 $25,915
06/30/1999 $26,856 $49,457 $20,877 $27,743 $26,273
07/31/1999 $26,544 $47,914 $20,819 $27,402 $25,960
08/31/1999 $26,598 $47,674 $20,802 $27,207 $25,701
09/30/1999 $26,332 $46,368 $20,990 $26,908 $25,511
10/31/1999 $26,366 $49,303 $21,044 $27,419 $25,960
11/30/1999 $25,854 $50,304 $21,032 $27,548 $26,017
12/31/1999 $25,874 $53,267 $20,903 $28,038 $26,519
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN REAL ESTATE FUND
During the year under review, real estate securities turned in a weak overall
performance. Investor concerns about a slowdown in real estate investment
trusts' (REITs') cash-flow growth rate and a lack of investor interest in value
stocks in general apparently weighed on the group. For the 12 months ended
December 31, 1999, the Wilshire Real Estate Securities Index, the fund's
benchmark and a good indicator of real estate securities' performance, declined
3.2%, compared with a 21.0% gain for the Standard & Poor's 500 (S&P 500) Index.
On the bright side, as a result of their lower stock prices, REITs were trading
at what we considered the most attractive valuations seen in the last several
years.
The diversified property sector, which includes REITs that have investments
across a number of property types, represented the portfolio's largest
weighting, with 23.3% of total net assets on December 31, 1999. During the year,
the fund initiated a position in Reckson Associates Realty Corp., a REIT that
owns and manages office, industrial
We are replacing the Lipper Income Funds Objective Average with the Lipper
Annuity Income Funds Objective Average because the former is based on a peer
group of mutual funds, while the latter is based on a peer group of annuity
sub-accounts and better reflects the portfolio's performance.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Indexes' sources are Standard & Poor's Micropal and Lipper, Inc.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -1.82%
5-Year +9.74%
10-Year +10.00%
Since Inception (1/24/89) +9.97%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year -2.07%
5-Year +9.68%
10-Year +9.97%
Since Inception (1/24/89) +9.95%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
41
<PAGE>
TOP 10 HOLDINGS
Franklin Real Estate Fund
12/31/99
<TABLE>
<CAPTION>
SECURITY % OF TOTAL
SECURITY TYPE NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Equity Office Properties Trust 5.7%
Equity REIT - Office
Equity Residential
Properties Trust 4.7%
Equity REIT - Apartments
Apartment Investment &
Management Co. 4.3%
Equity REIT - Apartments
Security Capital Group Inc. 4.1%
Diversified Property Type
Starwood Hotels & Resorts
Worldwide Inc. 4.0%
Hotels
MeriStar Hospitality Corp. 3.9%
Equity REIT - Hotels
Public Storage Inc. 3.8%
Equity REIT - Storage
Glenborough Realty Trust Inc. 3.6%
Equity REIT -
Diversified Property Type
Liberty Property Trust 3.6%
Equity REIT -
Diversified Property Type
Prologis Trust 3.3%
Equity REIT - Industrial
</TABLE>
and retail properties in the northeast U.S. Reckson's exposure to
supply-constrained markets such as New York should enable the company to sustain
robust internal growth going forward.
Given what appeared to be reduced domestic economic risk over the near term, we
believed that office stocks represented an attractive combination of low
valuations and favorable supply and demand fundamentals. Accordingly, this
sector represented the second-largest property-type weighting at the period's
end, with 21.4% of total net assets. During the 12 months under review, the
portfolio initiated a position in CarrAmerica Realty Corp., a national, suburban
office REIT. We believe the company has strong growth opportunities coming from
internal growth, a healthy development pipeline and an expanding executive
suites business.
With 15.6% of total net assets, the apartment sector was the third-largest
property sector at the end of the period under review. This sector was the
best-performing property type during the year apparently due to investor
expectations of continued, stable cash-flow growth and the balanced supply and
demand environment for apartments. During the past year, we made some changes to
the apartment group. We reduced our exposure to southern U.S.-based apartments
where we were concerned about excess building potentially leading to oversupply.
As a result, we sold our positions in Gables Residential Trust and Post
Properties Inc. In this same sector, we added a new apartment position,
Apartment Investment & Management Co. (AIMCO). AIMCO is the country's largest
apartment owner and operator with approximately 400,000 units in 49 states, and
we believe it offers significant growth prospects for the next several years.
Looking ahead, we expect real estate industry fundamentals to continue to
benefit from an environment of supply and demand balance and relatively low
interest rates. In addition, earnings growth going into 2000, while leveling
off, does appear solid to us given continued rent growth and selective
development opportunities. Overall, we are optimistic about the prospects for
investing in real estate securities because they appear to possess a combination
of strong fundamentals, favorable valuations and attractive growth
opportunities. We believe this sector should once again attract investors given
such companies' earnings visibility and underlying asset values.
42
<PAGE>
TOTAL RETURN INDEX COMPARISON
Franklin Real Estate Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
[Bar Graph]
This graph compares the performance of Franklin Real Estate Fund - Class 1, as
tracked by the growth in value of a $10,000 investment, to that of S&P 500 Index
and Wilshire Real Estate Securities Index from 1/1/90 -12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges.
Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Real Estate S&P 500 Wilshire Real
Securities Fund - Class 1 Estate
Securities
Index
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 -2.96% $9,704 -6.71% $9,329 -4.71% $9,529
02/28/1990 -0.20% $9,685 1.29% $9,449 -0.04% $9,525
03/31/1990 0.98% $9,780 2.65% $9,700 -0.23% $9,503
04/30/1990 -1.39% $9,644 -2.49% $9,458 -1.94% $9,319
05/31/1990 0.70% $9,712 9.75% $10,380 -0.44% $9,278
06/30/1990 0.80% $9,789 -0.67% $10,311 0.19% $9,296
07/31/1990 -1.19% $9,673 -0.32% $10,278 -3.83% $8,940
08/31/1990 -7.01% $8,995 -9.04% $9,349 -11.68% $7,895
09/30/1990 -6.57% $8,405 -4.87% $8,893 -11.59% $6,980
10/31/1990 -2.76% $8,172 -0.43% $8,855 -7.20% $6,478
11/30/1990 6.28% $8,685 6.46% $9,427 4.07% $6,741
12/31/1990 1.34% $8,802 2.79% $9,690 -1.29% $6,654
01/31/1991 10.12% $9,692 4.36% $10,113 9.73% $7,302
02/28/1991 2.20% $9,905 7.15% $10,836 5.88% $7,731
03/31/1991 6.74% $10,574 2.42% $11,098 8.91% $8,420
04/30/1991 1.74% $10,758 0.24% $11,125 -0.81% $8,352
05/31/1991 1.17% $10,883 4.31% $11,604 1.55% $8,481
06/30/1991 -2.72% $10,588 -4.58% $11,073 -4.93% $8,063
07/31/1991 1.24% $10,719 4.66% $11,589 -0.42% $8,029
08/31/1991 -0.38% $10,678 2.37% $11,863 -1.21% $7,932
09/30/1991 1.98% $10,890 -1.67% $11,665 -1.14% $7,842
10/31/1991 -1.30% $10,749 1.34% $11,822 -2.25% $7,665
11/30/1991 -0.75% $10,668 -4.03% $11,345 -3.32% $7,411
12/31/1991 6.52% $11,364 11.44% $12,643 7.78% $7,987
01/31/1992 9.05% $12,393 -1.86% $12,408 4.71% $8,364
02/29/1992 -2.77% $12,050 1.29% $12,568 -0.25% $8,343
03/31/1992 -1.84% $11,828 -1.95% $12,323 -2.16% $8,162
04/30/1992 -1.45% $11,656 2.94% $12,685 -1.66% $8,027
05/31/1992 2.34% $11,929 0.49% $12,747 0.40% $8,059
06/30/1992 -0.89% $11,822 -1.49% $12,557 -3.01% $7,817
07/31/1992 4.01% $12,296 4.09% $13,071 0.37% $7,845
08/31/1992 -1.09% $12,162 -2.05% $12,803 -1.51% $7,727
09/30/1992 1.44% $12,337 1.17% $12,953 3.80% $8,021
10/31/1992 1.59% $12,533 0.34% $12,997 1.07% $8,106
11/30/1992 1.15% $12,677 3.40% $13,439 0.86% $8,176
12/31/1992 3.90% $13,171 1.23% $13,604 4.92% $8,578
01/31/1993 4.07% $13,707 0.84% $13,718 6.95% $9,175
02/28/1993 3.61% $14,201 1.36% $13,905 4.84% $9,619
03/31/1993 6.53% $15,128 2.11% $14,198 6.71% $10,264
04/30/1993 -3.95% $14,531 -2.42% $13,855 -5.67% $9,682
05/31/1993 -0.85% $14,407 2.67% $14,225 -1.57% $9,530
06/30/1993 3.45% $14,904 0.29% $14,266 2.62% $9,780
07/31/1993 1.96% $15,196 -0.40% $14,209 2.03% $9,978
08/31/1993 2.67% $15,602 3.79% $14,747 2.08% $10,186
09/30/1993 5.14% $16,405 -0.77% $14,634 4.53% $10,647
10/31/1993 -0.70% $16,290 2.07% $14,937 -2.81% $10,348
11/30/1993 -6.21% $15,279 -0.95% $14,795 -4.36% $9,897
12/31/1993 2.59% $15,675 1.21% $14,974 -0.12% $9,885
01/31/1994 1.80% $15,957 3.40% $15,483 3.00% $10,182
02/28/1994 4.11% $16,613 -2.71% $15,063 4.09% $10,598
03/31/1994 -3.51% $16,030 -4.36% $14,407 -4.63% $10,107
04/30/1994 1.63% $16,290 1.28% $14,591 1.12% $10,221
05/31/1994 1.54% $16,540 1.64% $14,830 2.08% $10,433
06/30/1994 -2.13% $16,188 -2.45% $14,467 -1.97% $10,228
07/31/1994 -0.20% $16,156 3.28% $14,941 0.23% $10,251
08/31/1994 -0.33% $16,103 4.10% $15,554 -0.07% $10,244
09/30/1994 -1.64% $15,840 -2.44% $15,174 -1.67% $10,073
10/31/1994 -3.56% $15,276 2.25% $15,516 -3.66% $9,704
11/30/1994 -3.59% $14,728 -3.64% $14,951 -3.91% $9,325
12/31/1994 9.51% $16,129 1.48% $15,172 7.75% $10,047
01/31/1995 -3.66% $15,539 2.59% $15,565 -3.23% $9,723
02/28/1995 1.76% $15,813 3.90% $16,172 3.13% $10,027
03/31/1995 0.73% $15,929 2.95% $16,650 0.58% $10,085
04/30/1995 -0.26% $15,887 2.94% $17,139 -0.72% $10,013
05/31/1995 4.05% $16,529 4.00% $17,825 3.31% $10,344
06/30/1995 1.69% $16,809 2.32% $18,238 1.74% $10,524
07/31/1995 2.07% $17,158 3.32% $18,844 1.61% $10,694
08/31/1995 2.16% $17,528 0.25% $18,891 1.22% $10,824
09/30/1995 2.86% $18,029 4.22% $19,688 1.84% $11,023
10/31/1995 -2.05% $17,659 -0.36% $19,617 -3.10% $10,682
11/30/1995 1.67% $17,953 4.39% $20,478 1.04% $10,793
12/31/1995 5.58% $18,955 1.93% $20,873 5.80% $11,419
01/31/1996 2.24% $19,380 3.40% $21,583 1.38% $11,576
02/29/1996 1.29% $19,631 0.93% $21,784 1.98% $11,805
03/31/1996 0.11% $19,653 0.96% $21,993 0.81% $11,901
04/30/1996 0.28% $19,707 1.47% $22,316 0.45% $11,955
05/31/1996 1.99% $20,099 2.58% $22,892 2.23% $12,221
06/30/1996 1.08% $20,316 0.38% $22,979 2.00% $12,466
07/31/1996 -0.78% $20,157 -4.42% $21,963 -0.89% $12,355
08/31/1996 4.79% $21,121 2.11% $22,427 4.25% $12,880
09/30/1996 3.16% $21,789 5.63% $23,689 2.50% $13,202
10/31/1996 1.98% $22,221 2.76% $24,343 2.71% $13,559
11/30/1996 3.27% $22,949 7.56% $26,184 4.15% $14,122
12/31/1996 9.71% $25,176 -1.98% $25,665 10.67% $15,629
01/31/1997 1.26% $25,495 6.25% $27,269 1.43% $15,852
02/28/1997 -0.13% $25,461 0.78% $27,482 0.06% $15,862
03/31/1997 0.76% $25,654 -4.11% $26,352 0.34% $15,916
04/30/1997 -2.57% $24,995 5.97% $27,926 -3.23% $15,402
05/31/1997 3.64% $25,904 6.09% $29,626 2.98% $15,861
06/30/1997 4.57% $27,088 4.48% $30,954 4.96% $16,647
07/31/1997 2.72% $27,824 7.96% $33,417 3.29% $17,195
08/31/1997 -0.13% $27,788 -5.60% $31,546 -0.74% $17,068
09/30/1997 9.74% $30,494 5.48% $33,275 9.86% $18,751
10/31/1997 -3.74% $29,355 -3.34% $32,163 -4.25% $17,954
11/30/1997 1.78% $29,877 4.63% $33,653 2.01% $18,315
12/31/1997 1.71% $30,388 1.72% $34,231 2.23% $18,723
01/31/1998 -1.09% $30,055 1.11% $34,611 -1.41% $18,459
02/28/1998 -0.51% $29,901 7.21% $37,107 -1.28% $18,223
03/31/1998 2.14% $30,542 5.12% $39,007 1.97% $18,582
04/30/1998 -2.72% $29,711 1.01% $39,401 -3.15% $17,997
05/31/1998 -1.00% $29,414 -1.72% $38,723 -0.96% $17,824
06/30/1998 -1.34% $29,019 4.06% $40,295 -0.53% $17,729
07/31/1998 -6.91% $27,015 -1.07% $39,864 -6.96% $16,495
08/31/1998 -10.52% $24,174 -14.46% $34,100 -10.39% $14,782
09/30/1998 5.35% $25,468 6.41% $36,285 5.60% $15,609
10/31/1998 -1.59% $25,062 8.13% $39,236 -1.37% $15,395
11/30/1998 1.47% $25,430 6.06% $41,613 1.88% $15,685
12/31/1998 -0.60% $25,278 5.76% $44,010 -1.43% $15,461
01/31/1999 -3.16% $24,479 4.18% $45,850 -2.17% $15,125
02/28/1999 -1.40% $24,136 -3.11% $44,424 -0.79% $15,006
03/31/1999 -0.11% $24,110 4.00% $46,201 -0.60% $14,916
04/30/1999 11.10% $26,786 3.87% $47,989 10.66% $16,506
05/31/1999 1.37% $27,153 -2.36% $46,856 1.69% $16,785
06/30/1999 -1.77% $26,672 5.55% $49,457 -1.70% $16,499
07/31/1999 -4.67% $25,427 -3.12% $47,914 -3.83% $15,867
08/31/1999 -1.94% $24,933 -0.50% $47,674 -1.50% $15,629
09/30/1999 -4.08% $23,916 -2.74% $46,368 -4.51% $14,924
10/31/1999 -2.59% $23,297 6.33% $49,303 -1.86% $14,647
11/30/1999 -2.12% $22,803 2.03% $50,304 -1.52% $14,424
12/31/1999 4.04% $23,725 5.89% $53,267 3.76% $14,967
</TABLE>
TOTAL RETURN INDEX COMPARISON
Franklin Real Estate Fund - Class 2*
$10,000 Investment (1/1/90 - 12/31/99)
[Bar Graph]
This graph compares the performance of Franklin Real Estate Fund - Class 2, as
tracked by the growth in value of a $10,000 investment, to that of S&P 500 Index
and Wilshire Real Estate Securities Index from 1/1/90 -12/31/99.*
<TABLE>
<CAPTION>
Franklin Real Estate S&P 500 Wilshire Real
Securities Fund - Class 2 Estate
Securities
Index
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 -2.96% $9,704 -6.71% $9,329 -4.71% $9,529
02/28/1990 -0.20% $9,685 1.29% $9,449 -0.04% $9,525
03/31/1990 0.98% $9,780 2.65% $9,700 -0.23% $9,503
04/30/1990 -1.39% $9,644 -2.49% $9,458 -1.94% $9,319
05/31/1990 0.70% $9,712 9.75% $10,380 -0.44% $9,278
06/30/1990 0.80% $9,789 -0.67% $10,311 0.19% $9,296
07/31/1990 -1.19% $9,673 -0.32% $10,278 -3.83% $8,940
08/31/1990 -7.01% $8,995 -9.04% $9,349 -11.68% $7,895
09/30/1990 -6.57% $8,405 -4.87% $8,893 -11.59% $6,980
10/31/1990 -2.76% $8,172 -0.43% $8,855 -7.20% $6,478
11/30/1990 6.28% $8,685 6.46% $9,427 4.07% $6,741
12/31/1990 1.34% $8,802 2.79% $9,690 -1.29% $6,654
01/31/1991 10.12% $9,692 4.36% $10,113 9.73% $7,302
02/28/1991 2.20% $9,905 7.15% $10,836 5.88% $7,731
03/31/1991 6.74% $10,574 2.42% $11,098 8.91% $8,420
04/30/1991 1.74% $10,758 0.24% $11,125 -0.81% $8,352
05/31/1991 1.17% $10,883 4.31% $11,604 1.55% $8,481
06/30/1991 -2.72% $10,588 -4.58% $11,073 -4.93% $8,063
07/31/1991 1.24% $10,719 4.66% $11,589 -0.42% $8,029
08/31/1991 -0.38% $10,678 2.37% $11,863 -1.21% $7,932
09/30/1991 1.98% $10,890 -1.67% $11,665 -1.14% $7,842
10/31/1991 -1.30% $10,749 1.34% $11,822 -2.25% $7,665
11/30/1991 -0.75% $10,668 -4.03% $11,345 -3.32% $7,411
12/31/1991 6.52% $11,364 11.44% $12,643 7.78% $7,987
01/31/1992 9.05% $12,393 -1.86% $12,408 4.71% $8,364
02/29/1992 -2.77% $12,050 1.29% $12,568 -0.25% $8,343
03/31/1992 -1.84% $11,828 -1.95% $12,323 -2.16% $8,162
04/30/1992 -1.45% $11,656 2.94% $12,685 -1.66% $8,027
05/31/1992 2.34% $11,929 0.49% $12,747 0.40% $8,059
06/30/1992 -0.89% $11,822 -1.49% $12,557 -3.01% $7,817
07/31/1992 4.01% $12,296 4.09% $13,071 0.37% $7,845
08/31/1992 -1.09% $12,162 -2.05% $12,803 -1.51% $7,727
09/30/1992 1.44% $12,337 1.17% $12,953 3.80% $8,021
10/31/1992 1.59% $12,533 0.34% $12,997 1.07% $8,106
11/30/1992 1.15% $12,677 3.40% $13,439 0.86% $8,176
12/31/1992 3.90% $13,171 1.23% $13,604 4.92% $8,578
01/31/1993 4.07% $13,707 0.84% $13,718 6.95% $9,175
02/28/1993 3.61% $14,201 1.36% $13,905 4.84% $9,619
03/31/1993 6.53% $15,128 2.11% $14,198 6.71% $10,264
04/30/1993 -3.95% $14,531 -2.42% $13,855 -5.67% $9,682
05/31/1993 -0.85% $14,407 2.67% $14,225 -1.57% $9,530
06/30/1993 3.45% $14,904 0.29% $14,266 2.62% $9,780
07/31/1993 1.96% $15,196 -0.40% $14,209 2.03% $9,978
08/31/1993 2.67% $15,602 3.79% $14,747 2.08% $10,186
09/30/1993 5.14% $16,405 -0.77% $14,634 4.53% $10,647
10/31/1993 -0.70% $16,290 2.07% $14,937 -2.81% $10,348
11/30/1993 -6.21% $15,279 -0.95% $14,795 -4.36% $9,897
12/31/1993 2.59% $15,675 1.21% $14,974 -0.12% $9,885
01/31/1994 1.80% $15,957 3.40% $15,483 3.00% $10,182
02/28/1994 4.11% $16,613 -2.71% $15,063 4.09% $10,598
03/31/1994 -3.51% $16,030 -4.36% $14,407 -4.63% $10,107
04/30/1994 1.63% $16,290 1.28% $14,591 1.12% $10,221
05/31/1994 1.54% $16,540 1.64% $14,830 2.08% $10,433
06/30/1994 -2.13% $16,188 -2.45% $14,467 -1.97% $10,228
07/31/1994 -0.20% $16,156 3.28% $14,941 0.23% $10,251
08/31/1994 -0.33% $16,103 4.10% $15,554 -0.07% $10,244
09/30/1994 -1.64% $15,840 -2.44% $15,174 -1.67% $10,073
10/31/1994 -3.56% $15,276 2.25% $15,516 -3.66% $9,704
11/30/1994 -3.59% $14,728 -3.64% $14,951 -3.91% $9,325
12/31/1994 9.51% $16,129 1.48% $15,172 7.75% $10,047
01/31/1995 -3.66% $15,539 2.59% $15,565 -3.23% $9,723
02/28/1995 1.76% $15,813 3.90% $16,172 3.13% $10,027
03/31/1995 0.73% $15,929 2.95% $16,650 0.58% $10,085
04/30/1995 -0.26% $15,887 2.94% $17,139 -0.72% $10,013
05/31/1995 4.05% $16,529 4.00% $17,825 3.31% $10,344
06/30/1995 1.69% $16,809 2.32% $18,238 1.74% $10,524
07/31/1995 2.07% $17,158 3.32% $18,844 1.61% $10,694
08/31/1995 2.16% $17,528 0.25% $18,891 1.22% $10,824
09/30/1995 2.86% $18,029 4.22% $19,688 1.84% $11,023
10/31/1995 -2.05% $17,659 -0.36% $19,617 -3.10% $10,682
11/30/1995 1.67% $17,953 4.39% $20,478 1.04% $10,793
12/31/1995 5.58% $18,955 1.93% $20,873 5.80% $11,419
01/31/1996 2.24% $19,380 3.40% $21,583 1.38% $11,576
02/29/1996 1.29% $19,631 0.93% $21,784 1.98% $11,805
03/31/1996 0.11% $19,653 0.96% $21,993 0.81% $11,901
04/30/1996 0.28% $19,707 1.47% $22,316 0.45% $11,955
05/31/1996 1.99% $20,099 2.58% $22,892 2.23% $12,221
06/30/1996 1.08% $20,316 0.38% $22,979 2.00% $12,466
07/31/1996 -0.78% $20,157 -4.42% $21,963 -0.89% $12,355
08/31/1996 4.79% $21,121 2.11% $22,427 4.25% $12,880
09/30/1996 3.16% $21,789 5.63% $23,689 2.50% $13,202
10/31/1996 1.98% $22,221 2.76% $24,343 2.71% $13,559
11/30/1996 3.27% $22,949 7.56% $26,184 4.15% $14,122
12/31/1996 9.71% $25,176 -1.98% $25,665 10.67% $15,629
01/31/1997 1.26% $25,495 6.25% $27,269 1.43% $15,852
02/28/1997 -0.13% $25,461 0.78% $27,482 0.06% $15,862
03/31/1997 0.76% $25,654 -4.11% $26,352 0.34% $15,916
04/30/1997 -2.57% $24,995 5.97% $27,926 -3.23% $15,402
05/31/1997 3.64% $25,904 6.09% $29,626 2.98% $15,861
06/30/1997 4.57% $27,088 4.48% $30,954 4.96% $16,647
07/31/1997 2.72% $27,824 7.96% $33,417 3.29% $17,195
08/31/1997 -0.13% $27,788 -5.60% $31,546 -0.74% $17,068
09/30/1997 9.74% $30,494 5.48% $33,275 9.86% $18,751
10/31/1997 -3.74% $29,355 -3.34% $32,163 -4.25% $17,954
11/30/1997 1.78% $29,877 4.63% $33,653 2.01% $18,315
12/31/1997 1.71% $30,388 1.72% $34,231 2.23% $18,723
01/31/1998 -1.09% $30,055 1.11% $34,611 -1.41% $18,459
02/28/1998 -0.51% $29,901 7.21% $37,107 -1.28% $18,223
03/31/1998 2.14% $30,542 5.12% $39,007 1.97% $18,582
04/30/1998 -2.72% $29,711 1.01% $39,401 -3.15% $17,997
05/31/1998 -1.00% $29,414 -1.72% $38,723 -0.96% $17,824
06/30/1998 -1.34% $29,019 4.06% $40,295 -0.53% $17,729
07/31/1998 -6.91% $27,015 -1.07% $39,864 -6.96% $16,495
08/31/1998 -10.52% $24,174 -14.46% $34,100 -10.39% $14,782
09/30/1998 5.35% $25,468 6.41% $36,285 5.60% $15,609
10/31/1998 -1.59% $25,062 8.13% $39,236 -1.37% $15,395
11/30/1998 1.47% $25,430 6.06% $41,613 1.88% $15,685
12/31/1998 -0.60% $25,278 5.76% $44,010 -1.43% $15,461
01/31/1999 -3.21% $24,466 4.18% $45,850 -2.17% $15,125
02/28/1999 -1.40% $24,124 -3.11% $44,424 -0.79% $15,006
03/31/1999 -0.16% $24,085 4.00% $46,201 -0.60% $14,916
04/30/1999 11.11% $26,761 3.87% $47,989 10.66% $16,506
05/31/1999 1.33% $27,117 -2.36% $46,856 1.69% $16,785
06/30/1999 -1.78% $26,634 5.55% $49,457 -1.70% $16,499
07/31/1999 -4.68% $25,388 -3.12% $47,914 -3.83% $15,867
08/31/1999 -2.01% $24,877 -0.50% $47,674 -1.50% $15,629
09/30/1999 -4.09% $23,860 -2.74% $46,368 -4.51% $14,924
10/31/1999 -2.60% $23,240 6.33% $49,303 -1.86% $14,647
11/30/1999 -2.12% $22,747 2.03% $50,304 -1.52% $14,424
12/31/1999 4.06% $23,670 5.89% $53,267 3.76% $14,967
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN RISING DIVIDENDS SECURITIES FUND
During the year ended December 31, 1999, the domestic economy exhibited solid
growth with only modest inflation. We believe that deflationary fears, prevalent
during the first few months of the reporting period, almost completely
disappeared. The Federal Reserve Board (the Fed) apparently grew increasingly
concerned that the strengthening economy would accelerate inflation. The Fed
reversed last year's cuts in the federal funds target rate, raising it to 5.50%
during the period. U.S. Treasury bond yields rose steadily during the
portfolio's fiscal year, and the 30-year Treasury hit a two-year high of 6.49%
on December 23, 1999.
The stock market continued to be characterized by the strength of a small number
of stocks, particularly technology issues, while most other equities lagged far
behind the major indexes. After struggling early in 1999, the average stock's
performance rose in the spring as investors apparently became more confident of
a global economic recovery. When the Fed increased the federal funds target rate
during the summer, the broader market once again faltered. As a result, the
best-performing stocks over the past year tended to be technology stocks that
were considered to have exciting
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -6.14%
5-Year +8.02%
10-Year +9.02%
Since Inception (1/24/89) +8.69%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year -6.36%
5-Year +7.97%
10-Year +9.00%
Since Inception (1/24/89) +8.66%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
43
<PAGE>
TOP 10 STOCK HOLDINGS
Franklin Rising Dividends
Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Family Dollar Stores Inc. 5.6%
Retail Trade
West Pharmaceutical
Services Inc. 5.0%
Health Technology
Cohu Inc. 4.6%
Electronic Technology
Leggett & Platt Inc. 4.2%
Consumer Durables
Pall Corp. 3.5%
Process Industries
Reynolds & Reynolds Co. 3.2%
Technology Services
Alberto-Culver Co. 3.1%
Consumer Non-Durables
National Commerce Bancorp 3.0%
Finance
Bemis Co. Inc. 2.7%
Process Industries
Kaydon Corp. 2.7%
Producer Manufacturing
</TABLE>
growth prospects and certain commodity-related stocks that reacted positively to
stronger commodity prices.
We base our investment strategy on our belief that companies with consistently
rising dividends should, over time, also realize appreciation in their stock
prices. We select securities that have had consistent and substantial dividend
increases, strong balance sheets and relatively low price-to-earnings ratios. We
seek fundamentally sound companies that meet our standards and attempt to
acquire them at attractive prices, often when they are out of favor with other
investors.
In their enthusiasm for technology stocks in 1999, investors generally
overlooked or even punished a number of solid, small- and mid-sized companies in
other sectors, despite favorable operating results. Many of these companies'
valuations are modest by historical standards and exceptionally low relative to
the Standard & Poor's 500 (S&P 500) Index's valuation. We believe that many of
the stocks in Franklin Rising Dividends Securities Fund fit this profile. One
such example is the portfolio's largest position, Family Dollar Stores Inc., a
leading participant in the growing "convenience discounter" format. Family
Dollar Stores has increased its dividend for 23 consecutive years and has no
long-term debt. The company's earnings growth has accelerated in recent years,
as low- and middle-income consumers responded positively to their attractively
priced and conveniently located basic merchandise offering. The company recently
completed its second consecutive year of 30%+ earnings-per-share growth, and
appears quite capable of delivering strong earnings growth on a sustained basis.
Nevertheless, Family Dollar Stores' share price fell 26% in 1999.
Two other companies, Leggett & Platt Inc. and Teleflex Inc., also exemplified
the portfolio's strategy. Leggett manufactures a wide range of engineered
components for residential, office and institutional furnishings, as well as
retail store fixtures. It has increased its dividend for 28 years at a 15%
compound annual rate. In the ten-year period through 1998, Leggett achieved
compound annual growth rates of 15% in revenues, 21% in net earnings and 17% in
earnings per share. Leggett appears to be on track to deliver similar results in
1999. Its stock price, however, fell 2.6% in 1999.
Teleflex is a diversified manufacturer that supplies the aerospace, automotive,
medical and other industrial markets. As of the end of the reporting period,
Teleflex appeared likely to report its 25th consecutive year of increasing
revenues and earnings, following 22 years of dividend increases. For the 20-year
period ended in 1998, Teleflex averaged 18% in annual revenue increases, 17% in
earnings per share and 18% in dividends per share. Despite this enviable record,
Teleflex's share price fell 31% in 1999. Looking forward, the company should
benefit from increased shipments of its popular, adjustable foot pedals,
currently featured on a variety of Ford vehicles. Family
44
<PAGE>
Dollar Stores', Legget & Platt's and Teleflex's share prices all reflected far
lower price-to-earnings ratios than the S&P 500 average.
The portfolio's top-performing stock during the period was Cohu Inc., a
semiconductor test-handling equipment manufacturer. Cohu benefited from a sharp
sales pickup after a slowdown in the last quarter of 1998. Strong order growth
indicates that semiconductor capital equipment purchases should continue to
increase in the coming quarters. Hewlett-Packard Co., which recently had a
highly successful initial public offering of its electronics subsidiary, Agilent
Technologies, Inc., was also popular with investors. Several other portfolio
holdings also performed well, including perennial large-cap favorites, General
Electric Co. and Wal-Mart Stores Inc.
The most significant new position we added to the portfolio during the year was
Lancaster Colony Corp., which appears ready to return to its historical earnings
growth rate after several flat quarters. Each of the company's three business
segments, automotive, specialty foods, and glassware and candles, reported
positive developments. Lancaster recently increased its dividend for the 37th
consecutive year. We made two other meaningful additions to the portfolio --
Teleflex Inc., discussed above, and Reynolds & Reynolds Co. Reynolds is a
leading information-management systems provider to the automobile dealership
market. Recently, they expanded their focus to Internet-based solutions.
During the year under review, we eliminated several positions from the
portfolio, including Avery Dennison Corp. and First Union Corp. We sold Avery
Dennison when we felt its valuation became less attractive than those of
alternative investments. First Union's earnings disappointed investors, as the
expense savings and revenue enhancements anticipated from its acquisition of
CoreStates Financial apparently did not live up to expectations.
Notable year-over-year dividend increases during reporting period came from
Graco, Inc. (+27%), Baldor Electric Co. (+20%), Mercury General Corp. (+20%),
Washington Mutual, Inc. (+18%), General Electric Co. (+17%), and National
Commerce Bancorp. (+17%).
As the table on page 44 shows, our ten largest positions on December 31, 1999,
comprised 37.6% of the portfolio's total net assets. It is interesting to note
how these ten companies would, in the aggregate, respond to the portfolio's
screening criteria based on a simple average of statistical measures. On
average, these 10 companies have raised their dividends 17 years in a row and by
274% in the last ten years. Their most recent dividend increases averaged 9.5%,
for a yield of 1.8% on December 31, 1999, and a dividend payout ratio of 30%.
Long-term debt averaged 17% of capitalization,
45
<PAGE>
We are replacing the Wilshire Target Mid Cap Growth Index with the Russell
Midcap Value Index. The Wilshire Index has changed composition, and now has
relatively little exposure to financial stocks, which often increase their
dividends annually, and relatively heavy exposure to technology stocks, which
often do not pay dividends. The new index is more closely aligned with the
universe of rising dividends qualifiers, and we believe it more closely matches
the portfolio's investments. PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING
EXPENSES BUT DOES NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -9.70%
5-Year +15.65%
Since Inception (1/27/92) +9.83%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year -10.00%
5-Year +15.58%
Since Inception (1/27/92) +9.79%
</TABLE>
and the average price-to-earnings ratio was 17.5 versus 28.8 for that of the
unmanaged S&P 500 on the same date.
It is our opinion that these companies are representative of the portfolio's
fundamentally high quality. We also believe that, over the long term, companies
that increase cash payments to shareholders, year after year, will be superior
builders of wealth.
[BAR GRAPH]
This graph compares the performance of Franklin Rising Dividends Securities Fund
- - Class 1, as tracked by the growth in value of a $10,000 investment, to that of
Wilshire Target Mid Cap Growth Index and Russell Midcap Value Index from 1/27/92
- -12/31/99.
We are replacing the Wilshire Target Mid Cap Growth Index with the Russell
Midcap Value Index. The Wilshire Index has changed composition, and now has
relatively little exposure to financial stocks, which often increase their
dividends annually, and relatively heavy exposure to technology stocks, which
often do not pay dividends. The new index is more closely aligned with the
universe of rising dividends qualifiers, and we believe it more closely matches
the portfolio's investments. Performance shown reflects all fund operating
expenses but does not include any fees, charges or expenses imposed by the
variable annuity or life insurance contracts that use the Franklin Templeton
Variable Insurance Products Trust. If they had been included, performance would
have been 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Rising Dividends Wilshire Target Mid Cap Russell Mid
Fund - Class 1 Growth Index Cap Value Index
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/27/1992 $10,000 $10,000 $10,000
01/31/1992 0.00% $10,000 0.39% $10,039 0.33% $10,033
02/29/1992 0.00% $10,000 1.69% $10,208 3.73% $10,407
03/31/1992 -0.70% $9,930 -3.99% $9,801 -1.52% $10,249
04/30/1992 0.50% $9,980 -2.38% $9,568 2.55% $10,511
05/31/1992 1.50% $10,130 -1.25% $9,448 0.93% $10,608
06/30/1992 -1.38% $9,990 -4.54% $9,019 -0.77% $10,527
07/31/1992 3.60% $10,350 5.48% $9,513 4.01% $10,949
08/31/1992 -1.06% $10,240 -2.09% $9,315 -2.92% $10,629
09/30/1992 1.66% $10,410 1.75% $9,478 2.00% $10,842
10/31/1992 1.25% $10,540 4.08% $9,864 2.09% $11,068
11/30/1992 3.04% $10,860 7.66% $10,620 4.21% $11,534
12/31/1992 1.10% $10,980 3.06% $10,945 3.19% $11,902
01/31/1993 -1.09% $10,860 2.26% $11,192 2.53% $12,203
02/28/1993 -1.75% $10,670 -3.37% $10,815 2.16% $12,467
03/31/1993 0.84% $10,760 3.07% $11,147 3.47% $12,899
04/30/1993 -3.44% $10,390 -4.18% $10,681 -1.76% $12,672
05/31/1993 1.35% $10,530 5.70% $11,290 2.25% $12,958
06/30/1993 -1.07% $10,418 0.66% $11,364 2.08% $13,227
07/31/1993 0.00% $10,418 -0.89% $11,263 1.10% $13,373
08/31/1993 1.64% $10,588 5.07% $11,834 3.41% $13,829
09/30/1993 0.00% $10,588 2.51% $12,131 -0.26% $13,793
10/31/1993 1.52% $10,749 0.53% $12,196 -1.13% $13,637
11/30/1993 -2.52% $10,478 -1.56% $12,005 -2.31% $13,322
12/31/1993 1.15% $10,598 5.53% $12,669 3.30% $13,761
01/31/1994 1.32% $10,739 3.53% $13,116 2.91% $14,162
02/28/1994 -3.36% $10,378 0.53% $13,186 -1.78% $13,910
03/31/1994 -4.44% $9,916 -5.95% $12,401 -3.87% $13,371
04/30/1994 0.20% $9,936 0.40% $12,451 1.47% $13,568
05/31/1994 1.41% $10,077 -1.53% $12,261 0.13% $13,586
06/30/1994 -0.27% $10,050 -5.04% $11,643 -1.84% $13,336
07/31/1994 1.01% $10,152 2.44% $11,927 4.00% $13,869
08/31/1994 4.22% $10,580 8.56% $12,948 3.71% $14,384
09/30/1994 -2.31% $10,335 -0.79% $12,845 -3.13% $13,933
10/31/1994 -0.26% $10,309 2.44% $13,159 -0.09% $13,921
11/30/1994 -2.37% $10,064 -4.43% $12,576 -4.41% $13,307
12/31/1994 1.01% $10,166 1.66% $12,785 1.21% $13,468
01/31/1995 2.71% $10,441 0.02% $12,787 2.82% $13,848
02/28/1995 2.93% $10,747 6.00% $13,554 5.05% $14,547
03/31/1995 2.18% $10,982 3.69% $14,055 1.88% $14,821
04/30/1995 0.74% $11,063 1.49% $14,264 2.12% $15,135
05/31/1995 3.41% $11,441 1.64% $14,498 4.02% $15,743
06/30/1995 1.08% $11,564 6.29% $15,410 2.31% $16,107
07/31/1995 2.16% $11,814 8.40% $16,704 3.49% $16,669
08/31/1995 1.68% $12,012 1.53% $16,960 1.96% $16,996
09/30/1995 3.30% $12,408 2.79% $17,433 2.29% $17,385
10/31/1995 -0.84% $12,304 -3.52% $16,819 -1.95% $17,046
11/30/1995 5.17% $12,939 5.25% $17,702 5.47% $17,978
12/31/1995 1.93% $13,190 0.36% $17,766 1.09% $18,174
01/31/1996 1.97% $13,450 1.73% $18,073 2.43% $18,616
02/29/1996 1.47% $13,648 3.74% $18,749 0.95% $18,793
03/31/1996 0.00% $13,648 1.21% $18,976 2.11% $19,189
04/30/1996 -0.23% $13,617 5.93% $20,102 0.85% $19,352
05/31/1996 2.75% $13,992 2.99% $20,703 0.96% $19,538
06/30/1996 1.10% $14,145 -5.45% $19,574 0.11% $19,560
07/31/1996 -2.93% $13,731 -8.56% $17,899 -4.76% $18,629
08/31/1996 2.01% $14,007 7.29% $19,204 4.20% $19,411
09/30/1996 5.16% $14,730 4.73% $20,112 3.67% $20,123
10/31/1996 2.96% $15,166 -2.83% $19,543 2.63% $20,653
11/30/1996 6.94% $16,219 5.63% $20,643 6.28% $21,950
12/31/1996 0.98% $16,379 -1.32% $20,370 -0.42% $21,857
01/31/1997 2.01% $16,709 2.90% $20,961 3.14% $22,544
02/28/1997 2.80% $17,177 -1.89% $20,565 1.69% $22,925
03/31/1997 -3.10% $16,645 -6.11% $19,309 -3.04% $22,228
04/30/1997 2.56% $17,070 3.42% $19,969 2.52% $22,788
05/31/1997 7.73% $18,389 8.27% $21,620 5.89% $24,130
06/30/1997 3.62% $19,054 3.47% $22,371 3.71% $25,025
07/31/1997 8.48% $20,670 7.07% $23,952 7.42% $26,882
08/31/1997 -2.04% $20,250 -0.77% $23,768 -1.17% $26,568
09/30/1997 5.25% $21,312 6.58% $25,332 6.20% $28,215
10/31/1997 -2.44% $20,792 -4.77% $24,123 -3.04% $27,357
11/30/1997 2.40% $21,290 0.59% $24,266 3.37% $28,279
12/31/1997 2.34% $21,789 0.85% $24,472 3.83% $29,362
01/31/1998 -0.46% $21,689 -0.70% $24,301 -1.94% $28,793
02/28/1998 8.07% $23,438 8.24% $26,303 6.68% $30,716
03/31/1998 2.88% $24,113 1.60% $26,724 5.15% $32,298
04/30/1998 -0.32% $24,036 0.70% $26,911 -0.56% $32,117
05/31/1998 -3.64% $23,161 -5.62% $25,398 -2.33% $31,369
06/30/1998 -1.14% $22,898 -0.60% $25,246 0.32% $31,469
07/31/1998 -3.43% $22,113 -5.94% $23,746 -5.07% $29,874
08/31/1998 -15.94% $18,589 -20.29% $18,928 -14.06% $25,673
09/30/1998 4.98% $19,515 4.95% $19,865 5.84% $27,173
10/31/1998 10.68% $21,599 7.91% $21,437 6.48% $28,933
11/30/1998 3.63% $22,383 5.78% $22,676 3.51% $29,949
12/31/1998 4.08% $23,297 6.76% $24,208 3.04% $30,859
01/31/1999 -5.19% $22,088 -2.35% $23,640 -2.33% $30,140
02/28/1999 -3.55% $21,304 -7.98% $21,753 -2.20% $29,477
03/31/1999 -0.66% $21,163 1.77% $22,138 1.43% $29,899
04/30/1999 7.90% $22,835 8.93% $24,115 9.47% $32,730
05/31/1999 1.13% $23,093 1.97% $24,590 0.42% $32,868
06/30/1999 3.73% $23,954 5.09% $25,842 1.14% $33,242
07/31/1999 -1.53% $23,588 -0.55% $25,700 -2.50% $32,411
08/31/1999 -4.13% $22,614 -3.95% $24,685 -3.46% $31,290
09/30/1999 -5.81% $21,300 -1.35% $24,351 -5.06% $29,707
10/31/1999 0.80% $21,470 3.39% $25,177 2.95% $30,583
11/30/1999 -1.22% $21,208 3.82% $26,139 -1.83% $30,023
12/31/1999 -0.80% $21,036 7.34% $28,057 2.68% $30,828
</TABLE>
[BAR GRAPH]
This graph compares the performance of Franklin Rising Dividends Securities Fund
- - Class 2, as tracked by the growth in value of a $10,000 investment, to that of
Wilshire Target Mid Cap Growth Index and Russell Midcap Value Index from 1/27/92
- -12/31/99.*
<TABLE>
<CAPTION>
Franklin Rising Dividends Wilshire Target Mid Cap Russell Mid
Fund - Class 2 Growth Index Cap Value
Index
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/27/1992 $10,000 $10,000 $10,000
01/31/1992 0.00% $10,000 0.39% $10,039 0.33% $10,033
02/29/1992 0.00% $10,000 1.69% $10,208 3.73% $10,407
03/31/1992 -0.70% $9,930 -3.99% $9,801 -1.52% $10,249
04/30/1992 0.50% $9,980 -2.38% $9,568 2.55% $10,511
05/31/1992 1.50% $10,130 -1.25% $9,448 0.93% $10,608
06/30/1992 -1.38% $9,990 -4.54% $9,019 -0.77% $10,527
07/31/1992 3.60% $10,350 5.48% $9,513 4.01% $10,949
08/31/1992 -1.06% $10,240 -2.09% $9,315 -2.92% $10,629
09/30/1992 1.66% $10,410 1.75% $9,478 2.00% $10,842
10/31/1992 1.25% $10,540 4.08% $9,864 2.09% $11,068
11/30/1992 3.04% $10,860 7.66% $10,620 4.21% $11,534
12/31/1992 1.10% $10,980 3.06% $10,945 3.19% $11,902
01/31/1993 -1.09% $10,860 2.26% $11,192 2.53% $12,203
02/28/1993 -1.75% $10,670 -3.37% $10,815 2.16% $12,467
03/31/1993 0.84% $10,760 3.07% $11,147 3.47% $12,899
04/30/1993 -3.44% $10,390 -4.18% $10,681 -1.76% $12,672
05/31/1993 1.35% $10,530 5.70% $11,290 2.25% $12,958
06/30/1993 -1.07% $10,418 0.66% $11,364 2.08% $13,227
07/31/1993 0.00% $10,418 -0.89% $11,263 1.10% $13,373
08/31/1993 1.64% $10,588 5.07% $11,834 3.41% $13,829
09/30/1993 0.00% $10,588 2.51% $12,131 -0.26% $13,793
10/31/1993 1.52% $10,749 0.53% $12,196 -1.13% $13,637
11/30/1993 -2.52% $10,478 -1.56% $12,005 -2.31% $13,322
12/31/1993 1.15% $10,598 5.53% $12,669 3.30% $13,761
01/31/1994 1.32% $10,739 3.53% $13,116 2.91% $14,162
02/28/1994 -3.36% $10,378 0.53% $13,186 -1.78% $13,910
03/31/1994 -4.44% $9,916 -5.95% $12,401 -3.87% $13,371
04/30/1994 0.20% $9,936 0.40% $12,451 1.47% $13,568
05/31/1994 1.41% $10,077 -1.53% $12,261 0.13% $13,586
06/30/1994 -0.27% $10,050 -5.04% $11,643 -1.84% $13,336
07/31/1994 1.01% $10,152 2.44% $11,927 4.00% $13,869
08/31/1994 4.22% $10,580 8.56% $12,948 3.71% $14,384
09/30/1994 -2.31% $10,335 -0.79% $12,845 -3.13% $13,933
10/31/1994 -0.26% $10,309 2.44% $13,159 -0.09% $13,921
11/30/1994 -2.37% $10,064 -4.43% $12,576 -4.41% $13,307
12/31/1994 1.01% $10,166 1.66% $12,785 1.21% $13,468
01/31/1995 2.71% $10,441 0.02% $12,787 2.82% $13,848
02/28/1995 2.93% $10,747 6.00% $13,554 5.05% $14,547
03/31/1995 2.18% $10,982 3.69% $14,055 1.88% $14,821
04/30/1995 0.74% $11,063 1.49% $14,264 2.12% $15,135
05/31/1995 3.41% $11,441 1.64% $14,498 4.02% $15,743
06/30/1995 1.08% $11,564 6.29% $15,410 2.31% $16,107
07/31/1995 2.16% $11,814 8.40% $16,704 3.49% $16,669
08/31/1995 1.68% $12,012 1.53% $16,960 1.96% $16,996
09/30/1995 3.30% $12,408 2.79% $17,433 2.29% $17,385
10/31/1995 -0.84% $12,304 -3.52% $16,819 -1.95% $17,046
11/30/1995 5.17% $12,939 5.25% $17,702 5.47% $17,978
12/31/1995 1.93% $13,190 0.36% $17,766 1.09% $18,174
01/31/1996 1.97% $13,450 1.73% $18,073 2.43% $18,616
02/29/1996 1.47% $13,648 3.74% $18,749 0.95% $18,793
03/31/1996 0.00% $13,648 1.21% $18,976 2.11% $19,189
04/30/1996 -0.23% $13,617 5.93% $20,102 0.85% $19,352
05/31/1996 2.75% $13,992 2.99% $20,703 0.96% $19,538
06/30/1996 1.10% $14,145 -5.45% $19,574 0.11% $19,560
07/31/1996 -2.93% $13,731 -8.56% $17,899 -4.76% $18,629
08/31/1996 2.01% $14,007 7.29% $19,204 4.20% $19,411
09/30/1996 5.16% $14,730 4.73% $20,112 3.67% $20,123
10/31/1996 2.96% $15,166 -2.83% $19,543 2.63% $20,653
11/30/1996 6.94% $16,219 5.63% $20,643 6.28% $21,950
12/31/1996 0.98% $16,379 -1.32% $20,370 -0.42% $21,857
01/31/1997 2.01% $16,709 2.90% $20,961 3.14% $22,544
02/28/1997 2.80% $17,177 -1.89% $20,565 1.69% $22,925
03/31/1997 -3.10% $16,645 -6.11% $19,309 -3.04% $22,228
04/30/1997 2.56% $17,070 3.42% $19,969 2.52% $22,788
05/31/1997 7.73% $18,389 8.27% $21,620 5.89% $24,130
06/30/1997 3.62% $19,054 3.47% $22,371 3.71% $25,025
07/31/1997 8.48% $20,670 7.07% $23,952 7.42% $26,882
08/31/1997 -2.04% $20,250 -0.77% $23,768 -1.17% $26,568
09/30/1997 5.25% $21,312 6.58% $25,332 6.20% $28,215
10/31/1997 -2.44% $20,792 -4.77% $24,123 -3.04% $27,357
11/30/1997 2.40% $21,290 0.59% $24,266 3.37% $28,279
12/31/1997 2.34% $21,789 0.85% $24,472 3.83% $29,362
01/31/1998 -0.46% $21,689 -0.70% $24,301 -1.94% $28,793
02/28/1998 8.07% $23,438 8.24% $26,303 6.68% $30,716
03/31/1998 2.88% $24,113 1.60% $26,724 5.15% $32,298
04/30/1998 -0.32% $24,036 0.70% $26,911 -0.56% $32,117
05/31/1998 -3.64% $23,161 -5.62% $25,398 -2.33% $31,369
06/30/1998 -1.14% $22,898 -0.60% $25,246 0.32% $31,469
07/31/1998 -3.43% $22,113 -5.94% $23,746 -5.07% $29,874
08/31/1998 -15.94% $18,589 -20.29% $18,928 -14.06% $25,673
09/30/1998 4.98% $19,515 4.95% $19,865 5.84% $27,173
10/31/1998 10.68% $21,599 7.91% $21,437 6.48% $28,933
11/30/1998 3.63% $22,383 5.78% $22,676 3.51% $29,949
12/31/1998 4.08% $23,297 6.76% $24,208 3.04% $30,859
01/31/1999 -5.25% $22,074 -2.35% $23,640 -2.33% $30,140
02/28/1999 -3.55% $21,290 -7.98% $21,753 -2.20% $29,477
03/31/1999 -0.73% $21,135 1.77% $22,138 1.43% $29,899
04/30/1999 7.91% $22,806 8.93% $24,115 9.47% $32,730
05/31/1999 1.07% $23,050 1.97% $24,590 0.42% $32,868
06/30/1999 3.74% $23,913 5.09% $25,842 1.14% $33,242
07/31/1999 -1.53% $23,547 -0.55% $25,700 -2.50% $32,411
08/31/1999 -4.20% $22,558 -3.95% $24,685 -3.46% $31,290
09/30/1999 -5.83% $21,243 -1.35% $24,351 -5.06% $29,707
10/31/1999 0.80% $21,413 3.39% $25,177 2.95% $30,583
11/30/1999 -1.23% $21,149 3.82% $26,139 -1.83% $30,023
12/31/1999 -0.88% $20,966 7.34% $28,057 2.68% $30,828
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN VALUE SECURITIES FUND
Franklin Value Securities Fund seeks to profit by buying securities the managers
believe are undervalued in the market. These potential bargains present
themselves in various forms. Many sell at low prices relative to earnings, book
value or cash flow, while others may have understated assets such as land or
intangibles, patents and distribution networks, and some may have significant
tax loss carry forwards. We also search for "fallen angels" -- former growth
companies suffering short-term setbacks and sharp price declines, but which we
believe still have significant long-term potential. Value securities have one
characteristic in common -- they are generally
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
46
<PAGE>
out of favor with Wall Street. In many instances, the company's recent earnings
results missed analysts' estimates, and sometimes they are just too small to
reach analysts' radar screens. However, if we believe their balance sheets are
strong and their managements honest and effective, we are willing to wait for
these bargains to flourish.
During the period under review, the domestic economy remained strong, as
unemployment continued at a 29-year low, inflation remained in check and the
Federal Reserve Board raised interest rates three times during the period,
increasing the federal funds target rate to 5.50%. The major U.S. stock market
news during the reporting period was the unabated flow of capital into equity
securities -- mostly Internet, Internet-related and larger-capitalization brand
name stocks --while many nervous investors headed for the security of cash
pending the outcome of the millennium bug.
These are trying times for value investors as evidenced by the Wilshire Target
Small Value Index, and the Russell 2000 Value Index, the portfolio's benchmark,
which declined 12.32% and 1.48%, respectively for the year. The 1998 divergence
between growth and value continued during 1999. A handful of large-cap stocks
drove the Standard & Poor's 500 (S&P 500) Index to new highs for the year ended
December 31, 1999, up 21.0% over 1998, while the Nasdaq, led by Internet and
technology stocks, also achieved all-time highs -- ending the year up 85.9% over
the previous year. We are disappointed that the turnaround in small-cap value
stocks witnessed during the May-to-July period fizzled during the third quarter.
Yet, we believe that the market at some point will again discover these
compelling bargains.
During the year under review, we reduced the number of positions held in the
portfolio and redirected those assets into larger, more liquid names. We sold
many holdings that were too small to have an impact on the portfolio and several
where we felt the reasons for owning them had changed. We found what we believed
to be exceptional values in the depressed financial sector including such
fundamentally sound companies as Manulife Financial Corp., a $6 billion life and
health insurer selling at only 1.4 times tangible book value, and Washington
Mutual Inc., a $15 billion diversified financial services provider that has
raised its dividend every quarter since 1995 and every year since 1990. We also
added to an existing classic value position in the consumer-durables sector,
D.R. Horton, Inc., a homebuilder with operations in 24 states. The company has
registered 84 consecutive quarters of earnings growth year over year, increased
annual sales growth over the last six years by an average of 67% and produced
earnings-per-share growth of 44% for the same period, and traded at only 1.1
times book value and about 5 times 2000 estimated earnings at the end of the
period.
Although value investing was clearly out of favor during the reporting period,
we feel there were a number of signs that strategic buyers or market investors
recognized a
TOP 10 HOLDINGS
Franklin Value Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
JLG Industries Inc. 4.3%
Producer Manufacturing
The Timberland Co., A 4.2%
Consumer Non-Durables
Presidential Life Corp. 3.1%
Finance
Robert Half International Inc. 3.0%
Commercial Services
Tidewater Inc. 2.7%
Transportation
Lancaster Colony Corp. 2.6%
Process Industries
Rowan Cos. Inc. 2.6%
Industrial Services
Professionals Group Inc. 2.6%
Finance
ENSCO International Inc. 2.4%
Industrial Services
Wolverine World Wide Inc. 2.2%
Consumer Non-Durables
</TABLE>
47
<PAGE>
We are replacing the Wilshire Target Small Company Value Index with the Russell
2000 Value Index because the sponsors of the Wilshire Target Small Value Index
decided not to publish the holdings that comprise the index, which would make it
difficult to determine whether the index is an appropriate comparison for the
portfolio's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the index are either held by the portfolio or are similar to the portfolio's
holdings. The Russell 2000 Value Index is widely used as a benchmark in the
mutual fund industry and information regarding the index is readily available.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +1.65%
Since Inception (5/1/98) -13.03%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +1.39%
Since Inception (5/1/98) -13.16%
</TABLE>
number of our bargain holdings. Five of our portfolio holdings benefited from
announcements of corporate takeovers, all at premiums. Also, the portfolio's oil
drilling and oil services holdings continued to perform well as oil prices
resumed their climb during the second half of the fund's fiscal year.
We continue to stay the course and follow our value investment philosophy.
Patience is an essential ingredient for success in value investing and we remain
confident that our approach has the potential to serve our shareholders well
over the long term.
[BAR GRAPH]
This graph compares the performance of Franklin Value Securities Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the
Wilshire Target Small Company Value Index and Russell 2000 Value Index from
5/1/98 - 12/31/99.
We are replacing the Wilshire Target Small Value Index with the Russell 2000
Value Index because the sponsors of the Wilshire Target Small Value Index
decided not to publish the holdings that comprise the index, which would make it
difficult to determine whether the index is an appropriate comparison for the
portfolio's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the Index are either held by the portfolio or are similar to the portfolio's
holdings. The Russell 2000 Value Index is widely used as a benchmark in the
mutual fund industry and information regarding the index is readily available.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Value Securities Wilshire Target Smaller Russell 2000
Fund - Class 1 Companies Value Index Value Index
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 -2.40% $9,760 -2.70% $9,730 -3.54% $9,646
06/30/1998 -6.35% $9,140 -1.71% $9,564 -0.56% $9,592
07/31/1998 -9.85% $8,240 -7.28% $8,867 -7.83% $8,841
08/31/1998 -15.41% $6,970 -11.93% $7,810 -15.66% $7,456
09/30/1998 3.87% $7,240 2.97% $8,041 5.65% $7,878
10/31/1998 5.94% $7,670 3.63% $8,333 2.97% $8,112
11/30/1998 0.26% $7,690 2.87% $8,573 2.71% $8,332
12/31/1998 1.30% $7,790 2.95% $8,825 3.14% $8,593
01/31/1999 -1.80% $7,650 -4.77% $8,404 -2.27% $8,398
02/28/1999 -8.37% $7,009 -5.74% $7,922 -6.83% $7,824
03/31/1999 2.00% $7,150 -1.88% $7,773 -0.82% $7,760
04/30/1999 10.49% $7,900 8.18% $8,409 9.13% $8,469
05/31/1999 3.16% $8,149 2.77% $8,642 3.07% $8,729
06/30/1999 6.01% $8,639 1.74% $8,792 3.62% $9,045
07/31/1999 -2.55% $8,419 -1.06% $8,699 -2.37% $8,830
08/31/1999 -3.57% $8,118 -3.88% $8,362 -3.66% $8,507
09/30/1999 -6.79% $7,567 -4.44% $7,990 -2.00% $8,337
10/31/1999 0.13% $7,577 -3.04% $7,747 -2.00% $8,170
11/30/1999 0.93% $7,647 0.05% $7,751 0.52% $8,213
12/31/1999 3.54% $7,919 -0.17% $7,738 3.07% $8,465
</TABLE>
[BAR GRAPH]
This graph compares the performance of Franklin Value Securities Fund - Class 2,
as tracked by the growth in value of a $10,000 investment, to that of the
Wilshire Target Small Company Value Index and Russell 2000 Value Index from
5/1/98 - 12/31/99.*
<TABLE>
<CAPTION>
Franklin Value Securities Wilshire Target Smaller Russell 2000
Fund - Class 2 Companies Value Index Value Index
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 -2.40% $9,760 -2.70% $9,730 -3.54% $9,646
06/30/1998 -6.35% $9,140 -1.71% $9,564 -0.56% $9,592
07/31/1998 -9.85% $8,240 -7.28% $8,867 -7.83% $8,841
08/31/1998 -15.41% $6,970 -11.93% $7,810 -15.66% $7,456
09/30/1998 3.87% $7,240 2.97% $8,041 5.65% $7,878
10/31/1998 5.94% $7,670 3.63% $8,333 2.97% $8,112
11/30/1998 0.26% $7,690 2.87% $8,573 2.71% $8,332
12/31/1998 1.30% $7,790 2.95% $8,825 3.14% $8,593
01/31/1999 -1.80% $7,650 -4.77% $8,404 -2.27% $8,398
02/28/1999 -8.37% $7,009 -5.74% $7,922 -6.83% $7,824
03/31/1999 2.00% $7,150 -1.88% $7,773 -0.82% $7,760
04/30/1999 10.49% $7,900 8.18% $8,409 9.13% $8,469
05/31/1999 3.16% $8,149 2.77% $8,642 3.07% $8,729
06/30/1999 5.89% $8,629 1.74% $8,792 3.62% $9,045
07/31/1999 -2.55% $8,409 -1.06% $8,699 -2.37% $8,830
08/31/1999 -3.69% $8,099 -3.88% $8,362 -3.66% $8,507
09/30/1999 -6.81% $7,547 -4.44% $7,990 -2.00% $8,337
10/31/1999 0.13% $7,557 -3.04% $7,747 -2.00% $8,170
11/30/1999 0.93% $7,627 0.05% $7,751 0.52% $8,213
12/31/1999 3.55% $7,899 -0.17% $7,738 3.07% $8,465
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
MUTUAL SHARES SECURITIES FUND
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. A select group of
about 40 companies achieved over-the-top success, while the majority of publicly
traded equities languished. Share prices for a majority of companies listed on
the New York Stock
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
48
<PAGE>
Exchange 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 positive 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 portfolio's strong performance.
Telephone & Data Systems Inc., a wireless and wireline telephone company, almost
tripled during the 12 months under review, mainly due to fast growth and the
announced merger of one of its affiliates. In addition, one of the portfolio's
largest holdings, Compagnie Financiere Richemont AG, a Swiss holding company
primarily involved in luxury goods, increased 71% in price in 1999 as the market
value of its strong brand names appreciated.
The year did have its disappointments, 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 were not, including Bank One Corp. and First Union Corp.,
which we sold during the period. Despite these setbacks, the portfolio's overall
performance was strong for a value portfolio 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
Securities Fund. We believe that a number of industries feature attractive
companies trading at low multiples and big discounts to their intrinsic value.
We will 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.
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,
TOP 10 HOLDINGS
Mutual Shares Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------------------------------------------
<S> <C>
Telephone & Data
Systems Inc. 3.2%
Telecommunications, U.S.
MediaOne Group Inc. 2.4%
Broadcasting & Publishing,
U.S.
Investor AB, A 2.1%
Multi-Industry, Sweden
Investor AB, B 2.0%
Multi-Industry, Sweden
General Motors Corp. 1.6%
Automobiles, U.S.
Bear Stearns Co. Inc. 1.6%
Financial Services, U.S.
Delphi Automotive
Systems Corp. 1.5%
Automobiles, U.S.
Washington Post Co. 1.5%
Broadcasting & Publishing,
U.S.
United Asset
Management Corp. 1.5%
Financial Services, U.S.
Lagardere SCA 1.5%
Multi-Industry, France
</TABLE>
49
<PAGE>
We are replacing the Lipper Growth & Income Funds Objective Average with the
Lipper Annuity Growth & Income Funds Objective Average because the former is
based on a peer group of mutual funds, while the latter is based on a peer group
of annuity sub-accounts and better reflects the portfolio's performance.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Indexes' sources are Standard & Poor's Micropal and Lipper, Inc.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +13.40%
3-Year +10.15%
Since Inception (11/8/96) +10.86%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +13.58%
3-Year +10.20%
Since Inception (11/8/96) +10.92%
</TABLE>
the wild optimism built into the recent prices does not allow for error or
disappointment. We will not engage in this type of speculative investing.
Instead, we will seek to determine the true present value of a business while
attempting to purchase its securities at a meaningful discount. Of course, past
results do not guarantee future performance. As always, we are mindful of each
investment's risks as we focus on the downside as well as the upside potential,
while striving to provide shareholders with the best risk-adjusted returns
possible.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Mutual Shares Securities Fund - Class 1
$10,000 Investment (11/8/96 - 12/31/99)
GRAPHIC MATERIAL (89)
This graph compares the performance of Mutual Shares Securities Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of Lipper
Annuity Growth & Income Funds Average and Lipper Growth & Income Funds Average
from 11/8/96 - 12/31/99.
We are replacing the Lipper Growth & Income Funds Objective Average with the
Lipper Annuity Growth & Income Funds Objective Average because the former is
based on a peer group of mutual funds, while the latter is based on a peer group
of annuity sub-accounts and better reflects the portfolio's performance.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Indexes' sources are Standard & Poor's Micropal and Lipper, Inc.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Mutual Shares Securities S&P 500 Lipper Annuity Lipper Growth &
Fund - Class 1 Growth & Income Income Funds
Funds Average Average
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/08/1996 $10,000 $10,000 $10,000 $10,000
11/30/1996 $10,110 $10,554 $10,470 $10,490
12/31/1996 $10,350 $10,345 $10,373 $10,381
01/31/1997 $10,620 $10,992 $10,823 $10,835
02/28/1997 $10,730 $11,078 $10,898 $10,892
03/31/1997 $10,420 $10,622 $10,517 $10,502
04/30/1997 $10,510 $11,257 $10,900 $10,891
05/31/1997 $10,890 $11,942 $11,564 $11,571
06/30/1997 $11,145 $12,477 $12,006 $12,018
07/31/1997 $11,685 $13,470 $12,866 $12,909
08/31/1997 $11,625 $12,716 $12,451 $12,467
09/30/1997 $12,115 $13,413 $13,075 $13,100
10/31/1997 $11,805 $12,965 $12,629 $12,636
11/30/1997 $11,915 $13,565 $12,962 $12,982
12/31/1997 $12,185 $13,798 $13,177 $13,201
01/31/1998 $12,135 $13,952 $13,202 $13,215
02/28/1998 $12,786 $14,958 $14,100 $14,124
03/31/1998 $13,196 $15,723 $14,752 $14,750
04/30/1998 $13,316 $15,882 $14,858 $14,849
05/31/1998 $13,196 $15,609 $14,565 $14,541
06/30/1998 $13,114 $16,243 $14,797 $14,784
07/31/1998 $12,655 $16,069 $14,413 $14,403
08/31/1998 $10,840 $13,745 $12,355 $12,281
09/30/1998 $10,799 $14,626 $13,016 $12,935
10/31/1998 $11,513 $15,816 $13,977 $13,884
11/30/1998 $12,105 $16,774 $14,681 $14,594
12/31/1998 $12,196 $17,740 $15,327 $15,244
01/31/1999 $12,319 $18,482 $15,606 $15,501
02/28/1999 $12,206 $17,907 $15,141 $15,025
03/31/1999 $12,594 $18,623 $15,662 $15,515
04/30/1999 $13,563 $19,344 $16,644 $16,431
05/31/1999 $13,583 $18,887 $16,454 $16,219
06/30/1999 $13,971 $19,936 $17,137 $16,922
07/31/1999 $13,612 $19,314 $16,654 $16,434
08/31/1999 $13,110 $19,217 $16,331 $16,093
09/30/1999 $12,775 $18,691 $15,797 $15,578
10/31/1999 $13,340 $19,874 $16,454 $16,282
11/30/1999 $13,507 $20,277 $16,668 $16,503
12/31/1999 $13,831 $21,471 $17,363 $17,251
</TABLE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Mutual Shares Fund - Class 2*
$10,000 Investment (11/8/96 - 12/31/99)
This graph compares the performance of Mutual Shares Securities Fund - Class 2,
as tracked by the growth in value of a $10,000 investment, to that of Lipper
Annuity Growth & Income Funds Average and Lipper Growth & Income Funds Average
from 11/8/96 - 12/31/99.*
<TABLE>
<CAPTION>
Mutual Shares S&P 500 Lipper Annuity Lipper Growth &
Securities Fund Growth & Income Income Funds
- Class 2 Funds Average Average
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/08/1996 $10,000 $10,000 $10,000 $10,000
11/30/1996 $10,110 $10,554 $10,470 $10,490
12/31/1996 $10,350 $10,345 $10,373 $10,381
01/31/1997 $10,620 $10,992 $10,823 $10,835
02/28/1997 $10,730 $11,078 $10,898 $10,892
03/31/1997 $10,420 $10,622 $10,517 $10,502
04/30/1997 $10,510 $11,257 $10,900 $10,891
05/31/1997 $10,890 $11,942 $11,564 $11,571
06/30/1997 $11,145 $12,477 $12,006 $12,018
07/31/1997 $11,685 $13,470 $12,866 $12,909
08/31/1997 $11,625 $12,716 $12,451 $12,467
09/30/1997 $12,115 $13,413 $13,075 $13,100
10/31/1997 $11,805 $12,965 $12,629 $12,636
11/30/1997 $11,915 $13,565 $12,962 $12,982
12/31/1997 $12,185 $13,798 $13,177 $13,201
01/31/1998 $12,135 $13,952 $13,202 $13,215
02/28/1998 $12,786 $14,958 $14,100 $14,124
03/31/1998 $13,196 $15,723 $14,752 $14,750
04/30/1998 $13,316 $15,882 $14,858 $14,849
05/31/1998 $13,196 $15,609 $14,565 $14,541
06/30/1998 $13,114 $16,243 $14,797 $14,784
07/31/1998 $12,655 $16,069 $14,413 $14,403
08/31/1998 $10,840 $13,745 $12,355 $12,281
09/30/1998 $10,799 $14,626 $13,016 $12,935
10/31/1998 $11,513 $15,816 $13,977 $13,884
11/30/1998 $12,105 $16,774 $14,681 $14,594
12/31/1998 $12,196 $17,740 $15,327 $15,244
01/31/1999 $12,318 $18,482 $15,606 $15,501
02/28/1999 $12,196 $17,907 $15,141 $15,025
03/31/1999 $12,584 $18,623 $15,662 $15,515
04/30/1999 $13,543 $19,344 $16,644 $16,431
05/31/1999 $13,563 $18,887 $16,454 $16,219
06/30/1999 $13,951 $19,936 $17,137 $16,922
07/31/1999 $13,655 $19,314 $16,654 $16,434
08/31/1999 $13,143 $19,217 $16,331 $16,093
09/30/1999 $12,808 $18,691 $15,797 $15,578
10/31/1999 $13,373 $19,874 $16,454 $16,282
11/30/1999 $13,540 $20,277 $16,668 $16,503
12/31/1999 $13,853 $21,471 $17,363 $17,251
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
TEMPLETON GLOBAL ASSET ALLOCATION FUND
At the close of the year under review, U.S. equity markets were in record
territory. Much of the performance came in the year's final two months and was
concentrated in a small number of technology and telecommunications equipment
names. Recent data showed that the U.S. economy grew at a robust annualized rate
of 5.7% in the third quarter of 1999 while the price index for gross domestic
purchases, a measure of inflation, increased only 1.7% for the quarter.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
50
<PAGE>
However, the Federal Reserve Board (the Fed) kept a careful eye on the economy's
heady growth. In November 1999, the Fed raised the federal funds target rate a
third time for the year by 0.25%, to 5.5%, reversing their three interest rate
cuts in the second half of 1998 and pushing the 30-year Treasury bond yield to
more than 6.48% on December 31, 1999. Most likely as a result of the rising bond
yields, the portfolio's U.S. insurance and health care stock holdings posted
negative returns for the year, but on the flip side, they also were selling at
valuations we believed were extremely inexpensive at the end of the period. In
addition, we managed to find what we felt were some undervalued U.S. technology
names such as 3Com Corp., Motorola Inc. and Compaq Computer Corp., and we expect
to continue holding these for the foreseeable future.
In Europe, the Bloomberg 500 Index, a measure of European large-company stock
performance, was up 40.7% for the year in local currency terms, but only 21.0%
in U.S.-dollar terms, due to the euro's weakness. Despite such weakness, the
euro's launch in January 1999 appeared to stimulate a massive increase in merger
and acquisition activity, which increased 50% in 1999 to $1.5 trillion, and
possibly will lead to improved corporate profitability as companies restructure
to cut excess capacity and lower costs.
We remain positive about the prospects for European economic growth and
corporate profits in 2000. However, we are somewhat cautious because European
companies will need to operate in a more competitive environment as the euro
creates price transparency and as markets continue to be deregulated and
privatized. Yet, we expect some of the portfolio's top holdings including
Koninklijke Philips Electronics NV, Invensys PLC, Akzo Nobel NV and Aventis SA
to benefit from corporate restructurings in the year ahead.
Latin American markets came back strongly during the period, as the region
benefited from the pickup in global economic growth and commodity prices' sharp
rebound. Latin America's largest markets, as measured by the Mexican Bolsa and
Brazilian Bovespa indexes, were up 90.4% and 76.6%, respectively, in U.S.-dollar
terms for the year under review. Mexico benefited from oil-price strength as
well as a robust U.S. economy, while lower domestic interest rates in Brazil
apparently started to turn the economy around and stimulate flows into equities.
In our opinion, the main risk to Latin American countries remained higher U.S.
interest rates, which could take liquidity out of the equity markets. We
therefore took some profits in holdings such as Brazilian bank Banco Bradesco SA
and leading Mexican telephone services provider Telefonos de Mexico SA.
Finally in Japan, the Nikkei 225 Index posted a strong performance for the year
under review, up more than 54.5% in U.S.-dollar terms. Perceptions that the
Japanese economy finally had bottomed, evidence of real corporate restructuring
and progress in the banking sector seemed to drive the market's results. In the
Japanese banking sector, Fuji Bank, Dai-ichi Kangyo Bank and Industrial Bank of
Japan agreed to merge,
[PIE CHART]
ASSET ALLOCATION
Templeton Global Asset Allocation Fund
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
Equity Securities 72.0%
Fixed-Income Securities 24.1%
Short-Term Investments & Other Net Assets 3.9%
</TABLE>
51
<PAGE>
TOP FIVE COUNTRY HOLDINGS
Templeton Global
Asset Allocation Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
TOP FIVE COUNTRIES NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
U.S. 18.1%
U.K 14.0%
Hong Kong 6.2%
Japan 5.9%
Netherlands 5.5%
</TABLE>
TOP FIVE INDUSTRY BREAKDOWN
Templeton Global
Asset Allocation Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Multi-Industry 8.8%
Metals & Mining 5.5%
Electrical & Electronics 5.4%
Insurance 5.1%
Financial Services 4.7%
</TABLE>
forming the world's largest bank by assets, and possibly beginning a series of
much needed consolidation. In the near term, we feel that corporate downsizing
and the yen's ongoing strength will hamper Japan's economic recovery.
Accordingly, we stayed focused on those sectors we believed had the brightest
outlooks, including retailers like Best Denki Co. Ltd. and Laox Co. Ltd. and
companies focused on the domestic economy such as Makita Corp. and Seino
Transportation Co. Ltd.
Due to the stronger world economy, global bond markets generally performed
poorly during the 12 months under review, and the J.P. Morgan Global Government
Bond Index declined 5.08% in U.S.-dollar terms.(1)
U.S. bonds led the overall decline in prices, as the domestic economy expanded
for an eighth consecutive year -- the longest expansion in the nation's history.
In response, the Fed raised interest rates three times, causing the 30-year
Treasury bond to produce a 12.98% loss for the year, the biggest slump since
regular bond sales began in 1977. For the period, the J.P. Morgan U.S.
Government Bond Index posted a return of -2.88%.(1)
European bond markets fell throughout most of the reporting period as
deregulation, restructuring and economic expansion took hold in much of the
region. As a result of slumping bond prices, yields generally trended higher.
The European Monetary Union Bond Index fell 16.89% and the U.K. 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 in U.S.-dollar terms.
Most Asian bonds offered dismal returns in 1999, although Japan bucked the
trend, returning 5.01% apparently as a result of investor expectations of an
economic recovery, stable interest rates and a stronger yen. 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 the disappointing 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, with
Mexico's performing best, mainly due to its high level of trade and connections
with the U.S. Latin American bonds, and emerging debt in general, fared
relatively well, and the J.P. Morgan Emerging Market Bond Index Plus rose 26.0%
in 1999.(2)
1. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc. The
J.P. Morgan Global Government Bond Index tracks the performance of government
securities in several countries. The J.P. Morgan U.S. Government Bond Index
tracks the performance of U.S. government securities. Indexes are unmanaged and
include reinvested interest. One cannot invest directly in an index, nor is an
index representative of the portfolio.
2. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc. The
J.P. Morgan Emerging Markets Bond Index tracks the performance of fixed income
securities in several emerging markets. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the portfolio.
52
<PAGE>
During the 12 months under review, we focused the portfolio's bond portion on
intermediate- and long-term bonds in developed industrial markets, with a small
amount in what we believed were the highest quality and most liquid bonds
available in emerging markets. In our opinion, this combination offered the
opportunity for higher long-term returns at the cost of modestly increased
short-term volatility.
We trimmed our North American exposure during the second half of the year based
on the belief there would be better opportunities for total return in emerging
markets and Europe. In Europe, we added to our Italian holdings and initiated
several Spanish holdings, while decreasing the portfolio's exposure to Belgium
and Germany. We also reduced our stake in the Pacific Rim dollar-bloc countries
(Australia and New Zealand) and added to Japan. The fixed-income assets
allocated to emerging markets added positively to its 1999 performance, and our
Latin American stake nearly doubled over the year, most of which was invested in
Mexico. Most of the portfolio's Latin American bonds were U.S.
dollar-denominated sovereign Eurobonds with fixed coupons, issued by countries
with strong repayment capacity.
Looking forward, the critical issue for global interest rates will be the
balance between global growth and inflation, as we believe the world economic
growth trend 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 in the intermediate term.
We expect emerging markets bonds to continue to outperform into the first half
of 2000, with some volatility, and feel these positions should offer superior
returns during the next two to five years.
[BAR GRAPH]
This graph compares the performance of Templeton Global Asset Allocation Fund -
Class 1, as tracked by the growth in value of a $10,000 investment, to that of
the MSCI World Index and the J.P. Morgan Global Government Bond Index from
5/1/95 - 12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and J.P. Morgan.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton Global MSCI World Index JP Morgan Global
Asset Allocation Government Bond
Fund - Index
Class 1
--------------------------------------------------------------
<S> <C> <C> <C>
05/01/1995 $10,000 $10,000 $10,000
05/31/1995 $10,060 $10,085 $10,279
06/30/1995 $10,120 $10,083 $10,343
07/31/1995 $10,330 $10,590 $10,392
08/31/1995 $10,280 $10,356 $10,103
09/30/1995 $10,380 $10,660 $10,331
10/31/1995 $10,310 $10,494 $10,432
11/30/1995 $10,420 $10,860 $10,548
12/31/1995 $10,690 $11,180 $10,679
01/31/1996 $11,066 $11,384 $10,569
02/29/1996 $11,137 $11,455 $10,508
03/31/1996 $11,208 $11,648 $10,491
04/30/1996 $11,411 $11,924 $10,453
05/31/1996 $11,513 $11,936 $10,463
06/30/1996 $11,569 $11,999 $10,555
07/31/1996 $11,396 $11,577 $10,749
08/31/1996 $11,640 $11,713 $10,794
09/30/1996 $11,915 $12,173 $10,853
10/31/1996 $12,047 $12,260 $11,069
11/30/1996 $12,587 $12,950 $11,227
12/31/1996 $12,810 $12,745 $11,148
01/31/1997 $13,024 $12,900 $10,870
02/28/1997 $13,136 $13,051 $10,794
03/31/1997 $13,055 $12,795 $10,712
04/30/1997 $13,085 $13,215 $10,652
05/31/1997 $13,502 $14,034 $10,903
06/30/1997 $14,009 $14,735 $11,027
07/31/1997 $14,760 $15,416 $10,987
08/31/1997 $14,655 $14,388 $10,973
09/30/1997 $15,396 $15,171 $11,217
10/31/1997 $14,342 $14,375 $11,455
11/30/1997 $14,228 $14,632 $11,317
12/31/1997 $14,311 $14,812 $11,305
01/31/1998 $14,228 $15,228 $11,418
02/28/1998 $15,020 $16,260 $11,503
03/31/1998 $15,531 $16,949 $11,417
04/30/1998 $15,563 $17,117 $11,592
05/31/1998 $15,072 $16,905 $11,642
06/30/1998 $14,712 $17,309 $11,674
07/31/1998 $14,802 $17,283 $11,706
08/31/1998 $12,510 $14,981 $12,030
09/30/1998 $12,781 $15,249 $12,658
10/31/1998 $13,662 $16,630 $12,941
11/30/1998 $14,192 $17,622 $12,795
12/31/1998 $14,305 $18,486 $13,036
01/31/1999 $13,933 $18,893 $12,929
02/28/1999 $13,413 $18,392 $12,497
03/31/1999 $13,910 $19,161 $12,528
04/30/1999 $14,983 $19,919 $12,524
05/31/1999 $14,475 $19,194 $12,304
06/30/1999 $15,039 $20,092 $12,098
07/31/1999 $14,918 $20,035 $12,364
08/31/1999 $14,842 $20,002 $12,396
09/30/1999 $14,384 $19,811 $12,574
10/31/1999 $14,321 $20,843 $12,559
11/30/1999 $14,702 $21,432 $12,410
12/31/1999 $15,397 $23,170 $12,374
</TABLE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and J.P. Morgan.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- -------------------------------------------------------------------------------
<S> <C>
1-Year +7.53%
3-Year +6.29%
Since Inception (5/1/95) +9.68%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
53
<PAGE>
For an explanation of performance calculations, please see page 53.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year +7.18%
3-Year +6.17%
Since Inception (5/1/95) +9.60%
</TABLE>
[BAR GRAPH]
This graph compares the performance of Templeton Global Asset Allocation Fund -
Class 2, as tracked by the growth in value of a $10,000 investment, to that of
the MSCI World Index and the J.P. Morgan Global Government Bond Index from
5/1/95 - 12/31/99.*
<TABLE>
<CAPTION>
Templeton Global MSCI World Index JP Morgan Global
Asset Allocation Government Bond
Fund - Class 2 Index
-----------------------------------------------------------
<S> <C> <C> <C>
05/01/1995 $10,000 $10,000 $10,000
05/31/1995 $10,060 $10,085 $10,279
06/30/1995 $10,120 $10,083 $10,343
07/31/1995 $10,330 $10,590 $10,392
08/31/1995 $10,280 $10,356 $10,103
09/30/1995 $10,380 $10,660 $10,331
10/31/1995 $10,310 $10,494 $10,432
11/30/1995 $10,420 $10,860 $10,548
12/31/1995 $10,690 $11,180 $10,679
01/31/1996 $11,066 $11,384 $10,569
02/29/1996 $11,137 $11,455 $10,508
03/31/1996 $11,208 $11,648 $10,491
04/30/1996 $11,411 $11,924 $10,453
05/31/1996 $11,513 $11,936 $10,463
06/30/1996 $11,569 $11,999 $10,555
07/31/1996 $11,396 $11,577 $10,749
08/31/1996 $11,640 $11,713 $10,794
09/30/1996 $11,915 $12,173 $10,853
10/31/1996 $12,047 $12,260 $11,069
11/30/1996 $12,587 $12,950 $11,227
12/31/1996 $12,810 $12,745 $11,148
01/31/1997 $13,024 $12,900 $10,870
02/28/1997 $13,136 $13,051 $10,794
03/31/1997 $13,055 $12,795 $10,712
04/30/1997 $13,085 $13,215 $10,652
05/31/1997 $13,502 $14,034 $10,903
06/30/1997 $14,009 $14,735 $11,027
07/31/1997 $14,760 $15,416 $10,987
08/31/1997 $14,655 $14,388 $10,973
09/30/1997 $15,396 $15,171 $11,217
10/31/1997 $14,342 $14,375 $11,455
11/30/1997 $14,228 $14,632 $11,317
12/31/1997 $14,311 $14,812 $11,305
01/31/1998 $14,228 $15,228 $11,418
02/28/1998 $15,020 $16,260 $11,503
03/31/1998 $15,531 $16,949 $11,417
04/30/1998 $15,563 $17,117 $11,592
05/31/1998 $15,072 $16,905 $11,642
06/30/1998 $14,712 $17,309 $11,674
07/31/1998 $14,802 $17,283 $11,706
08/31/1998 $12,510 $14,981 $12,030
09/30/1998 $12,781 $15,249 $12,658
10/31/1998 $13,662 $16,630 $12,941
11/30/1998 $14,192 $17,622 $12,795
12/31/1998 $14,305 $18,486 $13,036
01/31/1999 $13,932 $18,893 $12,929
02/28/1999 $13,401 $18,392 $12,497
03/31/1999 $13,899 $19,161 $12,528
04/30/1999 $14,960 $19,919 $12,524
05/31/1999 $14,452 $19,194 $12,304
06/30/1999 $15,005 $20,092 $12,098
07/31/1999 $14,897 $20,035 $12,364
08/31/1999 $14,821 $20,002 $12,396
09/30/1999 $14,363 $19,811 $12,574
10/31/1999 $14,274 $20,843 $12,559
11/30/1999 $14,655 $21,432 $12,410
12/31/1999 $15,347 $23,170 $12,374
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
PORTFOLIOS SEEKING INCOME
FRANKLIN HIGH INCOME FUND
The past year brought difficult conditions to the fixed-income markets. Strong
U.S. economic growth, signs of recovery in most of the overseas financial
markets and a weaker dollar characterized the period under review. In the U.S.,
stronger-than-anticipated growth renewed inflation fears, as the 30-year
Treasury bond's yield rose from 5.10% at the beginning of the period to 6.48% on
December 31, 1999. Within this environment, the corporate high yield market
outperformed most other fixed-income asset classes. This resulted from high
yield securities' lower correlation with interest-rate changes, compared with
most other fixed-income asset classes. During the year, the fund underperformed
its benchmark, the C.S. First Boston Global High Yield Index.
Our most significant sector allocation adjustment for the reporting period was
an increase in the portfolio's telecommunications industry weighting. We made
this decision based on what we believed were the industry's solid fundamentals,
as represented by global deregulation, technological convergence and
consolidation. The portfolio benefited as telecommunications proceeded to
outperform the overall high yield market for 1999. We focused on
telecommunications companies with high quality networks, strong management teams
and ready access to capital markets. Solid performers during the period included
Intermedia Communications Inc. and Northeast Optic Network Inc.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
54
<PAGE>
Additionally, we maintained a significant weighting in the wireless
communications industry, as increased usage drove industry revenues higher,
despite pricing pressures. Notable industry performers during the period
included Nextel Communications Inc., Rogers Cantel Mobile Inc. and Dobson/Sygnet
Communications Co. We also initiated positions in VoiceStream Wireless Corp., a
leading national provider, and Omnipoint Corp., which will be merged into
VoiceStream in the first quarter of 2000.
We did not significantly alter other industry weightings within the portfolio.
In cable television, we increased our weighting somewhat to take advantage of
the potentially positive merger and acquisition environment, initiating new
positions in Charter Communications Holdings LLC and United Pan-Europe
Communications NV. We slightly reduced our allocation to the industrial segment,
taking profits in such solid performers as Simonds Industries Inc. In industries
such as media, which we feel offer firm growth potential and insulation from
economic cycle volatility, we maintained comfortable weightings.
We focused on securities that we believe will benefit from positive corporate
events and improving credit profiles. This philosophy translated into gains
during the review period for several fund positions, among them Outdoor Systems
Inc., RJR Nabisco Inc., RC/Arby's Corp., Ascent Entertainment Group Inc.,
Diamond Cable Communications Co., and Shoppers Food Warehouse Corp.
Looking forward, we maintain a positive outlook for both the high yield
corporate bond market in general, and the portfolio in particular. We believe
the Federal Reserve Board's (the Fed's) ability to successfully alleviate
recessionary pressures will largely determine the financial markets' performance
in 2000. Specifically, investors are looking to the Fed to engineer "soft
landings." This means slowing the growth rate enough to prevent high inflation
and interest rates, while, at the same time, maintaining enough momentum to
prevent a recession. In our opinion, high yield securities should perform well
going forward, despite recent inflationary data. We believe that in addition to
solid economic fundamentals, high yield securities' attractive valuations and
higher-than-average yield spreads compared to U.S. Treasury bonds should bolster
their performance in the months ahead.
INDUSTRY BREAKDOWN
Franklin High Income Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------------------------------------------------
<S> <C>
Telecommunications 29.7%
Consumer Services 21.5%
Process Industries 8.7%
Transportation 5.9%
Producer Manufacturing 4.6%
Energy Minerals 4.3%
Industrial Services 4.2%
Consumer Non-Durables 3.6%
Consumer Durables 2.7%
Technology Services 2.5%
Commercial Services 2.3%
Electronic Technology 2.1%
Finance 2.0%
Health Services 1.3%
Utilities 1.2%
Retail Trade 1.2%
Cash & Equivalents 2.2%
</TABLE>
55
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -0.07%
5-Year +8.94%
10-Year +9.14%
Since Inception (1/24/89) +8.45%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year -0.37%
5-Year +8.88%
10-Year +9.11%
Since Inception (1/24/89) +8.42%
</TABLE>
[PIE CHART]
INVESTMENT HOLDINGS
Franklin U.S. Government Fund
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
Mortgage-Backed Securities 75.7%
Agency Notes & Bonds 21.5%
Cash & Equivalents 2.8%
</TABLE>
TOTAL RETURN INDEX COMPARISON
Franklin High Income Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
This graph compares the performance of Franklin High Income Fund - Class 1, as
tracked by the growth in value of a $10,000 investment, to that of the C.S.
First Boston Global High Yield Index and the Consumer Price Index from 1/1/90
- -12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin High CS First Boston CPI
Income Fund - Global High Yield
Class 1 Index
----------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,793 $9,648 $10,103
02/28/1990 $9,645 $9,470 $10,150
03/31/1990 $9,797 $9,742 $10,206
04/30/1990 $9,705 $9,783 $10,223
05/31/1990 $9,766 $9,987 $10,246
06/30/1990 $10,021 $10,301 $10,301
07/31/1990 $10,246 $10,634 $10,341
08/31/1990 $9,766 $10,143 $10,436
09/30/1990 $9,133 $9,369 $10,523
10/31/1990 $8,765 $9,134 $10,587
11/30/1990 $8,959 $9,317 $10,610
12/31/1990 $9,133 $9,362 $10,610
01/31/1991 $9,225 $9,618 $10,674
02/28/1991 $9,807 $10,449 $10,690
03/31/1991 $10,154 $11,096 $10,706
04/30/1991 $10,430 $11,557 $10,722
05/31/1991 $10,522 $11,615 $10,754
06/30/1991 $10,767 $11,919 $10,785
07/31/1991 $11,024 $12,322 $10,801
08/31/1991 $11,226 $12,546 $10,832
09/30/1991 $11,371 $12,831 $10,880
10/31/1991 $11,651 $13,256 $10,896
11/30/1991 $11,786 $13,362 $10,928
12/31/1991 $11,853 $13,459 $10,936
01/31/1992 $12,233 $14,007 $10,952
02/29/1992 $12,446 $14,347 $10,992
03/31/1992 $12,614 $14,561 $11,048
04/30/1992 $12,692 $14,573 $11,063
05/31/1992 $12,871 $14,771 $11,079
06/30/1992 $12,992 $14,917 $11,118
07/31/1992 $13,239 $15,147 $11,142
08/31/1992 $13,462 $15,356 $11,173
09/30/1992 $13,567 $15,456 $11,204
10/31/1992 $13,403 $15,295 $11,243
11/30/1992 $13,661 $15,524 $11,259
12/31/1992 $13,814 $15,700 $11,251
01/31/1993 $14,072 $16,128 $11,306
02/28/1993 $14,295 $16,448 $11,346
03/31/1993 $14,506 $16,795 $11,386
04/30/1993 $14,565 $16,890 $11,418
05/31/1993 $14,706 $17,137 $11,434
06/30/1993 $15,010 $17,447 $11,450
07/31/1993 $15,120 $17,629 $11,450
08/31/1993 $15,205 $17,779 $11,482
09/30/1993 $15,205 $17,880 $11,506
10/31/1993 $15,717 $18,207 $11,553
11/30/1993 $15,814 $18,437 $11,561
12/31/1993 $15,984 $18,669 $11,561
01/31/1994 $16,325 $19,001 $11,592
02/28/1994 $16,204 $19,030 $11,632
03/31/1994 $15,437 $18,470 $11,671
04/30/1994 $15,217 $18,223 $11,688
05/31/1994 $15,266 $18,327 $11,696
06/30/1994 $15,387 $18,204 $11,736
07/31/1994 $15,362 $18,289 $11,767
08/31/1994 $15,477 $18,421 $11,814
09/30/1994 $15,528 $18,495 $11,846
10/31/1994 $15,560 $18,508 $11,854
11/30/1994 $15,457 $18,293 $11,870
12/31/1994 $15,624 $18,487 $11,870
01/31/1995 $15,880 $18,681 $11,917
02/28/1995 $16,494 $19,140 $11,965
03/31/1995 $16,660 $19,357 $12,005
04/30/1995 $17,147 $19,786 $12,044
05/31/1995 $17,620 $20,344 $12,068
06/30/1995 $17,711 $20,479 $12,092
07/31/1995 $17,958 $20,796 $12,092
08/31/1995 $18,013 $20,854 $12,124
09/30/1995 $18,205 $21,094 $12,148
10/31/1995 $18,451 $21,328 $12,188
11/30/1995 $18,396 $21,429 $12,180
12/31/1995 $18,711 $21,701 $12,171
01/31/1996 $19,068 $22,113 $12,243
02/29/1996 $19,259 $22,230 $12,282
03/31/1996 $19,122 $22,170 $12,346
04/30/1996 $19,218 $22,290 $12,394
05/31/1996 $19,369 $22,471 $12,418
06/30/1996 $19,416 $22,520 $12,425
07/31/1996 $19,612 $22,723 $12,449
08/31/1996 $19,958 $22,970 $12,472
09/30/1996 $20,440 $23,365 $12,512
10/31/1996 $20,635 $23,562 $12,552
11/30/1996 $21,012 $23,929 $12,576
12/31/1996 $21,313 $24,396 $12,576
01/31/1997 $21,448 $24,574 $12,616
02/28/1997 $21,824 $25,036 $12,655
03/31/1997 $21,283 $24,756 $12,687
04/30/1997 $21,539 $24,976 $12,702
05/31/1997 $22,035 $25,478 $12,695
06/30/1997 $22,343 $25,824 $12,710
07/31/1997 $22,935 $26,372 $12,725
08/31/1997 $22,985 $26,514 $12,749
09/30/1997 $23,445 $27,039 $12,781
10/31/1997 $23,264 $27,037 $12,813
11/30/1997 $23,544 $27,228 $12,806
12/31/1997 $23,757 $27,476 $12,790
01/31/1998 $24,086 $27,943 $12,814
02/28/1998 $24,234 $28,161 $12,839
03/31/1998 $24,514 $28,302 $12,863
04/30/1998 $24,662 $28,514 $12,886
05/31/1998 $24,645 $28,600 $12,910
06/30/1998 $24,697 $28,660 $12,925
07/31/1998 $24,860 $28,861 $12,941
08/31/1998 $23,179 $26,901 $12,956
09/30/1998 $23,161 $26,898 $12,972
10/31/1998 $22,583 $26,363 $13,003
11/30/1998 $24,047 $27,700 $13,003
12/31/1998 $23,992 $27,636 $12,995
01/31/1999 $24,263 $27,896 $13,026
02/28/1999 $24,048 $27,837 $13,042
03/31/1999 $24,283 $28,090 $13,081
04/30/1999 $24,771 $28,711 $13,176
05/31/1999 $24,246 $28,401 $13,176
06/30/1999 $24,299 $28,415 $13,176
07/31/1999 $24,282 $28,430 $13,216
08/31/1999 $24,006 $28,177 $13,248
09/30/1999 $23,749 $27,960 $13,311
10/31/1999 $23,471 $27,823 $13,335
11/30/1999 $23,983 $28,201 $13,343
12/31/1999 $23,977 $28,542 $13,343
</TABLE>
TOTAL RETURN INDEX COMPARISON
Franklin High Income Fund - Class 2*
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
This graph compares the performance of Franklin High Income Fund - Class 2, as
tracked by the growth in value of a $10,000 investment, to that of the C.S.
First Boston Global High Yield Index and the Consumer Price Index from 1/1/90
- -12/31/99.*
<TABLE>
<CAPTION>
Franklin High CS First Boston CPI
Income Fund - Global High Yield
Class 2 Index
------------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,793 $9,648 $10,103
02/28/1990 $9,645 $9,470 $10,150
03/31/1990 $9,797 $9,742 $10,206
04/30/1990 $9,705 $9,783 $10,223
05/31/1990 $9,766 $9,987 $10,246
06/30/1990 $10,021 $10,301 $10,301
07/31/1990 $10,246 $10,634 $10,341
08/31/1990 $9,766 $10,143 $10,436
09/30/1990 $9,133 $9,369 $10,523
10/31/1990 $8,765 $9,134 $10,587
11/30/1990 $8,959 $9,317 $10,610
12/31/1990 $9,133 $9,362 $10,610
01/31/1991 $9,225 $9,618 $10,674
02/28/1991 $9,807 $10,449 $10,690
03/31/1991 $10,154 $11,096 $10,706
04/30/1991 $10,430 $11,557 $10,722
05/31/1991 $10,522 $11,615 $10,754
06/30/1991 $10,767 $11,919 $10,785
07/31/1991 $11,024 $12,322 $10,801
08/31/1991 $11,226 $12,546 $10,832
09/30/1991 $11,371 $12,831 $10,880
10/31/1991 $11,651 $13,256 $10,896
11/30/1991 $11,786 $13,362 $10,928
12/31/1991 $11,853 $13,459 $10,936
01/31/1992 $12,233 $14,007 $10,952
02/29/1992 $12,446 $14,347 $10,992
03/31/1992 $12,614 $14,561 $11,048
04/30/1992 $12,692 $14,573 $11,063
05/31/1992 $12,871 $14,771 $11,079
06/30/1992 $12,992 $14,917 $11,118
07/31/1992 $13,239 $15,147 $11,142
08/31/1992 $13,462 $15,356 $11,173
09/30/1992 $13,567 $15,456 $11,204
10/31/1992 $13,403 $15,295 $11,243
11/30/1992 $13,661 $15,524 $11,259
12/31/1992 $13,814 $15,700 $11,251
01/31/1993 $14,072 $16,128 $11,306
02/28/1993 $14,295 $16,448 $11,346
03/31/1993 $14,506 $16,795 $11,386
04/30/1993 $14,565 $16,890 $11,418
05/31/1993 $14,706 $17,137 $11,434
06/30/1993 $15,010 $17,447 $11,450
07/31/1993 $15,120 $17,629 $11,450
08/31/1993 $15,205 $17,779 $11,482
09/30/1993 $15,205 $17,880 $11,506
10/31/1993 $15,717 $18,207 $11,553
11/30/1993 $15,814 $18,437 $11,561
12/31/1993 $15,984 $18,669 $11,561
01/31/1994 $16,325 $19,001 $11,592
02/28/1994 $16,204 $19,030 $11,632
03/31/1994 $15,437 $18,470 $11,671
04/30/1994 $15,217 $18,223 $11,688
05/31/1994 $15,266 $18,327 $11,696
06/30/1994 $15,387 $18,204 $11,736
07/31/1994 $15,362 $18,289 $11,767
08/31/1994 $15,477 $18,421 $11,814
09/30/1994 $15,528 $18,495 $11,846
10/31/1994 $15,560 $18,508 $11,854
11/30/1994 $15,457 $18,293 $11,870
12/31/1994 $15,624 $18,487 $11,870
01/31/1995 $15,880 $18,681 $11,917
02/28/1995 $16,494 $19,140 $11,965
03/31/1995 $16,660 $19,357 $12,005
04/30/1995 $17,147 $19,786 $12,044
05/31/1995 $17,620 $20,344 $12,068
06/30/1995 $17,711 $20,479 $12,092
07/31/1995 $17,958 $20,796 $12,092
08/31/1995 $18,013 $20,854 $12,124
09/30/1995 $18,205 $21,094 $12,148
10/31/1995 $18,451 $21,328 $12,188
11/30/1995 $18,396 $21,429 $12,180
12/31/1995 $18,711 $21,701 $12,171
01/31/1996 $19,068 $22,113 $12,243
02/29/1996 $19,259 $22,230 $12,282
03/31/1996 $19,122 $22,170 $12,346
04/30/1996 $19,218 $22,290 $12,394
05/31/1996 $19,369 $22,471 $12,418
06/30/1996 $19,416 $22,520 $12,425
07/31/1996 $19,612 $22,723 $12,449
08/31/1996 $19,958 $22,970 $12,472
09/30/1996 $20,440 $23,365 $12,512
10/31/1996 $20,635 $23,562 $12,552
11/30/1996 $21,012 $23,929 $12,576
12/31/1996 $21,313 $24,396 $12,576
01/31/1997 $21,448 $24,574 $12,616
02/28/1997 $21,824 $25,036 $12,655
03/31/1997 $21,283 $24,756 $12,687
04/30/1997 $21,539 $24,976 $12,702
05/31/1997 $22,035 $25,478 $12,695
06/30/1997 $22,343 $25,824 $12,710
07/31/1997 $22,935 $26,372 $12,725
08/31/1997 $22,985 $26,514 $12,749
09/30/1997 $23,445 $27,039 $12,781
10/31/1997 $23,264 $27,037 $12,813
11/30/1997 $23,544 $27,228 $12,806
12/31/1997 $23,757 $27,476 $12,790
01/31/1998 $24,086 $27,943 $12,814
02/28/1998 $24,234 $28,161 $12,839
03/31/1998 $24,514 $28,302 $12,863
04/30/1998 $24,662 $28,514 $12,886
05/31/1998 $24,645 $28,600 $12,910
06/30/1998 $24,697 $28,660 $12,925
07/31/1998 $24,860 $28,861 $12,941
08/31/1998 $23,179 $26,901 $12,956
09/30/1998 $23,161 $26,898 $12,972
10/31/1998 $22,583 $26,363 $13,003
11/30/1998 $24,047 $27,700 $13,003
12/31/1998 $23,992 $27,636 $12,995
01/31/1999 $24,263 $27,896 $13,026
02/28/1999 $24,048 $27,837 $13,042
03/31/1999 $24,283 $28,090 $13,081
04/30/1999 $24,752 $28,711 $13,176
05/31/1999 $24,227 $28,401 $13,176
06/30/1999 $24,263 $28,415 $13,176
07/31/1999 $24,246 $28,430 $13,216
08/31/1999 $23,970 $28,177 $13,248
09/30/1999 $23,692 $27,960 $13,311
10/31/1999 $23,415 $27,823 $13,335
11/30/1999 $23,928 $28,201 $13,343
12/31/1999 $23,904 $28,542 $13,343
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
FRANKLIN U.S. GOVERNMENT FUND
The year 1999 saw rapid economic growth and a tight labor market, conditions in
which inflation rose slightly, but still remained subdued by historical
standards. For fixed-income investors, several factors combined to drive bond
prices lower during the reporting period. In addition to strong U.S. economic
growth, recovering international markets and rising commodity prices led to
higher interest rates. For example, the 30-year Treasury bond yield increased
from 5.10% at the beginning of the year under review, to 6.48% on December 31,
1999. Interest rates and bond prices move in an inverse relationship, so as
interest rates rise, bond prices fall.
With improved national and international financial market conditions, the
Federal Reserve Board (the Fed) feared that a labor shortage, reflected by
December's unemployment rate decline to 4.1%, would put upward pressure on
prices. In a pre-emptive measure to contain long-term inflation, the Fed raised
the federal funds target rate three times during the year. This fully reversed
all 75 basis points of 1998's easing, returning the federal funds rate to 5.5%.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
56
<PAGE>
Higher interest rates worked their way through the economy over the course of
the year. For instance, the Federal Home Loan Mortgage Association (FHLMC or
Freddie Mac) conforming 30-year fixed mortgage rate rose from 6.77% to 8.06%
during the one-year period ended December 31, 1999. As mortgage rates rose, the
incentive for homeowners to refinance their loans declined. This helped
Government National Mortgage Association (GNMA or Ginnie Mae) mortgage
pass-through securities to significantly outperform Treasury and U.S. government
agency securities in 1999.
Going forward, we expect GNMA pass-through securities to continue to perform
well. We also believe bond yields may fall again once the Fed completes its
current interest-rate raising cycle. As of the end of the reporting period, the
market was discounting 0.5% of Fed tightening by the middle of 2000. We will
continue to manage Franklin U.S. Government Fund primarily as a mortgage income
fund, emphasizing GNMA and other agency mortgage pass-through securities for
their potentially attractive income advantages compared with U.S. Treasury
securities. Furthermore, the fund will continue to invest in non-mortgage
securities, such as Treasury and U.S. government agency securities, for
diversification purposes.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
TOTAL RETURN INDEX COMPARISON
Franklin High Income Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
This graph compares the performance of Franklin U.S. Government Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the Lehman
Brothers Intermediate Government Bond Index and the Consumer Price Index from
1/1/90 - 12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin U.S. Lehman Brothers CPI
Government Fund - Intermediate Government
Class 1 Bond Index
---------------------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,886 $9,938 $10,103
02/28/1990 $9,943 $9,975 $10,150
03/31/1990 $9,971 $9,987 $10,206
04/30/1990 $9,866 $9,953 $10,223
05/31/1990 $10,125 $10,166 $10,246
06/30/1990 $10,240 $10,299 $10,301
07/31/1990 $10,403 $10,443 $10,341
08/31/1990 $10,336 $10,406 $10,436
09/30/1990 $10,412 $10,498 $10,523
10/31/1990 $10,527 $10,644 $10,587
11/30/1990 $10,738 $10,805 $10,610
12/31/1990 $10,892 $10,954 $10,610
01/31/1991 $11,055 $11,067 $10,674
02/28/1991 $11,150 $11,134 $10,690
03/31/1991 $11,208 $11,195 $10,706
04/30/1991 $11,294 $11,311 $10,722
05/31/1991 $11,381 $11,374 $10,754
06/30/1991 $11,395 $11,383 $10,785
07/31/1991 $11,554 $11,506 $10,801
08/31/1991 $11,763 $11,725 $10,832
09/30/1991 $12,001 $11,924 $10,880
10/31/1991 $12,150 $12,060 $10,896
11/30/1991 $12,229 $12,201 $10,928
12/31/1991 $12,557 $12,498 $10,936
01/31/1992 $12,378 $12,378 $10,952
02/29/1992 $12,487 $12,416 $10,992
03/31/1992 $12,398 $12,366 $11,048
04/30/1992 $12,497 $12,478 $11,063
05/31/1992 $12,775 $12,664 $11,079
06/30/1992 $12,971 $12,846 $11,118
07/31/1992 $13,238 $13,093 $11,142
08/31/1992 $13,392 $13,226 $11,173
09/30/1992 $13,546 $13,409 $11,204
10/31/1992 $13,321 $13,248 $11,243
11/30/1992 $13,351 $13,193 $11,259
12/31/1992 $13,598 $13,364 $11,251
01/31/1993 $13,885 $13,612 $11,306
02/28/1993 $14,132 $13,812 $11,346
03/31/1993 $14,204 $13,863 $11,386
04/30/1993 $14,286 $13,972 $11,418
05/31/1993 $14,327 $13,934 $11,434
06/30/1993 $14,586 $14,136 $11,450
07/31/1993 $14,683 $14,164 $11,450
08/31/1993 $14,897 $14,375 $11,482
09/30/1993 $14,897 $14,434 $11,506
10/31/1993 $14,972 $14,469 $11,553
11/30/1993 $14,779 $14,396 $11,561
12/31/1993 $14,919 $14,455 $11,561
01/31/1994 $15,112 $14,599 $11,592
02/28/1994 $14,811 $14,399 $11,632
03/31/1994 $14,286 $14,188 $11,671
04/30/1994 $14,147 $14,096 $11,688
05/31/1994 $14,168 $14,106 $11,696
06/30/1994 $14,079 $14,109 $11,736
07/31/1994 $14,430 $14,294 $11,767
08/31/1994 $14,418 $14,335 $11,814
09/30/1994 $14,124 $14,216 $11,846
10/31/1994 $14,059 $14,219 $11,854
11/30/1994 $14,059 $14,155 $11,870
12/31/1994 $14,240 $14,202 $11,870
01/31/1995 $14,557 $14,433 $11,917
02/28/1995 $14,954 $14,712 $11,965
03/31/1995 $15,033 $14,793 $12,005
04/30/1995 $15,260 $14,964 $12,044
05/31/1995 $15,928 $15,386 $12,068
06/30/1995 $16,014 $15,485 $12,092
07/31/1995 $15,966 $15,492 $12,092
08/31/1995 $16,172 $15,621 $12,124
09/30/1995 $16,342 $15,726 $12,148
10/31/1995 $16,561 $15,899 $12,188
11/30/1995 $16,780 $16,093 $12,180
12/31/1995 $17,011 $16,252 $12,171
01/31/1996 $17,120 $16,388 $12,243
02/29/1996 $16,828 $16,215 $12,282
03/31/1996 $16,707 $16,140 $12,346
04/30/1996 $16,598 $16,093 $12,394
05/31/1996 $16,525 $16,085 $12,418
06/30/1996 $16,762 $16,249 $12,425
07/31/1996 $16,801 $16,300 $12,449
08/31/1996 $16,775 $16,318 $12,472
09/30/1996 $17,102 $16,528 $12,512
10/31/1996 $17,469 $16,799 $12,552
11/30/1996 $17,730 $17,002 $12,576
12/31/1996 $17,626 $16,911 $12,576
01/31/1997 $17,704 $16,975 $12,616
02/28/1997 $17,743 $17,002 $12,655
03/31/1997 $17,652 $16,905 $12,687
04/30/1997 $17,914 $17,096 $12,702
05/31/1997 $18,084 $17,230 $12,695
06/30/1997 $18,284 $17,378 $12,710
07/31/1997 $18,685 $17,699 $12,725
08/31/1997 $18,561 $17,632 $12,749
09/30/1997 $18,810 $17,824 $12,781
10/31/1997 $19,031 $18,033 $12,813
11/30/1997 $19,087 $18,072 $12,806
12/31/1997 $19,267 $18,219 $12,790
01/31/1998 $19,474 $18,456 $12,814
02/28/1998 $19,502 $18,435 $12,839
03/31/1998 $19,571 $18,492 $12,863
04/30/1998 $19,668 $18,581 $12,886
05/31/1998 $19,834 $18,709 $12,910
06/30/1998 $19,955 $18,835 $12,925
07/31/1998 $20,014 $18,906 $12,941
08/31/1998 $20,298 $19,264 $12,956
09/30/1998 $20,670 $19,712 $12,972
10/31/1998 $20,551 $19,746 $13,003
11/30/1998 $20,625 $19,685 $13,003
12/31/1998 $20,700 $19,762 $12,995
01/31/1999 $20,835 $19,850 $13,026
02/28/1999 $20,580 $19,579 $13,042
03/31/1999 $20,685 $19,708 $13,081
04/30/1999 $20,760 $19,761 $13,176
05/31/1999 $20,567 $19,640 $13,176
06/30/1999 $20,433 $19,668 $13,176
07/31/1999 $20,276 $19,670 $13,216
08/31/1999 $20,243 $19,697 $13,248
09/30/1999 $20,551 $19,867 $13,311
10/31/1999 $20,615 $19,907 $13,335
11/30/1999 $20,598 $19,920 $13,343
12/31/1999 $20,506 $19,859 $13,343
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -0.94%
5-Year +7.57%
10-Year +7.45%
Since Inception (3/14/89) +7.40%
</TABLE>
TOTAL RETURN INDEX COMPARISON
Franklin High Income Fund - Class 2*
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
This graph compares the performance of Franklin U.S. Government Fund - Class 2,
as tracked by the growth in value of a $10,000 investment, to that of the Lehman
Brothers Intermediate Government Bond Index and the Consumer Price Index from
1/1/90 - 12/31/99.*
<TABLE>
<CAPTION>
Franklin U.S. Lehman Brothers CPI
Government Intermediate Government
Fund - Class 2 Bond Index
--------------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,886 $9,938 $10,103
02/28/1990 $9,943 $9,975 $10,150
03/31/1990 $9,971 $9,987 $10,206
04/30/1990 $9,866 $9,953 $10,223
05/31/1990 $10,125 $10,166 $10,246
06/30/1990 $10,240 $10,299 $10,301
07/31/1990 $10,403 $10,443 $10,341
08/31/1990 $10,336 $10,406 $10,436
09/30/1990 $10,412 $10,498 $10,523
10/31/1990 $10,527 $10,644 $10,587
11/30/1990 $10,738 $10,805 $10,610
12/31/1990 $10,892 $10,954 $10,610
01/31/1991 $11,055 $11,067 $10,674
02/28/1991 $11,150 $11,134 $10,690
03/31/1991 $11,208 $11,195 $10,706
04/30/1991 $11,294 $11,311 $10,722
05/31/1991 $11,381 $11,374 $10,754
06/30/1991 $11,395 $11,383 $10,785
07/31/1991 $11,554 $11,506 $10,801
08/31/1991 $11,763 $11,725 $10,832
09/30/1991 $12,001 $11,924 $10,880
10/31/1991 $12,150 $12,060 $10,896
11/30/1991 $12,229 $12,201 $10,928
12/31/1991 $12,557 $12,498 $10,936
01/31/1992 $12,378 $12,378 $10,952
02/29/1992 $12,487 $12,416 $10,992
03/31/1992 $12,398 $12,366 $11,048
04/30/1992 $12,497 $12,478 $11,063
05/31/1992 $12,775 $12,664 $11,079
06/30/1992 $12,971 $12,846 $11,118
07/31/1992 $13,238 $13,093 $11,142
08/31/1992 $13,392 $13,226 $11,173
09/30/1992 $13,546 $13,409 $11,204
10/31/1992 $13,321 $13,248 $11,243
11/30/1992 $13,351 $13,193 $11,259
12/31/1992 $13,598 $13,364 $11,251
01/31/1993 $13,885 $13,612 $11,306
02/28/1993 $14,132 $13,812 $11,346
03/31/1993 $14,204 $13,863 $11,386
04/30/1993 $14,286 $13,972 $11,418
05/31/1993 $14,327 $13,934 $11,434
06/30/1993 $14,586 $14,136 $11,450
07/31/1993 $14,683 $14,164 $11,450
08/31/1993 $14,897 $14,375 $11,482
09/30/1993 $14,897 $14,434 $11,506
10/31/1993 $14,972 $14,469 $11,553
11/30/1993 $14,779 $14,396 $11,561
12/31/1993 $14,919 $14,455 $11,561
01/31/1994 $15,112 $14,599 $11,592
02/28/1994 $14,811 $14,399 $11,632
03/31/1994 $14,286 $14,188 $11,671
04/30/1994 $14,147 $14,096 $11,688
05/31/1994 $14,168 $14,106 $11,696
06/30/1994 $14,079 $14,109 $11,736
07/31/1994 $14,430 $14,294 $11,767
08/31/1994 $14,418 $14,335 $11,814
09/30/1994 $14,124 $14,216 $11,846
10/31/1994 $14,059 $14,219 $11,854
11/30/1994 $14,059 $14,155 $11,870
12/31/1994 $14,240 $14,202 $11,870
01/31/1995 $14,557 $14,433 $11,917
02/28/1995 $14,954 $14,712 $11,965
03/31/1995 $15,033 $14,793 $12,005
04/30/1995 $15,260 $14,964 $12,044
05/31/1995 $15,928 $15,386 $12,068
06/30/1995 $16,014 $15,485 $12,092
07/31/1995 $15,966 $15,492 $12,092
08/31/1995 $16,172 $15,621 $12,124
09/30/1995 $16,342 $15,726 $12,148
10/31/1995 $16,561 $15,899 $12,188
11/30/1995 $16,780 $16,093 $12,180
12/31/1995 $17,011 $16,252 $12,171
01/31/1996 $17,120 $16,388 $12,243
02/29/1996 $16,828 $16,215 $12,282
03/31/1996 $16,707 $16,140 $12,346
04/30/1996 $16,598 $16,093 $12,394
05/31/1996 $16,525 $16,085 $12,418
06/30/1996 $16,762 $16,249 $12,425
07/31/1996 $16,801 $16,300 $12,449
08/31/1996 $16,775 $16,318 $12,472
09/30/1996 $17,102 $16,528 $12,512
10/31/1996 $17,469 $16,799 $12,552
11/30/1996 $17,730 $17,002 $12,576
12/31/1996 $17,626 $16,911 $12,576
01/31/1997 $17,704 $16,975 $12,616
02/28/1997 $17,743 $17,002 $12,655
03/31/1997 $17,652 $16,905 $12,687
04/30/1997 $17,914 $17,096 $12,702
05/31/1997 $18,084 $17,230 $12,695
06/30/1997 $18,284 $17,378 $12,710
07/31/1997 $18,685 $17,699 $12,725
08/31/1997 $18,561 $17,632 $12,749
09/30/1997 $18,810 $17,824 $12,781
10/31/1997 $19,031 $18,033 $12,813
11/30/1997 $19,087 $18,072 $12,806
12/31/1997 $19,267 $18,219 $12,790
01/31/1998 $19,474 $18,456 $12,814
02/28/1998 $19,502 $18,435 $12,839
03/31/1998 $19,571 $18,492 $12,863
04/30/1998 $19,668 $18,581 $12,886
05/31/1998 $19,834 $18,709 $12,910
06/30/1998 $19,955 $18,835 $12,925
07/31/1998 $20,014 $18,906 $12,941
08/31/1998 $20,298 $19,264 $12,956
09/30/1998 $20,670 $19,712 $12,972
10/31/1998 $20,551 $19,746 $13,003
11/30/1998 $20,625 $19,685 $13,003
12/31/1998 $20,700 $19,762 $12,995
01/31/1999 $20,835 $19,850 $13,026
02/28/1999 $20,580 $19,579 $13,042
03/31/1999 $20,685 $19,708 $13,081
04/30/1999 $20,745 $19,761 $13,176
05/31/1999 $20,552 $19,640 $13,176
06/30/1999 $20,402 $19,668 $13,176
07/31/1999 $20,245 $19,670 $13,216
08/31/1999 $20,213 $19,697 $13,248
09/30/1999 $20,520 $19,867 $13,311
10/31/1999 $20,569 $19,907 $13,335
11/30/1999 $20,553 $19,920 $13,343
12/31/1999 $20,472 $19,859 $13,343
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return - Class 2*
- --------------------------------------------------------------------------------
<S> <C>
1-Year -1.10%
5-Year +7.53%
10-Year +7.43%
Since Inception (3/14/89) +7.38%
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
57
<PAGE>
FRANKLIN ZERO COUPON 2000 FUND
FRANKLIN ZERO COUPON 2005 FUND
FRANKLIN ZERO COUPON 2010 FUND
Many challenges faced fixed-income investors in 1999. Several factors combined
to push bond prices lower during the year. Strong U.S. economic growth,
recovering international markets and rising commodity prices led to higher
interest rates during the period under review. For example, yield on the 10-year
Treasury note, a good proxy for securities in the Zero Coupon 2010 Fund,
increased from 4.69% at the beginning of the period under review, to 6.44% on
December 31, 1999. Interest rates and bond prices move in an inverse
relationship, so as interest rates rise, bond prices fall.
The U.S. economic expansion brought with it low unemployment and inflation,
which although restrained by historical standards, was still slightly higher
than 1998's. In an effort to prevent inflationary pressures from developing, the
Federal Reserve Board took back all of late 1998's 0.75% easing, raising the
federal funds target rate three times to 5.50% during the reporting period.
Franklin Zero Coupon Funds invest primarily in securities issued by government
sponsored agencies. In our opinion, there is only the slightest amount of
additional risk in these securities relative to direct obligations of the U.S.
government. Due to the inverse relationship zero coupon bond prices have with
interest rates, all three portfolios suffered from the rising interest rates
during the year. Keep in mind that, with less than one year to target maturity,
the Zero Coupon 2000 portfolio will become increasingly less sensitive to
interest-rate changes, which will reduce the portfolio's risk but also diminish
any chances for capital appreciation.
Normally, individual zero coupon bonds will return a fixed rate, if held to
maturity. Zero coupon investments, therefore, can be attractive for relatively
short-term investors and risk-averse, long-term investors. Of course, a managed
portfolio of zero coupon bonds will fluctuate with cash flow into or out of the
portfolio, or vary with market conditions. We do not try to time the market;
instead, our portfolio activity mirrors shareholder activity.
Looking ahead, we believe inflation should remain subdued, making fixed-income
investments attractive. Zero coupon bonds and our zero coupon portfolios, while
subject to price fluctuation as a result of interest-rate volatility, can offer
investors relatively certain returns if held to maturity. For each portfolio, we
strive to maintain the weighted average maturity as close to the target maturity
as possible so that the portfolio will mirror the features of a zero coupon
bond.
58
<PAGE>
TOTAL RETURN INDEX COMPARISON
Franklin Zero Coupon Fund - 2000
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
<TABLE>
<CAPTION>
Franklin Zero Merrill Lynch Merrill Lynch CPI
Coupon Fund - Zero Coupon Zero Coupon
2000 1-Year Bond 5-Year Bond
Total Return Total Return
Index Index
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,576 $10,044 $9,829 $10,103
02/28/1990 $9,567 $10,105 $9,839 $10,150
03/31/1990 $9,559 $10,164 $9,838 $10,206
04/30/1990 $9,179 $10,215 $9,738 $10,223
05/31/1990 $9,624 $10,332 $10,034 $10,246
06/30/1990 $9,866 $10,415 $10,198 $10,301
07/31/1990 $9,996 $10,523 $10,378 $10,341
08/31/1990 $9,550 $10,592 $10,242 $10,436
09/30/1990 $9,671 $10,660 $10,340 $10,523
10/31/1990 $9,903 $10,763 $10,552 $10,587
11/30/1990 $10,396 $10,849 $10,834 $10,610
12/31/1990 $10,591 $10,954 $11,022 $10,610
01/31/1991 $10,711 $11,052 $11,134 $10,674
02/28/1991 $10,730 $11,126 $11,173 $10,690
03/31/1991 $10,711 $11,207 $11,214 $10,706
04/30/1991 $10,888 $11,297 $11,391 $10,722
05/31/1991 $10,879 $11,363 $11,427 $10,754
06/30/1991 $10,819 $11,406 $11,403 $10,785
07/31/1991 $10,963 $11,494 $11,566 $10,801
08/31/1991 $11,385 $11,606 $11,911 $10,832
09/30/1991 $11,798 $11,696 $12,215 $10,880
10/31/1991 $11,875 $11,793 $12,407 $10,896
11/30/1991 $12,038 $11,906 $12,619 $10,928
12/31/1991 $12,575 $12,041 $12,921 $10,936
01/31/1992 $12,172 $12,083 $12,707 $10,952
02/29/1992 $12,249 $12,123 $12,728 $10,992
03/31/1992 $12,153 $12,136 $12,601 $11,048
04/30/1992 $12,201 $12,247 $12,708 $11,063
05/31/1992 $12,499 $12,311 $13,024 $11,079
06/30/1992 $12,860 $12,389 $13,309 $11,118
07/31/1992 $13,430 $12,492 $13,689 $11,142
08/31/1992 $13,610 $12,536 $13,913 $11,173
09/30/1992 $13,990 $12,623 $14,219 $11,204
10/31/1992 $13,630 $12,604 $13,906 $11,243
11/30/1992 $13,490 $12,620 $13,750 $11,259
12/31/1992 $13,880 $12,706 $14,006 $11,251
01/31/1993 $14,250 $12,796 $14,435 $11,306
02/28/1993 $14,790 $12,845 $14,774 $11,346
03/31/1993 $14,970 $12,879 $14,838 $11,386
04/30/1993 $15,040 $12,935 $15,015 $11,418
05/31/1993 $15,030 $12,930 $14,938 $11,434
06/30/1993 $15,621 $12,993 $15,277 $11,450
07/31/1993 $15,715 $13,031 $15,289 $11,450
08/31/1993 $16,122 $13,093 $15,648 $11,482
09/30/1993 $16,226 $13,130 $15,725 $11,506
10/31/1993 $16,362 $13,160 $15,733 $11,553
11/30/1993 $15,976 $13,186 $15,574 $11,561
12/31/1993 $16,122 $13,240 $15,656 $11,561
01/31/1994 $16,404 $13,299 $15,877 $11,592
02/28/1994 $15,819 $13,276 $15,506 $11,632
03/31/1994 $15,287 $13,276 $15,107 $11,671
04/30/1994 $15,099 $13,266 $14,923 $11,688
05/31/1994 $15,099 $13,300 $14,933 $11,696
06/30/1994 $15,090 $13,351 $14,902 $11,736
07/31/1994 $15,388 $13,438 $15,176 $11,767
08/31/1994 $15,388 $13,494 $15,226 $11,814
09/30/1994 $15,090 $13,509 $14,966 $11,846
10/31/1994 $15,012 $13,557 $14,935 $11,854
11/30/1994 $14,935 $13,543 $14,818 $11,870
12/31/1994 $15,034 $13,588 $14,951 $11,870
01/31/1995 $15,332 $13,736 $15,240 $11,917
02/28/1995 $15,807 $13,875 $15,529 $11,965
03/31/1995 $15,895 $13,967 $15,592 $12,005
04/30/1995 $16,127 $14,058 $15,835 $12,044
05/31/1995 $16,966 $14,216 $16,589 $12,068
06/30/1995 $17,104 $14,295 $16,726 $12,092
07/31/1995 $16,988 $14,349 $16,644 $12,092
08/31/1995 $17,184 $14,452 $16,804 $12,124
09/30/1995 $17,311 $14,490 $16,933 $12,148
10/31/1995 $17,623 $14,578 $17,199 $12,188
11/30/1995 $17,922 $14,677 $17,519 $12,180
12/31/1995 $18,142 $14,769 $17,740 $12,171
01/31/1996 $18,349 $14,863 $17,933 $12,243
02/29/1996 $17,992 $14,887 $17,593 $12,282
03/31/1996 $17,773 $14,919 $17,370 $12,346
04/30/1996 $17,634 $14,961 $17,174 $12,394
05/31/1996 $17,553 $15,027 $17,091 $12,418
06/30/1996 $17,762 $15,106 $17,343 $12,425
07/31/1996 $17,811 $15,176 $17,344 $12,449
08/31/1996 $17,787 $15,260 $17,298 $12,472
09/30/1996 $18,080 $15,359 $17,618 $12,512
10/31/1996 $18,484 $15,476 $18,046 $12,552
11/30/1996 $18,765 $15,567 $18,385 $12,576
12/31/1996 $18,582 $15,596 $18,122 $12,576
01/31/1997 $18,643 $15,675 $18,168 $12,616
02/28/1997 $18,643 $15,731 $18,157 $12,655
03/31/1997 $18,496 $15,764 $17,925 $12,687
04/30/1997 $18,704 $15,866 $18,200 $12,702
05/31/1997 $18,863 $15,972 $18,365 $12,695
06/30/1997 $19,021 $16,054 $18,563 $12,710
07/31/1997 $19,416 $16,176 $19,134 $12,725
08/31/1997 $19,310 $16,224 $18,899 $12,749
09/30/1997 $19,521 $16,315 $19,187 $12,781
10/31/1997 $19,744 $16,413 $19,525 $12,813
11/30/1997 $19,757 $16,453 $19,526 $12,806
12/31/1997 $19,902 $16,545 $19,754 $12,790
01/31/1998 $20,191 $16,654 $20,115 $12,814
02/28/1998 $20,152 $16,683 $20,031 $12,839
03/31/1998 $20,204 $16,754 $20,066 $12,863
04/30/1998 $20,310 $16,840 $20,151 $12,886
05/31/1998 $20,441 $16,916 $20,317 $12,910
06/30/1998 $20,557 $16,994 $20,486 $12,925
07/31/1998 $20,658 $17,072 $20,533 $12,941
08/31/1998 $20,962 $17,216 $21,196 $12,956
09/30/1998 $21,294 $17,373 $21,923 $12,972
10/31/1998 $21,380 $17,463 $21,887 $13,003
11/30/1998 $21,337 $17,506 $21,729 $13,003
12/31/1998 $21,395 $17,577 $21,845 $12,995
01/31/1999 $21,468 $17,639 $22,047 $13,026
02/28/1999 $21,367 $17,654 $21,386 $13,042
03/31/1999 $21,497 $17,746 $21,519 $13,081
04/30/1999 $21,555 $17,806 $21,602 $13,176
05/31/1999 $21,540 $17,856 $21,254 $13,176
06/30/1999 $21,613 $17,920 $21,268 $13,176
07/31/1999 $21,665 $17,977 $21,143 $13,216
08/31/1999 $21,730 $18,052 $21,160 $13,248
09/30/1999 $21,843 $18,155 $21,386 $13,311
10/31/1999 $21,909 $18,228 $21,384 $13,335
11/30/1999 $21,974 $18,282 $21,348 $13,343
12/31/1999 $22,051 $18,340 $21,187 $13,343
</TABLE>
The graph shows the Merrill Lynch Zero Coupon 5- and 1-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2000 target date. PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT
DOES NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY
OR LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any
applicable sales charges. Index source is Standard & Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-Year +3.07%
5-Year +7.96%
10-Year +8.23%
Since Inception (3/14/89) +8.62%
</TABLE>
TOTAL RETURN INDEX COMPARISON
Franklin Zero Coupon Fund - 2005
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
<TABLE>
<CAPTION>
Franklin Merrill Lynch Merrill Lynch CPI
Zero Coupon Zero Coupon Zero Coupon
Fund - 2005 5-Year Bond 10-Year Bond
Total Return Total Return
Index Index
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,219 $9,829 $9,594 $10,103
02/28/1990 $9,228 $9,839 $9,573 $10,150
03/31/1990 $9,191 $9,838 $9,566 $10,206
04/30/1990 $8,694 $9,738 $9,298 $10,223
05/31/1990 $9,320 $10,034 $9,742 $10,246
06/30/1990 $9,597 $10,198 $9,974 $10,301
07/31/1990 $9,689 $10,378 $10,082 $10,341
08/31/1990 $8,924 $10,242 $9,606 $10,436
09/30/1990 $9,108 $10,340 $9,715 $10,523
10/31/1990 $9,320 $10,552 $10,029 $10,587
11/30/1990 $9,993 $10,834 $10,465 $10,610
12/31/1990 $10,269 $11,022 $10,701 $10,610
01/31/1991 $10,389 $11,134 $10,809 $10,674
02/28/1991 $10,389 $11,173 $10,823 $10,690
03/31/1991 $10,315 $11,214 $10,900 $10,706
04/30/1991 $10,518 $11,391 $11,077 $10,722
05/31/1991 $10,407 $11,427 $11,064 $10,754
06/30/1991 $10,283 $11,403 $10,987 $10,785
07/31/1991 $10,465 $11,566 $11,180 $10,801
08/31/1991 $10,982 $11,911 $11,624 $10,832
09/30/1991 $11,528 $12,215 $12,024 $10,880
10/31/1991 $11,480 $12,407 $12,081 $10,896
11/30/1991 $11,538 $12,619 $12,252 $10,928
12/31/1991 $12,198 $12,921 $12,922 $10,936
01/31/1992 $11,777 $12,707 $12,383 $10,952
02/29/1992 $11,806 $12,728 $12,457 $10,992
03/31/1992 $11,720 $12,601 $12,296 $11,048
04/30/1992 $11,691 $12,708 $12,245 $11,063
05/31/1992 $12,122 $13,024 $12,602 $11,079
06/30/1992 $12,329 $13,309 $12,898 $11,118
07/31/1992 $13,023 $13,689 $13,495 $11,142
08/31/1992 $13,124 $13,913 $13,648 $11,173
09/30/1992 $13,627 $14,219 $14,071 $11,204
10/31/1992 $13,134 $13,906 $13,661 $11,243
11/30/1992 $13,244 $13,750 $13,649 $11,259
12/31/1992 $13,697 $14,006 $14,121 $11,251
01/31/1993 $14,129 $14,435 $14,685 $11,306
02/28/1993 $14,914 $14,774 $15,259 $11,346
03/31/1993 $15,055 $14,838 $15,303 $11,386
04/30/1993 $15,045 $15,015 $15,516 $11,418
05/31/1993 $15,045 $14,938 $15,431 $11,434
06/30/1993 $16,063 $15,277 $16,278 $11,450
07/31/1993 $16,240 $15,289 $16,412 $11,450
08/31/1993 $16,791 $15,648 $17,039 $11,482
09/30/1993 $16,968 $15,725 $17,242 $11,506
10/31/1993 $17,208 $15,733 $17,315 $11,553
11/30/1993 $16,552 $15,574 $16,738 $11,561
12/31/1993 $16,739 $15,656 $16,886 $11,561
01/31/1994 $17,229 $15,877 $17,378 $11,592
02/28/1994 $16,260 $15,506 $16,550 $11,632
03/31/1994 $15,376 $15,107 $15,699 $11,671
04/30/1994 $15,136 $14,923 $15,453 $11,688
05/31/1994 $15,105 $14,933 $15,375 $11,696
06/30/1994 $15,005 $14,902 $15,260 $11,736
07/31/1994 $15,467 $15,176 $15,698 $11,767
08/31/1994 $15,423 $15,226 $15,724 $11,814
09/30/1994 $14,862 $14,966 $15,158 $11,846
10/31/1994 $14,774 $14,935 $15,047 $11,854
11/30/1994 $14,862 $14,818 $15,119 $11,870
12/31/1994 $15,137 $14,951 $15,381 $11,870
01/31/1995 $15,478 $15,240 $15,788 $11,917
02/28/1995 $15,995 $15,529 $16,396 $11,965
03/31/1995 $16,127 $15,592 $16,510 $12,005
04/30/1995 $16,490 $15,835 $16,832 $12,044
05/31/1995 $17,920 $16,589 $18,242 $12,068
06/30/1995 $18,051 $16,726 $18,482 $12,092
07/31/1995 $17,729 $16,644 $18,177 $12,092
08/31/1995 $18,108 $16,804 $18,536 $12,124
09/30/1995 $18,429 $16,933 $18,841 $12,148
10/31/1995 $18,934 $17,199 $19,319 $12,188
11/30/1995 $19,451 $17,519 $19,910 $12,180
12/31/1995 $19,944 $17,740 $20,396 $12,171
01/31/1996 $20,013 $17,933 $20,439 $12,243
02/29/1996 $19,060 $17,593 $19,468 $12,282
03/31/1996 $18,762 $17,370 $19,093 $12,346
04/30/1996 $18,418 $17,174 $18,644 $12,394
05/31/1996 $18,211 $17,091 $18,524 $12,418
06/30/1996 $18,618 $17,343 $18,940 $12,425
07/31/1996 $18,618 $17,344 $18,934 $12,449
08/31/1996 $18,448 $17,298 $18,730 $12,472
09/30/1996 $18,946 $17,618 $19,286 $12,512
10/31/1996 $19,698 $18,046 $20,049 $12,552
11/30/1996 $20,281 $18,385 $20,762 $12,576
12/31/1996 $19,844 $18,122 $20,192 $12,576
01/31/1997 $19,771 $18,168 $20,111 $12,616
02/28/1997 $19,747 $18,157 $20,113 $12,655
03/31/1997 $19,334 $17,925 $19,535 $12,687
04/30/1997 $19,771 $18,200 $20,060 $12,702
05/31/1997 $19,977 $18,365 $20,297 $12,695
06/30/1997 $20,273 $18,563 $20,657 $12,710
07/31/1997 $21,232 $19,134 $21,829 $12,725
08/31/1997 $20,752 $18,899 $21,182 $12,749
09/30/1997 $21,232 $19,187 $21,794 $12,781
10/31/1997 $21,763 $19,525 $22,473 $12,813
11/30/1997 $21,789 $19,526 $22,587 $12,806
12/31/1997 $22,100 $19,754 $23,028 $12,790
01/31/1998 $22,580 $20,115 $23,505 $12,814
02/28/1998 $22,450 $20,031 $23,367 $12,839
03/31/1998 $22,476 $20,066 $23,380 $12,863
04/30/1998 $22,554 $20,151 $23,462 $12,886
05/31/1998 $22,904 $20,317 $23,835 $12,910
06/30/1998 $23,173 $20,486 $24,268 $12,925
07/31/1998 $23,173 $20,533 $24,294 $12,941
08/31/1998 $24,000 $21,196 $25,515 $12,956
09/30/1998 $25,024 $21,923 $26,904 $12,972
10/31/1998 $24,897 $21,887 $26,418 $13,003
11/30/1998 $24,715 $21,729 $26,512 $13,003
12/31/1998 $24,869 $21,845 $26,603 $12,995
01/31/1999 $24,966 $22,047 $26,791 $13,026
02/28/1999 $24,040 $21,386 $25,337 $13,042
03/31/1999 $24,180 $21,519 $25,316 $13,081
04/30/1999 $24,235 $21,602 $25,476 $13,176
05/31/1999 $23,702 $21,254 $24,744 $13,176
06/30/1999 $23,631 $21,268 $24,611 $13,176
07/31/1999 $23,565 $21,143 $24,236 $13,216
08/31/1999 $23,445 $21,160 $24,179 $13,248
09/30/1999 $23,717 $21,386 $24,465 $13,311
10/31/1999 $23,657 $21,384 $24,425 $13,335
11/30/1999 $23,598 $21,348 $24,257 $13,343
12/31/1999 $23,407 $21,187 $23,851 $13,343
</TABLE>
The graph shows the Merrill Lynch Zero Coupon 5- and 10-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2005 target date. PERFORMANCES SHOWN IN THE GRAPHS REFLECT ALL FUND OPERATING
EXPENSES BUT DO NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-Year -5.88%
5-Year +9.11%
10-Year +8.88%
Since Inception (3/14/89) +9.63%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
59
<PAGE>
The graph shows the Merrill Lynch Zero Coupon 10- and 20-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2010 target date. PERFORMANCES SHOWN IN THE GRAPHS REFLECT ALL FUND OPERATING
EXPENSES BUT DO NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-Year -12.24%
5-Year +10.22%
10-Year +9.25%
Since Inception (3/14/89) +10.04%
</TABLE>
TOTAL RETURN INDEX COMPARISON
Franklin Zero Coupon Fund - 2010
$10,000 Investment (1/1/90 - 12/31/99)
[LINE GRAPH]
<TABLE>
<CAPTION>
Franklin Merrill Lynch Merrill Lynch CPI
Zero Coupon Zero Coupon Zero Coupon
Fund - 2010 10-Year Bond 20-Year Bond
Total Return Index Total Return
Index
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,113 $9,594 $9,248 $10,103
02/28/1990 $9,070 $9,573 $9,041 $10,150
03/31/1990 $8,957 $9,566 $8,955 $10,206
04/30/1990 $8,314 $9,298 $8,423 $10,223
05/31/1990 $9,145 $9,742 $9,247 $10,246
06/30/1990 $9,529 $9,974 $9,628 $10,301
07/31/1990 $9,592 $10,082 $9,588 $10,341
08/31/1990 $8,537 $9,606 $8,532 $10,436
09/30/1990 $8,743 $9,715 $8,709 $10,523
10/31/1990 $8,922 $10,029 $8,962 $10,587
11/30/1990 $9,708 $10,465 $9,769 $10,610
12/31/1990 $10,057 $10,701 $10,027 $10,610
01/31/1991 $10,209 $10,809 $10,232 $10,674
02/28/1991 $10,173 $10,823 $10,140 $10,690
03/31/1991 $10,048 $10,900 $10,214 $10,706
04/30/1991 $10,289 $11,077 $10,398 $10,722
05/31/1991 $10,066 $11,064 $10,279 $10,754
06/30/1991 $9,829 $10,987 $10,072 $10,785
07/31/1991 $10,008 $11,180 $10,283 $10,801
08/31/1991 $10,647 $11,624 $10,891 $10,832
09/30/1991 $11,249 $12,024 $11,453 $10,880
10/31/1991 $11,080 $12,081 $11,273 $10,896
11/30/1991 $10,977 $12,252 $11,367 $10,928
12/31/1991 $11,842 $12,922 $12,285 $10,936
01/31/1992 $11,409 $12,383 $11,750 $10,952
02/29/1992 $11,447 $12,457 $11,803 $10,992
03/31/1992 $11,400 $12,296 $11,611 $11,048
04/30/1992 $11,240 $12,245 $11,402 $11,063
05/31/1992 $11,851 $12,602 $11,884 $11,079
06/30/1992 $11,865 $12,898 $11,917 $11,118
07/31/1992 $12,574 $13,495 $12,719 $11,142
08/31/1992 $12,644 $13,648 $12,676 $11,173
09/30/1992 $12,853 $14,071 $12,782 $11,204
10/31/1992 $12,384 $13,661 $12,516 $11,243
11/30/1992 $12,724 $13,649 $12,809 $11,259
12/31/1992 $13,322 $14,121 $13,352 $11,251
01/31/1993 $13,602 $14,685 $13,791 $11,306
02/28/1993 $14,390 $15,259 $14,639 $11,346
03/31/1993 $14,689 $15,303 $14,536 $11,386
04/30/1993 $14,540 $15,516 $14,715 $11,418
05/31/1993 $14,630 $15,431 $14,858 $11,434
06/30/1993 $15,554 $16,278 $16,023 $11,450
07/31/1993 $16,076 $16,412 $16,724 $11,450
08/31/1993 $16,897 $17,039 $17,801 $11,482
09/30/1993 $17,035 $17,242 $17,744 $11,506
10/31/1993 $17,366 $17,315 $18,070 $11,553
11/30/1993 $16,652 $16,738 $17,342 $11,561
12/31/1993 $16,715 $16,886 $17,281 $11,561
01/31/1994 $17,387 $17,378 $17,972 $11,592
02/28/1994 $16,182 $16,550 $16,739 $11,632
03/31/1994 $15,212 $15,699 $15,686 $11,671
04/30/1994 $14,957 $15,453 $15,281 $11,688
05/31/1994 $14,722 $15,375 $14,813 $11,696
06/30/1994 $14,532 $15,260 $14,578 $11,736
07/31/1994 $15,286 $15,698 $15,502 $11,767
08/31/1994 $14,978 $15,724 $15,033 $11,814
09/30/1994 $14,281 $15,158 $14,187 $11,846
10/31/1994 $14,184 $15,047 $14,105 $11,854
11/30/1994 $14,435 $15,119 $14,449 $11,870
12/31/1994 $14,881 $15,381 $14,986 $11,870
01/31/1995 $15,270 $15,788 $15,564 $11,917
02/28/1995 $15,727 $16,396 $16,052 $11,965
03/31/1995 $15,887 $16,510 $16,251 $12,005
04/30/1995 $16,321 $16,832 $16,611 $12,044
05/31/1995 $18,344 $18,242 $19,020 $12,068
06/30/1995 $18,434 $18,482 $19,277 $12,092
07/31/1995 $17,951 $18,177 $18,733 $12,092
08/31/1995 $18,481 $18,536 $19,474 $12,124
09/30/1995 $18,929 $18,841 $20,037 $12,148
10/31/1995 $19,812 $19,319 $21,152 $12,188
11/30/1995 $20,483 $19,910 $21,947 $12,180
12/31/1995 $21,249 $20,396 $22,964 $12,171
01/31/1996 $21,202 $20,439 $22,743 $12,243
02/29/1996 $19,576 $19,468 $20,647 $12,282
03/31/1996 $19,105 $19,093 $19,858 $12,346
04/30/1996 $18,599 $18,644 $19,139 $12,394
05/31/1996 $18,422 $18,524 $19,141 $12,418
06/30/1996 $18,990 $18,940 $19,807 $12,425
07/31/1996 $18,952 $18,934 $19,756 $12,449
08/31/1996 $18,533 $18,730 $19,102 $12,472
09/30/1996 $19,282 $19,286 $20,054 $12,512
10/31/1996 $20,361 $20,049 $21,373 $12,552
11/30/1996 $21,300 $20,762 $22,699 $12,576
12/31/1996 $20,678 $20,192 $21,649 $12,576
01/31/1997 $20,373 $20,111 $21,256 $12,616
02/28/1997 $20,335 $20,113 $21,201 $12,655
03/31/1997 $19,726 $19,535 $20,204 $12,687
04/30/1997 $20,361 $20,060 $21,028 $12,702
05/31/1997 $20,614 $20,297 $21,300 $12,695
06/30/1997 $21,062 $20,657 $22,000 $12,710
07/31/1997 $22,685 $21,829 $24,513 $12,725
08/31/1997 $21,752 $21,182 $23,109 $12,749
09/30/1997 $22,549 $21,794 $24,305 $12,781
10/31/1997 $23,428 $22,473 $25,757 $12,813
11/30/1997 $23,617 $22,587 $26,483 $12,806
12/31/1997 $24,104 $23,028 $27,205 $12,790
01/31/1998 $24,699 $23,505 $27,824 $12,814
02/28/1998 $24,469 $23,367 $27,405 $12,839
03/31/1998 $24,483 $23,380 $27,543 $12,863
04/30/1998 $24,537 $23,462 $27,538 $12,886
05/31/1998 $25,118 $23,835 $28,425 $12,910
06/30/1998 $25,718 $24,268 $29,645 $12,925
07/31/1998 $25,588 $24,294 $29,208 $12,941
08/31/1998 $26,862 $25,515 $31,162 $12,956
09/30/1998 $28,224 $26,904 $32,103 $12,972
10/31/1998 $27,514 $26,418 $30,776 $13,003
11/30/1998 $27,615 $26,512 $31,959 $13,003
12/31/1998 $27,587 $26,603 $31,552 $12,995
01/31/1999 $27,747 $26,791 $31,961 $13,026
02/28/1999 $26,154 $25,337 $29,437 $13,042
03/31/1999 $26,211 $25,316 $29,110 $13,081
04/30/1999 $26,240 $25,476 $29,178 $13,176
05/31/1999 $25,429 $24,744 $28,500 $13,176
06/30/1999 $25,155 $24,611 $27,789 $13,176
07/31/1999 $25,019 $24,236 $27,378 $13,216
08/31/1999 $24,731 $24,179 $27,101 $13,248
09/30/1999 $25,033 $24,465 $27,219 $13,311
10/31/1999 $24,795 $24,425 $27,231 $13,335
11/30/1999 $24,651 $24,257 $27,012 $13,343
12/31/1999 $24,211 $23,851 $26,139 $13,343
</TABLE>
TEMPLETON GLOBAL INCOME SECURITIES FUND
During the year under review, a booming U.S. economy, renewed European economic
growth, a surprising strengthening of Asian economies -- especially Japan's --
and an upswing in the economies of many Latin American nations all contributed
to concerns about inflation and rising interest rates. Global bond markets
generally performed poorly, and the J.P. Morgan Global Government Bond Index
declined 5.08% in U.S. dollar terms.(1)
The U.S. led the overall decline in bond prices, as the domestic economy
expanded for an eighth consecutive year -- the longest expansion in the nation's
history. Although the Consumer Price Index (CPI), a commonly used inflation
gauge, was not 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 maneuvers, the economy,
as measured by gross domestic product (GDP), continued at a blistering 5.70%
annualized rate through the third quarter. The 30-year Treasury bond produced a
- -12.98% total return for the year, and the J.P. Morgan U.S. Government Bond
Index posted a return of -2.88% for the one-year period.(1)
European bond markets fell throughout most of the reporting period as
deregulation, restructuring and economic expansion took hold in much of the
region. The European Monetary Union's (EMU) new currency, the euro, plummeted
14% against the U.S. dollar when it was introduced, but regained the lost ground
and by the end of
(1.) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Global Government Bond Index tracks the performance of
government securities in several countries. The J.P. Morgan U.S. Government Bond
Index tracks the performance of U.S. government securities. Indexes are
unmanaged and include reinvested interest. One cannot invest directly in an
index, nor is an index representative of the portfolio.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
60
<PAGE>
the year, was being hailed as a catalyst that would harmonize European
markets.(2) As a result of slumping bond prices, yields generally trended
higher. The EMU Bond Index fell 16.84% and the U.K. 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.
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.
Although most foreign bonds offered dismal returns in 1999, Japan's bucked the
trend, returning 5.01% apparently as a result of investor expectations of an
economic recovery, stable interest rates and a stronger yen. For the year under
review, 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 independent credit rating agency, 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 disappointing 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, with
Mexico's, due to its high level of trade and connections with the U.S.,
performing best. Latin American bonds, and emerging debt in general, fared
relatively well and the J.P. Morgan Emerging Market Bond Index Plus rose 26.0%
in 1999.(3)
During the 12 months under review, we attempted to maximize the portfolio's
return by allocating about 80%-90% of total net assets to intermediate- and
long-term bonds in developed markets, and about 10%-20% to what we believed to
be the highest quality and most liquid bonds available in emerging markets. In
our opinion, this combination offered the opportunity for higher long-term
returns at the cost of modestly increased short-term volatility.
At the beginning of the reporting period, 42.9% of the portfolio's total net
assets were dedicated to North American issues. By the end of the year, we
trimmed our position
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton Global Income Securities Fund
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
Europe 47.8%
North America 23.8%
Latin America 14.6%
Australia/New Zealand 7.0%
Asia 5.4%
Short Term Investments & Other Net Assets 1.4%
</TABLE>
2. European Union countries which have formed a single market during the 1990s
include: Germany, France, Britain, Italy, Spain, Netherlands, Belgium, Sweden,
Austria, Portugal, Greece, Denmark, Finland, Ireland and Luxembourg. In
principle, the deciding issues for gaining entry into Europe's common market are
whether a country has adopted the institutions and laws to support both
democracy and an open market economy. The common currency, the euro, has yet to
be adopted by the following members: Britain, Sweden, Denmark and Greece.
3. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc. The
J.P. Morgan Emerging Markets Bond Index tracks the performance of fixed income
securities in several emerging markets. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the portfolio.
61
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index sources are J.P. Morgan and Standard & Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-Year -5.79%
5-Year +5.39%
10-Year +5.88%
Since Inception (1/24/89) +6.23%
</TABLE>
to just under 23.8% because we believed there would be better opportunities for
total return in emerging markets and Europe. In Europe, we added to our German,
Italian and Spanish holdings and decreased the portfolio's exposure to Belgium.
We also reduced the portfolio's stake in the Pacific Rim dollar-bloc countries
(Australia and New Zealand) by 1.1% of total net assets and initiated
approximately 4.8% in Japan. Our Latin American stake nearly doubled over the
year, from 8.7% to 14.6% of total net assets, most of which was invested in
Mexico. Most Latin American bonds in the portfolio were U.S. dollar-denominated
sovereign Eurobonds with fixed coupons, issued by countries with strong
repayment capacity. The portfolio's allocation to emerging markets added
positively to its 1999 performance.
Looking forward, the critical issue for global interest rates will be the
balance between global growth and inflation. Although U.S. economic growth may
decrease slightly, we believe that the trend in world economic growth is clearly
positive, and global inflation may pick up somewhat in the near future. While
not considered an ideal environment for high-quality bonds, the management team
believes a diversified global fixed-income portfolio should still perform
positively in the intermediate term. We expect emerging markets bonds to
outperform into the first half of 2000, despite some volatility, and find these
positions should offer superior returns during the next two to five years.
[BAR GRAPH]
<TABLE>
<CAPTION>
Templeton Global J.P. Morgan Global Government CPI
Income Securities Bond Index
Fund - Class 1
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,991 $9,851 1.03% $10,103
02/28/1990 $9,927 $9,744 0.47% $10,150
03/31/1990 $10,032 $9,685 0.55% $10,206
04/30/1990 $10,013 $9,647 0.16% $10,223
05/31/1990 $10,190 $9,955 0.23% $10,246
06/30/1990 $10,479 $10,135 0.54% $10,301
07/31/1990 $10,731 $10,433 0.38% $10,341
08/31/1990 $10,638 $10,352 0.92% $10,436
09/30/1990 $10,629 $10,449 0.84% $10,523
10/31/1990 $10,694 $10,861 0.60% $10,587
11/30/1990 $10,871 $11,053 0.22% $10,610
12/31/1990 $10,983 $11,176 0.00% $10,610
01/31/1991 $11,113 $11,429 0.60% $10,674
02/28/1991 $11,356 $11,440 0.15% $10,690
03/31/1991 $11,113 $11,083 0.15% $10,706
04/30/1991 $11,272 $11,217 0.15% $10,722
05/31/1991 $11,402 $11,226 0.30% $10,754
06/30/1991 $11,307 $11,076 0.29% $10,785
07/31/1991 $11,532 $11,311 0.15% $10,801
08/31/1991 $11,572 $11,546 0.29% $10,832
09/30/1991 $11,878 $11,967 0.44% $10,880
10/31/1991 $12,035 $12,085 0.15% $10,896
11/30/1991 $12,015 $12,282 0.29% $10,928
12/31/1991 $12,338 $12,902 0.07% $10,936
01/31/1992 $12,315 $12,649 0.15% $10,952
02/29/1992 $12,319 $12,613 0.36% $10,992
03/31/1992 $12,329 $12,496 0.51% $11,048
04/30/1992 $12,446 $12,600 0.14% $11,063
05/31/1992 $12,691 $12,958 0.14% $11,079
06/30/1992 $12,688 $13,311 0.36% $11,118
07/31/1992 $12,821 $13,605 0.21% $11,142
08/31/1992 $12,668 $13,967 0.28% $11,173
09/30/1992 $12,074 $13,953 0.28% $11,204
10/31/1992 $12,330 $13,605 0.35% $11,243
11/30/1992 $12,125 $13,363 0.14% $11,259
12/31/1992 $12,289 $13,490 -0.07% $11,251
01/31/1993 $12,381 $13,718 0.49% $11,306
02/28/1993 $12,565 $13,939 0.35% $11,346
03/31/1993 $12,944 $14,154 0.35% $11,386
04/30/1993 $13,334 $14,411 0.28% $11,418
05/31/1993 $13,549 $14,503 0.14% $11,434
06/30/1993 $13,520 $14,515 0.14% $11,450
07/31/1993 $13,563 $14,521 0.00% $11,450
08/31/1993 $13,865 $14,951 0.28% $11,482
09/30/1993 $13,822 $15,109 0.21% $11,506
10/31/1993 $14,145 $15,101 0.41% $11,553
11/30/1993 $13,865 $14,991 0.07% $11,561
12/31/1993 $14,339 $15,144 0.00% $11,561
01/31/1994 $14,608 $15,287 0.27% $11,592
02/28/1994 $14,275 $15,119 0.34% $11,632
03/31/1994 $13,844 $15,050 0.34% $11,671
04/30/1994 $13,833 $15,038 0.14% $11,688
05/31/1994 $13,887 $14,914 0.07% $11,696
06/30/1994 $13,332 $15,091 0.34% $11,736
07/31/1994 $13,544 $15,233 0.27% $11,767
08/31/1994 $13,656 $15,194 0.40% $11,814
09/30/1994 $13,645 $15,269 0.27% $11,846
10/31/1994 $13,725 $15,497 0.07% $11,854
11/30/1994 $13,725 $15,302 0.13% $11,870
12/31/1994 $13,624 $15,338 0.00% $11,870
01/31/1995 $13,535 $15,648 0.40% $11,917
02/28/1995 $13,747 $16,051 0.40% $11,965
03/31/1995 $13,993 $16,868 0.33% $12,005
04/30/1995 $14,306 $17,137 0.33% $12,044
05/31/1995 $14,652 $17,615 0.20% $12,068
06/30/1995 $14,718 $17,725 0.20% $12,092
07/31/1995 $14,811 $17,809 0.00% $12,092
08/31/1995 $14,625 $17,314 0.26% $12,124
09/30/1995 $14,950 $17,704 0.20% $12,148
10/31/1995 $15,194 $17,877 0.33% $12,188
11/30/1995 $15,322 $18,076 -0.07% $12,180
12/31/1995 $15,624 $18,300 -0.07% $12,171
01/31/1996 $15,554 $18,112 0.59% $12,243
02/29/1996 $15,368 $18,007 0.32% $12,282
03/31/1996 $15,415 $17,979 0.52% $12,346
04/30/1996 $15,531 $17,913 0.39% $12,394
05/31/1996 $15,612 $17,931 0.19% $12,418
06/30/1996 $15,822 $18,088 0.06% $12,425
07/31/1996 $15,885 $18,420 0.19% $12,449
08/31/1996 $16,086 $18,497 0.19% $12,472
09/30/1996 $16,338 $18,599 0.32% $12,512
10/31/1996 $16,665 $18,968 0.32% $12,552
11/30/1996 $17,067 $19,239 0.19% $12,576
12/31/1996 $17,130 $19,105 0.00% $12,576
01/31/1997 $16,916 $18,627 0.32% $12,616
02/28/1997 $16,841 $18,498 0.31% $12,655
03/31/1997 $16,778 $18,358 0.25% $12,687
04/30/1997 $16,866 $18,254 0.12% $12,702
05/31/1997 $17,004 $18,685 -0.06% $12,695
06/30/1997 $17,188 $18,897 0.12% $12,710
07/31/1997 $17,310 $18,828 0.12% $12,725
08/31/1997 $17,256 $18,805 0.19% $12,749
09/30/1997 $17,581 $19,222 0.25% $12,781
10/31/1997 $17,364 $19,630 0.25% $12,813
11/30/1997 $17,432 $19,394 -0.06% $12,806
12/31/1997 $17,554 $19,373 -0.12% $12,790
01/31/1998 $17,757 $19,567 0.19% $12,814
02/28/1998 $17,933 $19,712 0.19% $12,839
03/31/1998 $18,014 $19,564 0.19% $12,863
04/30/1998 $18,055 $19,865 0.18% $12,886
05/31/1998 $18,028 $19,951 0.18% $12,910
06/30/1998 $18,023 $20,006 0.12% $12,925
07/31/1998 $18,067 $20,061 0.12% $12,941
08/31/1998 $17,293 $20,615 0.12% $12,956
09/30/1998 $18,213 $21,691 0.12% $12,972
10/31/1998 $18,593 $22,177 0.24% $13,003
11/30/1998 $18,753 $21,927 0.00% $13,003
12/31/1998 $18,797 $22,340 -0.06% $12,995
01/31/1999 $18,841 $22,156 0.24% $13,026
02/28/1999 $18,169 $21,416 0.12% $13,042
03/31/1999 $18,271 $21,469 0.30% $13,081
04/30/1999 $18,388 $21,463 0.73% $13,176
05/31/1999 $17,994 $21,086 0.00% $13,176
06/30/1999 $17,818 $20,733 0.00% $13,176
07/31/1999 $17,898 $21,188 0.30% $13,216
08/31/1999 $17,712 $21,243 0.24% $13,248
09/30/1999 $17,851 $21,549 0.48% $13,311
10/31/1999 $17,774 $21,522 0.18% $13,335
11/30/1999 $17,603 $21,266 0.06% $13,343
12/31/1999 $17,710 $21,205 0.00% $13,343
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
62
<PAGE>
[BAR GRAPH[
This graph compares the performance of the Templeton Global Income Securities
Fund - Class 2, as tracked by the growth in value of a $10,000 investment, to
that of the J.P. Morgan Global Government Bond Index and the Consumer Price
Index from 1/1/90 -12/31/99.*
<TABLE>
<CAPTION>
Templeton Global J.P. Morgan Global Government CPI
Income Bond Index
Securities Fund
- Class 2
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,991 $9,851 1.03% $10,103
02/28/1990 $9,927 $9,744 0.47% $10,150
03/31/1990 $10,032 $9,685 0.55% $10,206
04/30/1990 $10,013 $9,647 0.16% $10,223
05/31/1990 $10,190 $9,955 0.23% $10,246
06/30/1990 $10,479 $10,135 0.54% $10,301
07/31/1990 $10,731 $10,433 0.38% $10,341
08/31/1990 $10,638 $10,352 0.92% $10,436
09/30/1990 $10,629 $10,449 0.84% $10,523
10/31/1990 $10,694 $10,861 0.60% $10,587
11/30/1990 $10,871 $11,053 0.22% $10,610
12/31/1990 $10,983 $11,176 0.00% $10,610
01/31/1991 $11,113 $11,429 0.60% $10,674
02/28/1991 $11,356 $11,440 0.15% $10,690
03/31/1991 $11,113 $11,083 0.15% $10,706
04/30/1991 $11,272 $11,217 0.15% $10,722
05/31/1991 $11,402 $11,226 0.30% $10,754
06/30/1991 $11,307 $11,076 0.29% $10,785
07/31/1991 $11,532 $11,311 0.15% $10,801
08/31/1991 $11,572 $11,546 0.29% $10,832
09/30/1991 $11,878 $11,967 0.44% $10,880
10/31/1991 $12,035 $12,085 0.15% $10,896
11/30/1991 $12,015 $12,282 0.29% $10,928
12/31/1991 $12,338 $12,902 0.07% $10,936
01/31/1992 $12,315 $12,649 0.15% $10,952
02/29/1992 $12,319 $12,613 0.36% $10,992
03/31/1992 $12,329 $12,496 0.51% $11,048
04/30/1992 $12,446 $12,600 0.14% $11,063
05/31/1992 $12,691 $12,958 0.14% $11,079
06/30/1992 $12,688 $13,311 0.36% $11,118
07/31/1992 $12,821 $13,605 0.21% $11,142
08/31/1992 $12,668 $13,967 0.28% $11,173
09/30/1992 $12,074 $13,953 0.28% $11,204
10/31/1992 $12,330 $13,605 0.35% $11,243
11/30/1992 $12,125 $13,363 0.14% $11,259
12/31/1992 $12,289 $13,490 -0.07% $11,251
01/31/1993 $12,381 $13,718 0.49% $11,306
02/28/1993 $12,565 $13,939 0.35% $11,346
03/31/1993 $12,944 $14,154 0.35% $11,386
04/30/1993 $13,334 $14,411 0.28% $11,418
05/31/1993 $13,549 $14,503 0.14% $11,434
06/30/1993 $13,520 $14,515 0.14% $11,450
07/31/1993 $13,563 $14,521 0.00% $11,450
08/31/1993 $13,865 $14,951 0.28% $11,482
09/30/1993 $13,822 $15,109 0.21% $11,506
10/31/1993 $14,145 $15,101 0.41% $11,553
11/30/1993 $13,865 $14,991 0.07% $11,561
12/31/1993 $14,339 $15,144 0.00% $11,561
01/31/1994 $14,608 $15,287 0.27% $11,592
02/28/1994 $14,275 $15,119 0.34% $11,632
03/31/1994 $13,844 $15,050 0.34% $11,671
04/30/1994 $13,833 $15,038 0.14% $11,688
05/31/1994 $13,887 $14,914 0.07% $11,696
06/30/1994 $13,332 $15,091 0.34% $11,736
07/31/1994 $13,544 $15,233 0.27% $11,767
08/31/1994 $13,656 $15,194 0.40% $11,814
09/30/1994 $13,645 $15,269 0.27% $11,846
10/31/1994 $13,725 $15,497 0.07% $11,854
11/30/1994 $13,725 $15,302 0.13% $11,870
12/31/1994 $13,624 $15,338 0.00% $11,870
01/31/1995 $13,535 $15,648 0.40% $11,917
02/28/1995 $13,747 $16,051 0.40% $11,965
03/31/1995 $13,993 $16,868 0.33% $12,005
04/30/1995 $14,306 $17,137 0.33% $12,044
05/31/1995 $14,652 $17,615 0.20% $12,068
06/30/1995 $14,718 $17,725 0.20% $12,092
07/31/1995 $14,811 $17,809 0.00% $12,092
08/31/1995 $14,625 $17,314 0.26% $12,124
09/30/1995 $14,950 $17,704 0.20% $12,148
10/31/1995 $15,194 $17,877 0.33% $12,188
11/30/1995 $15,322 $18,076 -0.07% $12,180
12/31/1995 $15,624 $18,300 -0.07% $12,171
01/31/1996 $15,554 $18,112 0.59% $12,243
02/29/1996 $15,368 $18,007 0.32% $12,282
03/31/1996 $15,415 $17,979 0.52% $12,346
04/30/1996 $15,531 $17,913 0.39% $12,394
05/31/1996 $15,612 $17,931 0.19% $12,418
06/30/1996 $15,822 $18,088 0.06% $12,425
07/31/1996 $15,885 $18,420 0.19% $12,449
08/31/1996 $16,086 $18,497 0.19% $12,472
09/30/1996 $16,338 $18,599 0.32% $12,512
10/31/1996 $16,665 $18,968 0.32% $12,552
11/30/1996 $17,067 $19,239 0.19% $12,576
12/31/1996 $17,130 $19,105 0.00% $12,576
01/31/1997 $16,916 $18,627 0.32% $12,616
02/28/1997 $16,841 $18,498 0.31% $12,655
03/31/1997 $16,778 $18,358 0.25% $12,687
04/30/1997 $16,866 $18,254 0.12% $12,702
05/31/1997 $17,004 $18,685 -0.06% $12,695
06/30/1997 $17,188 $18,897 0.12% $12,710
07/31/1997 $17,310 $18,828 0.12% $12,725
08/31/1997 $17,256 $18,805 0.19% $12,749
09/30/1997 $17,581 $19,222 0.25% $12,781
10/31/1997 $17,364 $19,630 0.25% $12,813
11/30/1997 $17,432 $19,394 -0.06% $12,806
12/31/1997 $17,554 $19,373 -0.12% $12,790
01/31/1998 $17,757 $19,567 0.19% $12,814
02/28/1998 $17,933 $19,712 0.19% $12,839
03/31/1998 $18,014 $19,564 0.19% $12,863
04/30/1998 $18,055 $19,865 0.18% $12,886
05/31/1998 $18,028 $19,951 0.18% $12,910
06/30/1998 $18,023 $20,006 0.12% $12,925
07/31/1998 $18,067 $20,061 0.12% $12,941
08/31/1998 $17,293 $20,615 0.12% $12,956
09/30/1998 $18,213 $21,691 0.12% $12,972
10/31/1998 $18,593 $22,177 0.24% $13,003
11/30/1998 $18,753 $21,927 0.00% $13,003
12/31/1998 $18,797 $22,340 -0.06% $12,995
01/31/1999 $18,841 $22,156 0.24% $13,026
02/28/1999 $18,155 $21,416 0.12% $13,042
03/31/1999 $18,272 $21,469 0.30% $13,081
04/30/1999 $18,374 $21,463 0.73% $13,176
05/31/1999 $17,979 $21,086 0.00% $13,176
06/30/1999 $17,788 $20,733 0.00% $13,176
07/31/1999 $17,868 $21,188 0.30% $13,216
08/31/1999 $17,683 $21,243 0.24% $13,248
09/30/1999 $17,806 $21,549 0.48% $13,311
10/31/1999 $17,728 $21,522 0.18% $13,335
11/30/1999 $17,542 $21,266 0.06% $13,343
12/31/1999 $17,652 $21,205 0.00% $13,343
</TABLE>
*Standardized fund performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on January 6, 1999,
historical results of Class 1 shares; and (b) for periods after January 6, 1999,
Class 2's results reflecting an additional 12b-1 fee expense, which also affects
all future performance.
For an explanation of performance calculations, please see page 62.
Average Annual Total Return - Class 2*
<TABLE>
<S> <C>
1-Year -6.09%
5-Year +5.32%
10-Year +5.85%
Since Inception (1/24/89) +6.19%
</TABLE>
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
FRANKLIN MONEY MARKET FUND
During the year under review, the domestic economy expanded at a very strong
pace. Real gross domestic product (GDP) growth for the first three quarters of
the portfolio's fiscal year averaged 3.8%, and most projections for the final
quarter ended in December were also well above the Federal Reserve Board's (the
Fed's) long-term target of 3.0%. Increasing wages, tight labor markets and
higher equity and real estate prices apparently helped spur consumer spending
during the period. A manufacturing sector rebound and an improving international
environment also contributed to the stronger economy.
The combination of robust domestic and overseas growth caused the inflation rate
to increase during the period. Inflation as measured by the change in the
Consumer Price Index (CPI) rose from 1.7% in January to 2.7% in December.
Probably in response to the strong growth and higher inflation, the Fed
increased the federal funds target rate 0.75% between June and November,
bringing the rate from 4.75% to 5.50%. In turn, bond prices fell but their
yields rose, a positive outcome for money market investors.
Robust domestic demand coupled with stronger international economies and the
potential for higher inflation will likely keep the Fed on alert for further
tightening. Despite three short-term interest rate increases engineered by the
Fed, the U.S. economy showed no signs of weakening as it entered the new
millennium. Until the economy begins to slow, more Fed tightening is possible.
TOP 10 HOLDINGS
Franklin Money Market Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
SECURITY NAME NET ASSETS
- ------------- ----------
<S> <C>
U.S. Treasury Repo 9.9%
Federal Home Loan
Mortgage Corp. 6.7%
Bank of Montreal,
Chicago Branch 4.0%
General Mills 4.0%
Bellsouth
Telecommunications Inc. 4.0%
Walt Disney Co. 4.0%
Chevron U.K
Investment PLC 4.0%
Morgan Stanley
Dean Witter & Co. 4.0%
Minnesota Mining &
Manufacturing Co. 4.0%
General Electric Capital Corp. 4.0%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 65.
63
<PAGE>
We continue to invest the portfolio's assets in only the highest quality money
market securities. For example, at the end of the reporting period more than 75%
of the portfolio's positions carried long-term credit ratings of AA or higher by
Standard & Poor's and Moody's, two independent credit rating agencies, with the
balance rated A. Consistent with the portfolio's objective of providing
shareholders with a higher quality and conservative investment vehicle, we do
not invest the portfolio's cash in derivatives or other potentially volatile
securities that we believe involve undue risk.
64
<PAGE>
IMPORTANT ENDNOTES TO
PERFORMANCE INFORMATION
Total return of the portfolio is the percentage change in value of a
hypothetical $10,000 investment over the indicated periods and includes
reinvestment of dividends and capital gains. Inception dates of the portfolios
may have preceded the effective dates of the subaccounts, contracts, or their
availability in all states. Performance data is historical and cannot predict or
guarantee future results. Principal value and investment return will fluctuate
with market conditions, and you may have a gain or loss when you withdraw your
money.
When reviewing the index comparisons, please keep in mind that indexes have a
number of inherent performance differentials over the portfolios. First, unlike
the portfolios, which must hold a minimum amount of cash to maintain liquidity,
indexes do not have a cash component. Second, the portfolios are actively
managed and, thus, are subject to management fees to cover salaries of
securities analysts or portfolio managers in addition to other expenses. Indexes
are unmanaged and do not include any commissions or other expenses typically
associated with investing in securities. Third, indexes often contain a
different mix of securities than the portfolio to which they are compared.
Additionally, please remember that indexes are simply a measure of performance
and cannot be invested in directly.
65
<PAGE>
REPORT OF SPECIAL MEETINGS OF SHAREHOLDERS
At Special Meetings on February 8, 2000, the shareholders of Franklin Small Cap,
Templeton Developing Markets Equity, Templeton Global Asset Allocation, and
Templeton International Equity Funds, each a series of Franklin Templeton
Variable Insurance Products Trust (VIP), approved new investment advisory
agreements, and changes to, and elimination of, certain of the fundamental
investment restrictions, to be effective as of May 1, 2000.
In addition, shareholders of Franklin Rising Dividends Securities Fund, a series
of VIP, approved a modification of the fund's current criteria for the selection
of portfolio companies related to debt as part of the issuer's capital
structure, and changes to, and elimination of, certain of the fund's other
fundamental investment restrictions, to be effective as of May 1, 2000.
The VIP Board of Trustees approved name changes for several of the VIP funds
which will also take effect, as of May 1, 2000.
<TABLE>
<CAPTION>
YOUR CURRENT VIP FUND NAME NEW VIP FUND NAME AS OF MAY 1, 2000
- -------------------------- -----------------------------------
<S> <C>
Templeton Global Asset Allocation Fund Templeton Asset Strategy Fund
Templeton Developing Markets Equity Fund Templeton Developing Markets Securities Fund
Templeton International Equity Fund Templeton International Securities Fund
Templeton Pacific Growth Fund Templeton Pacific Growth Securities Fund
</TABLE>
At the Special Meeting of Shareholders of the Franklin Rising Dividends
Securities Fund, a series of Franklin Templeton Variable Insurance Products
Trust (VIP), held on February 8, 2000, shareholders voted as follows:
1. Regarding the approval of a modification of the Fund's current criteria for
the selection of portfolio companies related to debt as part of the issuer's
capital structure:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ------ ------------- -----
<S> <C> <C> <C> <C> <C> <C>
34,642,325.865 31,187,926.239 90.028% 1,310,140.114 3.782% 2,144,259.512 6.190%
</TABLE>
66
<PAGE>
2. Regarding the approval of changes in the following fundamental investments
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(a)Borrowing 34,642,325.865 30,364,960.448 87.653% 2,004,812.041 5.787% 2,272,553.376 6.560%
(b)Underwriting 34,642,325.865 30,937,738.640 89.306% 1,351,902.686 3.903% 2,352,684.539 6.791%
(c)Lending 34,642,325.865 30,627,603.069 88.411% 1,665,004.505 4.806% 2,349,718.291 6.783%
(d)Real Estate and
Commodities 34,642,325.865 30,491,288.755 88.017% 1,824,505.657 5.267% 2,326,531.453 6.716%
(e)Senior Securities 34,642,325.865 30,790,380.970 88.881% 1,583,482.434 4.571% 2,268,462.461 6.548%
(f)Concentration 34,642,325.865 30,873,386.121 89.120% 1,467,482.510 4.237% 2,301,457.234 6.643%
(g)Diversification 34,642,325.865 31,270,378.920 90.266% 1,130,744.766 3.264% 2,241,202.179 6.470%
</TABLE>
3. Regarding the approval to eliminate certain fundamental investment
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
34,642,325.865 31,018,266.640 89.539% 1,407,621.475 4.063% 2,216,437.750 6.398%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
At the Special Meeting of Shareholders of the Franklin Small Cap Fund, a series
of Franklin Templeton Variable Insurance Products Trust (VIP), held on February
8, 2000, shareholders voted as follows:
1. Regarding the approval of a new investment advisory agreement:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
18,422,356.898 15,924,198.742 86.440% 1,460,550.545 7.928% 1,037,607.611 5.632%
</TABLE>
67
<PAGE>
2. Regarding the approval of changes in the following fundamental investments
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(a)Diversification 18,422,356.898 16,477,970.342 89.446% 913,778.609 4.960% 1,030,607.947 5.594%
(b)Borrowing 18,422,356.898 15,584,213.385 84.594% 1,689,334.485 9.170% 1,148,809.028 6.236%
(c)Lending 18,422,356.898 15,851,672.166 86.046% 1,428,899.473 7.756% 1,141,785.259 6.198%
(d)Underwriting 18,422,356.898 16,015,154.413 86.933% 1,206,200.983 6.548% 1,201,001.502 6.519%
(e)Concentration 18,422,356.898 15,978,912.676 86.737% 1,254,405.961 6.809% 1,189,038.261 6.454%
(f)Senior Securities 18,422,356.898 16,012,931.423 86.921% 1,247,669.028 6.773% 1,161,756.447 6.306%
(g)Real Estate and
Commodities 18,422,356.898 15,872,028.601 86.156% 1,405,639.367 7.630% 1,144,688.930 6.214%
</TABLE>
3. Regarding the approval to eliminate certain fundamental investment
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
18,422,356.898 16,089,736.890 87.338% 1,231,178.818 6.683% 1,101,441.190 5.979%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
At the Special Meeting of Shareholders of the Templeton Developing Markets
Equity (Developing Markets), Templeton Global Asset Allocation (Global Asset
Allocation), and Templeton International Equity Funds (International), each a
series of Franklin Templeton Variable Insurance Products Trust (VIP), held on
February 8, 2000, shareholders voted as follows:
1. Regarding the approval of a new investment advisory agreement:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,643,113.339 91.093% 316,569.083 1.732% 1,310,869.326 7.175%
Global Asset
Allocation 5,290,722.024 4,876,674.848 92.174% 96,681.269 1.827% 317,365.907 5.999%
International 44,149,844.645 40,368,795.570 91.436% 824,499.311 1.867% 2,956,549.764 6.697%
</TABLE>
68
<PAGE>
2. Regarding the approval of changes in the following fundamental investments
restrictions:
(a) Diversification
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,710,277.009 91.460% 251,266.325 1.375% 1,309,008.414 7.165%
Global Asset
Allocation 5,290,722.024 4,655,162.142 87.987% 95,308.429 1.802% 540,251.453 10.211%
International 44,149,844.645 40,132,799.935 90.901% 748,361.204 1.695% 3,268,683.506 7.404%
</TABLE>
(b) Borrowing
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,028,768.210 87.730% 773,840.545 4.236% 1,467,942.993 8.034%
Global Asset
Allocation 5,290,722.024 4,475,809.527 84.597% 256,928.404 4.857% 557,984.093 10.546%
International 44,149,844.645 37,918,778.113 85.887% 2,465,639.919 5.584% 3,765,426.613 8.529%
</TABLE>
(c) Lending
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,248,486.259 88.933% 558,650.236 3.057% 1,463,415.253 8.010%
Global Asset
Allocation 5,290,722.024 4,515,526.810 85.348% 209,939.770 3.968% 565,255.444 10.684%
International 44,149,844.645 38,527,292.561 87.265% 1,884,118.568 4.267% 3,738,433.516 8.468%
</TABLE>
(d) Underwriting
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,284,157.533 89.128% 523,157.546 2.863% 1,463,236.669 8.009%
Global Asset
Allocation 5,290,722.024 4,602,118.027 86.985% 114,619.431 2.166% 573,984.566 10.849%
International 44,149,844.645 39,034,888.689 88.415% 1,426,651.417 3.231% 3,688,304.539 8.354%
</TABLE>
69
<PAGE>
(e) Concentration
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,426,194.875 89.905% 393,199.573 2.152% 1,451,157.300 7.943%
Global Asset
Allocation 5,290,722.024 4,558,580.736 86.162% 131,923.214 2.493% 600,218.074 11.345%
International 44,149,844.645 39,112,258.974 88.590% 1,309,365.688 2.966% 3,728,219.983 8.444%
</TABLE>
(f) Senior Securities
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,409,980.428 89.817% 410,401.607 2.246% 1,450,169.713 7.937%
Global Asset
Allocation 5,290,722.024 4,581,468.769 86.594% 137,363.380 2.597% 571,889.875 10.809%
International 44,149,844.645 39,288,852.525 88.990% 1,276,504.755 2.891% 3,584,487.365 8.119%
</TABLE>
(g) Real Estate and Commodities
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,207,115.077 88.706% 622,804.971 3.409% 1,440,631.700 7.885%
Global Asset
Allocation 5,290,722.024 4,520,220.922 85.437% 185,790.635 3.511% 584,710.467 11.052%
International 44,149,844.645 38,784,297.831 87.847% 1,607,358.554 3.641% 3,758,188.260 8.512%
</TABLE>
3. Regarding the approval to eliminate certain fundamental investment
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
-------------- -------------- ------ ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,271,220.422 89.057% 527,502.539 2.887% 1,471,828.787 8.056%
Global Asset
Allocation 5,290,722.024 4,582,110.985 86.607% 178,528.088 3.374% 530,082.951 10.019%
International 44,149,844.645 38,965,505.675 88.257% 1,740,541.099 3.943% 3,443,797.871 7.800%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
70
<PAGE>
INDEX DEFINITIONS
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
CONSUMER PRICE INDEX Measure of the average change in prices for a
fixed basket of goods and services regularly
bought by consumers in the United States,
published by the Bureau of Labor Statistics.
CREDIT SUISSE FIRST BOSTON The index is an unmanaged, trader-priced portfolio
GLOBAL HIGH YIELD constructed to mirror the high yield debt
(CSFB HY) INDEX market. The index has several modules representing
different sectors of the high yield market
including a cash paying module, a zerofix module,
a pay-in-kind module, and a defaulted module. The
modular nature of the index allows customization
of data to meet client needs. The index is divided
into other categories including industry, rating,
seniority, liquidity, market value, security price
range, yield range and other sector divisions. The
CSFB HY Index follows a total of 250 sectors. CS
First Boston has maintained the index since
January 1986. While the index is priced and run
weekly, monthly returns are typically used for
performance attribution.
FINANCIAL TIMES/ Franklin Templeton customizes this index using 50%
S&P ACTUARIES WORLD of the Financial Times/S&P Actuaries World Energy
(ENERGY 50%/ Index and 50% of the Financial Times/S&P Actuaries
BASIC INDUSTRIES 50%) World Basic Industries Index. Both indexes are
COMPOSITE INDEX compiled by the Financial Times, Goldman Sachs &
Franklin Templeton Co. and Wood Mackenzie & Co., Ltd. in conjunction
customizes this index. with the Institute of Actuaries and the Faculty of
Actuaries. The index includes electric utilities,
waterworks supply and telephone utilities. The
indexes are weighted arithmetic averages of the
market prices of the elements that make them up.
They also adjust for the intervening price changes
of these elements.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
FINANCIAL TIMES/ This index is compiled by the Financial Times,
S&P ACTUARIES WORLD Goldman Sachs & Co. and Wood Mackenzie & Co., Ltd.
UTILITIES INDEX in conjunction with the Institute of Actuaries
and the Faculty of Actuaries. The utilities sector
includes electric utilities, waterworks supply,
natural gas utilities and telephone companies.
The indexes are weighted arithmetic averages of
the market prices of the elements that make them
up. They also adjust for the intervening price
changes of these elements. This is a total return
index in $U.S.
INTERNATIONAL FINANCE The index tracks the emerging stock markets of
CORPORATION'S (IFC) three world regions based on market capitalization
INVESTABLE COMPOSITE INDEX weighting. Those regions are Latin America, Asia
and Europe/Mideast/Africa. As of November 1999,
the regional weights of the IFC Composite Index
were distributed accordingly: Asia, 43.5%; Latin
America, 24.9%; and Europe/Mideast/Africa, 31.6%.
J.P. MORGAN GLOBAL GOVERNMENT The index comprises 13 markets, including
BOND INDEX (UNHEDGED) Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, Netherlands, Spain, Sweden,
the U.K. and the U.S. Each country's weight is
determined by the total market capitalization in
$U.S. of all the bonds in that country's traded
index. The J.P. Morgan Global Government Bond
Total Return Index includes only actively traded,
fixed-rate bonds with a remaining maturity of one
year or longer. The index is unhedged and
expressed in terms of $U.S.
LEHMAN BROTHERS The index includes securities in the Lehman
GOVERNMENT/CORPORATE Brothers Government and Corporate indexes. These
BOND INDEX securities must have at least $100 million par
amount outstanding and must be rated investment
grade (Baa3 or better) by Moody's Investors
Service. If a Moody's rating is not available, the
Standard & Poor's or Fitch rating is used. These
must be fixed-rate securities, although they can
carry a coupon that steps up or changes according
to a predetermined schedule, and they must be
dollar-denominated and non-convertible.
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
LEHMAN BROTHERS This index includes securities issued by the U.S.
INTERMEDIATE GOVERNMENT government or its agencies with maturities from
BOND INDEX one up to, but not including, 10 years. These
securities must have at least $100 million par
amount outstanding and must be rated investment
grade (Baa3 or better) by Moody's Investors
Service. If a Moody's rating is not available, the
Standard & Poor's or Fitch rating is used. These
must be fixed-rate securities, although they can
carry a coupon that steps up or changes according
to a predetermined schedule, and they must be
dollar-denominated and non-convertible.
LIPPER GROWTH & INCOME This is an equally weighted average calculation of
FUNDS OBJECTIVE AVERAGE performance figures for all funds within the
Lipper Growth and Income Funds Objective Category,
which is defined as all mutual funds that combine
a growth of earnings orientation and an income
requirement for level and/or rising dividends. As
of September 23, 1998, there were 30 funds in this
category.
LIPPER INCOME FUNDS This is an equally weighted average calculation of
OBJECTIVE AVERAGE performance figures for all funds within the
Lipper Income Funds Objective Category, which is
defined as all mutual funds that normally seek a
high level of current income through investing in
income-producing stocks, bonds, and money market
instruments. As of September 23, 1998, there were
10 funds in this category.
MERRILL LYNCH TREASURY The indexes include zero coupon bonds that pay no
ZERO COUPON 1-, 5-, 10-, interest and are issued at a discount from
20-YEAR BOND redemption price.
TOTAL RETURN INDEXES
MORGAN STANLEY CAPITAL This index represents both developed and emerging
INTERNATIONAL (MSCI) markets around the world. "Free" in the title
ALL COUNTRIES - WORLD reflects the actual buying opportunities for
FREE INDEX global investors by taking into account local
market restrictions on share ownership by
foreigners. The MSCI indexes define the local
market for each country by constructing a matrix
of all listed securities, sorting the matrix by
industry, and seeking to capture 60% of the market
capitalization for each group by selecting the
most investable stocks in each industry. The index
applies full market capitalization weights to each
included stock.
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
MORGAN STANLEY CAPITAL The index comprises 48 countries around the world,
INTERNATIONAL (MSCI) both developed and emerging markets, except the U.
ALL COUNTRIES - WORLD S. "Free" in the title reflects the actual buying
EX-U.S. FREE INDEX opportunities for global investors by taking into
account local market restrictions on share
ownership by foreigners. The MSCI indexes define
the local market for each country by constructing
a matrix of all listed securities, sorting the
matrix by industry, and seeking to capture 60% of
the market capitalization for each group by
selecting the most investable stocks in each
industry. The index applies full market
capitalization weights to each included stock.
MORGAN STANLEY CAPITAL This index represents 20 developed market
INTERNATIONAL (MSCI) countries for Europe, Australasia and the Far
EUROPE, AUSTRALASIA, East: Australia, Austria, Belgium, Denmark,
FAR EAST (EAFE) INDEX Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the U. K. The MSCI indexes define
the local market for each country by constructing
a matrix of all listed securities, sort the matrix
by industry, and seek to capture 60% of the market
capitalization for each group by selecting the
most investable stocks in each industry. The index
applies full market capitalization weights to each
included stock.
MORGAN STANLEY CAPITAL This is a market capitalization-weighted equity
INTERNATIONAL (MSCI) index comprising 26 of the 48 countries in the
EMERGING MARKETS FREE INDEX MSCI universe. "Free" denotes investment
opportunities in the developing world available to
foreign investors. EMF performance data is
calculated in $US and local currency. The MSCI
indexes define the local market for each country
by constructing a matrix of all listed securities,
sorting the matrix by industry, and seeking to
capture 60% of the market cap for each group by
selecting the most investable stocks in each
industry. The index applies full market cap
weights to each included stock.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
MORGAN STANLEY CAPITAL The index comprises five developed market
INTERNATIONAL (MSCI) countries or regions in the Pacific: Australia,
PACIFIC INDEX Hong Kong, Japan, New Zealand and Singapore. The
MSCI indexes define the local market for each
country by constructing a matrix of all listed
securities, sorting the matrix by industry, and
seeking to capture 60% of the market
capitalization for each group by selecting the
most investable stocks in each industry. The index
applies full market capitalization weights to each
included stock.
MORGAN STANLEY CAPITAL The index comprises the developed markets of 22
INTERNATIONAL (MSCI) countries around the world. The MSCI indexes
WORLD INDEX define the local market for each country by
constructing a matrix of all listed securities,
sorting the matrix by industry, and seeking to
capture 60% of the market cap for each group by
selecting the most investable stocks in each
industry. The index applies full market cap
weights to each included stock.
RUSSELL MIDCAP VALUE INDEX This index measures the performance of those
Russell Midcap companies with lower price-to-book
ratios and lower forecasted growth values. The
stocks are also members of the Russell 1000 Value
index.
RUSSELL 1000(R) INDEX Published by Frank Russell Company, the index
measures the performance of the 1000 largest
companies in the Russell 3000 Index, representing
92% of the market capitalization of the Russell
3000. The Russell 3000 contains the 3000 largest
companies incorporated in the U.S. and its
territories. As of the latest reconstitution, the
average market capitalization of the companies in
the Russell 1000 was approximately $12.1 billion;
the median market capitalization was approximately
$3.8 billion. The smallest company in the index
had an approximate market capitalization of
$1,350.8 million.
RUSSELL 2000 INDEX The index measures the performance of the 2,000
smallest companies in the Russell 3000 Index,
which represents approximately 8% of the total
market capitalization of the Russell 3000 Index.
As of the latest reconstitution, the average
market capitalization was approximately $526.4
million; the median market capitalization was
approximately $428.0 million. The largest company
in the index had an approximate market
capitalization of $1,349.8 million.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
RUSSELL 2000 GROWTH INDEX This index measures the performance of those
Russell 2000 companies with higher price-to-book
ratios and higher forecasted growth values.
RUSSELL 2000 VALUE INDEX This index measures the performance of those
Russell 2000 companies with lower price-to-book
ratios and lower forecasted growth values.
RUSSELL 2500 INDEX Published by Frank Russell Company, the index
measures the performance of the 2,500 smallest
companies in the Russell 3000 Index, representing
approximately 23% of the total market
capitalization of the companies in the Russell
3000. The Russell 3000 contains the 3000 largest
companies incorporated in the U.S. and its
territories. As of the latest reconstitution, the
average market capitalization of the Russell 2500
was approximately $876.2 million; the median
market capitalization was approximately $553.5
million. The largest company in the index had an
approximate market capitalization of $3.8 billion.
RUSSELL 3000 VALUE INDEX The index measures the performance of those
Russell 3000 Index companies with lower
price-to-book ratios and lower forecasted growth
values. The stocks in this index are also members
of either the Russell 1000 Value or the Russell
2000 Value indexes.
SALOMON GLOBAL EX-U.S. This is a total-capitalization weighted index that
LESS THAN $1 BILLION INDEX includes all developed and emerging countries,
except the U.S., and includes companies with a
total market capitalization below U.S. $1 billion.
STANDARD & POOR'S 500 The S&P 500 consists of 500 widely held domestic
(S&P 500) common stocks, consisting of four broad sectors:
industrials, utilities, financials and
transportation. It is a market value-weighted
index, where the stock price is multiplied by the
number of shares outstanding, with each stock
affecting the index in proportion to its market
value. This index, calculated by Standard &
Poor's, is a total return index with dividends
reinvested.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
STANDARD & POOR'S 500 This is a capitalization-weighted index of all of
HEALTH CARE COMPOSITE INDEX the stocks in the Standard & Poor's 500 that are
involved in the business of health care related
products or services. The index was developed with
a base of 100 as of January 14, 1987.
WILSHIRE MIDCAP COMPANY This index overlaps the top 750 and the next 1,750
GROWTH INDEX of Wilshire Asset Management's Wilshire 2500
universe (the top 2,500 companies and 99% of the
market capitalization of the Wilshire 5000).
Wilshire includes companies that have market
capitalizations ranging from $645 million to $4.3
billion.
WILSHIRE REAL ESTATE This is a market capitalization-weighted index of
SECURITIES INDEX publicly traded real estate securities, such as
real estate investment trusts (REITs), Real Estate
Operating Companies (REOCs) and partnerships. The
index is composed of companies whose charter is
the equity ownership and operation of commercial
real estate. The index rebalances monthly and
returns are calculated on a buy-and-hold basis.
WILSHIRE SMALL COMPANY The index is created by screening the bottom 1,750
VALUE INDEX large companies of Wilshire Asset Management's
Wilshire 2500 universe (the top companies and 99%
of the market capitalization of the Wilshire
5000). These companies have market capitalizations
ranging from $190 million to $1.9 billion.
Wilshire excludes companies with high
price/earnings ratios, low yields, or high
price/book ratios.
</TABLE>
77
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-------------------------------------------------------------------------------------------------------------------
NET NET NET DISTRI-
ASSET INVEST- REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, MENT UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
YEAR BEGINNING INCOME GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF YEAR (LOSS) (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
Class 1
1995 $ 14.42 $ .84 $ 3.54 $ 4.38 $ (.90) $-- $ (.90) $ 17.90
1996 17.90 .91 .29 1.20 (.92) -- (.92) 18.18
1997 18.18 .90 3.54 4.44 (.96) (1.33) (2.29) 20.33
1998 20.33 .76 1.41 2.17 (.83) (1.22) (2.05) 20.45
1999(7) 20.45 .37 6.91 7.28 (.84) (2.03) (2.87) 24.86
Class 2
1999(6),(7) 21.02 .26 6.37 6.63 (.84) (2.03) (2.87) 24.78
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(5) 10.00 .03 .68 .71 -- -- -- 10.71
1999(7) 10.71 .01 (.88) (.87) (.02) -- (.02) 9.82
Class 2
1999(6),(7) 10.77 (.03) (.93) (.96) (.02) -- (.02) 9.79
FRANKLIN GROWTH AND INCOME FUND
Class 1
1995 13.42 .41 3.92 4.33 (.20) (.41) (.61) 17.14
1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85) 17.55
1997 17.55 .67 4.05 4.72 (.64) (.62) (1.26) 21.01
1998 21.01 .69 .99 1.68 (.69) (1.64) (2.33) 20.36
1999(7) 20.36 .57 (.16) .41 (.79) (2.20) (2.99) 17.78
Class 2
1999(6),(7) 20.71 .47 (.46) .01 (.79) (2.20) (2.99) 17.73
FRANKLIN HIGH INCOME FUND
Class 1
1995 12.21 1.06 1.30 2.36 (.91) -- (.91) 13.66
1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26) 14.16
1997 14.16 1.33 .22 1.55 (1.22) (.04) (1.26) 14.45
1998 14.45 1.43 (1.25) .18 (1.27) (.08) (1.35) 13.28
1999(7) 13.28 1.24 (1.19) .05 (3.03) (.44) (3.47) 9.86
Class 2
1999(6),(7) 13.36 1.11 (1.18) (.07) (3.02) (.44) (3.46) 9.83
FRANKLIN INCOME SECURITIES FUND
Class 1
1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96) 16.47
1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02) 17.21
1997 17.21 1.40 1.38 2.78 (1.33) (.29) (1.62) 18.37
1998 18.37 1.37 (1.07) .30 (1.42) (.33) (1.75) 16.92
1999(7) 16.92 1.19 (1.43) (.24) (1.46) (.53) (1.99) 14.69
Class 2
1999(6),(7) 17.07 1.10 (1.53) (.43) (1.46) (.53) (1.99) 14.65
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME (LOSS) PORTFOLIO
YEAR TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN+ (000'S) NET ASSETS NET ASSETS RATE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
Class 1
1995 31.35% $1,423,446 .50% 5.14% 13.27%
1996 7.07 1,202,290 .50 4.20 29.69
1997 26.76 1,129,904 .50 3.91 17.00
1998 11.19 986,755 .50 3.15 33.85
1999(7) 39.42 987,011 .51 1.81 87.53
Class 2
1999(6),(7) 35.17 491 .77* 1.24* 87.53
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(5) 7.10 8,990 .84* .84* 40.80
1999(7) (8.10) 11,307 .82 .09 188.22
Class 2
1999(6),(7) (8.89) 83 1.07* (.30)* 188.22
FRANKLIN GROWTH AND INCOME FUND
Class 1
1995 32.83 889,487 .52 3.30 116.54
1996 14.19 1,077,989 .50 4.06 23.01
1997 27.74 1,338,476 .49 3.53 36.71
1998 8.33 1,318,743 .49 3.27 27.32
1999(7) 1.10 964,553 .49 2.94 39.80
Class 2
1999(6),(7) (.86) 789 .75* 2.55* 39.80
FRANKLIN HIGH INCOME FUND
Class 1
1995 19.76 360,904 .56 9.63 20.65
1996 13.90 446,096 .54 9.63 27.16
1997 11.47 496,036 .53 9.64 36.38
1998 .99 446,609 .53 9.96 41.71
1999(7) (.07) 314,131 .54 9.97 22.17
Class 2
1999(6),(7) (.96) 448 .80* 9.51* 22.17
FRANKLIN INCOME SECURITIES FUND
Class 1
1995 22.40 1,266,538 .51 8.05 33.14
1996 11.28 1,350,659 .50 7.96 15.28
1997 17.09 1,406,787 .50 7.53 14.68
1998 1.64 1,185,840 .49 6.94 12.22
1999(7) (1.82) 775,116 .50 7.41 11.89
Class 2
1999(6),(7) (2.93) 1,302 .75* 7.36* 11.89
</TABLE>
78
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
YEAR BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF YEAR INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF YEAR
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
Class 1
1996(3) $10.00 $ .03 $ 1.33 $ 1.36 $-- $-- $ -- $11.36
1997 11.36 .06 2.02 2.08 (.02) -- (.02) 13.42
1998 13.42 .10 2.62 2.72 (.06) -- (.06) 16.08
1999 16.08 .11 4.96 5.07 (.08) -- (.08) 21.07
Class 2
1999(6) 16.47 .04 4.58 4.62 (.08) -- (.08) 21.01
FRANKLIN MONEY MARKET FUND
Class 1
1995 1.00 .06 -- .06 (.06) -- (.06) 1.00
1996 1.00 .05 -- .05 (.05) -- (.05) 1.00
1997 1.00 .05 -- .05 (.05) -- (.05) 1.00
1998 1.00 .05 -- .05 (.05) -- (.05) 1.00
1999 1.00 .05 -- .05 (.05) -- (.05) 1.00
Class 2
1999(6) 1.00 .04 -- .04 (.04) -- (.04) 1.00
FRANKLIN NATURAL RESOURCES SECURITIES FUND
Class 1
1995 14.09 .22 .12 .34 (.20) (.15) (.35) 14.08
1996 14.08 .15 .44 .59 (.20) (.18) (.38) 14.29
1997 14.29 .15 (2.83) (2.68) (.20) -- (.20) 11.41
1998 11.41 .15 (3.02) (2.87) (.15) -- (.15) 8.39
1999(7) 8.39 .06 2.64 2.70 (.16) -- (.16) 10.93
Class 2
1999(6),(7) 8.70 .02 2.35 2.37 (.16) -- (.16) 10.91
FRANKLIN REAL ESTATE FUND
Class 1
1995 15.31 .78 1.83 2.61 (.52) -- (.52) 17.40
1996 17.40 .79 4.74 5.53 (.78) -- (.78) 22.15
1997 22.15 .72 3.72 4.44 (.67) (.32) (.99) 25.60
1998 25.60 1.45 (5.60) (4.15) (.94) (.58) (1.52) 19.93
1999(7) 19.93 .88 (1.77) (.89) (1.73) (2.39) (4.12) 14.92
Class 2
1999(6),(7) 20.21 1.29 (2.50) (1.21) (1.73) (2.39) (4.12) 14.88
FRANKLIN RISING DIVIDENDS FUND
Class 1
1995 9.97 .27 2.66 2.93 (.24) -- (.24) 12.66
1996 12.66 .25 2.77 3.02 (.28) -- (.28) 15.40
1997 15.40 .22 4.77 4.99 (.26) (.45) (.71) 19.68
1998 19.68 .23 1.07 1.30 (.22) (2.65) (2.87) 18.11
1999(7) 18.11 .22 (1.57) (1.35) (.29) (2.86) (3.15) 13.61
Class 2
1999(6),(7) 18.28 .17 (1.74) (1.57) (.29) (2.86) (3.15) 13.56
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
YEAR TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN+ (000'S) NET ASSETS NET ASSETS RATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
Class 1
1996(3) 13.60% $ 44,667 .77%* .96%* 3.91%
1997 18.31 109,355 .77 .72 19.90
1998 20.29 220,952 .77 1.00 12.17
1999 31.65 407,515 .77 .63 41.78
Class 2
1999(6) 28.11 542 1.02* .22* 41.78
FRANKLIN MONEY MARKET FUND
Class 1
1995 5.74 429,547 .408 5.58 --
1996 5.16 408,930 .438 5.04 --
1997 5.24 367,449 .458 5.11 --
1998 5.22 414,341 .458 5.08 --
1999 4.76 364,028 .53 4.64 --
Class 2
1999(6) 4.39 8,602 .79* 4.51* --
FRANKLIN NATURAL RESOURCES SECURITIES FUND
Class 1
1995 2.35 105,109 .66 1.40 15.66
1996 4.00 109,579 .65 1.00 21.77
1997 (18.98) 74,924 .69 1.00 85.22
1998 (25.38) 45,927 .64 1.21 64.68
1999(7) 32.25 42,861 .66 .64 51.19
Class 2
1999(6),(7) 27.30 68 .92* .23* 51.19
FRANKLIN REAL ESTATE FUND
Class 1
1995 17.53 213,473 .59 4.74 22.15
1996 32.82 322,721 .57 4.80 10.32
1997 20.70 440,554 .54 3.59 11.62
1998 (16.82) 282,290 .54 5.44 13.21
1999(7) (6.14) 158,553 .58 4.83 10.27
Class 2
1999(6),(7) (7.66) 2,449 .83* 8.84* 10.27
FRANKLIN RISING DIVIDENDS FUND
Class 1
1995 29.74 463,253 .78 2.72 18.72
1996 24.18 597,424 .76 1.96 27.97
1997 33.03 780,298 .74 1.24 37.04
1998 6.92 751,869 .72 1.20 26.44
1999(7) (9.70) 450,549 .75 1.35 5.32
Class 2
1999(6),(7) (10.84) 549 1.01* 1.15* 5.32
</TABLE>
79
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------------------------------------------
NET NET NET DISTRI-
ASSET INVEST- REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, MENT UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
YEAR BEGINNING INCOME GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF YEAR (LOSS) (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF YEAR
- -------------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND
Class 1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995(2) $10.00 $ .03 $ .21 $ .24 $ -- $ -- $ -- $10.24
1996 10.24 .02 2.95 2.97 (.01) -- (.01) 13.20
1997 13.20 .01 2.24 2.25 (.03) (.37) (.40) 15.05
1998 15.05 .07 (.20) (.13) (.01) (1.19) (1.20) 13.72
1999(7) 13.72 (.01) 13.25 13.24 (.08) (.01) (.09) 26.87
Class 2
1999(6),(7) 14.25 (.04) 12.68 12.64 (.08) (.01) (.09) 26.80
FRANKLIN U.S. GOVERNMENT FUND
Class 1
1995 12.57 .93 1.46 2.39 (.96) -- (.96) 14.00
1996 14.00 .75 (.31) .44 (.97) -- (.97) 13.47
1997 13.47 1.00 .21 1.21 (.76) -- (.76) 13.92
1998 13.92 .99 .01 1.00 (1.03) -- (1.03) 13.89
1999(7) 13.89 .83 (.96) (.13) (1.98) -- (1.98) 11.78
Class 2
1999(6),(7) 13.89 .77 (.92) (.15) (1.96) -- (1.96) 11.78
FRANKLIN VALUE SECURITIES FUND
Class 1
1998(5) 10.00 .02 (2.23) (2.21) -- -- -- 7.79
1999(7) 7.79 .05 .08 .13 (.02) -- (.02) 7.90
Class 2
1999(6),(7) 7.97 .05 (.12) (.07) (.02) -- (.02) 7.88
FRANKLIN ZERO COUPON FUND - 2000
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19
1997 15.19 1.15 (.12) 1.03 (1.06) (.02) (1.08) 15.14
1998 15.14 1.22 (.15) 1.07 (1.21) (.19) (1.40) 14.81
1999(7) 14.81 .98 (.55) .43 (2.33) (.34) (2.67) 12.57
FRANKLIN ZERO COUPON FUND - 2005
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38
1996 17.38 .96 (1.13) (.17) (.86) -- (.86) 16.35
1997 16.35 1.14 .63 1.77 (1.06) (.01) (1.07) 17.05
1998 17.05 1.01 1.03 2.04 (1.10) (.25) (1.35) 17.74
1999(7) 17.74 .98 (2.01) (1.03) (2.10) (.10) (2.20) 14.51
FRANKLIN ZERO COUPON FUND - 2010
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04
1996 18.04 1.02 (1.65) (.63) (.88) (.24) (1.12) 16.29
1997 16.29 1.02 1.54 2.56 (1.01) (.01) (1.02) 17.83
1998 17.83 1.09 1.39 2.48 (1.11) (.15) (1.26) 19.05
1999(7) 19.05 .99 (3.24) (2.25) (2.14) (.51) (2.65) 14.15
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME (LOSS) PORTFOLIO
YEAR TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN+ (000'S) NET ASSETS NET ASSETS RATE
- -------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND
Class 1
<S> <C> <C> <C> <C> <C>
1995(2) 2.30% $ 13,301 .90%* 2.70%* 16.04%
1996 28.95 170,969 .77 .63 63.72
1997 17.42 313,462 .77 .06 64.07
1998 (.98) 315,460 .77 .51 53.01
1999(7) 96.94 488,062 .77 (.05) 39.49
Class 2
1999(6),(7) 89.05 6,156 1.02* (.18)* 39.49
FRANKLIN U.S. GOVERNMENT FUND
Class 1
1995 19.46 643,165 .52 6.72 18.68**
1996 3.62 843,858 .51 6.66 12.93***
1997 9.31 765,084 .50 6.49 16.84
1998 7.44 710,832 .50 6.22 31.34
1999(7) (.94) 515,033 .51 6.25 7.90
Class 2
1999(6),(7) (1.10) 1,877 .77* 5.95* 7.90
FRANKLIN VALUE SECURITIES FUND
Class 1
1998(5) (22.10) 9,013 .83* .95* 22.79
1999(7) 1.65 11,320 .81 .65 61.23
Class 2
1999(6),(7) (.90) 1,263 1.06* .62* 61.23
FRANKLIN ZERO COUPON FUND - 2000
1995 20.67 137,357 .408 6.14 1.63
1996 2.43 129,601 .408 6.14 .58
1997 7.11 111,650 .408 6.47 6.16
1998 7.50 93,543 .408 6.67 17.70
1999(7) 3.07 70,918 .65 6.85 10.42
FRANKLIN ZERO COUPON FUND - 2005
1995 31.76 83,222 .408 6.19 1.72
1996 (.50) 82,603 .408 6.15 2.06
1997 11.37 77,296 .408 6.16 4.52
1998 12.53 84,487 .408 5.82 3.87
1999(7) (5.88) 65,895 .65 5.93 15.87
FRANKLIN ZERO COUPON FUND - 2010
1995 42.79 85,633 .408 6.41 31.45
1996 (2.69) 78,816 .408 6.24 16.10
1997 16.57 85,515 .408 6.21 12.20
1998 14.45 93,515 .408 5.55 15.92
1999(7) (12.24) 66,049 .65 5.83 19.30
</TABLE>
80
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------------------------------------------
NET NET NET DISTRI-
ASSET INVEST- REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, MENT UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
YEAR BEGINNING INCOME GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF YEAR (LOSS) (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF YEAR
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(4) $10.00 $ .02 $ .19 $ .21 $ -- $-- $ -- $10.21
1997 10.21 .13 1.84 1.97 (.01) -- (.01) 12.17
1998 12.17 .20 (.76) (.56) (.17) (.15) (.32) 11.29
1999(7) 11.29 .17 2.48 2.65 (.37) -- (.37) 13.57
Class 2
1999(6),(7) 11.65 .11 2.15 2.26 (.37) -- (.37) 13.54
MUTUAL SHARES SECURITIES FUND
Class 1
1996(4) 10.00 .02 .33 .35 -- -- -- 10.35
1997 10.35 .13 1.71 1.84 (.01) -- (.01) 12.18
1998 12.18 .28 (.25) .03 (.13) (.12) (.25) 11.96
1999(7) 11.96 .20 1.41 1.61 (.34) -- (.34) 13.23
Class 2
1999(6),(7) 12.36 .16 1.07 1.23 (.34) -- (.34) 13.25
TEMPLETON DEVELOPING MARKETS EQUITY FUND
Class 1
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59
1997 11.59 .18 (1.10) (.92) (.15) (.23) (.38) 10.29
1998 10.29 .20 (2.35) (2.15) (.29) (.94) (1.23) 6.91
1999(7) 6.91 .09 3.66 3.75 (.17) -- (.17) 10.49
Class 2
1999(6),(7) 7.22 .02 3.39 3.41 (.17) -- (.17) 10.46
TEMPLETON GLOBAL ASSET ALLOCATION FUND
Class 1
1995(1) 10.00 .18 .52 .70 (.18) -- (.18) 10.52
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59
1997 12.59 .42 1.04 1.46 (.26) (.07) (.33) 13.72
1998 13.72 .61 (.59) .02 (.49) (.58) (1.07) 12.67
1999(7) 12.67 .39 .53 .92 (.90) (.88) (1.78) 11.81
Class 2
1999(6),(7) 12.94 .32 .29 .61 (.88) (.88) (1.76) 11.79
TEMPLETON GLOBAL GROWTH FUND
Class 1
1995 10.48 .16 1.17 1.33 (.06) -- (.06) 11.75
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80
1997 13.80 .33 1.53 1.86 (.24) (.08) (.32) 15.34
1998 15.34 .35 .98 1.33 (.41) (1.49) (1.90) 14.77
1999(7) 14.77 .28 2.66 2.94 (.36) (1.72) (2.08) 15.63
Class 2
1999(6),(7) 15.34 .17 2.17 2.34 (.36) (1.72) (2.08) 15.60
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME (LOSS) PORTFOLIO
YEAR TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN+ (000'S) NET ASSETS NET ASSETS RATE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(4) 2.10% $ 15,418 1.37%* 2.11%* .14%
1997 19.25 198,653 1.06 1.19 55.93
1998 (5.00) 224,656 1.019 1.94 93.99
1999(7) 23.76 202,777 1.019 1.42 104.69
Class 2
1999(6),(7) 19.68 413 1.27* .94* 104.69
MUTUAL SHARES SECURITIES FUND
Class 1
1996(4) 3.50 27,677 1.00* 2.56* 1.31
1997 17.73 387,787 .80 2.10 49.01
1998 .09 482,444 .7910 2.60 70.19
1999(7) 13.40 448,278 .7910 1.59 80.02
Class 2
1999(6),(7) 9.91 5,716 1.04* 1.26* 80.02
TEMPLETON DEVELOPING MARKETS EQUITY FUND
Class 1
1995 2.77 158,084 1.41 2.01 19.96
1996 21.59 272,098 1.49 1.68 12.42
1997 (8.72) 279,680 1.42 1.57 20.59
1998 (21.61) 162,433 1.41 2.04 36.58
1999(7) 54.64 189,029 1.39 1.03 31.82
Class 2
1999(6),(7) 47.58 346 1.67* .18* 31.82
TEMPLETON GLOBAL ASSET ALLOCATION FUND
Class 1
1995(1) 7.01 14,729 .90* 3.84* 30.00
1996 19.84 56,274 .86 4.21 52.35
1997 11.71 93,402 .94 4.22 61.93
1998 (.04) 81,670 .84 4.32 59.03
1999(7) 7.53 61,588 .82 3.22 36.08
Class 2
1999(6),(7) 4.94 52 1.07* 2.73* 36.08
TEMPLETON GLOBAL GROWTH FUND
Class 1
1995 12.72 338,755 .97 2.46 30.92
1996 21.28 579,877 .93 2.20 12.32
1997 13.50 758,445 .88 2.49 24.81
1998 8.98 747,080 .88 2.27 32.30
1999(7) 21.04 708,310 .88 1.87 46.54
Class 2
1999(6),(7) 16.35 4,483 1.14* 1.17* 46.54
</TABLE>
81
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
YEAR BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END TOTAL
ENDED OF YEAR INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF YEAR RETURN+
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON GLOBAL INCOME SECURITIES FUND
Class 1
1995 $12.19 $ .29 $ 1.47 $1.76 $ (.49) $ -- $ (.49) $13.46 14.68%
1996 13.46 1.02 .17 1.19 (1.04) -- (1.04) 13.61 9.56
1997 13.61 1.05 (.73) .32 (.96) -- (.96) 12.97 2.55
1998 12.97 1.07 (.19) .88 (.98) -- (.98) 12.87 7.08
1999(7) 12.87 .68 (1.42) (.74) (1.06) -- (1.06) 11.07 (5.79)
Class 2
1999(6,7) 12.93 .60 (1.44) (.84) (1.05) -- (1.05) 11.04 (6.53)
TEMPLETON INTERNATIONAL EQUITY FUND
Class 1
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.59
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98
1997 15.45 .30 1.51 1.81 (.45) (.69) (1.14) 16.12 11.69
1998 16.12 .56 .42 .98 (.53) (1.05) (1.58) 15.52 5.56
1999(7) 15.52 .36 3.62 3.98 (1.03)(11) (.52) (1.55) 17.95 26.63
Class 2
1999(6,7) 16.24 .28 2.89 3.17 (.99)(11) (.52) (1.51) 17.90 20.45
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Class 1
1996(3) 10.00 .10 1.15 1.25 -- -- -- 11.25 12.50
1997 11.25 .23 (.39) (.16) (.07) -- (.07) 11.02 (1.50)
1998 11.02 .25 (1.52) (1.27) (.25) (.30) (.55) 9.20 (12.27)
1999(7) 9.20 .26 1.93 2.19 (.32) -- (.32) 11.07 23.90
Class 2
1999(6,7) 9.44 .13 1.82 1.95 (.32) -- (.32) 11.07 20.75
TEMPLETON PACIFIC GROWTH FUND
Class 1
1995 13.24 .33 .71 1.04 (.26) (.11) (.37) 13.91 7.97
1996 13.91 .21 1.34 1.55 (.44) (.26) (.70) 14.76 11.10
1997 14.76 .29 (5.49) (5.20) (.28) -- (.28) 9.28 (35.95)
1998 9.28 .21 (1.52) (1.31) (.35) (.11) (.46) 7.51 (13.13)
1999(7) 7.51 .08 2.70 2.78 (.10) -- (.10) 10.19 37.02
Class 2
1999(6,7) 7.63 .06 2.59 2.65 (.08) -- (.08) 10.20 34.74
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
YEAR OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (000'S) NET ASSETS NET ASSETS RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPLETON GLOBAL INCOME SECURITIES FUND
Class 1
1995 $ $243,194 .64% 7.59% 152.89%
1996 221,722 .61 7.30 140.96
1997 185,016 .62 7.03 181.61
1998 150,941 .63 6.86 84.17
1999(7) 90,537 .65 5.65 80.76
Class 2
1999(6,7) 443 .91* 5.36* 80.76
TEMPLETON INTERNATIONAL EQUITY FUND
Class 1
1995 850,117 .92 2.87 16.42
1996 1,108,099 .89 3.07 27.52
1997 1,161,430 .89 3.01 26.96
1998 955,900 .88 2.90 5.98
1999(7) 777,037 .90 2.21 33.74
Class 2
1999(6,7) 3,232 1.17* 1.73* 33.74
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Class 1
1996(3) 16,255 1.16* 2.51* --
1997 32,201 1.06 2.74 21.38
1998 24,999 1.10 2.26 18.45
1999(7) 23,541 1.11 2.52 15.80
Class 2
1999(6,7) 2,049 1.38* 1.21* 15.80
TEMPLETON PACIFIC GROWTH FUND
Class 1
1995 331,936 1.01 2.08 36.06
1996 356,759 .99 1.51 12.85
1997 165,404 1.03 1.97 11.87
1998 98,769 1.10 2.60 12.55
1999(7) 96,738 1.08 .93 12.45
Class 2
1999(6,7) 112 1.36* .68* 12.45
</TABLE>
* Annualized
** The portfolio turnover rate excludes mortgage dollar roll transactions.
*** The portfolio turnover rate excludes transactions related to the liquidation
of the Investment Grade Intermediate Bond Fund and the Adjustable U.S.
Government Fund and mortgage dollar roll transactions.
+ Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin Templeton
Variable Insurance Products Trust serves as an underlying investment vehicle.
Total return is not annualized for periods less than one year.
(1) For the period April 19, 1995 (effective date) to December 31, 1995.
(2) For the period November 1, 1995 (effective date) to December 31, 1995.
(3) For the period May 1, 1996 (effective date) to December 31, 1996.
(4) For the period November 8, 1996 (effective date) to December 31, 1996.
(5) For the period May 1, 1998 (effective date) to December 31, 1998.
(6) For the period January 6, 1999 (effective date) to December 31, 1999.
(7) Based on average shares outstanding.
82
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
(8) During the years indicated below, Franklin Advisers, Inc., the investment
manager, agreed in advance to waive a portion of its management fees incurred by
certain Funds in the Trust. Had such action not been taken, the ratio of
expenses to average net assets would have been as follows:
<TABLE>
<S> <C>
Franklin Money Market Fund
1995 ..................................................................... .53%
1996 ..................................................................... .53
1997 ..................................................................... .53
1998 ..................................................................... .53
Franklin Zero Coupon Fund - 2000
1995 ..................................................................... .63%
1996 ..................................................................... .62
1997 ..................................................................... .63
1998 ..................................................................... .66
Franklin Zero Coupon Fund - 2005
1995 ..................................................................... .66%
1996 ..................................................................... .65
1997 ..................................................................... .65
1998 ..................................................................... .66
Franklin Zero Coupon Fund - 2010
1995 ..................................................................... .66%
1996 ..................................................................... .65
1997 ..................................................................... .65
1998 ..................................................................... .66
</TABLE>
(9) Excluding dividend expense on securities sold short, the ratio of expenses
to average net assets for Mutual Discovery Securities Fund was 0.99% and 1.00%
for the years ended December 31, 1999 and December 31, 1998, respectively.
(10) Excluding dividend expense on securities sold short, the ratio of expenses
to average net assets for Mutual Shares Securities Fund was 0.77% for the years
ended December 31, 1999 and December 31, 1998.
(11) Includes distributions in excess of net investment income in the amount of
$.013.
See notes to financial statements.
83
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 88.8%
CELLULAR TELEPHONE 12.6%
(a)Nextel Communications Inc., A ................ United States 130,000 $ 13,406,250
NTT Mobile Communications Network Inc. ....... Japan 420 16,153,056
(a)Sprint Corp. (PCS Group) ..................... United States 250,000 25,625,000
(a)Stet Hellas Telecommunications SA, ADR ....... Greece 418,900 12,776,450
Vodafone AirTouch PLC, ADR ................... United Kingdom 590,000 29,205,000
(a)VoiceStream Wireless Corp. ................... United States 189,000 26,897,063
------------
124,062,819
------------
(a)COMPUTER COMMUNICATIONS 1.4%
Cisco Systems Inc. ........................... United States 130,000 13,926,250
------------
(a)EDP SERVICES 3.2%
Equant NV, N.Y. shs .......................... Netherlands 230,000 25,760,000
Infonet Services Corp., B .................... United States 235,100 6,171,375
------------
31,931,375
------------
ELECTRIC UTILITIES 6.5%
CMS Energy Corp. ............................. United States 140,000 4,366,250
Edison International ......................... United States 670,000 17,545,625
Illinova Corp. ............................... United States 200,000 6,950,000
Montana Power Co. ............................ United States 160,000 5,770,000
Northwestern Corp. ........................... United States 363,000 7,986,000
PECO Energy Co. .............................. United States 307,000 10,668,250
Pinnacle West Capital Corp. .................. United States 213,800 6,534,263
TECO Energy Inc. ............................. United States 247,700 4,597,931
------------
64,418,319
------------
ELECTRICAL PRODUCTS .7%
Furukawa Electric Co. Ltd. ................... Japan 425,000 6,446,641
------------
(a)ELECTRONIC COMPONENTS 1.0%
CTS Corp. .................................... United States 125,000 9,421,875
------------
MAJOR U.S. TELECOMMUNICATIONS 13.0%
AT&T Corp. ................................... United States 570,000 28,927,500
Bell Atlantic Corp. .......................... United States 260,000 16,006,250
GTE Corp. .................................... United States 320,000 22,580,000
(a)MCI WorldCom Inc. ............................ United States 510,000 27,061,873
SBC Communications Inc. ...................... United States 400,000 19,500,000
U.S. West Inc. ............................... United States 200,000 14,400,000
------------
128,475,623
------------
NATURAL GAS DISTRIBUTION .9%
(a)Gas Authority of India Ltd., GDR, 144A ....... India 584,100 5,519,745
MDU Resources Group Inc. ..................... United States 184,900 3,698,000
------------
9,217,745
------------
NON-U.S. UTILITIES .6%
ScottishPower PLC ............................ United Kingdom 840,000 6,353,249
------------
OIL/GAS TRANSMISSION 1.1%
Enron Corp. .................................. United States 245,000 10,871,875
------------
OTHER TELECOMMUNICATIONS 40.4%
(a)Alaska Communications Systems Holdings Inc. .. United States 99,400 1,230,075
(a)Broadwing Inc. ............................... United States 400,000 14,750,000
(a)Citizens Utilities Co., B .................... United States 760,000 10,782,500
City Telecom (HK) Ltd. ....................... Hong Kong 772,000 749,804
(a)Clearnet Communications Inc., A .............. Canada 441,200 15,166,250
(a)EIRCOM PLC ................................... Irish Republic 2,396,000 10,251,686
(a)FirstCom Corp. ............................... United States 96,600 3,550,050
(a)Global Crossing Ltd. ......................... Bermuda 810,000 40,500,000
(a)Global TeleSystems Group Inc. ................ United States 790,000 27,353,750
</TABLE>
84
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
OTHER TELECOMMUNICATIONS (CONT.)
(a)GST Telecommunications Inc. .......................... Canada 1,425,000 $ 12,914,063
Hellenic Telecommunications Organization SA .......... Greece 532,110 12,593,167
(a)ICG Communications Inc. .............................. United States 408,000 7,650,000
(a)Intermedia Communications Inc. ....................... United States 330,400 12,823,650
Korea Telecom Corp. .................................. South Korea 140,000 22,069,573
(a)KPNQwest NV .......................................... Netherlands 136,200 8,682,750
(a)McLeodUSA Inc. ....................................... United States 190,000 11,186,250
(a)NEXTLINK Communications Inc., A ...................... United States 210,000 17,443,125
Nippon Telegraph & Telephone Corp. ................... Japan 900 15,413,221
(a)Pacific Gateway Exchange Inc. ........................ United States 87,500 1,492,969
Portugal Telecom SA .................................. Portugal 1,250,000 13,704,319
(a)Primus Telecommunications Group Inc. ................. United States 390,000 14,917,500
(a)Qwest Communications International Inc. .............. United States 470,000 20,210,000
Swisscom AG .......................................... Switzerland 47,700 19,289,670
Telecom Italia SpA ................................... Italy 4,000,000 24,379,342
(a)Telecomunicacoes Brasileiras SA, ADR ................. Brazil 42,000 655
Telefonica SA, ADR ................................... Spain 270,000 21,279,375
(a)Telstra Corp Ltd. .................................... Australia 1,180,500 4,161,739
(a)Time Warner Telecom Inc., A .......................... United States 300,000 14,981,250
(a)Versatel Telecom International NV .................... Netherlands 160,000 5,637,773
(a)Williams Communications Group Inc. ................... United States 458,400 13,264,950
-----------
398,429,456
-----------
(a)SEMICONDUCTORS 1.1%
SDL Inc. ............................................. United States 50,000 10,900,000
-----------
TELECOMMUNICATIONS EQUIPMENT 4.6%
(a)Catapult Communications Corp. ........................ United States 300,000 2,981,250
(a)C-COR.net Corp. ...................................... United States 20,000 1,532,500
(a)Ciena Corp. .......................................... United States 130,000 7,475,000
Lucent Technologies Inc. ............................. United States 120,000 8,977,500
(a)NICE Systems Ltd., ADR ............................... Israel 88,500 4,353,094
Nokia Corp., ADR ..................................... Finland 55,000 10,450,000
(a)Tellabs Inc. ......................................... United States 150,000 9,628,125
-----------
45,397,469
-----------
(a)UNREGULATED POWER GENERATION 1.7%
AES Corp. ............................................ United States 150,000 11,212,500
Calpine Corp. ........................................ United States 83,000 5,312,000
-----------
16,524,500
-----------
TOTAL COMMON STOCKS (COST $577,894,593) .............. 876,377,196
-----------
CONVERTIBLE PREFERRED STOCKS .8%
CMS Energy Trust I, 7.75%, cvt. pfd. (COST $8,750,000) United States 175,000 8,137,500
-----------
TOTAL LONG TERM INVESTMENTS (COST $586,644,594) ...... 884,514,696
-----------
</TABLE>
85
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND COUNTRY AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(g)REPURCHASE AGREEMENT 8.3%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $81,786,809) (COST $81,769,208) ............. United States $81,769,208 $ 81,769,208
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $668,413,801) 97.9% ................... 966,283,904
OTHER ASSETS, LESS LIABILITIES 2.1% ........................... 21,217,547
------------
NET ASSETS 100.0% ............................................. $987,501,451
============
</TABLE>
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
86 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 93.3%
(a)CONSUMER SERVICES .7%
drkoop.com Inc. ....................................... 7,000 $ 83,125
----------
(a)ELECTRONIC TECHNOLOGY .1%
Caliper Technologies Corp. ............................ 200 13,350
----------
HEALTH SERVICES 21.2%
(a)Beverly Enterprises Inc. .............................. 13,600 59,500
(a)CareInsite Inc. ....................................... 2,000 161,000
Columbia/HCA Healthcare Corp. ......................... 6,600 193,463
(a)eBenX Inc. ............................................ 100 4,525
(a)Express Scripts Inc., A ............................... 1,800 115,200
(a)Foundation Health Systems Inc., A ..................... 7,000 69,563
(a)Lincare Holdings Inc. ................................. 3,500 121,406
(a)MedicaLogic Inc. ...................................... 3,300 69,300
(a)NovaMed Eyecare Inc. .................................. 2,300 15,525
Omnicare Inc. ......................................... 18,100 217,200
(a)Pharmaceutical Product Development Inc. ............... 10,000 118,750
(a)Renal Care Group Inc. ................................. 10,300 240,763
(a)SciQuest.com Inc. ..................................... 3,300 262,350
(a)Tenet Healthcare Corp. ................................ 3,100 72,850
United HealthCare Corp. ............................... 3,300 175,313
Universal Health Services Inc., B ..................... 7,900 284,400
(a)Wellpoint Health Networks Inc. ........................ 3,500 230,781
----------
2,411,889
----------
HEALTH TECHNOLOGY 71.3%
(a)Abgenix Inc. .......................................... 3,300 437,250
American Home Products Corp. .......................... 7,700 303,669
(a)Amgen Inc. ............................................ 4,600 276,288
Baxter International Inc. ............................. 8,200 515,063
(a)Biogen Inc. ........................................... 1,400 118,300
Bristol-Myers Squibb Co. .............................. 4,200 269,588
(a)Cell Genesys Inc. ..................................... 16,500 211,406
(a)CIMA Labs Inc. ........................................ 25,000 326,563
(a)COR Therapeutics Inc. ................................. 5,200 139,750
Eli Lilly & Co. ....................................... 6,100 405,650
(a)Genentech Inc. ........................................ 2,100 282,450
(a)Gilead Sciences Inc. .................................. 2,300 124,488
Glaxo Wellcome PLC, ADR (United Kingdom) .............. 4,400 245,850
(a)INAMED Corp. .......................................... 2,800 122,850
(a)Inhale Therapeutic Systems Inc. ....................... 13,000 553,313
Johnson & Johnson ..................................... 1,000 93,125
(a)MedImmune Inc. ........................................ 1,700 281,988
Merck & Co. Inc. ...................................... 1,500 100,594
(a)MGI Pharma Inc. ....................................... 3,000 35,813
(a)Molecular Devices Corp. ............................... 5,100 265,200
(a)Noven Pharmaceuticals Inc. ............................ 12,000 217,500
(a)Novoste Corp. ......................................... 11,200 184,800
(a)Ocular Sciences Inc. .................................. 11,500 217,063
Pharmacia & Upjohn Inc. ............................... 5,000 225,000
Roche Holding AG (Switzerland) ........................ 16 189,890
Schering-Plough Corp. ................................. 9,200 388,125
(a)Serologicals Corp. .................................... 30,000 180,000
(a)Shire Pharmaceuticals Group PLC, ADR (United Kingdom) . 10,739 312,786
</TABLE>
87
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
(a)SonoSite Inc. ............................................................. 3,900 $ 123,338
(a)Vertex Pharmaceuticals Inc. ............................................... 9,000 314,993
Warner-Lambert Co. ........................................................ 5,300 434,269
(a)Watson Pharmaceuticals Inc. ............................................... 6,200 222,038
-----------
8,119,000
-----------
TOTAL LONG TERM INVESTMENTS (COST $9,099,212) ............................. 10,627,364
-----------
SHORT TERM INVESTMENTS 7.5%
(b)Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $855,059) 855,059 855,059
-----------
TOTAL INVESTMENTS (COST $9,954,271) 100.8% ................................ 11,482,423
OTHER ASSETS, LESS LIABILITIES (.8%) ...................................... (91,944)
-----------
NET ASSETS 100.0% ......................................................... $11,390,479
===========
</TABLE>
(a)Non-income producing.
(b)The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers, Inc.
88 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN GROWTH AND INCOME FUND COUNTRY WARRANTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 94.6%
COMMERCIAL SERVICES 1.1%
Dun & Bradstreet Corp. .............. United States 375,200 $11,068,400
-----------
CONSUMER DURABLES 3.5%
Eastman Kodak Co. ................... United States 168,000 11,130,000
Ford Motor Co. ...................... United States 242,000 12,931,875
General Motors Corp. ................ United States 135,500 9,849,156
-----------
33,911,031
-----------
CONSUMER NON-DURABLES 7.0%
Bestfoods ........................... United States 250,000 13,140,625
General Mills Inc. .................. United States 547,000 19,555,250
Gillette Co. ........................ United States 30,000 1,235,625
H.J. Heinz Co. ...................... United States 343,000 13,655,688
PepsiCo Inc. ........................ United States 240,000 8,460,000
Philip Morris Cos. Inc. ............. United States 507,800 11,774,613
-----------
67,821,801
-----------
CONSUMER SERVICES 1.0%
Harcourt General Inc. ............... United States 251,700 10,130,925
-----------
ELECTRONIC TECHNOLOGY 4.9%
Hewlett-Packard Co. ................. United States 101,500 11,564,656
International Business Machines Corp. United States 85,000 9,180,000
Motorola Inc. ....................... United States 88,000 12,958,000
Perkinelmer Inc. .................... United States 159,400 6,644,988
Raytheon Co., B ..................... United States 255,700 6,792,031
-----------
47,139,675
-----------
ENERGY MINERALS 8.0%
Atlantic Richfield Co. .............. United States 112,500 9,731,250
Chevron Corp. ....................... United States 109,000 9,442,125
Conoco Inc., B ...................... United States 480,830 11,960,646
Exxon Mobil Corp. ................... United States 241,572 19,461,681
Texaco Inc. ......................... United States 311,400 16,912,913
Ultramar Diamond Shamrock Corp. ..... United States 447,800 10,159,463
-----------
77,668,078
-----------
FINANCE 8.4%
Bank of America Corp. ............... United States 195,000 9,786,563
Bank One Corp. ...................... United States 276,210 8,855,983
Fannie Mae .......................... United States 140,000 8,741,250
First Union Corp. ................... United States 223,000 7,317,188
Fleet Boston Financial Corp. ........ United States 348,468 12,131,042
J.P. Morgan & Co. Inc. .............. United States 82,100 10,395,913
National City Corp. ................. United States 415,000 9,830,313
Union Planters Corp. ................ United States 119,000 4,693,063
Washington Mutual Inc. .............. United States 361,000 9,386,000
-----------
81,137,315
-----------
HEALTH TECHNOLOGY 7.1%
Abbott Laboratories ................. United States 335,000 12,164,688
American Home Products Corp. ........ United States 217,000 8,557,938
Baxter International Inc. ........... United States 215,000 13,504,688
Glaxo Wellcome PLC, ADR ............. United Kingdom 280,800 15,689,700
Pharmacia & Upjohn Inc. ............. United States 403,500 18,157,500
-----------
68,074,514
-----------
INSURANCE 4.3%
Allstate Corp. ...................... United States 280,000 6,720,000
Lincoln National Corp. .............. United States 366,800 14,672,000
St. Paul Cos. Inc. .................. United States 592,000 19,943,000
-----------
41,335,000
-----------
</TABLE>
89
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN GROWTH AND INCOME FUND COUNTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
NON-ENERGY MINERALS 3.9%
Corus Group PLC, ADR ............................... United Kingdom 330,000 $ 8,538,750
De Beers Consolidated Mines AG, ADR ................ South Africa 443,000 12,819,313
Weyerhaeuser Co. ................................... United States 230,500 16,552,781
------------
37,910,844
------------
PROCESS INDUSTRIES 6.0%
Dow Chemical Co. ................................... United States 76,800 10,262,400
E. I. du Pont de Nemours and Co. ................... United States 99,210 6,535,459
General Electric Co. ............................... United States 130,700 20,225,825
Imperial Chemical Industries PLC, ADR .............. United Kingdom 249,400 10,615,088
Pall Corp. ......................................... United States 483,600 10,427,625
------------
58,066,397
------------
PRODUCER MANUFACTURING 8.8%
Avery Dennison Corp. ............................... United States 174,000 12,680,250
Dana Corp. ......................................... United States 359,600 10,765,525
Deere & Co. ........................................ United States 270,000 11,711,250
Delphi Automotive Systems Corp. .................... United States 94,705 1,491,604
Diebold Inc. ....................................... United States 389,500 9,153,250
Emerson Electric Co. ............................... United States 220,000 12,622,500
Minnesota Mining & Manufacturing Co. ............... United States 137,500 13,457,813
Pitney Bowes Inc. .................................. United States 265,000 12,802,813
------------
84,685,005
------------
REAL ESTATE 4.9%
Arden Realty Inc. .................................. United States 479,200 9,613,950
Equity Office Properties Trust ..................... United States 225,000 5,540,625
Equity Residential Properties Trust ................ United States 325,300 13,886,244
Glenborough Realty Trust Inc. ...................... United States 400,000 5,350,000
Simon Property Group Inc. .......................... United States 544,700 12,494,056
------------
46,884,875
------------
RETAIL TRADE 1.8%
J.C. Penney Co. Inc. ............................... United States 381,900 7,614,131
May Department Stores Co. .......................... United States 300,000 9,675,000
------------
17,289,131
------------
TECHNOLOGY SERVICES 1.3%
(a)Acclaim Entertainment Inc., wts., 4/04/02 .......... United States 1,900 3,002
Automatic Data Processing Inc. ..................... United States 226,500 12,202,688
------------
12,205,690
------------
TELECOMMUNICATIONS 13.3%
AT&T Corp. ......................................... United States 457,500 23,218,125
Bell Atlantic Corp. ................................ United States 504,632 31,066,408
GTE Corp. .......................................... United States 389,500 27,484,094
SBC Communications Inc. ............................ United States 318,472 15,525,510
U.S. West Inc. ..................................... United States 433,100 31,183,200
------------
128,477,337
------------
TRANSPORTATION .7%
United Parcel Service Inc., B ...................... United States 101,100 6,975,900
------------
UTILITIES 8.6%
Consolidated Natural Gas Co. ....................... United States 162,000 10,519,875
Constellation Energy Group Inc. .................... United States 423,000 12,267,000
Dominion Resources Inc. ............................ United States 169,500 6,652,875
GPU Inc. ........................................... United States 308,300 9,229,731
Kansas City Power & Light Co. ...................... United States 471,000 10,391,438
MCN Energy Group Inc. .............................. United States 355,000 8,431,250
National Fuel Gas Co. .............................. United States 303,800 14,126,700
Sempra Energy ...................................... United States 636,585 11,060,655
------------
82,679,524
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $784,271,545) 913,461,442
------------
</TABLE>
90
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GROWTH AND INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS 3.8%
FHLMC, 1/20/00 (COST $36,893,573) ............... United States $37,000,000 $ 36,908,462
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT
(COST $821,165,118) ............................ 950,369,904
------------
(g)REPURCHASE AGREEMENT 1.6%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $14,971,954) (COST $14,968,732) United States 14,968,732 14,968,732
Banc of America Securities LLC
Barclays Capital Inc. ..........................
Bear, Stearns & Co. Inc. .......................
Chase Securities Inc. ..........................
Donaldson, Lufkin & Jenrette Securities Corp. ..
Dresdner Kleinwort Benson, North America LLC
Paribas Corp. ..................................
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $836,133,850) 100.0% .... 965,338,636
OTHER ASSETS, LESS LIABILITIES .................. 3,266
------------
NET ASSETS 100.0% ............................... $965,341,902
============
</TABLE>
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements. 91
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
WARRANTS &
FRANKLIN HIGH INCOME FUND COUNTRY RIGHTS VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)COMMON STOCKS, WARRANTS AND RIGHTS .2%
CONSUMER SERVICES
Jack in the Box Inc. ................................................ United States 210 $ 4,344
----------
ENERGY MINERALS .1%
Abraxas Petroleum Corp. ............................................. United States 256,359 240,337
Abraxas Petroleum Corp., rts., 11/01/04 ............................. United States 256,359 --
----------
240,337
----------
INDUSTRIAL SERVICES .1%
R&B Falcon Corp. 144A, wts., 5/01/09 ................................ United States 1,500 375,000
----------
NON-ENERGY MINERALS
Gulf States Steel Inc., wts., 4/15/03 ............................... United States 5,000 5
----------
PRODUCER MANUFACTURING
Goss Holdings Inc., B ............................................... United States 44,604 89,208
----------
TELECOMMUNICATIONS
International Wire Holding Co., wts., 8/15/01 ....................... United States 7,800 8
Loral Space & Communications Ltd., wts., 1/15/07 .................... United States 1,500 17,295
McCaw International Ltd., wts., 4/15/07 ............................. United States 7,000 56,000
Poland Telecom Finance, 144A, wts., 12/01/07 ........................ Poland 8,000 24,400
----------
97,703
----------
UTILITIES
Empire Gas Corp., wts., 7/15/04 ..................................... United States 6,900 1,725
----------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $661,499) ............ 808,322
----------
PREFERRED STOCKS 1.5%
INDUSTRIAL SERVICES .5%
R&B Falcon Corp., 13.875%, pfd., PIK ................................ United States 1,611 1,691,812
----------
PROCESS INDUSTRIES 1.0%
Asia Pulp & Paper Co. Ltd., 12.00%, pfd ............................. Indonesia 4,500 2,947,500
----------
TOTAL PREFERRED STOCKS (COST $6,037,972) ............................ 4,639,312
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C> <C>
BONDS 96.1%
COMMERCIAL SERVICES 2.3%
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ............ United States $2,000,000 $ 1,845,000
Fleming Cos. Inc., senior sub. note, B, 10.625%, 7/31/07 ............ United States 2,000,000 1,815,000
Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 ......... United Kingdom 3,700,000 3,422,500
-----------
7,082,500
-----------
CONSUMER DURABLES 2.7%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 .......... United States 3,000,000 1,065,000
Pillowtex Corp., senior sub. note, B, 9.00%, 12/15/07 ............... United States 2,900,000 1,261,500
Sealy Mattress Co., senior disc. note, B, zero cpn. to
12/15/02, 10.875% thereafter, 12/15/07 ............................ United States 1,500,000 1,057,500
True Temper Sports Inc., B, 10.875%, 12/01/08 ....................... United States 4,000,000 3,840,000
Windmere-Durable Holdings Inc., senior sub. note, 10.00%, 7/31/08 ... United States 1,200,000 1,188,000
-----------
8,412,000
-----------
CONSUMER NON-DURABLES 3.6%
Compania De Alimentos Fargo SA, 13.25%, 8/01/08 ..................... Argentina 1,250,000 1,081,250
Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07 ................ United States 2,197,000 2,202,492
Packaged Ice Inc., senior sub. note, B, 9.75%, 2/01/05 .............. United States 2,600,000 2,392,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 ............... United States 8,500,000 1,785,000
Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 ........ United States 3,000,000 1,065,000
United Industries Corp., senior sub. note, 9.875%, 4/01/09 .......... United States 3,000,000 2,760,000
-----------
11,285,742
-----------
</TABLE>
92
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
CONSUMER SERVICES 21.5%
Advanstar Communications, senior sub. note, 9.25%, 5/01/08 ............. United States $5,000,000 $ 4,725,000
AMFM Inc., 9.00%, 10/01/08 ............................................. United States 4,500,000 4,702,500
AMFM Inc., senior note, 8.00%, 11/01/08 ................................ United States 3,500,000 3,500,000
Ascent Entertainment Group Inc., senior disc. note,
zero cpn. to 12/15/02, 11.875% thereafter, 12/15/04 .................. United States 3,000,000 2,250,000
Aztar Corp., senior sub. note, 8.875%, 5/15/07 ......................... United States 4,500,000 4,331,250
Charter Communications Holdings LLC, senior disc. note,
zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ...................... United States 5,750,000 3,399,688
CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 ................... United States 3,000,000 3,330,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ................... United States 4,500,000 4,770,000
Diamond Cable Communication Co., senior disc. note,
zero cpn. to 2/15/02, 10.75% thereafter, 2/15/07 ..................... United Kingdom 1,500,000 1,237,500
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ..................... United Kingdom 3,000,000 2,985,000
Granite Broadcasting Corp., senior sub. note, A, 10.375%, 5/15/05 ...... United States 4,500,000 4,612,500
Hollinger International Publishing Inc., senior sub note, 9.25%, 3/15/07 United States 4,500,000 4,477,500
La Petite Academy Inc., senior note, B, 10.00%, 5/15/08 ................ United States 5,000,000 3,700,000
LIN Holdings Corp., senior disc. note, zero cpn. to
3/01/03, 10.00% thereafter, 3/01/08 .................................. United States 2,600,000 1,768,000
LIN Television Corp., senior sub. note, 8.375%, 3/01/08 ................ United States 2,800,000 2,639,000
Protection One Alarm Monitoring Inc., senior sub. note,
144A, 8.125%, 1/15/09 ................................................ United States 5,000,000 2,525,000
Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ................... United States 3,800,000 2,888,000
Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 ....... United States 2,500,000 2,500,000
Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 ............ United States 2,700,000 2,649,375
Telewest Communications PLC, senior disc. note, 144A,
zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 ...................... United Kingdom 1,750,000 1,111,250
United Pan-Europe Communications NV, zero cpn. to
8/01/04, 12.50% thereafter, 8/01/09 .................................. Netherlands 6,250,000 3,562,500
-----------
67,664,063
-----------
ELECTRONIC TECHNOLOGY 2.1%
Exide Electronics Group Inc., senior sub. note, B, 11.50%, 3/15/06 ..... United States 2,000,000 2,165,538
L-3 Communications Holdings Inc., B, 8.00%, 8/01/08 .................... United States 750,000 691,875
L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 ... United States 3,500,000 3,622,500
-----------
6,479,913
-----------
ENERGY MINERALS 4.2%
Abraxas Petroleum Corp., 11.50%, 11/01/04 .............................. United States 3,010,000 2,754,150
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 ..................... United States 5,000,000 2,625,000
Mesa Operating Co., zero cpn. to 7/01/01, 11.625% thereafter, 7/01/06 .. United States 1,800,000 1,588,500
P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ............... United States 1,000,000 982,500
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 .......... United States 4,500,000 4,455,000
Pogo Producing Co., senior sub. note, B, 8.75%, 5/15/07 ................ United States 1,000,000 955,000
-----------
13,360,150
-----------
FINANCE 2.0%
Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 .................. United States 2,000,000 2,040,000
Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 ................. United States 5,000,000 4,187,500
-----------
6,227,500
-----------
HEALTH SERVICES 1.3%
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ........ United States 2,750,000 2,241,250
Pharmerica Inc., senior sub. note, 8.375%, 4/01/08 ..................... United States 1,250,000 943,750
(c)Vencor Operating Inc., senior sub note, 9.875%, 5/01/05 ................ United States 4,200,000 871,500
-----------
4,056,500
-----------
INDUSTRIAL SERVICES 3.6%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ....... United States 5,500,000 4,867,500
R&B Falcon Corp., senior note, 12.25%, 3/15/06 ......................... United States 1,750,000 1,933,750
RBF Finance Co., senior note, 11.375%, 3/15/09 ......................... United States 1,500,000 1,612,500
Universal Compression Inc., senior disc. note, zero cpn
to 2/15/03, 9.875% thereafter, 2/15/08 ............................... United States 4,650,000 2,888,813
-----------
11,302,563
-----------
PROCESS INDUSTRIES 7.7%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 .......... United States 2,350,000 2,402,875
Climachen Inc., senior sub. note, B, 10.75%, 12/01/07 .................. United States 1,200,000 306,000
Consolidated Container Co. LLC, senior sub. note, 144A, 10.125%, 7/15/09 United States 2,500,000 2,543,750
Four M Corp., senior note, B, 12.00%, 6/01/06 .......................... United States 7,700,000 7,218,750
</TABLE>
93
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
PROCESS INDUSTRIES (CONT.)
Lyondell Chemical Co., 9.875%, 5/01/07 .............................. United States $1,750,000 $ 1,785,000
(c)Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 Indonesia 4,250,000 765,000
(c)Purina Mills Inc., senior sub. note, 9.00%, 3/15/10 ................. United States 4,000,000 1,020,000
Radnor Holdings Inc., senior note, 10.00%, 12/01/03 ................. United States 5,000,000 5,025,000
Repap New Brunswick, senior note, 9.00%, 6/01/04 .................... Canada 2,000,000 1,960,000
Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 ......... Indonesia 2,000,000 1,455,000
-----------
24,481,375
-----------
PRODUCER MANUFACTURING 4.6%
Goss Graphic Systems Inc., senior sub. note, PIK, 12.25%, 11/19/05 .. United States 1,600,000 504,000
Nortek Inc., senior sub. note, 9.875%, 3/01/04 ...................... United States 5,500,000 5,472,500
Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ............... United States 2,000,000 1,950,000
Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ... United States 2,900,000 1,812,500
Terex Corp., 8.875%, 4/01/08 ........................................ United States 1,000,000 950,000
Terex Corp., senior sub. note, 8.875%, 4/01/08 ...................... United States 3,550,000 3,372,500
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 ... Canada 750,000 558,750
-----------
14,620,250
-----------
RETAIL TRADE 1.2%
Hollywood Entertainment Corp., senior sub. note, B, 10.625%, 8/15/04 United States 4,000,000 3,720,000
-----------
TECHNOLOGY SERVICES 2.5%
Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 ................. United States 4,000,000 4,010,000
PSINet Inc., 11.00%, 8/01/09 ........................................ United States 2,900,000 2,987,000
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 .................... United States 1,000,000 1,012,500
-----------
8,009,500
-----------
TELECOMMUNICATIONS 29.7%
Arch Communications Group Inc., senior disc. note, zero cpn. to
3/15/01, 10.875% thereafter, 3/15/08 .............................. United States 6,000,000 2,730,000
Arch Escrow Corp., 13.75%, 4/15/08 .................................. United States 1,500,000 1,222,500
Call-Net Enterprises Inc., senior note, 9.375%, 5/15/09 ............. Canada 4,250,000 3,442,500
Clearnet Communications Inc., senior disc. note, zero cpn. to
5/01/04, 10.125% thereafter, 5/01/09 .............................. Canada 6,500,000 3,900,000
Dobson/Sygnet Communications Co., 12.25%, 12/15/08 .................. United States 4,500,000 4,961,250
Global Crossing Holdings Ltd., senior sub. note, 144A,
9.50%, 11/15/09 ................................................... Bermuda 5,000,000 4,943,750
Hermes Europe Railtel BV, senior note, 11.50%, 8/15/07 .............. Netherlands 2,000,000 2,070,000
(c,d)ICO Global Communications Holdings Ltd., 15.00%, 8/01/05 ............ Bermuda 5,000,000 2,300,000
IntelCom Group Inc., senior secured disc. note, zero cpn. to
5/01/01, 12.50% thereafter, 5/01/06 ............................... United States 3,250,000 2,445,625
Intermedia Communications Inc., senior disc. note, B,
zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 .................. United States 5,000,000 3,725,000
Intermedia Communications Inc., senior note, 9.50%, 3/01/09 ......... United States 2,000,000 1,935,000
(c)International Wireless Communications, senior disc. note,
zero cpn., 8/15/01 ................................................ United States 7,800,000 780,000
Level 3 Communications Inc., senior note, 9.125%, 5/01/08 ........... United States 5,000,000 4,737,500
Level 3 Communications Inc., zero cpn. to 12/01/03, 10.50%
thereafter, 12/01/08 .............................................. United States 3,000,000 1,837,500
Loral Space and Communications Ltd., senior disc. note,
zero cpn. to 1/15/02, 12.50% thereafter, 1/15/07 .................. United States 1,500,000 712,500
McCaw International Ltd., senior disc. note, zero cpn
to 4/15/02, 13.00% thereafter, 4/15/07 ............................ United States 7,000,000 4,927,720
McLeodUSA Inc., 8.125%, 2/15/09 ..................................... United States 4,000,000 3,730,000
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ................... United States 5,000,000 3,175,000
Millicom International Cellular SA, senior disc. note,
zero cpn. to 6/01/01, 13.50% thereafter, 6/01/06 .................. Luxembourg 9,300,000 7,719,000
Nextel Communications Inc., senior disc. note, zero
cpn. to 9/15/02, 10.65% thereafter, 9/15/07 ....................... United States 7,000,000 5,250,000
Nextel Communications Inc., senior disc. note, zero
cpn. to 10/31/02, 9.75% thereafter, 10/31/07 ....................... United States 3,000,000 2,182,500
NEXTLINK Communications Inc., senior note, 9.625%,
10/01/07 .......................................................... United States 1,400,000 1,372,000
NEXTLINK Communications Inc., senior note, 9.00%,
3/15/08 ........................................................... United States 3,600,000 3,447,000
Northeast Optic Network Inc., senior note, 12.75%,
8/15/08 ........................................................... United States 3,500,000 3,727,500
Omnipoint Corp., senior note, 144A, 11.50%, 9/15/09 ................. United States 4,000,000 4,360,000
Poland Telecom Finance, senior note, B, 14.00%,
12/01/07 .......................................................... Poland 8,000,000 5,350,000
Rogers Cantel Mobile Inc., senior secured deb.,
9.75%, 6/01/16 .................................................... Canada 2,000,000 2,240,000
RSL Communications PLC, senior note, 12.00%, 11/01/08 ............... United Kingdom 1,500,000 1,518,750
Spectrasite Holdings Inc., senior disc. note, zero
cpn. to 4/15/04, 11.25% thereafter, 4/15/09 ....................... United States 2,500,000 1,350,000
VoiceStream Wireless Corp., senior disc. note, 144A,
zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 ............... United States 2,000,000 1,200,000
-----------
93,292,595
-----------
</TABLE>
94
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
TRANSPORTATION 5.9%
American Commercial Lines LLC, senior note, 10.25%, 6/30/08 .......... United States $3,100,000 $ 2,991,500
Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 ................. Bermuda 4,500,000 4,646,250
GS Superhighway (Holdings) Ltd., senior note, 10.25%, 8/15/07 ........ China 6,000,000 3,241,800
Holt Group, senior note, 9.75%, 1/15/06 .............................. United States 5,250,000 3,478,125
MRS Logistica SA, B, 144A, 10.625%, 8/15/05 .......................... Brazil 5,000,000 4,075,000
------------
18,432,675
------------
UTILITIES 1.2%
AES Corp., senior note, 9.50%, 6/01/09 ............................... United States 1,000,000 1,020,000
Empire Gas Corp., senior secured note, 12.875%, 7/15/04 .............. United States 5,000,000 2,925,000
------------
3,945,000
------------
TOTAL BONDS (COST $362,876,262) ...................................... 302,372,326
------------
TOTAL LONG TERM INVESTMENTS ($369,575,733) ........................... 307,819,960
------------
(g)REPURCHASE AGREEMENT .3%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity Value $831,865)
(COST $831,686) .................................................... United States 831,686 831,686
Banc of America Securities LLC
Barclays Capital Inc. ...............................................
Bear, Stearns & Co. Inc. ............................................
Chase Securities Inc. ...............................................
Donaldson, Lufkin & Jenrette Securities Corp. .......................
Dresdner Kleinwort Benson, North America LLC
Paribas Corp. .......................................................
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $370,407,419) 98.1% .......................... 308,651,646
OTHER ASSETS, LESS LIABILITIES 1.9% .................................. 5,927,545
------------
NET ASSETS 100.0% .................................................... $314,579,191
============
</TABLE>
(a)Non-income producing.
(c)See Note 7 regarding defaulted securities.
(d)See Note 8 regarding restricted securities.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements. 95
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN INCOME SECURITIES FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 33.8%
CONSUMER DURABLES .6%
General Motors Corp. ............................... United States 60,000 $4,361,250
----------
CONSUMER NON-DURABLES 2.1%
Nabisco Group Holdings Corp. ....................... United States 60,000 637,500
Philip Morris Cos. Inc. ............................ United States 650,000 15,071,875
R.J. Reynolds Tobacco Holdings Inc. ................ United States 30,000 528,750
----------
16,238,125
----------
(a) ELECTRONIC TECHNOLOGY
Anacomp Inc. ....................................... United States 4,100 74,566
----------
ENERGY MINERALS 2.6%
Athabasca Oil Sands Trust .......................... Canada 300,000 5,166,332
BP Prudhoe Bay Royalty Trust ....................... United States 50,000 453,125
Canadian Oil Sands Trust Units ..................... Canada 350,000 6,233,142
EOG Resources Inc. ................................. United States 240,000 4,215,000
(a) Santa Fe Snyder Corp. .............................. United States 189,842 1,518,736
Ultramar Diamond Shamrock Corp. .................... United States 125,000 2,835,938
20,422,273
----------
NON-ENERGY MINERALS 3.1%
Anglo American Platinum Corp. Ltd., ADR ............ South Africa 200,000 6,076,361
Anglogold Ltd., ADR ................................ South Africa 325,000 8,348,438
De Beers Consolidated Mines AG, ADR ................ South Africa 40,000 1,157,500
Impala Platinum Holdings Ltd., ADR ................. South Africa 216,500 8,758,489
---------
24,340,788
----------
PROCESS INDUSTRIES .5%
(a) Dan River Inc., A .................................. United States 102,600 525,825
Lyondell Chemical Co. .............................. United States 100,000 1,275,000
McDermott International Inc. ....................... United States 260,000 2,356,250
---------
4,157,075
----------
REAL ESTATE .6%
FelCor Lodging Trust Inc. .......................... United States 275,000 4,812,500
---------
TELECOMMUNICATIONS .6%
U.S. West Inc. ..................................... United States 60,000 4,320,000
---------
UTILITIES 23.7%
American Electric Power Co. Inc. ................... United States 255,000 8,191,875
Central & South West Corp. ......................... United States 350,000 7,000,000
Cinergy Corp. ...................................... United States 230,000 5,548,750
Conectiv Inc. ...................................... United States 212,800 3,577,700
Dominion Resources Inc. ............................ United States 250,000 9,812,500
Edison International ............................... United States 360,000 9,427,500
Energy East Corp. .................................. United States 210,000 4,370,625
Entergy Corp. ...................................... United States 390,000 10,042,500
FirstEnergy Corp. .................................. United States 235,000 5,331,563
Florida Progress Corp. ............................. United States 295,000 12,482,188
FPL Group Inc. ..................................... United States 155,000 6,635,938
GPU Inc. ........................................... United States 200,000 5,987,500
Hawaiian Electric Industries Inc. .................. United States 70,000 2,021,250
KeySpan Corp. ...................................... United States 190,000 4,405,625
New Century Energies Inc. .......................... United States 200,000 6,075,000
New England Electric System ........................ United States 190,000 9,832,500
Northern States Power Co. .......................... United States 210,000 4,095,000
PECO Energy Co. .................................... United States 259,500 9,017,625
PG&E Corp. ......................................... United States 345,000 7,072,500
Potomac Electric Power Co. ......................... United States 225,000 5,160,938
Public Service Enterprise Group Inc. ............... United States 250,000 8,703,125
Reliant Energy Inc. ................................ United States 225,000 5,146,875
Scana Corp. ........................................ United States 90,000 2,418,750
</TABLE>
96
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN INCOME SECURITIES FUND COUNTRY SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES (CONT.)
ScottishPower PLC, ADR .................... United Kingdom 37,700 $ 1,055,600
Sempra Energy ............................. United States 425,000 7,384,375
Sierra Pacific Resources .................. United States 100,000 1,731,250
Southern Co. .............................. United States 300,000 7,050,000
Texas Utilities Co. ....................... United States 290,000 10,313,125
Western Resources Inc. .................... United States 215,000 3,655,000
------------
183,547,177
------------
TOTAL COMMON STOCKS (COST $249,866,680) ... 262,273,754
------------
PREFERRED STOCKS .8%
PROCESS INDUSTRIES .8%
Asia Pulp & Paper Co. Ltd., 12.00%, 2/15/04 Indonesia
Freeport-McMoran Copper & Gold Inc., 0.00%,
pfd., Gold ................................ United States 6,000,000 3,930,000
108,800 2,148,800
------------
TOTAL PREFERRED STOCKS (COST $9,353,095) .. 6,078,800
------------
CONVERTIBLE PREFERRED STOCKS 10.1%
ENERGY MINERALS 2.3%
(a) Chesapeake Energy Corp., 7.00%, cvt
pfd., 144A................................. United States 85,000 2,220,625
Kerr-McGee Corp., 5.50%, cvt. pfd ......... United States 151,300 4,992,900
Lomak Financing Trust, 5.75%, cvt. pfd .... United States 140,000 2,870,000
Newfield Financial Trust I, 6.50%, cvt
pfd........................................ United States 75,000 3,506,250
Nuevo Financing I, 5.75%, cvt. pfd., A .... United States 140,000 3,815,000
------------
17,404,775
------------
INDUSTRIAL SERVICES .6%
Weatherford International Inc., 5.00%, cvt
pfd., 144A................................. United States 125,000 4,687,500
------------
NON-ENERGY MINERALS .9%
Battle Mountain Gold Co., $3.25, cvt. pfd . United States 66,300 1,703,081
Hecla Mining Co., 7.00%, cvt. pfd., B ..... United States 70,000 1,671,250
Kinam Gold Inc., $3.75, cvt. pfd., B ...... United States 150,000 3,956,250
------------
7,330,581
------------
REAL ESTATE 4.0%
Apartment Investment & Management Co.,
8.00%, cvt. pfd., K ....................... United States 160,000 3,960,000
Archstone Communities Trust, $1.75, cvt
pfd., A.................................... United States 200,000 5,625,000
Glenborough Realty Trust Inc., 7.75%, cvt
pfd., A.................................... United States 365,000 5,087,188
Host Marriott Corp., 6.75%, cvt. pfd ...... United States 110,000 3,575,000
Innkeepers USA Trust, 8.625%, cvt. pfd., A United States 175,000 3,128,125
ProLogis Trust, 7.00%, cvt. pfd., B ....... United States 135,000 3,341,250
Reckson Associates Realty Corp., 7.625%,
cvt. pfd., A............................... United States 180,000 3,577,500
Vornado Realty Trust, 6.50%, cvt. pfd., A . United States 60,000 2,797,500
------------
31,091,563
------------
TELECOMMUNICATIONS 1.2%
Nortel Inversora SA, 10.00%, cvt. pfd ..... Argentina 150,000 9,168,750
------------
TRANSPORTATION .2%
Union Pacific Capital Trust, 6.25%, cvt
pfd........................................ United States 40,000 1,640,000
------------
UTILITIES .9%
(a) CMS Energy Trust I, 7.75%, cvt. pfd ....... United States 160,000 7,440,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$99,730,077)............................... 78,763,169
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
BONDS 19.8%
COMMERCIAL SERVICES
<S> <C> <C> <C>
AmeriServe Food Distribution Inc., senior
sub. note, 10.125%, 7/15/07.............. United States 1,000,000 345,000
------------
</TABLE>
97
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN INCOME SECURITIES FUND PRINCIPAL
COUNTRY AMOUNT* VALUE
<S> <C> <C> <C>
BONDS (CONT.)
CONSUMER DURABLES .2%
E&S Holdings Corp., senior sub. note, B, 10.375%,
10/01/06 ........................................ United States $ 3,750,000 $1,331,250
CONSUMER NON-DURABLES 3.8%
Compania De Alimentos Fargo SA, 13.25%, 8/01/08 . Argentina 2,000,000 1,730,000
Del Monte Corp., senior sub. note, B, 12.25%,
4/15/07 ......................................... United States 2,000,000 2,230,000
Doane Pet Care Co., senior sub. note, 9.75%,
5/15/07 ......................................... United States 2,197,000 2,202,493
Evenflo Company Inc., B, 11.75%, 8/15/06 ........ United States 2,000,000 1,970,000
Hartmarx Corp., senior sub. note, 10.875%,
1/15/02 ......................................... United States 8,300,000 8,237,750
Playtex Family Products Corp., senior sub. note,
9.00%, 12/15/03.................................. United States 8,000,000 7,980,000
Revlon Consumer Products Corp., senior sub. note,
8.625%, 2/01/08 ................................. United States 2,000,000 1,010,000
SFC New Holdings Inc., senior note, 11.25%,
8/15/01.......................................... United States 4,000,000 3,720,000
The William Carter Co., senior sub. note, A,
10.375%, 12/01/06................................ United States 500,000 452,500
-----------
29,532,743
-----------
CONSUMER SERVICES 2.4%
AMF Bowling Worldwide Inc., senior sub. note, B,
10.875%, 3/15/06................................. United States 650,000 276,250
Cablevision SA, 144A, 13.75%, 5/01/09 ........... United States 3,000,000 2,940,000
Coast Hotel & Casino Inc., senior sub. note,
9.50%, 4/01/09................................... United States 1,000,000 970,000
CSC Holdings Inc., senior sub. deb., 9.875%,
4/01/23 ......................................... United States 4,000,000 4,240,000
Eldorado Resorts LLC, senior sub. note, 10.50%,
8/15/06.......................................... United States 500,000 512,500
Hard Rock Hotel Inc., senior sub. note, B, 9.25%,
4/01/05.......................................... United States 1,000,000 735,000
Harveys Casino Resorts, senior sub. note,
10.625%, 6/01/06................................. United States 2,200,000 2,277,000
Lone Cypress Co., sub. note, 144A, 11.50%,
8/01/09.......................................... United States 4,703,000 4,703,000
Protection One Alarm Monitoring Inc., senior sub
note, 144A, 8.125%, 1/15/09...................... United States 2,500,000 1,262,500
Venetian Casino/Las Vegas Sands, mortgage note,
12.25%, 11/15/04 ................................ United States 1,000,000 877,500
-----------
18,793,750
-----------
ELECTRONIC TECHNOLOGY 1.4%
Anacomp Inc., senior sub. note, B, 10.875%,
4/01/04.......................................... United States 6,000,000 6,015,000
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 United States 2,000,000 2,025,000
Samsung Electronics America Inc., A, 9.75%,
5/01/03.......................................... United States 3,000,000 3,135,000
-----------
11,175,000
-----------
ENERGY MINERALS 2.4%
Bellwether Exploration Co., senior sub. note,
10.875%, 4/01/07................................. United States 3,000,000 2,670,000
Chesapeake Energy Corp., senior note, B, 7.875%,
3/15/04.......................................... United States 500,000 455,000
Conproca SA, S.F., senior secured note, 144A,
12.00%, 6/16/10.................................. Mexico 9,000,000 9,090,000
Denbury Management Inc., senior sub. note, 9.00%,
3/01/08.......................................... United States 4,000,000 3,685,000
Plains Resources Inc., senior sub. note, B,
10.25%, 3/15/06.................................. United States 1,000,000 975,000
R&B Falcon Corp., senior note, B, 6.50%, 4/15/03 United States 2,000,000 1,830,000
-----------
FINANCE .4% 18,705,000
-----------
IBJ Preferred Capital Co. LLC, A, 8.79%, 12/29/49
HEALTH TECHNOLOGY .8%............................ United States 3,000,000 2,820,000
-----------
Dade International Inc., senior sub. note, B,
11.125%, 5/01/06................................. United States 3,000,000 2,955,000
ICN Pharmaceuticals Inc., senior note, B, 9.25%,
8/15/05 ......................................... United States 3,000,000 2,970,000
-----------
INDUSTRIAL SERVICES .7% 5,925,000-
-----------
Allied Waste North America Inc., senior sub
note, 144A, 10.00%, 8/01/09...................... United States 4,000,000 3,580,000
First Wave Marine Inc., senior note, 11.00%,
2/01/08.......................................... United States 1,000,000 695,000
Great Lakes Dredge & Dock Corp., senior sub
note, 11.25%, 8/15/08 ........................... United States 1,000,000 1,050,000
-----------
5,325,000
-----------
NON-ENERGY MINERALS .1%
Mesa Operating Co., senior sub. note, 10.625%,
7/01/06.......................................... United States 950,000 952,375
-----------
PROCESS INDUSTRIES 4.8%
Applied Extrusion Technology, senior note, B,
11.50%, 4/01/02.................................. United States 6,000,000 6,135,000
Consoltex Group Inc., senior sub. note, B,
11.00%, 10/01/03................................. United States 10,000,000 10,050,000
</TABLE>
98
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
<S> <C> <C> <C>
BONDS (CONT.)
PROCESS INDUSTRIES (CONT.)
Four M Corp., senior note, B, 12.00%, 6/01/06 ..................... United States $ 2,000,000 $ 1,875,000
Packaging Resources Inc., senior note, 11.625%, 5/01/03............ United States 3,000,000 3,015,000
Printpack Inc., senior sub. note, B, 10.625%, 8/15/06.............. United States 4,000,000 3,860,000
RBX Corp., senior sub. note, B, 11.25%, 10/15/05................... United States 10,000,000 2,050,000
Riverwood International, senior sub. note, 10.875%, 4/01/08........ United States 4,500,000 4,477,500
Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04........ Indonesia 7,400,000 5,383,500
------------
36,846,000
------------
PRODUCER MANUFACTURING 1.6%
Collins & Aikman Products, senior sub. note, 11.50%, 4/15/06 ...... United States 4,000,000 3,980,000
Nortek Inc., senior sub. note, 9.875%, 3/01/04 .................... United States 2,000,000 1,990,000
Outsourcing Services Group Inc., senior sub. note, 10.875%, 3/01/06 United States 2,000,000 1,790,000
Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03............ United States 2,696,000 2,500,540
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07.. Canada 2,350,000 1,750,750
------------
12,011,290
TELECOMMUNICATIONS 1.2% ------------
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ................. United States 3,000,000 1,905,000
NEXTLINK Communications Inc., senior note, 144A, 10.75%, 6/01/09... United States 4,000,000 4,120,000
Paging Network Inc., senior sub. note, 10.125%, 8/01/07............ United States 3,000,000 945,000
Voicestream Wireless Corp., senior note, 144A, 10.375%, 11/15/09... United States 1,000,000 1,030,000
Williams Communications Group Inc., senior note, 10.875%, 10/01/09. United States 1,490,000 1,568,225
------------
TOTAL BONDS (COST $170,960,594) ................................... 9,568,225
------------
153,330,633
CONVERTIBLE BONDS 5.2% ------------
ELECTRONIC TECHNOLOGY .9%
Trans-Lux Corp., cvt. sub. note, 7.50%, 12/01/06 .................. United States 8,000,000 7,000,000
ENERGY MINERALS .7%
Kerr McGee Corp., cvt., 7.50%, 5/15/14 ............................ United States 1,315,000 1,231,169
Swift Energy Co., cvt. sub. note, 6.25%, 11/15/06 ................. United States 5,500,000 4,276,250
------------
5,507,419
------------
HEALTH SERVICES .1%
Continucare Corp., cvt. sub. note, 144A, 8.00%, 10/31/02........... United States 9,500,000 475,000
------------
INDUSTRIAL SERVICES .4%
Key Energy Services Inc., cvt., 5.00%, 9/15/04 .................... United States 4,000,000 2,755,000
Parker Drilling Co., cvt. sub. note, 5.50%, 8/01/04 ............... United States 1,000,000 700,000
------------
3,455,000
------------
NON-ENERGY MINERALS 1.5%
Ashanti Capital Ltd., cvt., 5.50%, 3/15/03 ........................ Ghana 5,000,000 3,625,000
Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 6/10/02... United Kingdom 100,000 61,000
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04......... United States 6,000,000 3,210,000
Trizec Hahn Corp., cvt. senior deb., 3.00%, 1/29/21 ............... Canada 7,000,000 4,523,190
------------
11,419,190
------------
PRODUCER MANUFACTURING .3%
Exide Corp., cvt. senior sub. note, 144A, 2.90%, 12/15/05.......... United States 5,000,000 2,650,000
REAL ESTATE 1.3% ------------
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 ............... United States 6,000,000 4,980,000
Meristar Hospitality Corp., cvt. sub. note, 4.75%, 10/15/04 ....... United States 6,500,000 5,078,125
------------
10,058,125
------------
TOTAL CONVERTIBLE BONDS (COST $56,862,522) ........................ 40,564,734
------------
ZERO COUPON/STEP-UP BONDS 4.2%
AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to
3/15/01, 12.25% thereafter, 3/15/06................................ United States 2,438,000 816,730
APP Finance VI Mauritius Ltd., cvt., zero cpn., 11/18/12........... Indonesia 11,500,000 2,084,375
Charter Communications Holdings LLC, senior disc note, zero cpn. to
4/01/04, 9.92% thereafter, 4/01/11................................. United States 5,000,000 2,956,250
</TABLE>
99
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
ZERO COUPON/STEP-UP BONDS (CONT.)
<S> <C> <C> <C>
Crown Castle International Corp., senior disc. note, 144A,
zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ............... United States $ 5,000,000 $ 3,150,000
Huntsman ICI Chemicals LLC, senior disc. note, 144A, zero
cpn., 12/31/09 ................................................. United States 7,500,000 2,296,875
Level 3 Communications Inc., zero cpn. to 12/01/03, 10.50%
thereafter, 12/01/08 ........................................... United States 4,000,000 2,450,000
Mesa Operating Co., zero cpn. to 7/01/01, 11.625% thereafter,
7/01/06 ........................................................ United States 1,300,000 1,147,250
Microcell Telecommunications Inc., zero cpn. to 6/01/04,
12.00% thereafter, 6/01/09 ..................................... United States 3,000,000 1,946,250
Nextel Communications Inc., senior disc. note, zero cpn. to
2/15/03, 9.95% thereafter, 2/15/08 ............................. United States 8,500,000 6,077,500
Nextel International Inc., senior disc. note, zero cpn. to
4/15/03, 12.125% thereafter, 4/15/08 ........................... United States 5,000,000 2,825,000
NEXTLINK Communications Inc., 144A, zero cpn. to 6/01/04,
12.25% thereafter, 6/01/09 ..................................... United States 4,000,000 2,460,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 .......... United States 4,200,000 882,000
SFC New Holdings Inc., zero cpn. to 6/15/05, 11.00%
thereafter, 12/15/09 ........................................... United States 191,574 --
Spectrasite Holdings Inc., senior disc. note, zero cpn. to
4/15/04, 11.25% thereafter, 4/15/09 ............................ United States 1,750,000 945,000
United Pan-Europe Communications NV, 144A, zero cpn. to
8/01/04, 12.50% thereafter, 8/01/09 ............................ Netherlands 2,500,000 1,425,000
VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn
to 11/15/04, 11.875% thereafter, 11/15/09 ...................... United States 1,750,000 1,050,000
------------
TOTAL ZERO COUPON/STEP-UP BONDS (COST $38,309,471) ............. 32,512,230
------------
U.S. GOVERNMENT SECURITIES 9.7%
U.S. Treasury Bond, 6.25%, 8/15/23 ............................. United States 57,000,000 53,775,966
U.S. Treasury Bond, 6.00%, 2/15/26 ............................. United States 13,000,000 11,895,000
U.S. Treasury Bond, 6.125%, 11/15/27 ........................... United States 10,000,000 9,303,130
------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $76,688,354) ............ 74,974,096
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 15.0%
ESCOM, E168, utility deb., 11.00%, 6/01/08 ..................... South Africa 27,000,000 ZAR 3,706,742
Republic of Argentina, L, FRN, 6.00%, 3/31/23 .................. Argentina 50,000,000 33,125,000
Republic of Brazil, 11.625%, 4/15/04 ........................... Brazil 2,000,000 1,990,500
Republic of Brazil, 14.50%, 10/15/09 ........................... Brazil 5,907,000 6,556,770
Republic of Brazil, A, FRN, 1/01/01 ............................ Brazil 3,690,000 3,653,100
Republic of Brazil, FRN, 5.75%, 4/15/24 ........................ Brazil 29,000,000 18,777,500
Republic of Brazil, L, FRN, 5.875%, 4/15/06 .................... Brazil 15,040,000 13,263,400
Republic of Korea, 8.875%, 4/15/08 ............................. South Korea 19,000,000 20,045,000
Republic of South Africa, 12.00%, 2/28/05 ...................... South Africa 23,000,000 ZAR 3,573,314
Republic of Turkey, 12.375%, 6/15/09 ........................... Turkey 5,000,000 5,375,000
Russia Ministry of Finance, 11.75%, 6/10/03 .................... Russia 5,500,000 4,111,250
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 ............. Russia 4,000,000 2,440,000
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $103,709,598) ............................................ 116,617,576
------------
TOTAL LONG TERM INVESTMENTS (COST $805,480,391) ................ 765,114,992
------------
(g)REPURCHASE AGREEMENT
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $361,018) (COST $360,940) ...................... United States 360,940 360,940
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes ------------
TOTAL INVESTMENTS (COST $805,841,331) 98.6% ......................... 765,475,932
OTHER ASSETS, LESS LIABILITIES 1.4% ................................. 10,942,528
------------
NET ASSETS 100.0% ................................................... $776,418,460
============
</TABLE>
See glossary of currency abbreviations on page 165.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(c)See Note 7 regarding defaulted securities.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
100
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND SHARES VALUE
<S> <C> <C>
COMMON STOCKS 95.2%
COMMERCIAL SERVICES 2.7%
(a)Concord EFS Inc. .......................... 185,000 $ 4,763,750
Equifax Inc. ............................ 120,000 2,827,500
(a)Robert Half International Inc. ............ 120,000 3,427,500
------------
11,018,750
------------
CONSUMER DURABLES 2.4%
(a)Electronic Arts Inc. ...................... 53,000 4,452,000
Mattel Inc. ............................. 180,000 2,362,500
Maytag Corp. ............................ 65,000 3,120,000
------------
9,934,500
------------
CONSUMER NON-DURABLES 2.9%
Coca-Cola Co. ........................... 37,000 2,155,250
Hershey Foods Corp. ..................... 85,000 4,037,500
Philip Morris Cos. Inc. ................. 105,000 2,434,688
Procter & Gamble Co. .................... 30,000 3,286,875
------------
11,914,313
------------
CONSUMER SERVICES 2.6%
McDonald's Corp. ........................ 100,000 4,031,250
Time Warner Inc. ........................ 89,000 6,446,938
------------
10,478,188
------------
ELECTRONIC TECHNOLOGY 24.5%
(a)3Com Corp. ................................ 89,400 4,201,800
(a)Applied Materials Inc. .................... 55,000 6,967,813
(a)Cisco Systems Inc. ........................ 110,000 11,783,750
Compaq Computer Corp. .................... 100,000 2,706,250
(a)EMC Corp. ................................. 55,000 6,008,750
Hewlett-Packard Co. ...................... 45,000 5,127,188
Intel Corp. .............................. 45,000 3,704,063
International Business Machines Corp. .... 40,000 4,320,000
(a)JDS Uniphase Corp. ........................ 110,000 17,744,375
(a)KLA-Tencor Corp. .......................... 50,000 5,568,750
Linear Technology Corp. .................. 65,000 4,651,563
Lucent Technologies Inc. ................. 75,000 5,610,938
Motorola Inc. ............................ 10,000 1,472,500
Nokia Corp., ADR (Finland) ............... 8,000 1,520,000
Nortel Networks Corp. (Canada) ........... 20,000 2,020,000
(a)Synopsys Inc. ............................. 70,000 4,672,500
(a)Tellabs Inc. .............................. 40,000 2,567,500
United Technologies Corp. ................ 60,000 3,900,000
(a)Xilinx Inc. ............................... 120,000 5,456,250
------------
100,003,990
------------
ENERGY MINERALS 1.6%
(a)Barrett Resources Corp. ................... 58,200 1,713,263
Royal Dutch Petroleum Co., N.Y. shs
(Netherlands) ........................... 80,000 4,835,000
------------
6,548,263
------------
FINANCE 6.2%
American International Group Inc. ....... 41,937 4,534,438
Associates First Capital Corp., A ....... 95,000 2,606,563
Bank One Corp. .......................... 125,000 4,007,813
Charles Schwab Corp. .................... 35,000 1,343,125
Citigroup Inc. .......................... 87,500 4,861,719
Fifth Third Bancorp ..................... 55,000 4,035,625
Providian Financial Corp. ............... 28,000
(a)TD Waterhouse Group Inc ................... 89,900 1,477,731
-----------
25,416,764
-----------
</TABLE>
101
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND . SHARES VALUE
COMMON STOCKS (CONT.)
<S> <C> <C>
HEALTH SERVICES 1.0%
McKesson HBOC Inc. ........................ 109,000 $2,459,313
Omnicare Inc. ............................. 140,000 1,680,000
-----------
4,139,313
-----------
HEALTH TECHNOLOGY 12.1%
Abbott Laboratories ....................... 130,000 4,720,625
American Home Products Corp. .............. 70,000 2,760,625
(a) Amgen Inc. ................................ 100,000 6,006,250
Baxter International Inc. ................. 70,000 4,396,875
Eli Lilly & Co. ........................... 50,000 3,325,000
(a) Genentech Inc. ............................ 61,600 8,285,200
Johnson & Johnson ......................... 68,419 6,371,519
Medtronic Inc. ............................ 180,000 6,558,750
Schering-Plough Corp. ..................... 115,000 4,851,563
Warner-Lambert Co. ........................ 25,000 2,048,438
-----------
49,324,845
-----------
INDUSTRIAL SERVICES 4.2%
(a) AES Corp. ................................. 75,000 5,606,250
(a) Republic Services I ....................... 309,500 4,449,063
Schlumberger Ltd. ......................... 75,000 4,218,750
Transocean Sedco Forex Inc. ............... 14,520 489,143
Waste Management Inc. ..................... 130,000 2,234,375
-----------
16,997,581
-----------
NON-ENERGY MINERALS .6%
De Beers Consolidated Mines AG, ADR (South
Africa) ................................... 90,000 2,604,375
----------
PRODUCER MANUFACTURING 2.7%
(a) Gentex Corp. .............................. 75,000 2,081,250
Minnesota Mining & Manufacturing Co. ...... 25,000 2,446,875
Molex Inc. ................................ 63,437 3,596,085
Tyco International Ltd. (Bermuda) ......... 71,000 2,760,125
-----------
10,884,335
-----------
RETAIL TRADE 4.9%
Albertson's Inc. .......................... 155,000 4,998,750
(a) Costco Wholesale Corp. .................... 45,000 4,106,250
GAP Inc. .................................. 60,000 2,760,000
Wal-Mart Stores Inc. ...................... 120,000 8,295,000
-----------
20,160,000
-----------
TECHNOLOGY SERVICES 9.6%
Automatic Data Processing Inc. ............ 120,000 6,465,000
(a) Commerce One Inc. ......................... 3,000 589,500
(a) Computer Sciences Corp. ................... 50,000 4,731,250
(a) Entrust Technologies Inc. ................. 40,000 2,397,500
(a) i2 Technologies Inc. ...................... 13,000 2,535,000
(a) Infonet Services Corp., B ................. 96,800 2,541,000
(a) InfoSpace.com Inc. ........................ 10,000 2,140,000
(a) Microsoft Corp. ........................... 80,000 9,340,000
(a) Oracle Corp. .............................. 60,000 6,723,750
(a) VERITAS Software Corp. .................... 13,000 1,860,625
-----------
39,323,625
-----------
TRANSPORTATION 3.7%
Air Express International Corp. ........... 150,000 4,846,875
Expeditors International of Washington Inc. 120,000 5,257,500
Southwest Airlines Co. .................... 105,000 1,699,688
United Parcel Service Inc., B ............. 46,200 3,187,800
-----------
14,991,863
-----------
</TABLE>
102
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES 13.5%
AT&T Corp. ................................................. 80,000 $ 4,060,000
CMS Energy Corp. ........................................... 117,000 3,648,938
Dominion Resources Inc. .................................... 72,000 2,826,000
Enron Corp. ................................................ 135,000 5,990,625
(a) Global Crossing Ltd. (Bermuda) ............................. 40,000 2,000,000
GPU Inc. ................................................... 120,000 3,592,500
GTE Corp. .................................................. 50,000 3,528,125
(a) KPNQwest NV (Netherlands) .................................. 57,200 3,646,500
(a) MCI WorldCom Inc. .......................................... 60,000 3,183,750
PECO Energy Co. ............................................ 155,000 5,386,250
(a) Qwest Communications International Inc. .................... 150,000 6,450,000
SBC Communications Inc. .................................... 60,000 2,925,000
Vodafone AirTouch PLC, ADR (United Kingdom) ................ 125,000 6,187,500
(a) VoiceStream Wireless Corp. ................................. 10,000 1,423,117
-----------
54,848,305
-----------
TOTAL LONG TERM INVESTMENTS (COST $275,530,987) 388,589,010
-----------
<CAPTION>
PRINCIPAL
AMOUNT
(g) REPURCHASE AGREEMENT 5.2%
<S> <C> <C>
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $21,065,454) (COST $21,060,921) .................. $21,060,921 21,060,921
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $296,591,908) 100.4% ...................... 409,649,931
OTHER ASSETS, LESS LIABILITIES (.4%) .............................. (1,593,464)
------------
NET ASSETS 100.0% ................................................. $408,056,467
============
</TABLE>
(a) Non-income producing.
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
103
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MONEY MARKET FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANK NOTES 2.7%
Bank of America NA, 5.70% - 6.03%, 2/01/00 - 2/14/00 (COST $10,000,000) ................ $ 10,000,000 $ 10,000,000
-------------
CERTIFICATES OF DEPOSIT 16.1%
ABN Amro Bank NV, Chicago Branch, 5.10%, 4/07/00 ....................................... 5,000,000 4,999,616
Bank of Montreal, Chicago Branch, 5.12% - 6.03%, 4/10/00 - 4/12/00 ..................... 15,000,000 15,000,034
Bayerische Landesbank, New York Branch, 5.89%, 3/17/00 ................................. 5,000,000 5,000,000
Bayerische Vereinsbank, New York Branch, 5.55% - 5.56%, 1/21/00 - 1/24/00 .............. 10,000,000 10,000,042
Deutsche Bank AG, New York Branch, 5.27% - 5.285%, 3/03/00 - 5/22/00 ................... 10,000,000 9,997,329
Lloyds Bank PLC, New York Branch, 5.99%, 3/27/00 ....................................... 5,000,000 5,000,117
Rabobank Nederland NV, New York Branch, 5.41%, 6/01/00 ................................. 5,000,000 4,999,200
Toronto Dominion Bank, New York Branch, 5.10%, 2/22/00 ................................. 5,000,000 4,999,760
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $59,996,098) ....................................... 59,996,098
-------------
(e) COMMERCIAL PAPER 65.0%
Abbey National North America Corp., 5.92%, 3/13/00 .................................... 5,000,000 4,940,800
American Express Credit Corp., 5.94%, 1/31/00 .......................................... 5,000,000 4,975,250
Archer Daniels Midland Co., 5.97% - 5.98%, 1/28/00 - 2/01/00 ........................... 10,000,000 9,951,871
Associates Corp. of North America, 5.90%, 3/08/00 - 3/10/00 ............................ 15,000,000 14,832,833
Bellsouth Telecommunications Inc., 5.62% - 5.81%, 1/20/00 - 2/15/00 .................... 15,000,000 14,930,176
Chevron U.K. Investment PLC, 5.90% - 5.96%, 1/19/00 - 2/09/00 .......................... 15,000,000 14,921,511
CIESCO LP, 5.90%, 2/10/00 - 2/11/00 .................................................... 10,000,000 9,933,625
CocaCola Co., 5.86%, 3/28/00 - 3/30/00 ................................................. 15,000,000 14,785,134
Commonwealth Bank of Australia, 5.90%, 2/23/00 ......................................... 5,000,000 4,956,569
Dupont de Nemours & Co., 5.71%, 2/25/00 ................................................ 5,000,000 4,956,382
Ford Motor Credit Co., 5.71%, 1/10/00 - 1/11/00 ........................................ 10,000,000 9,984,932
General Electric Capital Corp, 5.83% - 5.90%, 2/24/00 - 3/06/00 ........................ 15,000,000 14,855,967
General Mills, 5.67%, 1/12/00 - 1/14/00 ................................................ 15,000,000 14,971,651
Internationale Ned. U.S. Funding Corp., 5.88%, 4/03/00 ................................. 5,000,000 4,924,050
Merrill Lynch & Co. Inc., 5.84% - 5.85%, 2/29/00 - 3/02/00 ............................. 15,000,000 14,853,918
Minnesota Mining & Manufacturing Co., 5.60%, 2/16/00 - 2/18/00 ......................... 15,000,000 14,890,333
Morgan Stanley Dean Witter & Co., 5.95%, 2/03/00 - 2/07/00 ............................. 15,000,000 14,914,056
National Rural Utilities Cooperative Finance Corp., 5.68 - 5.75%, 1/18/00 - 1/27/00 .... 14,000,000 13,948,785
Province of British Columbia, 5.60%, 2/22/00 ........................................... 5,000,000 4,959,556
Salomon Smith Barney Holdings Inc., 5.95%, 3/07/00 - 3/15/00 ........................... 15,000,000 14,823,979
Schering Corp., 5.92%, 1/18/00 ......................................................... 5,000,000 4,986,022
Walt Disney Co., 5.72% - 5.88%, 1/28/00 - 2/02/00 ...................................... 15,000,000 14,927,915
-------------
TOTAL COMMERCIAL PAPER (COST $242,225,315) ............................................. 242,225,315
-------------
U.S. GOVERNMENT AGENCY SECURITIES 6.7%
Federal Home Loan Mortgage Corp., 4.50%, 1/05/00 (COST $24,987,500) ..................... 25,000,000 24,987,500
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $337,208,913) ...................... 337,208,913
-------------
(h) REPURCHASE AGREEMENT 9.9%
Dresdner Kleinwort Benson, North America LLC, 2.50%, 1/03/00,
(Maturity Value $37,222,753) (COST $37,215,000)
Collateralized by U.S. Treasury Notes ................................................... 37,215,000 37,215,000
-------------
TOTAL INVESTMENTS (COST $374,423,913) 100.4% ........................................... 374,423,913
OTHER ASSETS, LESS LIABILITIES (.4%) ................................................... (1,794,570)
-------------
NET ASSETS 100.0% ...................................................................... $ 372,629,343
=============
</TABLE>
(e) Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
104
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN NATURAL RESOURCES SECURITIES FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 98.8%
ENERGY MINERALS 37.2%
Apache Corp. .............................................. United States 27,800 $ 1,026,863
Ashland Inc. .............................................. United States 19,700 648,869
(a)Barrett Resources Corp. ................................... United States 44,600 1,312,913
(a)Basin Exploration Inc. .................................... United States 47,100 830,138
(a)Chesapeake Energy Corp. ................................... United States 210,000 498,750
Conoco Inc., B ............................................ United States 61,338 1,525,783
Devon Energy Corp. ........................................ United States 10,000 328,750
EOG Resources Inc. ........................................ United States 48,500 851,781
Exxon Mobil Corp. ......................................... United States 6,600 531,713
(a)Gulf Indonesia Resources Ltd. ............................. Indonesia 77,000 625,625
(a)Houston Exploration Co. ................................... United States 27,000 534,938
(a)Newfield Exploration Co. .................................. United States 51,700 1,382,975
(a)Nuevo Energy Co. .......................................... United States 54,500 1,021,875
(a)Pennaco Energy Inc. ....................................... United States 72,000 576,000
(a)Santa Fe Snyder Corp. ..................................... United States 61,900 495,200
Texaco Inc. ............................................... United States 10,300 559,419
Tosco Corp. ............................................... United States 38,250 1,039,922
Ultramar Diamond Shamrock Corp. ........................... United States 33,500 760,031
Unocal Corp. .............................................. United States 18,000 604,125
Valero Energy Corp. ....................................... United States 42,000 834,750
----------
15,990,420
----------
INDUSTRIAL SERVICES 27.7%
(a)AES Corp. ................................................. United States 9,000 672,750
(a)Atwood Oceanics Inc. ...................................... United States 15,600 602,550
Baker Hughes Inc. ......................................... United States 25,100 528,669
(a)BJ Services Co. ........................................... United States 16,450 687,816
(a)Cal Dive International Inc. ............................... United States 23,400 775,125
(a)Casella Waste Systems Inc., A ............................. United States 25,800 486,975
Diamond Offshore Drilling Inc. ............................ United States 35,500 1,084,969
ENSCO International Inc. .................................. United States 18,500 423,188
(a)Grey Wolf Inc. ............................................ United States 120,000 345,000
Halliburton Co. ........................................... United States 6,400 257,600
(a)Marine Drilling Cos. Inc. ................................. United States 20,000 448,750
(a)Nabors Industries Inc. .................................... United States 16,500 510,469
(a)Petroleum Geo-Services, ADR ............................... Norway 3,100 55,219
(a)Safety-Kleen Corp. ........................................ United States 30,000 339,375
(a)TETRA Technologies Inc. ................................... United States 35,000 253,750
Transocean Sedco Forex Inc. ............................... United States 41,500 1,398,031
(a)Tuboscope Inc. ............................................ United States 54,000 857,250
(a)Varco International Inc. .................................. United States 77,000 784,438
(a)Weatherford International Inc. ............................ United States 34,500 1,377,844
----------
11,889,768
----------
NON-ENERGY MINERALS 18.3%
Aluminum Co. of America ................................... United States 10,200 846,600
Barrick Gold Corp. ........................................ Canada 34,195 604,824
De Beers Consolidated Mines AG, ADR ....................... South Africa 34,250 991,109
(a)Franco-Nevada Mining Corp. Ltd. ........................... Canada 37,400 572,937
Freeport-McMoRan Copper & Gold Inc., A .................... United States 13,718 254,640
Georgia-Pacific Corp. ..................................... United States 13,000 659,750
Ispat International NV, A, N.Y. shs ....................... Netherlands 70,500 1,136,813
Newmont Mining Corp. ...................................... United States 8,455 207,148
Pohang Iron & Steel Co. Ltd., ADR ......................... South Korea 17,100 598,500
Rayonier Inc. ............................................. United States 15,500 748,844
Rio Tinto PLC ............................................. United Kingdom 20,929 504,986
(a)Stillwater Mining Co. ..................................... United States 22,750 725,156
----------
7,851,307
----------
</TABLE>
105
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN NATURAL RESOURCES SECURITIES FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
PROCESS INDUSTRIES 11.1%
Abitibi-Consolidated Inc. ..................................... Canada 87,500 $ 1,039,063
(a) Asia Pulp & Paper Co. Ltd., ADR ............................... Indonesia 82,000 645,750
(a) Asia Pulp & Paper Co. Ltd., wts., 7/27/00 ..................... Indonesia 15,000 14,061
Bowater Inc. .................................................. United States 18,700 1,015,644
Ecolab Inc. ................................................... United States 3,300 129,110
Hercules Inc. ................................................. United States 9,800 273,175
Monsanto Co. .................................................. United States 5,900 210,188
Potash Corp. of Saskatchewan Inc. ............................. Canada 8,400 404,775
Praxair Inc. .................................................. United States 2,200 110,685
(a) Smurfit-Stone Container Corp. ................................. United States 38,100 933,450
----------
4,775,901
----------
PRODUCER MANUFACTURING .7%
Reliance Steel & Aluminum Co. .................................. United States 12,600 295,313
----------
UTILITIES 3.8%
Enron Corp. .................................................... United States 24,000 1,065,000
Williams Cos. Inc. ............................................. United States 18,500 565,406
----------
1,630,406
----------
TOTAL COMMON STOCKS AND WARRANTS (COST $41,493,460) ............ 42,433,115
----------
(a) CONVERTIBLE PREFERRED STOCKS .8%
Enron Corp., 7.00%, cvt. pfd. (COST $290,719) ................. United States 17,500 328,125
----------
TOTAL LONG TERM INVESTMENTS (COST $41,784,179) ................ 42,761,240
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
(g) REPURCHASE AGREEMENT .6%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $239,178) (COST $239,127) ............................ $ 239,127 239,127
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $42,023,306) 100.2% ............................ 43,000,367
OTHER ASSETS, LESS LIABILITIES (.2%) ................................... (70,950)
------------
NET ASSETS 100.0% ...................................................... $ 42,929,417
</TABLE>
(a) Non-income producing.
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor.
See notes to financial statements.
106
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN REAL ESTATE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.7%
EQUITY REIT - APARTMENTS 15.6%
Apartment Investment & Management Co., A ................................. 175,000 $ 6,967,188
Archstone Communities Trust .............................................. 180,035 3,690,718
Avalonbay Communities Inc. ............................................... 80,000 2,745,000
Camden Property Trust .................................................... 47,273 1,294,098
Charles E. Smith Residential Realty Inc. ................................. 79,000 2,794,625
Equity Residential Properties Trust ...................................... 177,500 7,577,031
-----------
25,068,660
-----------
EQUITY REIT - DIVERSIFIED PROPERTY TYPE 17.1%
Crescent Real Estate Equities Co. ........................................ 137,650 2,529,319
Duke-Weeks Realty Corp. .................................................. 145,000 2,827,500
Glenborough Realty Trust Inc. ............................................ 436,000 5,831,500
Liberty Property Trust ................................................... 240,000 5,820,000
Reckson Associates Realty Corp., B ....................................... 109,000 2,479,750
Spieker Properties Inc. .................................................. 130,000 4,736,875
Vornado Realty Trust ..................................................... 103,300 3,357,250
-----------
27,582,194
-----------
EQUITY REIT - HEALTH CARE 1.1%
OMEGA Healthcare Investors Inc. .......................................... 142,000 1,801,625
-----------
EQUITY REIT - HOTELS 6.8%
FelCor Lodging Trust Inc. ................................................ 52,300 915,250
Host Marriott Corp. ...................................................... 391,590 3,230,618
MeriStar Hospitality Corp. ............................................... 390,000 6,240,000
Winston Hotels Inc. ...................................................... 72,500 589,063
-----------
10,974,931
-----------
EQUITY REIT - INDUSTRIAL 4.3%
Cabot Industrial Trust ................................................... 82,900 1,523,288
ProLogis Trust ........................................................... 278,400 5,359,200
-----------
6,882,488
-----------
EQUITY REIT - OFFICE 21.4%
Alexandria Real Estate Equities Inc. ..................................... 143,400 4,561,913
Arden Realty Inc. ........................................................ 235,600 4,726,725
Brandywine Realty Trust .................................................. 300,700 4,923,963
CarrAmerica Realty Corp. ................................................. 57,200 1,208,350
Equity Office Properties Trust ........................................... 370,008 9,111,447
Highwoods Properties Inc. ................................................ 180,000 4,185,000
Mack-Cali Realty Corp. ................................................... 130,000 3,388,125
SL Green Realty Corp. .................................................... 108,400 2,357,700
-----------
34,463,223
-----------
EQUITY REIT- RESIDENTIAL COMMUNITIES 2.1%
Sun Communities Inc. ..................................................... 105,000 3,379,688
-----------
EQUITY REIT - RETAIL - COMMUNITY CENTERS 2.9%
Developers Diversified Realty Corp. ...................................... 23,000 296,125
Kimco Realty Corp. ....................................................... 133,000 4,505,375
-----------
4,801,500
-----------
EQUITY REIT - RETAIL - REGIONAL MALLS 6.2%
General Growth Properties Inc. ........................................... 90,000 2,520,000
The Macerich Co. ......................................................... 123,000 2,559,938
Simon Property Group Inc. ................................................ 215,000 4,931,563
-----------
10,011,501
-----------
EQUITY REIT - STORAGE 3.8%
Public Storage Inc. ...................................................... 266,600 6,048,487
-----------
EQUITY REIT - WHOLE LOANS 2.4%
Starwood Financial Inc. .................................................. 230,000 3,895,624
-----------
</TABLE>
107
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN REAL ESTATE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
(a) DIVERSIFIED PROPERTY TYPE 6.2%
Crescent Operating Inc. .................................................... 27,500 $ 75,624
Security Capital Group Inc., B ............................................. 530,200 6,627,500
Security Capital U.S. Realty (Luxembourg) .................................. 232,300 3,266,718
-----------
9,969,842
-----------
HOTELS 5.8%
(a) Candlewood Hotel Co. Inc. ................................................. 350,000 612,500
(a) MeriStar Hotels & Resorts Inc. ............................................ 170,000 605,624
Starwood Hotels & Resorts Worldwide Inc. ................................... 275,000 6,462,500
(a) Wyndham International Inc., A ............................................. 542,038 1,592,236
-----------
9,272,860
-----------
TOTAL LONG TERM INVESTMENTS (COST $163,505,009) ............................ 154,152,623
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
(g) REPURCHASE AGREEMENT 3.4%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $5,461,193) (COST $5,460,018) ........................ $ 5,460,018 5,460,018
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $168,965,027) 99.1% .............................. 159,612,641
OTHER ASSETS, LESS LIABILITIES .9% ....................................... 1,389,102
------------
NET ASSETS 100.0% ........................................................ $161,001,743
============
</TABLE>
(a) Non-income producing.
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
108
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 98.0%
COMMERCIAL SERVICES 3.2%
Standard Register Co. ....................................................... 131,300 $ 2,543,938
Wallace Computer Services Inc. .............................................. 703,800 11,700,675
-----------
14,244,613
-----------
CONSUMER DURABLES 6.0%
Leggett & Platt Inc. ........................................................ 887,500 19,025,781
Newell Rubbermaid Inc. ...................................................... 274,300 7,954,700
-----------
26,980,481
-----------
CONSUMER NON-DURABLES 7.2%
Alberto-Culver Co., A ....................................................... 649,500 14,126,625
Block Drug Co. Inc., A ...................................................... 217,885 6,754,440
DIMON Inc. .................................................................. 550,600 1,789,450
Philip Morris Cos. Inc. ..................................................... 120,000 2,782,500
Universal Corp. ............................................................. 314,300 7,169,969
-----------
32,622,984
-----------
ELECTRONIC TECHNOLOGY 6.6%
Cohu Inc. ................................................................... 670,000 20,770,000
Hewlett-Packard Co. ......................................................... 79,900 9,103,606
-----------
29,873,606
-----------
ENERGY MINERALS 1.5%
Royal Dutch Petroleum Co., N.Y. shs. (Netherlands) .......................... 114,300 6,908,006
-----------
FINANCE 12.8%
Fannie Mae .................................................................. 63,200 3,946,050
Mercantile Bankshares Corp. ................................................. 210,525 6,723,642
National Commerce Bancorp ................................................... 598,200 13,571,663
State Street Corp. .......................................................... 103,600 7,569,275
TrustCo Bank Corp., N.Y. shs ................................................ 228,460 3,027,095
U.S. Bancorp ................................................................ 278,300 6,627,019
Washington Mutual Inc. ...................................................... 417,400 10,852,400
Wilmington Trust Corp. ...................................................... 115,000 5,548,750
-----------
57,865,894
-----------
HEALTH TECHNOLOGY 6.6%
Becton, Dickinson & Co. ..................................................... 174,800 4,675,900
Superior Uniform Group Inc. ................................................. 265,800 2,392,200
West Pharmaceutical Services Inc. ........................................... 726,800 22,485,375
-----------
29,553,475
-----------
INSURANCE 9.7%
American International Group Inc. ........................................... 83,937 9,075,688
Chubb Corp. ................................................................. 78,000 4,392,375
Harleysville Group Inc. ..................................................... 174,600 2,488,050
Mercury General Corp. ....................................................... 272,700 6,067,575
MMI Cos. Inc. ............................................................... 368,500 3,178,313
ReliaStar Financial Corp. ................................................... 274,100 10,741,294
RLI Corp. ................................................................... 230,656 7,842,304
-----------
43,785,599
-----------
NON-ENERGY MINERALS .5%
Nucor Corp. ................................................................. 44,000 2,411,750
-----------
PROCESS INDUSTRIES 13.3%
Bemis Co. Inc. .............................................................. 347,900 12,133,013
Brady Corp., A .............................................................. 80,500 2,731,969
Donaldson Co. Inc. .......................................................... 98,200 2,362,938
General Electric Co. ........................................................ 19,400 3,002,150
Lancaster Colony Corp. ...................................................... 104,900 3,474,813
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PROCESS INDUSTRIES (CONT.)
M.A. Hanna Co. .............................................................. 325,200 $ 3,556,875
Millipore Corp. ............................................................. 104,400 4,032,450
Myers Industries Inc. ....................................................... 531,586 8,372,480
Pall Corp. .................................................................. 742,100 16,001,531
Sherwin-Williams Co. ........................................................ 198,900 4,176,900
-----------
59,845,119
-----------
PRODUCER MANUFACTURING 18.6%
Baldor Electric Co. ......................................................... 463,333 8,397,911
(a)CIRCOR International Inc. ................................................... 255,650 2,636,391
Diebold Inc. ................................................................ 242,900 5,708,150
Dover Corp. ................................................................. 239,100 10,849,163
Graco Inc. .................................................................. 177,100 6,353,463
Hubbell Inc., B ............................................................. 276,500 7,534,625
Kaydon Corp. ................................................................ 452,500 12,132,656
Kimball International Inc., B ............................................... 529,300 8,733,450
Superior Industries International Inc. ...................................... 218,100 5,847,806
Teleflex Inc. ............................................................... 352,400 11,034,525
Watts Industries Inc., A .................................................... 306,300 4,517,925
-----------
83,746,065
-----------
RETAIL TRADE 7.6%
Family Dollar Stores Inc. ................................................... 1,551,300 25,305,581
The Limited Inc. ............................................................ 116,523 5,046,902
Schultz Sav-O Stores Inc. ................................................... 227,700 2,903,175
Wal-Mart Stores Inc. ........................................................ 15,100 1,043,788
-----------
34,299,446
-----------
TECHNOLOGY SERVICES 3.2%
Reynolds & Reynolds Co., A .................................................. 635,000 14,287,500
-----------
TRANSPORTATION 1.2%
Circle International Group Inc. ............................................. 246,700 5,489,072
-----------
TOTAL LONG TERM INVESTMENTS (COST $400,163,699) ............................. 441,913,610
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
(g)REPURCHASE AGREEMENT 1.2%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $5,776,326) (COST $5,775,083) ......................... $ 5,775,083 5,775,083
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $405,938,782) 99.2% ............................... 447,688,693
OTHER ASSETS, LESS LIABILITIES .8% ......................................... 3,409,212
------------
NET ASSETS 100.0% $451,097,905
============
</TABLE>
(a)Non income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
110
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 94.3%
(a)COMMERCIAL SERVICES 1.8%
Aether Systems Inc. ...................................................... 4,100 $ 293,663
Answerthink Consulting Group Inc. ........................................ 3,400 116,450
Applied Graphics Technologies Inc. ....................................... 80,000 690,000
Careerbuilder Inc. ....................................................... 32,900 211,794
Chemdex Corp. ............................................................ 9,700 1,076,700
Corporate Executive Board Co. ............................................ 5,700 318,488
Digital Impact Inc. ...................................................... 1,400 70,175
Exchange Applications Inc. ............................................... 12,500 698,438
Flycast Communications Corp. ............................................. 1,900 246,881
GetThere.com Inc. ........................................................ 4,100 165,025
Harris Interactive Inc. .................................................. 5,400 70,538
Hotjobs.com Ltd. ......................................................... 28,500 1,245,094
Interep National Radio Sales Inc. ........................................ 22,500 300,938
Management Network Group Inc. ............................................ 1,700 55,463
Mediaplex Inc. ........................................................... 2,700 169,425
Netcentives Inc. ......................................................... 4,300 267,944
NetRatings Inc. .......................................................... 800 38,500
NOVA Corp. ............................................................... 55,900 1,764,344
RemedyTemp Inc., A ....................................................... 29,500 560,500
Smith-Gardner & Associates Inc. .......................................... 4,100 69,956
SOS Staffing Services Inc. ............................................... 75,500 330,313
Stamps.com Inc. .......................................................... 2,200 91,575
Sylvan Learning Systems Inc. ............................................. 19,100 248,300
----------
9,100,504
----------
(a)CONSUMER DURABLES .4%
Lancaster Colony Corp. ................................................... 104,900 3,474,813
Activision Inc. .......................................................... 75,700 1,159,156
Audiovox Corp., A ........................................................ 22,800 692,550
----------
1,851,706
----------
CONSUMER NON-DURABLES .7%
(a)Sola International Inc. ................................................. 24,400 338,550
(a)Tommy Hilfiger Corp. .................................................... 103,600 2,415,175
Wolverine World Wide Inc. ............................................... 55,000 601,563
----------
3,355,288
----------
(a)CONSUMER SERVICES 3.5%
Acme Communications Inc. ................................................. 3,500 116,375
Cumulus Media Inc., A .................................................... 57,600 2,923,200
DeVry Inc. ............................................................... 67,800 1,262,775
Emmis Communications Corp., A ............................................ 4,400 548,419
Entercom Communications Corp. ............................................ 1,300 85,800
E-Stamp Corp. ............................................................ 4,700 104,575
Harrah's Entertainment Inc. .............................................. 900 23,794
Homestore.com Inc. ....................................................... 700 51,975
Insight Communications Co. Inc., A ....................................... 64,100 1,898,963
Jack in the Box Inc. ..................................................... 64,200 1,328,138
Knot Inc. ................................................................ 3,200 27,000
Martha Stewart Living Omnimedia Inc., A .................................. 3,200 76,800
MeriStar Hotels & Resorts Inc. ........................................... 120,000 427,500
NDS Group PLC, ADR (United Kingdom) ...................................... 2,200 67,100
Prime Hospitality Corp. .................................................. 238,000 2,097,375
Quokka Sports Inc. ....................................................... 33,200 435,750
Quotesmith.com Inc. ...................................................... 31,700 360,588
Radio One Inc. ........................................................... 14,400 1,324,800
SFX Entertainment Inc. ................................................... 58,950 2,133,253
Spanish Broadcasting Systems Inc. ........................................ 17,400 700,350
TiVo Inc. ................................................................ 4,200 141,750
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a) CONSUMER SERVICES (CONT.)
Vail Resorts Inc. ...................................................... 31,100 $ 557,856
XM Satellite Radio Holdings Inc. ....................................... 22,300 850,188
-----------
17,544,324
-----------
ELECTRONIC TECHNOLOGY 22.7%
(a) Advanced Energy Industries Inc. ........................................ 46,000 2,265,500
(a) Airnet Communications Corp. ............................................ 1,900 69,113
(a) Alpha Industries Inc. .................................................. 17,000 974,313
(a) Alteon Websystems Inc. ................................................. 1,300 114,075
(a) ANTEC Corp. ............................................................ 5,000 182,500
(a) Apex Inc. .............................................................. 10,000 322,500
(a) AVT Corp. .............................................................. 51,200 2,406,400
(a) Brocade Communications Systems Inc. .................................... 2,800 495,600
(a) Carrier Access Corp. ................................................... 20,900 1,406,831
(a) Catapult Communications Corp. .......................................... 37,300 370,669
(a) C-COR.net Corp. ........................................................ 11,000 842,875
(a) Cirrus Logic Inc. ...................................................... 15,000 199,688
(a) Coherent Inc. .......................................................... 100,400 2,685,700
(a) Com21 Inc. ............................................................. 38,300 859,356
(a) Copper Mountain Networks Inc. .......................................... 2,200 107,250
(a) CVC Inc. ............................................................... 12,000 115,500
(a) Cymer Inc. ............................................................. 10,000 460,000
(a) Digital Microwave Corp. ................................................ 46,400 1,087,500
(a) DII Group Inc. ......................................................... 6,800 482,588
(a) Ditech Communications Corp. ............................................ 5,600 523,600
(a) EMCORE Corp. ........................................................... 28,400 965,600
(a) Etec Systems Inc. ...................................................... 38,100 1,709,738
(a) Exar Corp. ............................................................. 1,400 82,425
(a) Finisar Corp. .......................................................... 2,300 206,713
(a) Flextronics International Ltd. (Singapore) ............................. 90,000 4,140,000
(a) FLIR Systems Inc. ...................................................... 90,000 1,462,500
(a) Foundry Networks Inc. .................................................. 2,000 603,375
(a) FVC.COM Inc. ........................................................... 24,000 280,500
(a) Gadzoox Networks Inc. .................................................. 5,000 217,813
(a) Gemstar International Group Ltd. ....................................... 110,800 7,894,500
(a) Harmonic Inc. .......................................................... 28,000 2,658,250
(a) Immersion Corp. ........................................................ 2,700 103,613
(a) Interspeed Inc. ........................................................ 1,800 31,838
(a) Itron Inc. ............................................................. 62,800 384,650
(a) Jabil Circuit Inc. ..................................................... 40,000 2,920,000
(a) Javelin Systems Inc. ................................................... 36,600 336,263
(a) JDS Uniphase Corp. ..................................................... 117,600 18,970,350
(a) JNI Corp. .............................................................. 5,000 330,000
(a) Komag Inc. ............................................................. 287,800 899,375
(a) Kopin Corp. ............................................................ 4,200 176,400
(a) Ladish Co. Inc. ........................................................ 42,000 267,750
(a) Lattice Semiconductor Corp. ............................................ 20,600 970,775
(a) LTX Corp. .............................................................. 14,000 313,250
(a) MCK Communications Inc. ................................................ 3,000 67,500
Methode Electronics Inc., A ............................................ 17,500 562,188
(a) Mettler-Toledo International Inc. ...................................... 122,000 4,658,875
(a) Micrel Inc. ............................................................ 16,600 945,163
(a) Natural MicroSystems Corp. ............................................. 6,900 323,006
(a) NICE Systems Ltd., ADR (Israel) ........................................ 15,000 737,813
(a) Novellus Systems Inc. .................................................. 18,400 2,254,575
(a) PC-Tel Inc. ............................................................ 20,300 1,065,750
(a) Perceptron Inc. ........................................................ 85,000 340,000
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
(a) Photronics Inc. .......................................................... 8,400 $ 240,450
(a) PMC-Sierra Inc. (Canada) ................................................. 81,000 12,985,313
(a) Proxim Inc. .............................................................. 6,600 726,000
(a) QuickLogic Corp. ......................................................... 5,100 84,150
(a) RSA Security Inc. ........................................................ 125,700 9,741,750
(a) Rudolph Technologies Inc. ................................................ 3,700 123,950
(a) Sanmina Corp. ............................................................ 16,800 1,677,900
(a) Semtech Corp. ............................................................ 15,800 823,575
(a) Silicon Image Inc. ....................................................... 800 56,050
(a) SIPEX Corp. .............................................................. 27,000 663,188
(a) Synopsys Inc. ............................................................ 62,600 4,178,550
(a) Tekelec .................................................................. 96,100 2,162,250
(a) Triquint Semiconductor Inc. .............................................. 4,300 478,375
(a) Varian Semiconductor Equipment Associates Inc. ........................... 4,000 136,000
(a) Veeco Instruments Inc. ................................................... 13,200 617,925
(a) Visual Networks Inc. ..................................................... 10,000 792,500
(a) Vixel Corp. .............................................................. 3,100 52,894
(a) Waters Corp. ............................................................. 63,000 3,339,000
(a) Western Digital Corp. .................................................... 60,000 251,250
(a) Xicor Inc. ............................................................... 1,000 13,688
------------
111,996,864
------------
ENERGY MINERALS 2.1%
(a) Barrett Resources Corp. .................................................. 83,900 2,469,806
(a) Basin Exploration Inc. ................................................... 24,300 428,288
(a) Chesapeake Energy Corp. .................................................. 88,200 209,475
(a) Denbury Resources Inc. ................................................... 85,800 370,013
(a) Forest Oil Corp. ......................................................... 43,800 577,613
(a) Newfield Exploration Co. ................................................. 100,000 2,675,000
(a) Pennaco Energy Inc. ...................................................... 83,400 667,200
Range Resources Corp. .................................................... 167,500 533,906
(a) Santa Fe Snyder Corp. .................................................... 57,110 456,880
(a) Titan Exploration Inc. ................................................... 121,000 657,938
(a) Tom Brown Inc. ........................................................... 87,500 1,170,313
------------
10,216,432
------------
FINANCE 5.4%
(a) Affiliated Managers Group Inc. ........................................... 44,700 1,807,556
Allied Capital Corp. ..................................................... 85,300 1,562,056
Bank United Corp., A ..................................................... 50,000 1,362,500
(a) Catellus Development Corp. ............................................... 27,000 345,938
Commerce Bancorp Inc. .................................................... 20,000 808,750
(a) DLJdirect ................................................................ 32,300 438,069
Duff & Phelps Credit Rating Co. .......................................... 3,600 320,175
E.W. Blanch Holdings Inc. ................................................ 27,100 1,659,875
(a) eSPEED Inc. .............................................................. 7,400 263,163
Federated Investors Inc., B .............................................. 122,900 2,465,681
Financial Security Assurance Holdings Ltd. ............................... 63,000 3,283,875
Freedom Securities Corp. ................................................. 26,300 295,875
(a) Golden State Bancorp Inc. ................................................ 103,000 1,776,750
HCC Insurance Holdings Inc. .............................................. 32,300 425,956
(a) Knight/Trimark Group Inc., A ............................................. 25,100 1,154,600
Metris Cos. Inc. ......................................................... 4,400 157,025
Mutual Risk Management Ltd. (Bermuda) .................................... 45,200 759,925
Radian Group Inc. ........................................................ 31,038 1,482,065
Reinsurance Group of America Inc. ........................................ 59,600 1,653,900
(a) Risk Capital Holdings Inc. ............................................... 68,800 868,600
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
FINANCE (CONT.)
(a) Silicon Valley Bancshares ................................................. 62,800 $ 3,108,600
Westamerica Bancorp ........................................................ 22,300 623,006
-----------
26,623,940
-----------
(a) HEALTH SERVICES 1.1%
American Dental Partners Inc. .............................................. 20,300 142,100
Beverly Enterprises Inc. ................................................... 136,900 598,938
eBenX Inc. ................................................................. 2,500 113,125
PAREXEL International Corp. ................................................ 65,000 767,813
Pharmaceutical Product Development Inc. .................................... 85,000 1,009,375
Renal Care Group Inc. ...................................................... 94,650 2,212,444
SciQuest.com Inc. .......................................................... 6,600 524,700
Total Renal Care Holdings Inc. ............................................. 2,900 19,394
-----------
5,387,889
-----------
(a) HEALTH TECHNOLOGY .7%
Alexion Pharmaceuticals Inc. ............................................... 17,000 512,125
Heska Corp. ................................................................ 39,300 88,425
ImClone Systems Inc. ....................................................... 5,400 213,975
Inhale Therapeutic Systems Inc. ............................................ 42,300 1,800,394
Serologicals Corp. ......................................................... 138,750 832,500
SkyePharma PLC, ADR (United Kingdom) ....................................... 24,391 179,892
SkyePharma PLC, rts., 3/31/00 (United Kingdom) ............................. 83,600 --
Wesley Jessen Visioncare Inc. .............................................. 2,000 75,750
-----------
3,703,061
-----------
(a) INDUSTRIAL SERVICES 2.6%
Atwood Oceanics Inc. ....................................................... 3,400 131,325
Casella Waste Systems Inc., A .............................................. 12,700 239,713
Catalytica Inc. ............................................................ 118,733 1,610,316
Core Laboratories NV ....................................................... 80,400 1,613,025
Dycom Industries Inc. ...................................................... 11,500 506,719
Grey Wolf Inc. ............................................................. 215,300 618,988
Marine Drilling Cos. Inc. .................................................. 72,700 1,631,206
Plug Power Inc. ............................................................ 5,500 155,375
Rowan Cos. Inc. ............................................................ 50,000 1,084,375
Tuboscope Inc. ............................................................. 121,300 1,925,638
US Liquids Inc. ............................................................ 51,000 427,125
Varco International Inc. ................................................... 270,800 2,758,775
-----------
12,702,580
-----------
NON-ENERGY MINERALS .2%
Carpenter Technology Corp. ................................................. 36,300 995,981
-----------
PROCESS INDUSTRIES 2.0%
ChemFirst Inc. ............................................................. 85,100 1,861,563
(a) CUNO Inc. .................................................................. 29,000 600,391
Optical Coating Laboratory Inc. ............................................ 24,600 7,281,600
(a) Symyx Technologies Inc. .................................................... 3,700 111,000
-----------
9,854,554
-----------
PRODUCER MANUFACTURING 2.5%
(a) Gentex Corp. ............................................................... 122,200 3,391,050
Gibraltar Steel Corp. ...................................................... 50,000 1,168,750
JLG Industries Inc. ........................................................ 115,800 1,845,563
(a) Polycom Inc. ............................................................... 48,500 3,088,844
(a) Power-One Inc. ............................................................. 4,400 201,575
Reliance Steel & Aluminum Co. .............................................. 13,500 316,406
</TABLE>
114
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
PRODUCER MANUFACTURING (CONT.)
Roper Industries Inc. ...................................................... 57,400 $2,170,438
(a) Tower Automotive Inc. ...................................................... 8,800 135,850
----------
12,318,476
----------
(a) RETAIL TRADE .4%
1-800-FLOWERS.COM Inc. ..................................................... 57,700 616,669
Beyond.com Corp. ........................................................... 26,300 205,469
Liquid Audio Inc. .......................................................... 41,900 1,099,875
MotherNature.com Inc. ...................................................... 400 2,925
PlanetRx.com Inc. .......................................................... 3,800 55,100
----------
1,980,038
----------
REAL ESTATE 2.3%
Alexandria Real Estate Equities Inc. ....................................... 11,500 365,844
Arden Realty Inc. .......................................................... 70,000 1,404,375
Camden Property Trust ...................................................... 67,000 1,834,125
CBL & Associates Properties Inc. ........................................... 10,800 222,750
Colonial Properties Trust .................................................. 15,400 357,088
Developers Diversified Realty Corp. ........................................ 47,200 607,700
FelCor Lodging Trust Inc. .................................................. 50,000 875,000
Glenborough Realty Trust Inc. .............................................. 51,700 691,488
Health Care Property Investors Inc. ........................................ 31,000 740,125
Innkeepers USA Trust ....................................................... 98,900 809,744
MeriStar Hospitality Corp. ................................................. 130,000 2,080,000
SL Green Realty Corp. ...................................................... 31,900 693,825
General Growth Properties Inc. ............................................. 26,000 728,000
----------
11,410,064
----------
(a) TECHNOLOGY SERVICES 34.1%
Accrue Software Inc. ....................................................... 20,000 1,082,500
Active Software Inc. ....................................................... 4,300 395,600
Affiliated Computer Services Inc., A ....................................... 130,300 5,993,800
AGENCY.COM Inc. ............................................................ 1,100 56,100
Allaire Corp. .............................................................. 6,300 913,500
Ardent Software Inc. ....................................................... 20,500 799,500
Art Technology Group Inc. .................................................. 4,300 550,938
Aspect Communications Corp. ................................................ 61,200 2,394,450
Backweb Technologies Ltd. .................................................. 1,100 46,338
Bluestone Software Inc. .................................................... 5,500 632,500
Breakaway Solutions Inc. ................................................... 1,100 80,300
Brightpoint Inc. ........................................................... 10,900 143,063
Brio Technology Inc. ....................................................... 10,000 420,000
BroadVision Inc. ........................................................... 73,400 12,482,588
Check Point Software Technologies Ltd. (Israel) ............................ 11,700 2,325,375
Citrix Systems Inc. ........................................................ 37,800 4,649,400
Complete Business Solutions Inc. ........................................... 84,600 2,125,575
Concord Communications Inc. ................................................ 30,000 1,331,250
Cybersource Corp. .......................................................... 18,700 967,725
Cysive Inc. ................................................................ 1,600 115,300
Data Return Corp. .......................................................... 2,200 117,700
Deltek Systems Inc. ........................................................ 7,800 105,300
Digex Inc. ................................................................. 5,000 343,750
Digimarc Corp. ............................................................. 500 25,000
Digital Insight Corp. ...................................................... 1,900 69,113
Documentum Inc. ............................................................ 28,000 1,676,500
eGain Communications Corp. ................................................. 3,700 139,675
El Sitio Inc. (Argentina) .................................................. 3,600 132,300
Entrust Technologies Inc. .................................................. 55,200 3,308,550
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
F5 Networks Inc. ....................................................... 4,500 $ 513,000
H.T.E. Inc. ............................................................ 38,500 231,000
High Speed Access Corp. ................................................ 9,600 172,800
HNC Software Inc. ...................................................... 85,000 8,988,750
i2 Technologies Inc. ................................................... 90,000 17,550,000
Imanage Inc. ........................................................... 2,200 70,675
Inet Technologies Inc. ................................................. 14,800 1,034,150
Integrated Systems Inc. ................................................ 97,200 3,262,275
Interactive Pictures Corp. ............................................. 7,400 172,513
Internap Network Services Corp. ........................................ 2,600 449,800
Intertrust Technologies Corp. .......................................... 1,800 211,725
Interwoven Inc ......................................................... 1,600 194,600
Intuit Inc. ............................................................ 65,400 3,919,913
ISS Group Inc. ......................................................... 8,000 569,000
ITXC Corp. ............................................................. 8,600 289,175
Keane Inc. ............................................................. 30,000 952,500
Keynote Systems Inc. ................................................... 5,000 368,750
Korea Thrunet Co. Ltd., A (South Korea) ................................ 1,100 74,663
Legato Systems Inc. .................................................... 50,000 3,440,625
Liberate Technologies Inc. ............................................. 19,300 4,960,100
McAfee.com Corp. ....................................................... 2,600 117,000
Media Metrix Inc. ...................................................... 16,200 579,150
Metasolv Software Inc. ................................................. 1,200 98,100
Metron Technology NV ................................................... 2,700 43,369
Micromuse Inc. ......................................................... 40,000 6,800,000
MicroStrategy Inc. ..................................................... 13,000 2,730,000
Mission Critical Software Inc. ......................................... 16,600 1,162,000
N2H2 Inc. .............................................................. 26,300 618,050
National Information Consortium Inc. ................................... 14,700 470,400
Navisite Inc. .......................................................... 4,400 440,000
NBC Internet Inc., A ................................................... 36,100 2,788,725
Netiq Corp. ............................................................ 2,700 140,569
OnDisplay Inc. ......................................................... 1,500 136,313
OpenTV Corp., A ........................................................ 1,600 128,400
Predictive Systems Inc. ................................................ 2,000 131,000
Proxicom Inc. .......................................................... 11,700 1,454,456
Quintus Corp. .......................................................... 1,200 55,050
Radware Ltd. ........................................................... 3,400 146,625
Rare Medium Group Inc. ................................................. 14,000 477,750
Retek Inc. ............................................................. 4,700 353,675
Sapient Corp. .......................................................... 51,600 7,272,375
Serena Software Inc. ................................................... 22,200 686,813
Software.com Inc. ...................................................... 1,800 172,800
SonicWALL Inc. ......................................................... 1,300 52,325
SS&C Technologies Inc. ................................................. 2,800 18,200
StarMedia Network Inc. ................................................. 23,500 941,469
Sykes Enterprises Inc. ................................................. 5,300 232,538
Tanning Technology Corp. ............................................... 195,700 11,534,069
TenFold Corp. .......................................................... 6,100 243,619
Transaction Systems Architects Inc., A ................................. 14,000 392,000
Tumbleweed Communications Corp. ........................................ 24,100 2,042,475
U.S. Interactive Inc. .................................................. 18,600 799,800
Vantive Corp. .......................................................... 43,400 785,269
Verio Inc. ............................................................. 92,000 4,249,250
VERITAS Software Corp. ................................................. 88,500 12,666,563
Verity Inc. ............................................................ 85,400 3,634,838
Vignette Corp. ......................................................... 27,600 4,498,800
</TABLE>
116
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
Vitria Technology Inc. ...................................................... 2,600 $ 608,400
Whittman-Hart Inc. .......................................................... 55,500 2,976,188
Wind River Systems Inc. ..................................................... 121,050 4,448,588
Women.com Networks Inc. ..................................................... 27,300 389,025
Xpedior Inc. ................................................................ 3,100 89,125
------------
168,454,865
------------
(a) TELECOMMUNICATIONS 9.3%
365 Corp. PLC (United Kingdom) .............................................. 13,100 53,033
Airgate PCS Inc. ............................................................ 2,400 126,600
Alaska Communications Systems Holdings Inc. ................................. 44,700 553,163
AT&T Canada Inc., B (Canada) ................................................ 14,600 587,650
Clearnet Communications Inc., A (Canada) .................................... 28,200 969,375
DSL.net Inc. ................................................................ 32,100 463,444
GRIC Communications Inc. .................................................... 3,300 83,738
Ibasis Inc. ................................................................. 4,800 138,000
ICG Communications Inc. ..................................................... 126,000 2,362,500
Illuminet Holdings Inc. ..................................................... 1,100 60,500
Intermedia Communications Inc. .............................................. 36,900 1,432,181
ITC Deltacom Inc. ........................................................... 18,500 511,063
MGC Communications Inc. ..................................................... 22,000 1,116,500
Millicom International Cellular SA (Luxembourg) ............................. 40,100 2,501,238
Pacific Gateway Exchange Inc. ............................................... 54,300 926,494
Pinnacle Holdings Inc. ...................................................... 91,400 3,873,075
Primus Telecommunications Group Inc. ........................................ 136,900 5,236,425
Rhythms NetConnections Inc. ................................................. 2,900 89,900
Rural Cellular Corp., A ..................................................... 78,900 7,140,450
Time Warner Telecom Inc., A ................................................. 11,000 549,313
Triton PCS Inc., A .......................................................... 1,500 68,250
VoiceStream Wireless Corp. .................................................. 83,100 11,826,169
Western Wireless Corp., A ................................................... 83,100 5,546,890
------------
46,215,951
------------
TRANSPORTATION 2.5%
Air Express International Corp. ............................................. 50,000 1,615,625
(a) Atlantic Coast Airlines Holdings Inc. ....................................... 121,000 2,873,750
C.H. Robinson Worldwide Inc. ................................................ 72,600 2,885,850
Expeditors International of Washington Inc. ................................. 109,600 4,801,850
(a) Mesaba Holdings Inc. ........................................................ 9,000 102,938
------------
12,280,013
------------
TOTAL COMMON STOCKS AND RIGHTS (COST $243,705,293) .......................... 465,992,530
------------
CONVERTIBLE PREFERRED STOCKS .2%
Bank United Corp., 8.00%, cvt. pfd. (COST $1,000,000) ....................... 20,000 785,000
------------
TOTAL LONG TERM INVESTMENTS (COST $244,705,293) ............................. 466,777,530
------------
</TABLE>
117
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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(g) REPURCHASE AGREEMENT 5.1%
Joint Repurchase Agreement, 2.583%, 1/03/00
(Maturity Value $25,407,535) (COST $25,402,067) ......................... $ 25,402,067 $ 25,402,067
Banc of America Securities LLC ...........................................
Barclays Capital Inc. ....................................................
Bear, Stearns & Co. Inc. .................................................
Chase Securities Inc. ....................................................
Donaldson, Lufkin & Jenrette Securities Corp. ............................
Dresdner Kleinwort Benson, North America LLC .............................
Paribas Corp. ............................................................
Warburg Dillon Read LLC ..................................................
Collateralized by U.S. Treasury Bills and Notes .........................
------------
TOTAL INVESTMENTS (COST $270,107,360) 99.6% ............................... 492,179,597
OTHER ASSETS, LESS LIABILITIES .4% ........................................ 2,039,265
------------
NET ASSETS 100.0% ......................................................... $494,218,862
------------
</TABLE>
a Non-income producing.
g Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
118
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN U.S. GOVERNMENT FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES 75.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - FIXED RATE 52.7%
GNMA I, SF, 5.50%, 11/15/28 - 1/15/29 ................................................ $ 6,767,763 $ 5,983,291
GNMA II, 5.50%, 9/20/28 - 1/20/29 .................................................... 3,119,044 2,748,954
GNMA I, SF, 6.00%, 11/15/23 - 11/15/28 ............................................... 17,342,367 15,936,151
GNMA II, 6.00%, 1/20/24 - 12/20/28 ................................................... 50,954,419 46,322,294
GNMA I, SF, 6.50%, 5/15/23 - 11/15/28 ................................................ 50,399,730 47,674,781
GNMA II, 6.50%, 3/20/28 .............................................................. 22,823,812 21,394,350
GNMA I, SF, 7.00%, 3/15/22 - 5/15/28 ................................................. 60,839,492 59,075,732
GNMA I, SF, 7.25%, 11/15/25 .......................................................... 1,152,334 1,134,098
GNMA, PL, 7.25%, 5/15/22 - 8/15/22 ................................................... 2,142,118 2,111,359
GNMA I, SF, 7.50%, 2/15/17 - 5/15/28 ................................................. 24,544,884 24,423,487
GNMA II, 7.50%, 11/20/16 - 11/20/26 .................................................. 16,334,296 16,289,196
GNMA I, SF, 8.00%, 4/15/05 - 6/15/24 ................................................. 13,691,378 13,925,655
GNMA II, 8.00%, 2/20/16 - 8/20/26 .................................................... 1,300,145 1,317,094
GNMA I, SF, 8.25%, 4/15/25 ........................................................... 547,778 559,417
GNMA I, SF, 8.50%, 8/15/21 - 12/15/24 ................................................ 3,578,078 3,695,273
GNMA I, SF, 9.00%, 4/15/16 - 2/15/21 ................................................. 1,808,730 1,902,264
GNMA I, SF, 9.50%, 7/15/16 - 12/15/21 ................................................ 3,586,632 3,824,444
GNMA II, 9.50%, 4/20/25 .............................................................. 402,878 426,662
GNMA I, SF, 10.00%, 8/15/17 - 8/15/21 ................................................ 3,387,513 3,668,287
------------
272,412,789
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FIXED RATE 9.0%
FNMA, 6.00%, 10/01/23 - 10/01/28 ..................................................... 23,897,978 21,951,941
FNMA, 6.50%, 1/01/24 - 6/01/24 ....................................................... 11,311,159 10,774,186
FNMA, 7.00%, 5/01/24 ................................................................. 1,182,422 1,150,961
FNMA, PL, 7.00%, 3/17/35 ............................................................. 3,143,213 2,933,200
FNMA, 7.50%, 4/01/23 - 8/01/25 ....................................................... 4,457,984 4,417,779
FNMA, 8.00%, 7/01/16 - 2/01/25 ....................................................... 4,727,347 4,773,997
FNMA, 8.50%, 10/01/19 - 2/01/22 ...................................................... 253,795 261,532
------------
46,263,596
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - ADJUSTABLE RATE 4.6%
FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 6.892%, 2/01/19 ............... 2,840,286 2,920,944
FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 6.986%, 9/01/18 ............. 3,212,208 3,317,483
FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 6.998%, 7/01/19 ............. 2,624,970 2,705,525
FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 6.823%, 1/01/18 ............. 8,073,459 8,303,103
FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 5.769%, 6/01/02 .............. 4,535,208 4,510,900
FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 7.938%, 3/01/20 ........ 1,951,534 1,984,271
------------
23,742,226
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - FIXED RATE 8.3%
FHLMC, 6.00%, 1/01/24 - 8/01/28 ...................................................... 9,192,402 8,436,842
FHLMC, 6.50%, 6/01/08 - 6/01/29 ...................................................... 19,802,236 18,895,323
FHLMC, 7.00%, 4/01/24 ................................................................ 10,732,841 10,437,043
FHLMC, 7.50%, 11/01/22 - 5/01/24 ..................................................... 3,018,810 3,000,836
FHLMC, 8.00%, 5/01/16 - 5/01/22 ...................................................... 1,479,006 1,496,787
FHLMC, 8.50%, 4/01/18 - 3/01/22 ...................................................... 589,828 606,758
FHLMC, 9.00%, 3/01/03 ................................................................ 247,540 251,576
------------
43,125,165
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - ADJUSTABLE RATE 1.1%
FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annually, 6.886%, 6/01/22 ............ 2,342,976 2,396,747
FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.264%, 2/01/19 ............ 3,202,783 3,265,899
------------
5,662,646
------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $401,046,867) ................................. 391,206,422
------------
</TABLE>
119
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN U.S. GOVERNMENT FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER AGENCY SECURITIES 21.5%
Federal Agriculture Mortgage Corp., 7.23%, 1/17/07 ........................... $ 5,000,000 $ 4,906,130
Federal Home Loan Bank, 0.00%, 1/23/23 ....................................... 10,000,000 1,520,080
FICO Strip, 0.00%, 12/06/14 .................................................. 13,569,000 4,470,483
FICO Strip, 0.00%, 6/06/15 ................................................... 15,001,000 4,761,782
FICO Strip, 0.00%, 5/11/13 ................................................... 10,000,000 3,712,370
FICO Strip, 12, 0.00%, 6/06/14 ............................................... 9,454,000 3,232,739
FICO Strip, 13, 0.00%, 6/27/09 ............................................... 11,024,000 5,517,699
FICO Strip, 16, 0.00%, 10/05/10 .............................................. 4,745,000 2,154,088
Housing Urban Development, 96-A, 7.63%, 8/01/14 .............................. 5,000,000 4,877,295
Housing Urban Development, 96-A, 7.66%, 8/01/15 .............................. 5,000,000 4,865,065
Small Business Administration, 6.00%, 9/01/18 ................................ 9,636,311 8,672,681
Small Business Administration, 6.45%, 12/01/15 ............................... 3,863,557 3,602,768
Small Business Administration, 6.70%, 12/01/16 ............................... 4,250,862 4,013,080
Small Business Administration, 6.85%, 7/01/17 ................................ 4,510,608 4,297,764
Small Business Administration, Cap 10.85%,
Margin Prime - 0.40%, Resets Quarterly, 7.35%, 6/25/19 .................... 2,292,493 2 ,338,343
Small Business Administration, Cap 10.875%,
Margin Prime - 0.125%, Resets Quarterly, 7.625%, 3/25/18 .................. 3,674,965 3 ,771,433
Student Loan Marketing Association, 0.00%, 5/15/14 ........................... 15,000,000 4,272,930
Tennessee Valley Authority, 0.00%, 4/15/42 ................................... 6,000,000 2,311,380
Tennessee Valley Authority, 0.00%, 7/15/43 ................................... 7,000,000 5,221,300
Tennessee Valley Authority, 5.88%, 4/01/36 ................................... 10,000,000 9,352,710
Tennessee Valley Authority, 6.235%, 7/15/45 .................................. 14,249,000 14,158,961
Tennessee Valley Authority, 7.25%, 7/15/43 ................................... 10,000,000 9,304,670
------------
TOTAL OTHER AGENCY SECURITIES (COST $118,219,663) ............................ 111,335,751
------------
TOTAL LONG TERM INVESTMENTS (COST $519,266,530) .............................. 502,542,173
------------
(g) REPURCHASE AGREEMENT 2.1%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $10,883,723) (COST $10,881,381) ......................... 10,881,381 10,881,381
Banc of America Securities LLC ............................................
Barclays Capital Inc. ......................................................
Bear, Stearns & Co. Inc. ...................................................
Chase Securities Inc. ......................................................
Donaldson, Lufkin & Jenrette Securities Corp. ..............................
Dresdner Kleinwort Benson, North America LLC ...............................
Paribas Corp. ..............................................................
Warburg Dillon Read LLC ....................................................
Collateralized by U.S. Treasury Bills and Notes ...........................
------------
TOTAL INVESTMENTS (COST $530,147,911) 99.3% ................................. 513,423,554
OTHER ASSETS, LESS LIABILITIES .7% .......................................... 3,486,752
------------
NET ASSETS 100.0% ........................................................... $516,910,306
------------
</TABLE>
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
120
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE SECURITIES FUND RIGHTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 96.2%
(a)COMMERCIAL SERVICES 3.0%
Robert Half International Inc. ............................................ 13,000 $ 371,313
----------
CONSUMER DURABLES 2.5%
D.R. Horton Inc. .......................................................... 13,200 182,325
Engle Homes Inc. .......................................................... 6,000 72,000
Flexsteel Industries Inc. ................................................. 2,300 30,763
M/I Schottenstein Homes Inc. .............................................. 2,300 35,794
----------
320,882
----------
CONSUMER NON-DURABLES 10.9%
Block Drug Co. Inc., A .................................................... 6,077 188,387
DIMON Inc. ................................................................ 15,000 48,750
Standard Commercial Corp. ................................................. 24,000 85,500
(a)The Timberland Co., A ..................................................... 10,000 528,750
(a)Tropical Sportswear International Corp. ................................... 15,000 241,875
Wolverine World Wide Inc. ................................................. 25,000 273,438
----------
1,366,700
----------
(a)CONSUMER SERVICES 1.4%
Aztar Corp. ............................................................... 16,000 174,000
----------
ELECTRONIC TECHNOLOGY 2.7%
B.F. Goodrich Co. ......................................................... 7,000 192,500
(a)ESCO Electronics Corp. .................................................... 600 6,975
(a)SPACEHAB Inc. ............................................................. 13,500 72,563
United Technologies Corp. ................................................. 1,000 65,000
----------
337,038
----------
(a)ENERGY MINERALS .9%
Nuevo Energy Co. .......................................................... 6,000 112,500
----------
FINANCE 20.9%
(a)Acceptance Insurance Cos. Inc. ............................................ 4,000 23,250
Allstate Corp. ............................................................ 10,000 240,000
American National Insurance Co. ........................................... 3,000 191,250
(a)American Safety Insurance Group Ltd. ...................................... 9,000 59,063
Harleysville Group Inc. ................................................... 12,500 178,125
Household International Inc. .............................................. 4,500 167,625
(a)Manulife Financial Corp. (Canada) ......................................... 12,000 152,250
(a)PBOC Holdings Inc. ........................................................ 16,000 151,000
Penn-America Group Inc. ................................................... 9,500 73,625
The PMI Group Inc. ........................................................ 4,700 229,419
Presidential Life Corp. ................................................... 21,000 385,875
(a)Professionals Group Inc. .................................................. 13,750 322,266
Reinsurance Group of America Inc. ......................................... 4,000 111,000
(a)StanCorp Financial Group Inc. ............................................. 9,000 226,688
Washington Mutual Inc. .................................................... 5,000 130,000
----------
2,641,436
----------
HEALTH TECHNOLOGY 1.5%
(a)SkyePharma PLC, rts., 3/31/00 (United Kingdom) ............................ 4,900 --
West Pharmaceutical Services Inc. ......................................... 6,000 185,625
----------
185,625
----------
INDUSTRIAL SERVICES 9.8%
(a)Atwood Oceanics Inc. ...................................................... 6,800 262,650
ENSCO International Inc.................................................... 13,000 297,375
(a)Perini Corp. .............................................................. 2,400 9,300
</TABLE>
121
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE SECURITIES FUND RIGHTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
INDUSTRIAL SERVICES (CONT.)
(a)R&B Falcon Corp. .......................................................... 14,500 $ 192,125
(a)Rowan Cos. Inc. ........................................................... 15,000 325,313
Santa Fe International Corp. .............................................. 5,500 142,313
----------
1,229,076
----------
NON-ENERGY MINERALS 2.5%
(a)Lone Star Technologies Inc. ............................................... 8,000 223,000
LTV Corp. ................................................................. 23,600 97,350
----------
320,350
----------
PROCESS INDUSTRIES 6.7%
Lancaster Colony Corp. .................................................... 10,000 331,250
Myers Industries Inc. ..................................................... 12,800 201,600
RPM Inc. .................................................................. 18,500 188,469
Tuscarora Inc. ............................................................ 10,000 121,250
----------
842,569
----------
PRODUCER MANUFACTURING 18.0%
Baldor Electric Co. ....................................................... 8,200 148,625
(a)CIRCOR International Inc .................................................. 5,250 54,141
Commercial Intertech Corp. ................................................ 100 1,275
Commonwealth Industries Inc. .............................................. 6,500 84,500
Dana Corp. ................................................................ 8,000 239,500
Diebold Inc. .............................................................. 2,700 63,450
JLG Industries Inc. ....................................................... 34,000 541,875
Kaydon Corp. .............................................................. 5,300 142,106
Patrick Industries Inc. ................................................... 2,200 20,350
Superior Industries International Inc. .................................... 6,600 176,963
Teleflex Inc. ............................................................. 5,500 172,219
Timken Co. ................................................................ 13,000 265,688
(a)Tower Automotive Inc. ..................................................... 11,500 177,531
Watts Industries Inc., A .................................................. 12,500 184,375
----------
2,272,598
----------
RETAIL TRADE 2.9%
Family Dollar Stores Inc. ................................................. 5,000 81,563
Rite Aid Corp. ............................................................ 15,000 167,813
Schultz Sav-O Stores Inc. ................................................. 3,800 48,450
The TJX Companies Inc. .................................................... 3,000 61,305
----------
359,131
----------
TECHNOLOGY SERVICES 2.7%
Reynolds & Reynolds Co., A ................................................ 11,000 247,500
(a)Ultrak Inc. ............................................................... 11,400 88,350
----------
335,850
----------
TRANSPORTATION 9.8%
Air Express International Corp. ........................................... 7,000 226,188
(a)Atlantic Coast Airlines Holdings Inc. ..................................... 8,600 204,250
Canadian National Railway Co. (Canada) .................................... 6,000 157,875
(a)Fritz Cos. Inc. ........................................................... 4,500 47,250
Kenan Transport Co. ....................................................... 4,300 136,256
(a)Midwest Express Holdings .................................................. 4,000 127,500
Tidewater Inc. ............................................................ 9,300 334,800
----------
1,234,119
----------
TOTAL LONG TERM INVESTMENTS (COST $12,108,952) .............................. 12,103,187
----------
</TABLE>
122
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VALUE SECURITIES FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 3.3%
(b)Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $416,420) ......... $ 416,420 $ 416,420
-----------
TOTAL INVESTMENTS (COST $12,525,372) 99.5% ............................................ 12,519,607
OTHER ASSETS, LESS LIABILITIES .5% .................................................... 63,755
-----------
NET ASSETS 100.0% ..................................................................... $12,583,362
===========
</TABLE>
(a)Non-income producing.
(b)The Franklin Institutional Fiduciary Trust Money Market Portfolio is
managed by Franklin Advisors, Inc.
See notes to financial statements.
123
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ZERO COUPON FUND - 2000 AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 93.5%
FHLB, Strip, A-1, 2/25/01 ...................................................... $ 7,567,000 $ 7,037,938
FHLMC, Strip, 5/15/00 .......................................................... 13,175,000 12,899,722
FICO, Strip, 10/06/00 .......................................................... 6,200,000 5,910,950
FICO, Strip, 1, 11/11/00 ....................................................... 1,139,000 1,078,745
FICO, Strip, 12, 12/06/00 ...................................................... 17,390,000 16,390,145
FICO, Strip, 15, 9/07/00 ....................................................... 148,000 141,864
FICO, Strip, 17, 10/05/00 ...................................................... 5,875,000 5,602,100
FICO, Strip, D, 9/26/00 ........................................................ 4,965,000 4,742,652
FNMA, Strip, 2/12/00 ........................................................... 500,000 496,950
FNMA, Strip, 8/12/01 ........................................................... 3,000,000 2,706,030
Tennessee Valley Authority, Strip, 7/15/00 ..................................... 3,320,000 3,217,442
Tennessee Valley Authority, Strip, 10/15/00 .................................... 2,500,000 2,383,105
U.S. Treasury, Strip, 11/15/00 ................................................. 40,000 38,008
U.S. Treasury, Strip, QO, 11/15/00 ............................................. 1,110,375 1,052,434
U.S. Treasury, Strip, QO, 2/15/01 .............................................. 2,778,750 2,588,850
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $65,927,482) ................. 66,286,935
------------
OTHER SECURITIES - AAA RATED 2.1%
Interamerican Development Bank, Strip, 12/16/00 ................................ 220,000 207,337
International Bank for Reconstruction and Development, 2/15/00 ................. 405,000 402,344
International Bank for Reconstruction and Development, 8/15/00 ................. 945,000 910,722
------------
TOTAL OTHER SECURITIES - AAA RATED (COST $735,647) ............................. 1,520,403
------------
TOTAL LONG TERM INVESTMENTS (COST $66,663,129) ................................. 67,807,338
------------
(g)REPURCHASE AGREEMENT 4.6%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $3,242,048) (COST $3,241,350) ................................ 3,241,350 3,241,350
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $69,904,479) 100.2% .................................. 71,048,688
OTHER ASSETS, LESS LIABILITIES (.2%) .......................................... (131,148)
------------
NET ASSETS 100.0% ............................................................. $ 70,917,540
============
</TABLE>
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
124
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ZERO COUPON FUND - 2005 AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 91.5%
FHLB, Strip, A-1, 8/25/02 ....................................................... $ 1,000,000 $ 841,475
FHLB, Strip, A-1, 2/25/04 ....................................................... 9,110,000 6,894,020
FHLB, Strip, A-1P, 2/25/04 ...................................................... 800,000 605,402
FICO, Strip, 3/26/05 ............................................................ 5,000,000 3,456,690
FICO, Strip, 10/06/05 ........................................................... 11,400,000 7,584,067
FICO, Strip, 1, 5/11/05 ......................................................... 3,500,000 2,397,371
FICO, Strip, 1, 11/11/05 ........................................................ 829,000 547,930
FICO, Strip, 19, 12/06/05 ....................................................... 10,000,000 6,573,850
FICO, Strip, D, 9/26/05 ......................................................... 6,799,000 4,531,928
FICO, Strip, E, 11/02/05 ........................................................ 3,509,000 2,323,105
FNMA, Strip, 2/12/06 ............................................................ 250,000 164,419
FNMA, Strip, 1, 8/01/04 ......................................................... 450,000 330,910
FNMA, Strip, 1, 2/01/05 ......................................................... 6,000,000 4,245,402
FNMA, Strip, 1, 2/12/05 ......................................................... 1,000,000 706,088
FNMA, Strip, 1, 8/12/05 ......................................................... 875,000 596,172
FNMA, Strip, 1, 2/01/06 ......................................................... 4,307,000 2,839,248
FNMA, Strip, 1, 8/01/06 ......................................................... 530,000 337,299
FNMA, Strip, 1, 2/01/08 ......................................................... 1,730,000 987,112
FNMA, Strip, 1, 2/12/08 ......................................................... 120,000 68,270
REFCO, Strip, 1/15/06 ........................................................... 6,500,000 4,353,310
REFCO, Strip, 4/15/06 ........................................................... 3,000,000 1,974,657
Tennessee Valley Authority, Strip, 10/15/04 ..................................... 6,200,000 4,461,966
Tennessee Valley Authority, Strip, 4/15/05 ...................................... 2,260,000 1,567,701
Tennessee Valley Authority, Strip, 10/15/05 ..................................... 1,000,000 669,683
U.S. Treasury, Strip, 2/15/06 ................................................... 1,850,600 1,241,362
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $57,673,563) .................. 60,299,437
------------
OTHER SECURITIES - AAA RATED 4.8%
Exxon Capital Corp., 11/15/04 ................................................... 1,500,000 1,081,080
International Bank for Reconstruction and Development, 2/15/07 .................. 541,000 330,832
International Bank for Reconstruction and Development, 8/15/07 .................. 2,500,000 1,474,158
International Bank for Reconstruction and Development, 2, 2/15/07 ............... 459,000 280,688
------------
TOTAL OTHER SECURITIES - AAA RATED (COST $3,166,996) ............................ 3,166,758
------------
OTHER SECURITIES - A+ RATED 3.7%
Diageo PLC, 1/06/04 (COST $2,474,763) ........................................... 3,250,000 2,451,670
------------
TOTAL LONG TERM INVESTMENTS (COST $63,315,322) .................................. 65,917,865
------------
(g)REPURCHASE AGREEMENT .3%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $165,239) (COST $165,203) .................................... 165,203 165,203
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $63,480,525) 100.3% ..................................... 66,083,068
OTHER ASSETS, LESS LIABILITIES (.3%) ............................................ (188,204)
-------------
NET ASSETS 100.0% ............................................................... $ 65,894,864
=============
</TABLE>
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
125
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ZERO COUPON FUND - 2010 AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 92.5%
FICO, Strip, 3/26/10 ................................................................ $ 860,000 $ 406,243
FICO, Strip, 1, 11/11/10 ............................................................ 16,246,000 7,321,114
FICO, Strip, 3, 5/30/10 ............................................................. 2,000,000 931,392
FICO, Strip, 4, 10/06/10 ............................................................ 1,528,000 693,529
FICO, Strip, 8, 8/03/10 ............................................................. 3,021,000 1,388,657
FICO, Strip, 12, 6/06/09 ............................................................ 4,550,000 2,287,039
FICO, Strip, 19, 6/06/10 ............................................................ 9,800,000 4,558,235
FICO, Strip, 19, 12/06/10 ........................................................... 2,080,000 932,570
FICO, Strip, A, 8/08/10 ............................................................. 7,000,000 3,214,456
FICO, Strip, D, 9/26/10 ............................................................. 860,000 391,162
FICO, Strip, GEN, 10/06/10 .......................................................... 4,040,000 1,833,675
FNMA, Strip, 8/12/09 ................................................................ 1,975,000 1,005,553
FNMA, Strip, 2/01/10 ................................................................ 5,000,000 2,458,590
FNMA, Strip, 8/01/10 ................................................................ 8,250,000 3,907,720
FNMA, Strip, 8/12/10 ................................................................ 1,230,000 581,375
REFCO, Strip, 10/15/10 .............................................................. 20,000,000 9,517,300
Sallie Mae, zero cpn., 5/15/14 ...................................................... 8,650,000 2,464,056
Tennessee Valley Authority, Strip, 1/01/10 .......................................... 412,000 194,082
Tennessee Valley Authority, Strip, 4/15/10 .......................................... 12,000,000 5,738,076
Tennessee Valley Authority, Strip, 10/15/10 ......................................... 1,320,000 608,201
Tennessee Valley Authority, Strip, 4/15/11 .......................................... 9,525,000 4,229,795
Tennessee Valley Authority, Strip, 10/15/11 ......................................... 7,295,000 3,117,919
U.S. Treasury, Strip, 11/15/10 ...................................................... 6,920,000 3,335,758
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $57,511,017) ...................... 61,116,497
------------
OTHER SECURITIES - AAA RATED 7.4%
International Bank for Reconstruction and Development, 2/15/11 ...................... 1 ,392,000 631,266
International Bank for Reconstruction and Development, 2/15/12 ...................... 2,800,000 1,174,345
International Bank for Reconstruction and Development, 2/15/13 ...................... 3,287,000 1,278,318
International Bank for Reconstruction and Development, 8/15/13 ...................... 4,100,000 1,533,072
International Bank for Reconstruction and Development, Series 2, 2/15/11 ............ 500,000 226,749
------------
TOTAL OTHER SECURITIES - AAA RATED (COST $4,681,264) ................................ 4,843,750
------------
TOTAL LONG TERM INVESTMENTS (COST $62,192,281) ...................................... 65,960,247
------------
(g) REPURCHASE AGREEMENT .7%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $472,197) (COST $472,095) ....................................... 472,095 472,095
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $62,664,376) 100.6% ......................................... 66,432,342
OTHER ASSETS, LESS LIABILITIES (.6%) ................................................ (383,000)
------------
NET ASSETS 100.0% ................................................................... $ 66,049,342
============
</TABLE>
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
126
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 83.4%
AEROSPACE & MILITARY TECHNOLOGY .9%
(a)Finmeccanica SpA ............................................................ Italy 1,056,300 $ 1,303,759
Lockheed Martin Corp. ........................................................ United States 21,900 479,063
------------
1,782,822
------------
APPLIANCES & HOUSEHOLD DURABLES .1%
Maytag Corp. ................................................................. United States 3,400 163,200
------------
AUTOMOBILES 2.4%
(a)Consorcio G Grupo Dina SA de CV, L, ADR ..................................... Mexico 263,400 98,775
Delphi Automotive Systems Corp. .............................................. United States 170,458 2,684,714
General Motors Corp. ......................................................... United States 11,100 806,831
(a)Lear Corp. .................................................................. United States 30,500 976,000
(a)SPX Corp. ................................................................... United States 3,400 274,763
------------
4,841,083
------------
BANKING 1.4%
Bank One Corp. ............................................................... United States 27,800 891,338
Banque Nationale de Paris .................................................... France 12,285 1,132,896
Chittenden Corp. ............................................................. United States 841 24,915
Merita AS .................................................................... Finland 145,200 855,150
------------
2,904,299
------------
BEVERAGES & TOBACCO 3.1%
Altadis SA, A ................................................................ Spain 54,207 774,931
(a)Buenos Aires Embotelladora SA, B ............................................ Argentina 89,474 402,689
(a)Buenos Aires Embotelladora SA, B, ADR ....................................... Argentina 101,409 9,128
Coca-Cola West Japan Co. Ltd. ................................................ Japan 32,300 1,359,201
Farmer Brothers Co. .......................................................... United States 7,000 1,113,000
Fraser and Neave Ltd. ........................................................ Singapore 53,900 199,030
Gallaher Group PLC ........................................................... United Kingdom 185,700 790,794
Gallaher Group PLC, ADR ...................................................... United Kingdom 7,100 109,163
Mikuni Coca-Cola Bottling Co. ................................................ Japan 46,300 811,049
Swedish Match AB ............................................................. Sweden 216,300 755,333
------------
6,324,318
------------
BROADCASTING & PUBLISHING 8.9%
(a)AMFM Inc. ................................................................... United States 15,310 1,198,008
Dun & Bradstreet Corp. ....................................................... United States 31,500 929,250
(a)MediaOne Group Inc. ......................................................... United States 30,600 2,350,463
(a)Modern Times Group AB ....................................................... Sweden 117,200 5,815,215
NV Holdingsmig de Telegraaf .................................................. Netherlands 106,078 2,349,457
Publicis SA .................................................................. France 1,900 717,306
Scripps Co., A ............................................................... United States 20,900 936,581
Seat Pagine Gialle SpA, di Risp .............................................. Italy 356,300 782,691
Torstar Corp., B ............................................................. Canada 74,900 815,876
True North Communications Inc. ............................................... United States 32,400 1,447,875
Washington Post Co., B ....................................................... United States 1,521 845,486
------------
18,188,208
------------
BUSINESS & PUBLIC SERVICES 3.7%
Deluxe Corp. ................................................................. United States 1,400 38,413
(a)Republic Services Inc., A ................................................... United States 74,000 1,063,750
Suez Lyonnaise des Eaux SA ................................................... France 24,479 3,920,879
(a)Suez Lyonnaise des Eaux SA, strip ........................................... France 8,300 84
Vivendi ...................................................................... France 27,900 2,518,106
------------
7,541,232
------------
CHEMICALS 2.7%
Bayer AG, Br. ................................................................ Germany 21,700 1,031,149
(a)Bush Boake Allen Inc. ....................................................... United States 56,900 1,397,606
</TABLE>
127
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS (CONT.)
ChemFirst Inc. ............................................................... United States 31,800 $ 695,625
CK Witco Corp. ............................................................... United States 49,948 668,055
Laporte PLC .................................................................. United Kingdom 51,700 455,363
Union Carbide Corp. .......................................................... United States 18,200 1,214,850
------------
5,462,648
------------
CONSTRUCTION & HOUSING 1.0%
Groupe GTM ................................................................... France 15,200 1,476,694
Grupo Ferrovial SA ........................................................... Spain 32,800 475,506
------------
1,952,200
------------
DATA PROCESSING & REPRODUCTION .8%
Compaq Computer Corp. ........................................................ United States 24,200 654,913
(a)NCR Corp. ................................................................... United States 12,000 454,500
(a)Network Associates Inc. ..................................................... United States 21,400 571,113
------------
1,680,526
------------
ELECTRICAL & ELECTRONICS 1.2%
Racal Electronics PLC ........................................................ United Kingdom 239,680 2,174,965
(a)Thomson Multimedia .......................................................... France 4,870 262,302
------------
2,437,267
------------
(a)ELECTRONIC COMPONENTS & INSTRUMENTS .4%
General Instrument Corp. ..................................................... United States 10,200 867,000
-----------
(a)ENERGY EQUIPMENT & SERVICES .7%
Cooper Cameron Corp. ......................................................... United States 14,900 729,169
Weatherford International Inc. ............................................... United States 16,100 642,994
-----------
1,372,163
-----------
ENERGY SOURCES 3.6%
(a)Abraxas Petroleum Corp. ..................................................... United States 10,135 9,502
Atlantic Richfield Co. ....................................................... United States 18,800 1,626,200
Burlington Resources Inc. .................................................... United States 29,500 975,344
(a)Gulf Canada Resources Ltd. .................................................. Canada 155,300 524,138
(a)Gulf Canada Resources Ltd., fgn ............................................. Canada 125,500 412,286
Total Fina SA, B ............................................................. France 22,097 2,947,601
Total Fina SA, B, ADR ........................................................ France 10,770 745,823
------------
7,240,894
------------
FINANCIAL SERVICES 2.7%
Bear Stearns Co. Inc. ........................................................ United States 20,612 881,163
Greenpoint Financial Corp. ................................................... United States 29,264 696,849
Household International Inc. ................................................. United States 17,700 659,325
Investors Group Inc. ......................................................... Canada 57,100 813,514
Irish Life & Permanent PLC ................................................... Irish Republic 54,600 525,025
Lehman Brothers Holdings Inc. ................................................ United States 5,300 448,844
Metris Cos. Inc. ............................................................. United States 20,500 731,594
(a)MFN Financial Corp. ......................................................... United States 20,281 131,827
Morgan Stanley, Dean Witter & Co. ............................................ United States 1,300 185,575
Power Corp. of Canada ........................................................ Canada 15,600 267,031
Power Financial Corp. ........................................................ Canada 10,900 180,925
------------
5,521,672
------------
FOOD & HOUSEHOLD PRODUCTS 2.7%
Associated British Foods PLC ................................................. United Kingdom 87,200 480,201
Earthgrains Company .......................................................... United States 92,900 1,498,013
(a)Fine Host Corp. ............................................................. United States 49,920 494,208
Flowers Industries Inc. ...................................................... United States 9,800 156,188
Kikkoman Corp. ............................................................... Japan 154,500 1,026,623
</TABLE>
128
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS (CONT.)
(a)Pactiv Corp. ................................................................ United States 67,200 $ 714,000
U.S. Industries Inc. ......................................................... United States 81,100 1,135,400
------------
5,504,633
------------
HEALTH & PERSONAL CARE 4.1%
American Home Products Corp. ................................................. United States 1,500 59,156
Aventis SA ................................................................... France 112,500 6,535,035
Banyu Pharmaceutical Co. Ltd. ................................................ Japan 22,000 341,244
Ono Pharmaceutical Co. Ltd. .................................................. Japan 19,700 528,238
Sankyo Co. Ltd. .............................................................. Japan 35,700 733,669
Ventas Inc. .................................................................. United States 50,300 210,631
------------
8,407,973
------------
INDUSTRIAL COMPONENTS .9%
Mannesmann AG ................................................................ Germany 4,420 1,069,735
(a)Owens-Illinois Inc. ......................................................... United States 29,500 739,344
------------
1,809,079
------------
INSURANCE 2.9%
Allmerica Financial Corp. .................................................... United States 19,900 1,106,938
AON Corp. .................................................................... United States 19,900 796,000
Horace Mann Educators Corp. .................................................. United States 34,600 679,025
Lincoln National Corp. ....................................................... United States 8,500 340,000
MBIA Inc. .................................................................... United States 14,900 786,906
Old Republic International Corp. ............................................. United States 56,400 768,450
Radian Group Inc. ............................................................ United States 9,733 464,751
ReliaStar Financial Corp. .................................................... United States 9,700 380,119
W. R. Berkley Corp. .......................................................... United States 25,800 538,575
------------
5,860,764
------------
LEISURE & TOURISM .3%
Hilton Hotels Corp. .......................................................... United States 56,231 541,223
------------
MACHINERY & ENGINEERING 4.4%
FKI PLC ...................................................................... United Kingdom 175,484 691,987
IMI PLC ...................................................................... United Kingdom 290,454 1,316,682
Invensys PLC ................................................................. United Kingdom 685,908 3,691,313
NACCO Industries Inc., A ..................................................... United States 17,000 944,563
(a)Sulzer AG ................................................................... Switzerland 1,350 877,394
United Dominion Industries Ltd. .............................................. Canada 72,800 1,451,450
------------
8,973,389
------------
MERCHANDISING 2.3%
(a)Borders Group Inc. .......................................................... United States 17,900 287,519
(a)Boyds Collection Ltd. ....................................................... United States 59,600 413,475
(a)Federated Department Stores Inc. ............................................ United States 13,600 687,650
May Department Stores Co. .................................................... United States 3,400 109,650
(a)Saks Inc. ................................................................... United States 62,800 977,325
Sears, Roebuck & Co. ......................................................... United States 2,800 85,225
Sonae SGPS SA ................................................................ Portugal 39,704 2,094,523
------------
4,655,367
------------
MULTI-INDUSTRY 27.1%
(a)Alleghany Corp. ............................................................. United States 2,460 456,330
(a)Berkshire-Hathaway Inc., A .................................................. United States 24 1,346,400
(a)Brierley Investments Ltd. ................................................... New Zealand 3,363,754 703,023
Cir Cie Industriali Riunite SpA Torino ....................................... Italy 955,600 2,517,674
Cir Cie Industriali Riunite SpA Torino, di Risp .............................. Italy 132,400 299,909
Compagnie Financiere Richemont AG, A, Br ..................................... Switzerland 1,392 3,321,570
Compagnie Generale D'Industrie et de Participation ........................... France 78,791 5,155,960
</TABLE>
129
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Corporacion Financiera Alba SA ............................................... Spain 147,636 $ 5,047,537
Imasco Ltd. .................................................................. Canada 63,000 1,740,681
Investor AB, A ............................................................... Sweden 149,000 2,119,812
Investor AB, B ............................................................... Sweden 417,776 5,894,547
Invik & Co. AB, B ............................................................ Sweden 24,256 2,880,489
Kansas City Southern Industries Inc. ......................................... United States 25,600 1,910,400
Kinnevik AB, B ............................................................... Sweden 79,587 2,470,425
Lagardere SCA ................................................................ France 154,534 8,401,124
(a)Pacific Century Regional Developments Ltd. .................................. Singapore 157,600 2,261,567
Pargesa Holdings SA, Br ...................................................... Switzerland 972 1,586,939
(a)Thermo Electron Corp. ....................................................... United States 115,100 1,726,500
Trelleborg AB, B ............................................................. Sweden 119,141 1,071,639
TRW Inc. ..................................................................... United States 36,900 1,916,494
Williams PLC ................................................................. United Kingdom 494,600 2,262,097
------------
55,091,117
------------
REAL ESTATE .1%
Castellum AB ................................................................. Sweden 7,700 75,144
(a,d)Security Capital European Realty .......................................... United States 13,770 198,391
------------
273,535
------------
TELECOMMUNICATIONS 2.0%
Portugal Telecom SA .......................................................... Portugal 93,900 1,029,468
Telephone & Data Systems Inc. ................................................ United States 20,000 2,520,000
U.S. West Inc. ............................................................... United States 6,700 482,400
------------
4,031,868
------------
TRANSPORTATION 2.1%
Burlington Northern Santa Fe Corp. ........................................... United States 20,800 504,400
Florida East Coast Industries Inc. ........................................... United States 25,000 1,043,750
Railtrack Group PLC .......................................................... United Kingdom 164,432 2,697,262
------------
4,245,412
------------
UTILITIES ELECTRICAL & GAS .9%
(a)Citizens Utilities Co., B ................................................... United States 60,212 854,258
(a)MidAmerican Energy Holding Co. .............................................. United States 4,400 148,225
Veba AG ...................................................................... Germany 18,200 888,654
------------
1,891,137
------------
TOTAL COMMON STOCKS (COST $138,344,700) ...................................... 169,565,029
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
----------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 1.9%
Abraxas Petroleum Corp., Series A, 11.50%, 11/01/04 .......................... United States $ 119,000 108,885
Consorcio G Grupo Dina SA de CV, cvt., 8.00%, 8/08/04 ........................ Mexico 2,150,000 1,053,500
Eurotunnel Finance Ltd., Equity Note, 12/31/03 ............................... United Kingdom 138,008 GBP 95,906
Eurotunnel PLC:
12/31/18, Tier 2 .......................................................... United Kingdom 456,578 GBP 512,826
12/31/25, Tier 3 .......................................................... United Kingdom 403,000 GBP 367,980
12/31/50, Resettable Advance R5 ........................................... United Kingdom 172,449 GBP 93,362
Stabilization Advance S8, Tier 1 .......................................... United Kingdom 94,726 GBP 36,740
Stabilization Advance S8, Tier 2 .......................................... United Kingdom 85,062 GBP 27,494
Eurotunnel SA:
5.28%, 7/07/02, Tier 2 (Pibor) ............................................ France 18,558 EUR 12,892
6.32%, 12/31/18, Tier 2 (Libor) ........................................... France 103,401 EUR 71,828
Stabilization Advance S6 Tier 1 (Pibor) ................................... France 25,555 EUR 6,175
Stabilization Advance S7 Tier 1 (Libor) ................................... France 40,913 EUR 9,885
Stabilization Advance S6 Tier 2 ........................................... France 51,968 EUR 10,464
</TABLE>
130
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY SECURITIES FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
MFN Financial Corp.:
Series A, 10.00%, 3/23/01 ................................................. United States $ 83,479 $ 80,557
Series B, FRN, 10.676%, 3/23/01 ........................................... United States 143,476 139,172
Rite Aid Corp.:
7.125%, 1/15/07 ........................................................... United States 80,000 59,200
144A, 6.125%, 12/15/08 .................................................... United States 20,000 14,200
6.875%, 8/15/13 ........................................................... United States 25,000 16,750
Security Capital US Realty, cvt., 144A, 2.00%, 5/22/03 ....................... United States 190,000 141,194
Southwest Royalties Inc., B, 10.50%, 10/15/04 ................................ United States 695,000 371,825
TFM SA de CV:
10.25%, 6/15/07 ........................................................... Mexico 250,000 237,500
senior disc. note, zero cpn ............................................... Mexico 380,000 244,150
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11 ............................ Mexico 180,264 72,105
------------
TOTAL CORPORATE BONDS AND NOTES (COST $3,946,687) ............................ 3,784,590
------------
(a)BONDS AND NOTES IN REORGANIZATION 2.5%
Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11 .......................... United States 20,000 7,600
Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01 ..................................................... Mexico 10,000 3,400
Series A, 11.375%, 4/30/02 ................................................ Mexico 40,000 15,800
Series B, 11.875%, 4/15/04 ................................................ Mexico 25,000 9,875
Tranche A, Term Loan ...................................................... United States 47,468 19,936
Brunos Inc.:
Revolver .................................................................. United States 107,300 63,307
Tranche A, Term Loan ...................................................... United States 190,600 112,454
Tranche B, Term Loan ...................................................... United States 114,500 67,555
Buenos Aires Embotelladora SA:
Series B, 12.00%, 8/03/05 ................................................. Argentina 17,000 16,575
144A, 12.00%, 9/01/05 ..................................................... Argentina 273,000 266,175
Crown Leasing, Bank Claim .................................................... Japan 41,502,615 JPY 28,106
Decision One Corp.:
Revolver .................................................................. United States 22,239 9,952
Tranche A, Term Loan ...................................................... United States 273,512 122,397
Tranche B, Term Loan ...................................................... United States 47,200 21,122
Dow Corning Corp., 9.375%, 2/01/08 ........................................... United States 300,000 432,000
Harnischfeger Industries Inc.:
8.90%, 3/01/22 ............................................................ United States 150,000 57,000
8.70%, 6/15/22 ............................................................ United States 107,000 40,660
7.25%, 12/15/25 ........................................................... United States 280,000 106,400
6.875%, 2/15/27 ........................................................... United States 144,000 54,720
Koninklijke Ned Vlieg Fokker NV, Trade Claim ................................. Netherlands 431,091 EUR 125,860
Loewen Group Inc., Series 5, 6.10%, 10/01/02 ................................. Canada 175,000 CAD 58,095
Loewen Group International Inc.:
144A, 6.70%, 10/01/99 ..................................................... Canada 380,000 186,200
Revolver .................................................................. United States 71,983 38,151
Series 3, 7.50%, 4/15/01 .................................................. Canada 105,000 51,450
Series 3, 7.75%, 10/15/01 ................................................. Canada 20,000 9,800
Series 2, 8.25%, 4/15/03 .................................................. Canada 75,000 36,750
Series 6, 7.20%, 6/01/03 .................................................. Canada 678,000 339,000
Series 4, 8.25%, 10/15/03 ................................................. Canada 265,000 129,850
Series 7, 7.60%, 6/01/08 .................................................. Canada 470,000 235,000
Mariner Post-acute Network Inc.:
Revolver .................................................................. United States 38,000 12,159
Tranche A, Term Loan ...................................................... United States 55,713 17,827
Tranche B, Term Loan ...................................................... United States 44,168 14,133
Tranche C, Term Loan ...................................................... United States 20,693 6,621
Nippon Credit Bank Ltd., Bank Claim .......................................... Japan 21,126,309 JPY 33,034
Nippon Total Finance, Bank Claim ............................................. Japan 21,418,136 JPY 12,469
Paging Network Inc., Revolver A .............................................. United States 297,000 252,450
</TABLE>
131
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY SECURITIES FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS AND NOTES IN REORGANIZATION (CONT.)
Port Seattle Wash Rev Ref-Beloit Proj., 6.00%, 12/01/17 ...................... United States $ 10,000 $ 3,800
United Companies Financial Corp., Revolver ................................... United States 1,040,400 832,320
Vencor Inc.:
Revolver .................................................................. United States 124,422 81,497
Term Loan A ............................................................... United States 509,708 333,858
Term Loan B ............................................................... United States 309,464 202,699
Tranche A, Term Loan, 3/07/00 ............................................. United States 73,341 72,607
Tranche B, Term Loan, 3/07/00 ............................................. United States 25,000 24,750
Vencor Operating Inc., 9.875%, 5/01/05 ....................................... United States 675,000 140,063
Ventas Inc.:
Tranche A, Bridge Loan .................................................... United States 107,409 97,205
Tranche B, Revolver ....................................................... United States 100,542 90,990
Tranche C, Term Loan A .................................................... United States 104,918 94,950
Tranche D, Term Loan B .................................................... United States 74,025 68,472
------------
TOTAL BONDS AND NOTES IN REORGANIZATION (COST $5,359,543) .................... 5,057,094
------------
SHORT TERM INVESTMENTS 9.5%
Fannie Mae, 5.43% to 5.61%, with maturities to 5/25/00 ....................... United States 10,500,000 10,327,100
Federal Home Loan Bank, 1.28% to 5.51%, with maturities to 3/15/00 ........... United States 6,500,000 6,477,920
Federal Home Loan Mortgage Corp., 5.19% to 5.20%, with maturities to 2/10/00 . United States 2,500,000 2,489,117
------------
TOTAL SHORT TERM INVESTMENTS (COST $19,287,169) .............................. 19,294,137
------------
TOTAL INVESTMENTS (COST $166,938,099) 97.3% .................................. 197,700,850
SECURITIES SOLD SHORT (2.5%) ................................................. (5,113,253)
NET EQUITY IN FORWARD CONTRACTS .8% .......................................... 1,639,069
OTHER ASSETS, LESS LIABILITIES 4.4% .......................................... 8,963,120
------------
TOTAL NET ASSETS 100.0% ...................................................... $203,189,786
============
</TABLE>
<TABLE>
<CAPTION>
(j)SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)Clear Channel Communications Inc. ........................................... United States 14,411 $ 1,286,182
Dow Chemical Co. ............................................................. United States 9,651 1,289,615
(a)DST Systems Inc. ............................................................ United States 5,700 434,981
Motorola Inc. ................................................................ United States 5,900 868,775
BP Amoco PLC, ADR ............................................................ United Kingdom 20,800 1,233,700
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $4,261,538) ............................ $ 5,113,253
============
</TABLE>
<TABLE>
<CAPTION>
(k)CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
ISSUER COUNTRY SHARES 12/31/1999 GAIN/(LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BP Amoco PLC, cfd., 5.18 ........................................... United Kingdom 12,800 $128,978 $(21,852)
BP Amoco PLC, cfd., 5.47 ........................................... United Kingdom 5,000 50,382 (6,161)
BP Amoco PLC, cfd., 5.565 .......................................... United Kingdom 3,900 39,298 (4,223)
BP Amoco PLC, cfd., 5.65 ........................................... United Kingdom 9,600 96,734 (9,082)
BP Amoco PLC, cfd., 5.71 ........................................... United Kingdom 2,000 20,153 (1,697)
BP Amoco PLC, cfd., 6.23317 ........................................ United Kingdom 13,800 139,055 (40)
BP Amoco PLC, cfd., 6.24797 ........................................ United Kingdom 6,500 65,497 137
-----------------------
TOTAL CONTRACTS FOR DIFFERENCES .................................... $540,097 $(42,918)
=======================
</TABLE>
See glossary of currency abbreviations on page 165.
*Securities traded in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(d)See Note 8 regarding restricted securities.
(j)See Note 1(f) regarding securities sold short.
(k)See Note 1(d) regarding contract for differences.
See notes to financial statements.
132
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 80.4%
AEROSPACE & MILITARY TECHNOLOGY 1.5%
B.F. Goodrich Co. ........................................................... United States 234,828 $ 6,457,770
(a) Hexcel Corp. ................................................................ United States 42,000 233,625
------------
6,691,395
------------
APPLIANCES & HOUSEHOLD DURABLES .1%
Maytag Corp. ................................................................ United States 8,200 393,600
------------
AUTOMOBILES 4.9%
Borg-Warner Automotive Inc. ................................................. United States 38,800 1,571,400
(a) Consorcio G Grupo Dina SA de CV, L, ADR ..................................... Mexico 644,100 241,538
Delphi Automotive Systems Corp. ............................................. United States 442,357 6,967,123
General Motors Corp. ........................................................ United States 101,900 7,406,856
(a) Lear Corp. .................................................................. United States 170,700 5,462,400
(a) SPX Corp. ................................................................... United States 7,700 622,256
------------
22,271,573
------------
BANKING 4.3%
Bank One Corp. .............................................................. United States 189,800 6,085,463
Banknorth Group Inc. ........................................................ United States 11,400 304,950
Chase Manhattan Corp. ....................................................... United States 55,600 4,319,425
National City Corp. ......................................................... United States 90,789 2,150,564
Peoples Heritage Financial Group Inc. ....................................... United States 147,150 2,216,447
Sovereign Bancorp Inc. ...................................................... United States 243,000 1,811,109
U.S. Bancorp ................................................................ United States 102,124 2,431,828
------------
19,319,786
------------
BEVERAGES & TOBACCO 2.0%
Brown-Forman Corp., B ....................................................... United States 14,000 801,500
Gallaher Group PLC .......................................................... United Kingdom 396,700 1,689,326
Gallaher Group PLC, ADR ..................................................... United Kingdom 18,200 279,825
Pepsi Bottling Group Inc. ................................................... United States 213,300 3,532,781
UST Inc. .................................................................... United States 111,000 2,795,813
------------
9,099,245
------------
BROADCASTING & PUBLISHING 9.2%
(a) AT&T Corp. - Liberty Media Group, A ......................................... United States 78,648 4,463,274
Central Newspapers Inc., A .................................................. United States 70,200 2,764,125
Dow Jones & Co. Inc. ........................................................ United States 47,500 3,230,000
Dun & Bradstreet Corp. ...................................................... United States 61,500 1,814,250
Media General Inc., A ....................................................... United States 73,000 3,796,000
(a) MediaOne Group Inc. ......................................................... United States 142,700 10,961,144
Meredith Corp. .............................................................. United States 58,359 2,432,841
Scripps Co., A .............................................................. United States 124,100 5,561,231
Washington Post Co., B ...................................................... United States 12,413 6,900,076
------------
41,922,941
------------
BUILDING MATERIALS & COMPONENTS 1.4%
(a) American Standard Cos. Inc. ................................................. United States 87,400 4,009,475
Armstrong World Industries Inc. ............................................. United States 69,900 2,332,913
------------
6,342,388
------------
BUSINESS & PUBLIC SERVICES 3.0%
Deluxe Corp. ................................................................ United States 3,400 93,288
National Service Industries Inc. ............................................ United States 28,300 834,850
(a) Republic Services Inc., A .................................................. United States 241,500 3,471,563
Suez Lyonnaise des Eaux SA .................................................. France 35,549 5,693,996
Vivendi ..................................................................... France 42,750 3,858,389
------------
13,952,086
------------
</TABLE>
133
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS 1.3%
(a)Cytec Industries Inc. ....................................................... United States 125,900 $ 2,911,438
Union Carbide Corp. ......................................................... United States 43,750 2,920,313
------------
5,831,751
------------
DATA PROCESSING & REPRODUCTION .5%
Compaq Computer Corp. ....................................................... United States 56,200 1,520,913
(a)NCR Corp. ................................................................... United States 19,800 749,925
------------
2,270,838
------------
ELECTRONIC COMPONENTS & INSTRUMENTS .6%
(a)General Instrument Corp. .................................................... United States 25,650 2,180,250
Thomas & Betts Corp. ........................................................ United States 18,500 589,688
------------
2,769,938
------------
(a)ENERGY EQUIPMENT & SERVICES .6%
Cooper Cameron Corp. ........................................................ United States 25,100 1,228,331
Weatherford International Inc................................................ United States 39,150 1,563,553
------------
2,791,884
------------
ENERGY SOURCES 2.2%
(a)Abraxas Petroleum Corp. ..................................................... United States 24,741 23,195
Atlantic Richfield Co. ...................................................... United States 39,700 3,434,050
Burlington Resources Inc. ................................................... United States 77,700 2,568,956
Total Fina SA, B ............................................................ France 28,724 3,831,602
------------
9,857,803
------------
FINANCIAL SERVICES 9.1%
Bear Stearns Co. Inc. ....................................................... United States 171,753 7,342,441
CIT Group Inc., A ........................................................... United States 235,470 4,974,304
Dime Bancorp Inc. ........................................................... United States 74,300 1,123,788
Finova Group Inc. ........................................................... United States 148,600 5,275,300
Greenpoint Financial Corp. .................................................. United States 155,730 3,708,321
Household International Inc. ................................................ United States 115,630 4,307,218
Lehman Brothers Holdings Inc. ............................................... United States 38,700 3,277,406
(a)MFN Financial Corp. ........................................................ United States 39,778 258,557
Morgan Stanley, Dean Witter & Co. ........................................... United States 6,600 942,150
PMI Group Inc. .............................................................. United States 50,450 2,462,591
Power Corp. of Canada ....................................................... Canada 35,900 614,513
Power Financial Corp. ....................................................... Canada 24,800 411,647
United Asset Management Corp. ............................................... United States 362,000 6,719,625
------------
41,417,861
------------
FOOD & HOUSEHOLD PRODUCTS 2.1%
(a)Fine Host Corp. ............................................................. United States 139,062 1,376,714
(a)Pactiv Corp. ................................................................ United States 157,300 1,671,313
U.S. Industries Inc. ........................................................ United States 265,700 3,719,800
Van Melle NV ................................................................ Netherlands 45,490 2,610,420
------------
9,378,247
------------
FOREST PRODUCTS & PAPER 1.1%
Rayonier Inc. ............................................................... United States 75,100 3,628,269
St. Joe Co. ................................................................. United States 55,400 1,346,913
------------
4,975,182
------------
HEALTH & PERSONAL CARE 2.6%
American Home Products Corp. ................................................ United States 3,400 134,088
Aventis SA .................................................................. France 112,800 6,552,461
(a)Foundation Health Systems, A ................................................ United States 73,700 732,394
(a)PacifiCare Health Systems Inc. .............................................. United States 16,400 869,200
</TABLE>
134
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE (CONT.)
Sankyo Co. Ltd. ............................................................. Japan 26,600 $ 546,656
(a)Tenet Healthcare Corp. ...................................................... United States 110,500 2,596,750
Ventas Inc. ................................................................. United States 83,500 349,656
------------
11,781,205
------------
(a)INDUSTRIAL COMPONENTS .6%
Owens-Illinois Inc. ......................................................... United States 110,610 2,772,163
------------
INSURANCE 3.7%
Allmerica Financial Corp. ................................................... United States 67,600 3,760,250
AON Corp. ................................................................... United States 50,500 2,020,000
Lincoln National Corp. ...................................................... United States 25,100 1,004,000
MBIA Inc. ................................................................... United States 72,400 3,823,625
Old Republic International Corp. ............................................ United States 254,800 3,471,650
ReliaStar Financial Corp. ................................................... United States 22,300 873,881
White Mountain Insurance Group Inc. ......................................... United States 15,600 1,879,800
------------
16,833,206
------------
LEISURE & TOURISM 3.1%
Galileo International Inc. .................................................. United States 81,500 2,439,906
Hilton Hotels Corp. ......................................................... United States 227,981 2,194,317
(a)Park Place Entertainment Corp. .............................................. United States 277,200 3,465,000
Starwood Hotels & Resorts Worldwide Inc. .................................... United States 248,700 5,844,450
------------
13,943,673
------------
MACHINERY & ENGINEERING .9%
Invensys PLC ................................................................ United Kingdom 725,652 3,905,201
------------
MERCHANDISING 3.9%
(a)Federated Department Stores Inc. ............................................ United States 121,200 6,128,175
J.C. Penney Co. Inc. ........................................................ United States 101,500 2,023,656
May Department Stores Co. ................................................... United States 38,100 1,228,725
(a)Payless Shoesource Inc. ..................................................... United States 68,100 3,200,700
(a)Saks Inc. ................................................................... United States 182,300 2,837,044
Sears, Roebuck & Co. ........................................................ United States 75,000 2,282,813
------------
17,701,113
------------
MULTI-INDUSTRY 12.7%
(a)Alleghany Corp. ............................................................. United States 15,658 2,904,559
(a)Berkshire-Hathaway Inc., A .................................................. United States 57 3,197,700
(a)Berkshire Hathaway Inc., B .................................................. United States 22 40,260
Compagnie Financiere Richemont AG, Br., A ................................... Switzerland 1,301 3,104,427
Compagnie Generale D'Industrie et de Participation .......................... France 56,353 3,687,652
Corporacion Financiera Alba SA .............................................. Spain 132,400 4,526,632
Investor AB, A .............................................................. Sweden 658,360 9,366,439
Investor AB, B .............................................................. Sweden 636,600 8,982,011
Kansas City Southern Industries Inc. ........................................ United States 85,200 6,358,050
Kinnevik AB, B .............................................................. Sweden 10,200 316,614
Lagardere SCA ............................................................... France 123,287 6,702,404
(a)Thermo Electron Corp. ....................................................... United States 227,300 3,409,500
TRW Inc. .................................................................... United States 77,000 3,999,188
Williams PLC ................................................................ United Kingdom 209,200 956,795
------------
57,552,231
------------
(a)REAL ESTATE .4%
Alexander's Inc. ............................................................ United States 8,000 632,000
Cadillac Fairview Corp. ..................................................... Canada 43,000 990,317
(d)Security Capital European Realty ............................................ United States 27,030 389,435
------------
2,011,752
------------
</TABLE>
135
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 4.7%
BCE Inc. ..................................................................... Canada 33,150 $ 3,006,863
(a)General Motors Corp., H ..................................................... United States 10,000 960,000
Telephone & Data Systems Inc. ................................................ United States 114,300 14,401,800
U.S. West Inc. ............................................................... United States 28,400 2,044,800
(a)United States Cellular Corp. ................................................ United States 8,300 837,781
------------
21,251,244
------------
TEXTILES & APPAREL .4%
Liz Claiborne Inc. ........................................................... United States 45,600 1,715,700
------------
TRANSPORTATION 2.2%
Burlington Northern Santa Fe Corp. ........................................... United States 56,900 1,379,825
Florida East Coast Industries Inc. ........................................... United States 110,500 4,613,375
Railtrack Group PLC .......................................................... United Kingdom 247,752 4,064,002
------------
10,057,202
------------
UTILITIES ELECTRICAL & GAS 1.3%
(a)MidAmerican Energy Holding Co. .............................................. United States 132,900 4,477,069
Veba AG ...................................................................... Germany 35,600 1,738,246
------------
6,215,315
------------
TOTAL COMMON STOCKS (COST $316,390,924) ...................................... 365,026,523
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
----------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 2.5%
Abraxas Petroleum Corp., Series A, 11.50%, 11/01/04 .......................... United States $ 290,500 265,808
Consorcio G Grupo Dina SA de CV, cvt., 8.00%, 8/08/04 ........................ Mexico 4,392,000 2,152,080
Dictaphone Corp., Revolver ................................................... United States 305,800 287,452
Eurotunnel Finance Ltd.:
Equity Note 12/31/03 ...................................................... United Kingdom 351,406 GBP 244,202
Participating Loan Note, 4/30/40 .......................................... United Kingdom 58,000 GBP 39,368
Eurotunnel PLC:
12/31/18, Tier 2 .......................................................... United Kingdom 1,051,800 GBP 1,181,378
12/31/25, Tier 3 .......................................................... United Kingdom 791,758 GBP 722,956
12/31/50, Resettable Advance R5 ........................................... United Kingdom 342,767 GBP 185,573
Stabilization Advance S8, Tier 1 .......................................... United Kingdom 220,793 GBP 85,638
Stabilization Advance S8, Tier 2 .......................................... United Kingdom 178,767 GBP 57,781
Eurotunnel SA:
12/31/12, Tier 1 (Pibor) .................................................. France 46,223 EUR 36,529
12/31/18, Tier 2 (Libor) .................................................. France 441,192 EUR 306,476
12/31/18, Tier 2 (Pibor) .................................................. France 133,474 EUR 92,718
12/31/25, Tier 3 (Pibor) .................................................. France 242,272 EUR 135,368
12/31/25, Tier 3 (Libor) .................................................. France 518,574 EUR 289,750
12/31/50, Resettable Advance R4 ........................................... France 297,824 EUR 98,945
Stabilization Advance S6, Tier 1 (Pibor) .................................. France 109,282 EUR 26,405
Stabilization Advance S7, Tier 1 (Pibor) .................................. France 74,647 EUR 18,036
Stabilization Advance S6, Tier 2 .......................................... France 154,538 EUR 31,116
(a)Golden Books Publishing, 7.65%, 9/15/02 ..................................... United States 230,000 98,900
HIH Capital Ltd., cvt., 144A, 7.50%, 9/25/06 ................................. United Kingdom 1,235,000 802,750
Imperial Credit Capital Trust I, B, 10.25%, 6/15/02 .......................... United States 450,000 364,500
MFN Financial Corp.:
Series A, 10.00%, 3/23/01 ................................................. United States 159,027 153,461
Series B, FRN, 10.676%, 3/23/01 ........................................... United States 279,024 270,650
Rite Aid Corp.:
7.125%, 1/15/07 ........................................................... United States 185,000 136,900
144A, 6.125%, 12/15/08 .................................................... United States 45,000 31,950
6.875%, 8/15/13 ........................................................... United States 55,000 36,850
Security Capital US Realty, cvt., 144A, 2.00%, 5/22/03 ....................... United States 1,053,000 782,511
</TABLE>
136
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
SFC New Holdings Inc., PIK, 13.25%, 8/15/03 .................................. United States $ 1,182,000 $ 851,040
Southwest Royalties Inc., B, 10.50%, 10/15/04 ................................ United States 1,680,000 898,800
TFM SA de CV:
senior disc. note, zero cpn ............................................... Mexico 800,000 514,000
10.25%, 6/15/07 ........................................................... Mexico 250,000 237,500
Tribasa Toll Road Trust I:
10.50%, 12/01/11 ......................................................... Mexico 54,079 21,632
144A, 10.50%, 12/01/11 ................................................... Mexico 162,237 64,895
------------
TOTAL CORPORATE BONDS AND NOTES (COST $12,099,827) ........................... 11,523,918
------------
(a)BONDS AND NOTES IN REORGANIZATION 3.7%
Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11 .......................... United States 45,000 17,100
Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01 ..................................................... Mexico 20,000 6,800
Series A, 11.375%, 4/30/02 ................................................ Mexico 95,000 37,525
Series B, 11.875%, 4/30/04 ................................................ Mexico 60,000 23,700
Tranche A, Term Loan ...................................................... United States 117,181 49,216
APS Inc., Tranche B .......................................................... United States 1,615,708 234,278
Brunos Inc.:
Revolver .................................................................. United States 201,200 118,708
Tranche A, Term Loan ...................................................... United States 379,200 223,728
Tranche B, Term Loan ...................................................... United States 345,100 203,609
Crown Leasing, Bank Claim .................................................... Japan 87,565,976 JPY 59,300
Decision One Corp.:
Revolver .................................................................. United States 314,391 140,690
Tranche A, Term Loan ...................................................... United States 1,068,539 478,171
Tranche B, Term Loan ...................................................... United States 496,840 222,336
Dow Corning Corp.:
9.38%, 2/01/08 ............................................................ United States 550,000 792,000
Bank Debt #1 .............................................................. United States 100,000 137,500
Harnischfeger Industries Inc.:
8.90%, 3/01/22 ............................................................ United States 370,000 140,600
8.70%, 6/15/22 ............................................................ United States 260,000 98,800
7.25%, 12/15/25 ........................................................... United States 665,000 252,700
6.875%, 2/15/27 ........................................................... United States 353,000 134,140
Integrated Health Services Inc.:
Revolver .................................................................. United States 405,000 186,300
Tranche B, Term Loan ...................................................... United States 515,265 237,022
Tranche C, Term Loan ...................................................... United States 355,083 163,338
Koninklijke Ned Vlieg Fokker NV, Trade Claim ................................. Netherlands 550,119 EUR 160,610
Loewen Group Inc., Series 5, 6.10%, 10/01/02 ................................. Canada 336,000 CAD 111,543
Loewen Group International Inc.:
Series 3, 7.50%, 4/15/01 .................................................. Canada 290,000 142,100
Series 3, 7.75%, 10/15/01 ................................................. Canada 220,000 107,800
Series 2, 8.25%, 4/15/03 .................................................. Canada 225,000 110,250
Series 6, 7.20%, 6/01/03 .................................................. Canada 1,685,000 842,500
Series 4, 8.25%, 10/15/03 ................................................. Canada 385,000 188,650
Series 7, 7.60%, 6/01/08 .................................................. Canada 1,290,000 645,000
Revolver .................................................................. United States 126,691 67,146
144A, 6.70%, 10/01/99 ..................................................... Canada 895,000 438,550
Mariner Post-Acute Network Inc.:
Revolver .................................................................. United States 67,000 21,440
Tranche A, Term Loan ...................................................... United States 98,928 31,657
Tranche B, Term Loan ...................................................... United States 83,414 26,693
Tranche C, Term Loan ...................................................... United States 41,241 13,197
Nippon Credit Bank Ltd., Bank Claim .......................................... Japan 44,574,201 JPY 69,699
Nippon Total Finance, Bank Claim ............................................. Japan 45,189,925 JPY 26,307
Paging Network Inc., Revolver A .............................................. United States 1,764,000 1,499,401
</TABLE>
137
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)BONDS AND NOTES IN REORGANIZATION (CONT.)
Peregrine Investments Holdings Ltd., zero coupon., 1/28/98 ................... Hong Kong $ 5,000,000 JPY $ 7,095
Philip Services Corp.:
Revolver Canadian Operating ............................................... Canada 345,533 CAD 138,213
Revolver Canadian Operating, fgn .......................................... Canada 9,144 3,658
Revolver Tranche 1 ........................................................ United States 319,116 127,638
Revolver Tranche 2 ........................................................ United States 324,548 129,819
Revolver Tranche 3 ........................................................ United States 148,249 59,300
PIV Investment Finance (Cayman) Ltd., cvt., 4.50%, 12/01/01 .................. Hong Kong 12,060,000 2,773,800
Port Seattle Wash Rev Ref-Beloit Proj., 6.00%, 12/01/17 ...................... United States 20,000 7,600
Pratama Datakom Asia BV:
144A, 12.75%, 7/15/05 ..................................................... Indonesia 665,000 119,700
Reg S, 12.75%, 7/15/05 .................................................... Indonesia 140,000 25,200
United Companies Financial Corp., Revolver ................................... United States 2,351,700 1,881,360
Vencor Inc.:
9.875%, 5/01/05 ........................................................... United States 1,635,000 339,263
Revolver .................................................................. United States 298,734 195,671
Term Loan A ............................................................... United States 1,227,205 803,819
Term Loan B ............................................................... United States 738,496 483,715
Tranche A, Term Loan 3/07/00 .............................................. United States 183,352 181,518
Tranche B, Term Loan 3/07/00 .............................................. United States 62,500 61,875
Ventas Inc.:
Tranche A, Bridge Loan ................................................... United States 265,066 239,885
Tranche B, Revolver ...................................................... United States 249,932 226,189
Tranche C, Term Loan A ................................................... United States 256,310 231,960
Tranche D, Term Loan B ................................................... United States 182,375 168,697
------------
TOTAL BONDS AND NOTES IN REORGANIZATION (COST $15,908,414) ................... 16,666,079
------------
SHORT TERM INVESTMENTS 11.9%
Fannie Mae, 5.18% to 5.60%, with maturities to 5/25/00 ....................... United States 20,400,000 20,105,834
Federal Home Loan Bank, 5.49% to 5.55%, with maturities to 5/17/00 ........... United States 14,000,000 13,793,661
Federal Home Loan Mortgage Corp., 5.10% to 5.52%, with maturities to 4/07/00 . United States 20,329,000 20,211,374
------------
TOTAL SHORT TERM INVESTMENTS (COST $54,089,215) .............................. 54,110,869
------------
TOTAL INVESTMENTS (COST $398,488,380) 98.5% .................................. 447,327,389
NET EQUITY IN FORWARD CONTRACTS .3% .......................................... 1,179,517
SECURITIES SOLD SHORT (2.3%) ................................................. (10,521,527)
OTHER ASSETS, LESS LIABILITIES 3.5% .......................................... 16,009,215
------------
TOTAL NET ASSETS 100.0% ...................................................... $453,994,594
============
</TABLE>
<TABLE>
<CAPTION>
(j)SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BP Amoco PLC, ADR ............................................................ United Kingdom 45,400 $ 2,692,788
Dow Chemical Co. ............................................................. United States 23,567 3,149,140
(a)DST Systems Inc. ............................................................ United States 6,300 480,769
Golden Books Entertainment Inc. .............................................. United States 3,250 13,000
Motorola Inc. ................................................................ United States 15,000 2,208,750
Nortel Networks Corp. ........................................................ Canada 19,600 1,977,080
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $8,791,377) ............................ $ 10,521,527
============
</TABLE>
138
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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
VALUE AT UNREALIZED
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES 12/31/1999 GAIN/(LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(k)CONTRACTS FOR DIFFERENCES
ISSUER
BP Amoco PLC, cfd. 5.18 ............................................ United Kingdom 27,200 $ 274,079 $(46,432)
BP Amoco PLC, cfd. 5.47 ............................................ United Kingdom 11,000 110,841 (13,555)
BP Amoco PLC, cfd. 5.565 ........................................... United Kingdom 8,900 89,680 (9,637)
BP Amoco PLC, cfd. 5.65 ............................................ United Kingdom 20,400 205,559 (19,300)
BP Amoco PLC, cfd. 5.71 ............................................ United Kingdom 5,900 59,451 (5,006)
BP Amoco PLC, cfd. 6.23317 ......................................... United Kingdom 21,600 217,651 (63)
BP Amoco PLC, cfd. 6.24797 ......................................... United Kingdom 16,000 161,223 336
------------------------
TOTAL CONTRACTS FOR DIFFERENCES .................................... $1,118,484 $(93,657)
========================
</TABLE>
See glossary of currency abbreviations on page 165.
*Securities traded in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(d)See Note 8 regarding restricted securities.
(j)See Note 1(f) regarding securities sold short.
(k)See Note 1(d) regarding contract for differences.
See notes to financial statements.
139
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS 99.2%
ARGENTINA 6.7%
Banco de Galicia y Buenos Aires SA de CV, B Banking 13,789 $ 68,541
Banco Frances SA Banking 1,290 10,192
(a)Capex SA, A Utilities Electrical & Gas 44,674 252,443
(a)Molinos Rio de la Plata SA, B Food & Household Products 1,318,303 3,243,479
Perez Companc SA, B Energy Sources 370,495 1,897,200
Quilmes Industrial SA, ADR, pfd. Beverages & Tobacco 146,900 1,753,619
Telecom Argentina Stet-France Telecom SA, ADR Telecommunications 86,033 2,946,630
Telefonica de Argentina SA, ADR Telecommunications 81,710 2,522,796
----------
12,694,900
----------
AUSTRIA 1.6%
Austria Tabak AG Beverages & Tobacco 6,400 309,272
Bank Austria AG Banking 31,410 1,770,825
OMV AG Energy Sources 10,615 1,031,257
----------
3,111,354
----------
BRAZIL 13.1%
Aracruz Celulose SA, ADR Forest Products & Paper 76,400 2,005,500
Banco Bradesco SA, pfd. Banking 50,413,150 395,436
(a)Banco Bradesco SA, pfd., rts., 2/09/00 Banking 3,273,532 12,993
Banco do Brasil SA Banking 58,939,976 274,064
Brasmotor SA, pfd. Multi-Industry 3,246,000 455,141
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. Utilities Electrical & Gas 244,274,000 5,827,960
Cia Cervejaria Brahma, pfd. Beverages & Tobacco 512,000 374,116
Cia Energetica de Minas Gerais, pfd. Utilities Electrical & Gas 30,683,000 687,883
Cia Vale do Rio Doce, A, pfd. Metals & Mining 84,550 2,340,161
Copene-Petroquimica do Nordeste SA, A, pfd. Chemicals 2,481,700 821,509
Duratex SA, pfd. Forest Products & Paper 49,306,800 1,542,117
Embratel Participacoes SA, pfd. Telecommunications 22,367,000 575,735
Investimentos Itau SA Multi-Industry 89,527 89,205
Investimentos Itau SA, pfd. Multi-Industry 1,935,200 2,003,224
(a)Mannesmann SA Machinery & Engineering 757,500 52,415
Petroleo Brasileiro SA, pfd. Energy Sources 1,212,000 308,619
Tele Centro Sul Participacoes SA, pfd. Telecommunications 102,313,000 1,868,423
Tele Norte Leste Participacoes SA, pfd. Telecommunications 62,911,000 1,689,003
Tele Sudeste Celular Participacoes SA, pfd. Telecommunications 107,795,000 796,603
Telecomunicacoes de Sao Paulo SA, pfd., ADR Telecommunications 59,400 1,451,588
Telesp Celular Participacoes SA, pfd. Telecommunications 8,709,000 154,270
Unibanco Uniao de Bancos Brasileiros SA, GDR Banking 34,778 1,047,687
----------
24,773,652
----------
CHILE 2.5%
Cia de Telecomunicaciones de Chile SA, ADR Telecommunications 130,200 2,376,150
Empresa Nacional de Electricidad SA, ADR Electrical & Electronics 103,940 1,474,649
Enersis SA, ADR Utilities Electrical & Gas 34,791 817,589
----------
4,668,388
----------
CHINA .2%
Shandong Huaneng Power Development Co. Ltd., ADR Utilities Electrical & Gas 96,500 416,156
----------
COLOMBIA .8%
Bavaria SA Beverages & Tobacco 202,807 886,943
Cementos Argos SA Building Materials & Components 255,000 652,800
----------
1,539,743
----------
(a)CZECH REPUBLIC 2.4%
CEZ AS Utilities Electrical & Gas 1,408,880 3,482,359
Cesky Telecom AS Telecommunications 62,910 1,015,556
----------
4,497,915
----------
</TABLE>
140
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
EGYPT
Commercial International Bank Ltd. Banking 800 $ 11,686
HONG KONG 5.1%
Cheung Kong Holdings Ltd. Multi-Industry 294,000 3,734,804
Citic Pacific Ltd. Multi-Industry 458,000 1,723,355
Dairy Farm International Holdings Ltd. Merchandising 35,700 32,130
Hang Lung Development Co. Ltd. Real Estate 716,000 810,549
Hong Kong Land Holdings Ltd. Real Estate 90,800 134,384
HSBC Holdings PLC Banking 83,325 1,168,383
Hutchison Whampoa Ltd. Multi-Industry 59,000 857,657
Jardine Matheson Holdings Ltd. Multi-Industry 117,257 461,993
New World Development Co. Ltd. Real Estate 215,632 485,439
Shangri-La Asia Ltd. Leisure & Tourism 180,783 206,981
-----------
9,615,675
-----------
HUNGARY 2.4%
Borsodchem RT Chemicals 29,330 1,200,338
Gedeon Richter Ltd. Health & Personal Care 14,080 925,305
Mol Magyar Olay-Es Gazipari RT Energy Sources 46,000 954,923
OTP Bank Banking 7,840 458,651
Tiszai Vegyi Kombinat RT Chemicals 54,051 1,030,154
-----------
4,569,371
-----------
INDIA .3%
(a)ICICI Ltd., ADR Financial Services 2,100 29,138
(a)Mahanagar Telephone Nigam Ltd. Telecommunications 38,000 168,598
(a)NIIT Ltd. Data Processing & Reproduction 380 28,963
Reliance Industries Ltd. Chemicals 77,500 416,362
-----------
643,061
-----------
INDONESIA 5.7%
(a)Asia Pulp & Paper Co. Ltd., ADR Forest Products & Paper 93,560 736,785
PT Gudang Garamm Beverages & Tobacco 215,000 578,462
(a)PT Indah Kiat Pulp & Paper Corp. Forest Products & Paper 4,661,000 1,834,383
(a)PT Indocement Tunggal Prakarsa Building Materials & Components 1,408,500 624,880
(a)PT Indofoods Sukses Makmurr Food & Household Products 549,020 687,503
PT Indosat Telecommunications 324,000 723,349
PT Semen Gresik (Persero) Building Materials & Components 279,117 442,393
PT Tambang Timah Metals & Mining 864,000 602,791
PT Telekomunikasi Indonesia (Persero), B Telecommunications 6,976,760 3,968,890
(a)PT Tjiwi Kimia Forest Products & Paper 1,520,926 495,185
-----------
10,694,621
-----------
ISRAEL .4%
Discount Investment Corp. Financial Services 400 20,314
(a)Formula Systems Ltd. Data Processing & Reproduction 7,280 306,984
Koor Industries Ltd. Multi-Industry 2,386 238,324
Teva Pharmaceutical Industries Ltd., ADR Health & Personal Care 2,350 168,466
-----------
734,088
-----------
MALAYSIA .1%
Resorts World Berhad Leisure & Tourism 41,000 117,605
-----------
MEXICO 15.1%
Cemex SA Building Materials & Components 1,556,291 8,705,374
(a)Cifra SA de CV, V Merchandising 140,000 280,739
Coca Cola Femsa SA de CV, L, ADR Beverages & Tobacco 6,650 116,791
(a)DESC SA de CV DESC, B Multi-Industry 167,670 138,029
Fomento Economico Mexicano SA de CV Femsa Beverages & Tobacco 4,000 178,000
(a)Grupo Carso SA de CV Multi-Industry 16,500 82,195
</TABLE>
141
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MEXICO (CONT.)
(a)Grupo Financiero Banamex Accival SA de CV Banking 1,224,885 $ 4,912,468
(a)Grupo Financiero Bancomer SA de CV Banking 233,500 97,589
Panamerican Beverages Inc., A Food & Household Products 200 4,113
Telefonos de Mexico SA (Telmex), ADR Telecommunications 116,200 13,072,500
Tubos de Acero de Mexico SA Machinery & Engineering 100 1,318
Vitro SA de CV, A Food & Household Products 577,349 1,090,717
-----------
28,679,833
-----------
PAKISTAN .2%
Pakistan Telecommunications Corp., A Telecommunications 1,098,000 459,840
-----------
PERU .5%
Telefonica del Peru SA, ADR Telecommunications 75,400 1,008,475
-----------
PHILIPPINES 1.3%
Philippine Long Distance Telephone Co., ADR Telecommunications 68,200 1,764,675
(a)Philippine National Bank Banking 2,160 5,092
San Miguel Corp., B Food & Household Products 465,100 657,834
-----------
2,427,601
-----------
POLAND 1.5%
Bank Slaski SA W Katowicach Banking 3,600 244,643
Prokom Software SA Data Processing & Reproduction 6,100 188,827
Telekomunikacja Polska SA Telecommunications 224,401 1,470,681
Warta SA Insurance 28,395 817,172
-----------
2,721,323
-----------
RUSSIA .8%
GAZ Auto Works Automobiles 1,310 45,850
Irkutskenergo Utilities Electrical & Gas 395,550 39,555
Lukoil Holdings, ADR Energy Sources 8,240 428,480
(a)Mosenergo Utilities Electrical & Gas 19,900 51,388
(a)Rostelecom, ADR Telecommunications 22,720 383,400
Unified Energy Systems Utilities Electrical & Gas 610,600 73,272
Unified Energy Systems, ADR Utilities Electrical & Gas 10,800 121,662
(a)Vimpel Communications, ADR Telecommunications 9,655 430,854
-----------
1,574,461
-----------
SINGAPORE 8.2%
City Developments Ltd. Real Estate 205,500 1,203,017
Creative Technology Ltd. Electrical & Electronics 2,300 41,705
Cycle & Carriage Ltd. Automobiles 13,000 40,198
DBS Group Holdings Ltd. Banking 18,978 311,077
First Capital Corp. Ltd. Real Estate 247,000 329,234
Fraser and Neave Ltd. Beverages & Tobacco 402,000 1,484,419
Jurong Shipyard Ltd. Machinery & Engineering 223,000 1,118,013
Keppel Corp., Ltd. Transportation 628,000 1,643,999
Natsteel Ltd. Metals & Mining 955,000 1,903,693
Oversea Chinese Banking Corp. Ltd., fgn. Banking 207,900 1,909,859
Overseas Union Enterprise Ltd. Leisure & Tourism 173,400 583,032
Sembcorp Industries Ltd. Multi-Industry 889,769 1,212,714
Singapore Telecommunications Ltd. Telecommunications 158,000 326,340
United Industrial Corporation Ltd. Multi-Industry 1,301,000 734,278
United Overseas Bank Ltd., fgn. Banking 305,184 2,693,608
-----------
15,535,186
-----------
SLOVAK REPUBLIC .3%
Nafta Gbely AS Utilities Electrical & Gas 4,800 41,229
(a)Slovnaft AS Chemicals 28,010 398,761
(a)Vychodoslovenske Zeleziarne AS Metals & Mining 8,400 28,701
-----------
468,691
-----------
</TABLE>
142
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
SOUTH AFRICA 13.5%
Anglo American PLC Metals & Mining 70,895 $ 4,572,756
Barlow Ltd. Multi-Industry 325,800 2,344,913
BOE Ltd. Financial Services 378,000 368,481
CG Smith Ltd. Multi-Industry 703,200 2,827,652
Comparex Holdings Ltd. Data Processing & Reproduction 10,500 73,526
De Beers Centenary AG Misc Materials & Commodities 32,140 934,697
Firstrand Ltd. Insurance 188,000 268,790
Iscor Ltd. Metals & Mining 389,851 1,475,797
Johnnies Industrial Corporation Ltd. Multi-Industry 41,700 487,799
Liberty Life Association of Africa Ltd. Insurance 109,070 1,258,165
Palabora Mining Co. Ltd. Metals & Mining 77,500 563,465
Rembrandt Group Ltd. Multi-Industry 158,170 1,505,891
Sanlam Ltd. Financial Services 4,200 5,868
Sappi Ltd. Forest Products & Paper 148,151 1,463,457
Sasol Ltd. Energy Sources 373,800 3,103,360
South African Breweries PLC. Beverages & Tobacco 326,344 3,319,112
Standard Bank Investment Corp. Ltd. Financial Services 64,532 267,880
Tongaat-Hulett Group Ltd. Multi-Industry 82,543 697,358
----------
25,538,967
----------
SOUTH KOREA 4.2%
Hana Bank Banking 77,564 604,528
Korea Electric Power Corp. Utilities Electrical & Gas 77,100 2,390,066
Samsung Display Devices Ltd. Electrical & Electronics 23,686 984,570
Samsung Electronics Co. Ltd. Electrical & Electronics 13,311 3,118,209
(a)Samsung Heavy Industries Co. Ltd. Machinery & Engineering 190,502 921,053
----------
8,018,426
----------
TAIWAN .3%
Mitac International Corp. Data Processing & Reproduction 74,000 113,411
(a)Silicon Integrated Systems Co. Ltd. Electrical & Electronics 38,000 128,342
(a)Siliconware Precision Industries Co. Ltd. Electronic Components & Instruments 112,000 285,487
(a)Sunplus Technology Company Ltd. Electrical & Electronics 9,000 43,014
----------
570,254
----------
THAILAND 5.8%
Advanced Info Service Public Co. Ltd., fgn. Telecommunications 40,200 676,962
American Standard Sanitaryware Public Co. Ltd., fgn. Building Materials & Components 24,500 130,562
(a)Bangkok Bank Public Co. Ltd. Banking 265,400 431,372
(a)Bangkok Bank Public Co. Ltd., fgn. Banking 6,300 15,947
BEC World Public Co Ltd., fgn. Telecommunications 10,800 76,547
(a)Charoen Pokphand Feedmill Public Co. Ltd., fgn. Food & Household Products 547,350 1,604,277
(a)Hana Microelectronics Co. Ltd., fgn. Electrical & Electronics 142,400 690,562
(a)Land and House Public Co. Ltd., fgn. Real Estate 97,493 92,869
(a)Shin Corporations Public Company Ltd., fgn. Electrical & Electronics 58,600 555,865
(a)Siam Cement Public Co. Ltd. Building Materials & Components 52,350 1,032,214
Siam Cement Public Co. Ltd., fgn. Building Materials & Components 11,350 378,636
(a)Siam Commercial Bank, 5.25%, 144A, cvt. pfd., fgn. Banking 331,000 405,702
Siam Makro Public Company Ltd., fgn. Merchandising 360,000 508,393
(a)Telecomasia Corp. Public Co. Ltd., fgn. Telecommunications 199,500 260,472
(a)Thai Airways International Public Co. Ltd., fgn. Transportation 396,700 602,502
(a)Thai Farmers Bank Public Co. Ltd., fgn. Banking 819,600 1,375,825
(a)Total Access Communication Public Co. Ltd. Telecommunications 420,800 1,657,952
(a)United Communications Industries, fgn. Telecommunications 467,700 467,326
----------
10,963,985
----------
</TABLE>
143
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TURKEY 4.5%
Akbank Banking 227,162,112 $ 6,700,949
Arcelik AS, Br. Appliances & Household Durables 20,490,729 1,341,115
(a)Dogan Sirketler Grubu Holding AS Multi-Industry 17,953,000 529,587
Yapi Ve Kredi Bankasi AS Banking 686,000 21,185
------------
8,592,836
------------
VENEZUELA 1.7%
Compania Anonima Nacional Telefonos de Venezuela, ADR Telecommunications 51,050 1,257,105
Electricidad de Caracas Saica Saca, ADR Utilities Electrical & Gas 96,828 1,529,845
Mavesa SA, ADR Food & Household Products 156,900 480,506
------------
3,267,456
------------
TOTAL LONG TERM INVESTMENTS (COST $147,089,731) 99.2% 187,915,549
OTHER ASSETS, LESS LIABILITIES .8% 1,459,817
------------
TOTAL NET ASSETS 100.0% $189,375,366
============
</TABLE>
(a)Non-income producing.
See notes to financial statements.
144
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 68.2%
AEROSPACE & MILITARY TECHNOLOGY 3.3%
Alvis PLC United Kingdom 140,990 $ 284,819
BAE Systems PLC United Kingdom 32,245 213,396
Hong Kong Aircraft Engineering Co. Ltd. Hong Kong 363,200 602,725
Raytheon Co., A United States 21,775 540,292
Rolls-Royce PLC United Kingdom 121,085 417,791
-----------
2,059,023
-----------
APPLIANCES & HOUSEHOLD DURABLES .9%
Laox Co. Ltd. Japan 70,000 548,711
-----------
AUTOMOBILES .3%
General Motors Corp. United States 2,700 196,256
-----------
(a)BANKING 2.0%
Banca Nazionale del Lavoro SpA Italy 225,160 748,040
Bangkok Bank Public Co. Ltd., fgn. Thailand 193,400 489,555
-----------
1,237,595
-----------
BROADCASTING & PUBLISHING 1.7%
(a)Gartner Group Inc., B United States 32,650 450,978
Wolters Kluwer NV Netherlands 18,150 613,953
-----------
1,064,931
-----------
BUILDING MATERIALS & COMPONENTS 1.6%
Caradon PLC United Kingdom 300,952 758,739
Gujarat Ambuja Cements Ltd. India 400 2,998
Gujarat Ambuja Cements Ltd., GDR, 144A India 29,200 224,110
-----------
985,847
-----------
BUSINESS & PUBLIC SERVICES .9%
Columbia/HCA Healthcare Corp. United States 13,600 398,650
(a)Humana Inc. United States 18,200 149,012
-----------
547,662
-----------
CHEMICALS 3.1%
Akzo Nobel NV Netherlands 18,095 907,209
BASF AG Germany 17,150 896,089
Shanghai Petrochemical Co. Ltd., H China 834,000 130,891
-----------
1,934,189
-----------
DATA PROCESSING & REPRODUCTION 2.1%
(a)3Com Corp. United States 19,310 907,570
Compaq Computer Corp. United States 13,020 352,354
-----------
1,259,924
-----------
ELECTRICAL & ELECTRONICS 5.4%
Alcatel SA France 2,230 511,870
Koninklijke Philips Electronics NV Netherlands 7,896 1,073,150
Marconi PLC United Kingdom 63,620 1,124,817
Motorola Inc. United States 4,310 634,648
-----------
3,344,485
-----------
(a)ELECTRONIC COMPONENTS & INSTRUMENTS .5%
Agilent Technologies Inc. United States 4,000 309,250
-----------
ENERGY EQUIPMENT & SERVICES .7%
Sunoco Inc. United States 17,500 411,250
-----------
ENERGY SOURCES 2.6%
(a)Gazprom OAO, ADR, Reg S Russia 14,201 120,353
Lasmo PLC United Kingdom 197,410 378,058
MOL Magyar Olay-Es Gazipari RT, GDS, 144A Hungary 12,107 250,615
</TABLE>
145
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
ENERGY SOURCES (CONT.)
Repsol SA Spain 24,000 $ 556,207
Societe Elf Aquitaine SA, Br. France 1,805 278,028
-----------
1,583,261
-----------
FINANCIAL SERVICES 4.4%
AXA SA France 5,051 703,774
ING Groep NV Netherlands 13,586 819,838
Nomura Securities Co. Ltd. Japan 45,000 812,497
(a)Old Mutual PLC South Africa 132,000 350,922
-----------
2,687,031
-----------
FOREST PRODUCTS & PAPER .6%
Mo Och Domsjoe AB, B Sweden 9,575 345,623
-----------
HEALTH & PERSONAL CARE 1.9%
Aetna Inc. United States 7,190 401,292
Aventis SA France 13,550 787,109
-----------
1,188,401
-----------
INDUSTRIAL COMPONENTS .5%
Goodyear Tire & Rubber Co. United States 3,600 101,475
Madeco Manufacturera de Cobre SA, ADR Chile 18,685 207,871
-----------
309,346
-----------
INSURANCE 5.2%
Ace Ltd. Bermuda 25,200 420,525
Partnerre Ltd. Bermuda 17,500 567,656
ReliaStar Financial Corp. United States 18,310 717,523
Scor France 9,470 417,584
Unumprovident Corp. United States 18,530 594,118
Zurich Allied AG Switzerland 800 456,138
-----------
3,173,544
-----------
LEISURE & TOURISM .6%
Mandarin Oriental International Ltd. Hong Kong 524,000 366,800
-----------
MACHINERY & ENGINEERING 3.4%
Invensys PLC United Kingdom 189,439 1,019,493
Makita Corp. Japan 59,000 531,193
Mckechnie Group PLC United Kingdom 101,800 552,787
-----------
2,103,473
-----------
MERCHANDISING 2.2%
Best Denki Co. Ltd. Japan 66,000 620,052
David Jones Ltd. Australia 345,909 313,383
J.C. Penney Co. Inc. United States 8,800 175,450
Marks & Spencer PLC United Kingdom 57,370 272,817
-----------
1,381,702
-----------
METALS & MINING 4.2%
Anglo American Platinum Corp. Ltd. South Africa 402 12,213
Barrick Gold Corp. Canada 37,200 662,494
Companhia Siderurgica Nacional Sid Nacional CSN Brazil 16,300,000 631,608
Companhia Siderurgica Nacional Sid Nacional CSN, ADR Brazil 7,700 282,975
Industrias Penoles SA Mexico 168,200 484,629
Pohang Iron & Steel Co. Ltd. South Korea 4,450 508,649
-----------
2,582,568
-----------
</TABLE>
146
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MULTI-INDUSTRY 8.8%
(a)Alfa SA de CV, A Mexico 127,251 $ 597,643
Broken Hill Proprietary Co. Ltd. Australia 53,794 706,350
Cheung Kong Holdings Ltd. Hong Kong 52,500 666,929
Elementis PLC United Kingdom 83,789 109,007
Hunting PLC United Kingdom 261,410 479,500
Hutchison Whampoa Ltd. Hong Kong 61,000 886,731
Pilkington PLC United Kingdom 469,600 633,702
Saab AB, B Sweden 54,400 524,491
Swire Pacific Ltd., B Hong Kong 945,000 832,733
-----------
5,437,086
-----------
REAL ESTATE 2.2%
Highwoods Properties Inc. United States 16,600 385,950
(a)Hon Kwok Land Investment Co. Ltd. Hong Kong 1,226,456 74,943
(a)Hon Kwok Land Investment Co. Ltd, wts., 10/28/00 Hong Kong 245,291 2,461
Rouse Co. United States 13,500 286,875
Summit Properties Inc. United States 15,000 268,125
Union du Credit Bail Immobilier France 2,500 315,363
-----------
1,333,717
-----------
RECREATION & OTHER CONSUMER GOODS
Yue Yuen Industrial Holdings Ltd. Hong Kong 140 335
-----------
TELECOMMUNICATIONS 3.5%
Portugal Telecom SA, ADR Portugal 41,800 454,575
(a)Rostelecom, ADR Russia 25,300 426,938
Telecom Argentina Stet-France Telecom SA, ADR Argentina 4,000 137,000
Telefonica de Argentina SA, ADR Argentina 13,120 405,080
Telefonos de Mexico SA (Telmex), ADR Mexico 6,709 754,763
-----------
2,178,356
-----------
TEXTILES & APPAREL .8%
Adidas-Salomon AG Germany 6,510 488,266
-----------
TRANSPORTATION 2.2%
British Airways PLC United Kingdom 71,020 462,548
Seino Transportation Co. Ltd. Japan 54,000 286,422
Singapore Airlines Ltd. Singapore 54,000 612,789
-----------
1,361,759
-----------
UTILITIES ELECTRICAL & GAS 2.6%
Hong Kong Electric Holdings Ltd. Hong Kong 130,000 406,381
Korea Electric Power Corp. South Korea 19,280 597,672
National Grid Group PLC United Kingdom 79,730 604,962
-----------
1,609,015
-----------
TOTAL COMMON STOCKS AND WARRANTS (COST $38,362,452) 42,029,406
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
RIGHTS
------
<S> <C> <C> <C>
PREFERRED STOCKS AND RIGHTS 3.8%
Banco Bradesco SA, pfd. Brazil 121,758,350 955,060
(a)Banco Bradesco SA, pfd., rts., 2/09/00 Brazil 7,906,267 31,380
Cia Vale do Rio Doce, A, pfd. Brazil 13,400 370,883
Cia Vale do Rio Doce, ADR, A, pfd. Brazil 15,100 417,935
Cia Energetica de Minas Gerais Cemig, ADR, pfd. Brazil 9,178 205,762
Coteminas Cia Tecidos Norte de Minas, pfd. Brazil 599,000 54,707
(a)Empresa Nacional de Comercio Redito Participacoe, pfd. Brazil 275,000 450
Telecomunicacoes de Sao Paulo SA, ADR, pfd. Brazil 11,810 288,607
---------
TOTAL PREFERRED STOCKS AND RIGHTS (COST $2,319,253) 2,324,784
---------
</TABLE>
147
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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 24.1%
Bonos y Oblig del Estado, 3.25%, 1/31/05 Spain $ 548,000 EUR $ 505,740
Buoni Poliennali del Tesoro, 7.75%, 11/01/06 Italy 723,038 EUR 824,728
Buoni Poliennali del Tesoro, 10.50%, 7/15/00 Italy 581,013 EUR 601,954
Fannie Mae, 5.25%, 1/15/09 United States 16,000 14,113
Federal Republic of Germany:
3.25%, 2/17/04 Germany 706,000 EUR 671,741
4.50%, 7/04/09 Germany 1,259,000 EUR 1,188,908
Government of Canada:
8.75%, 12/01/05 Canada 208,000 CAD 161,328
7.00%, 12/01/06 Canada 246,000 CAD 177,073
Government of New Zealand, 7.00%, 7/15/09 New Zealand 540,000 NZD 276,067
International Bank for Recon/Dev., 5.25%, 3/20/02 Japan 79,700,000 JPY 867,430
Kingdom of Belgium, 7.75%, 10/15/04 Belgium 200,000 EUR 224,193
Kingdom of Denmark, 7.00%, 12/15/04 Denmark 2,910,000 DKK 422,293
Kingdom of Sweden, 6.00%, 2/09/05 Sweden 5,500,000 SEK 661,765
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 Australia 400,000 AUD 262,241
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02 Mexico 69,586 53,929
PT Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07 Indonesia 300,000 219,750
Queensland Treasury Corp., 6.50%, 6/14/05 Australia 164,000 AUD 105,351
Republic of Argentina, Reg S, 11.75%, 2/12/07 Argentina 100,000 ARS 90,388
(c) Republic of Ecuador, 144A, 11.25%, 4/25/02 Ecuador 185,000 76,775
(c) Republic of Ecuador, Reg S, 11.25%, 4/25/02 Ecuador 390,000 161,850
Republic of Turkey, 12.375%, 6/15/09 Turkey 35,000 37,625
Republic of Venezuela, 144A, 9.125%, 6/18/07 Venezuela 100,000 78,500
Republic of Venezuela, Reg S, 9.125%, 6/18/07 Venezuela 600,000 471,000
SEI Holdings IX Inc., 144A, 11.00%, 11/30/00 Trinidad and Tobago 170,000 170,000
U.S. Treasury Bond, 5.25%, 11/15/28 United States 1,065,000 877,959
U.S. Treasury Notes:
6.25%, 8/31/00 United States 1,010,000 1,012,525
4.50%, 1/31/01 United States 2,000,000 1,967,500
United Kingdom:
6.50%, 12/07/03 United Kingdom 500,000 GBP 816,054
7.50%, 12/07/06 United Kingdom 280,000 GBP 493,494
United Mexican States:
9.75%, 2/06/01 Mexico 620,000 640,150
11.375%, 9/15/16 Mexico 430,000 487,856
11.5%, 5/15/26 Mexico 220,000 262,075
----------
TOTAL BONDS (COST $16,359,349) 14,882,355
----------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $57,041,054) 59,236,545
----------
(h) REPURCHASE AGREEMENT (COST $2,100,000) 3.4%
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $2,100,525)
Collateralized by U.S. Treasury Notes and Bonds United States 2,100,000 2,100,000
----------
TOTAL INVESTMENTS (COST $59,141,054) 99.5% 61,336,545
NET EQUITY IN FORWARDS CONTRACTS (34,062)
OTHER ASSETS, LESS LIABILITIES .5% 337,255
----------
TOTAL NET ASSETS 100.0% $61,639,738
==========
</TABLE>
See glossary of currency abbreviations on page 165.
* Securities traded in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(c) See Note 7 regarding defaulted securities.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
148
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 92.7%
AEROSPACE & MILITARY TECHNOLOGY 3.1%
(a)BAE Systems PLC United Kingdom 841,790 $ 5,570,939
Boeing Co. United States 100,769 4,188,212
Lockheed Martin Corp. United States 151,800 3,320,625
Raytheon Co., A United States 222,644 5,524,354
Rolls-Royce PLC United Kingdom 1,000,000 3,450,393
-----------
22,054,523
-----------
APPLIANCES & HOUSEHOLD DURABLES 2.4%
Laox Co. Ltd. Japan 637,000 4,993,267
Sony Corp. Japan 40,000 11,860,841
-----------
16,854,108
-----------
AUTOMOBILES 4.8%
Autoliv Inc., SDR Sweden 246,100 7,205,044
Bayerische Motorenwerke AG Germany 170,000 5,211,416
Ford Motor Co. United States 130,000 6,946,875
General Motors Corp. United States 100,000 7,268,750
Volkswagen AG Germany 63,000 3,551,797
Volvo AB, B Sweden 171,900 4,446,561
-----------
34,630,443
-----------
BANKING 5.5%
Australia & New Zealand Banking Group Ltd. Australia 854,000 6,212,571
Deutsche Bank AG Germany 45,000 3,807,762
Foreningssparbanken AB, A Sweden 180,000 2,645,503
HSBC Holdings PLC Hong Kong 690,789 9,686,242
(a)Merita AS Finland 954,100 5,609,528
National Australia Bank Ltd. Australia 440,000 6,730,435
Unibanco Uniao de Bancos Brasileiros SA, GDR Brazil 149,000 4,488,625
-----------
39,180,666
-----------
BUILDING MATERIALS & COMPONENTS 1.2%
Caradon PLC United Kingdom 2,805,290 7,072,503
Nichiha Corp. Japan 193,500 1,675,858
-----------
8,748,361
-----------
(a)BUSINESS & PUBLIC SERVICES 1.1%
Complete Business Solutions Inc. United States 222,800 5,597,850
Humana Inc. United States 250,000 2,046,875
-----------
7,644,725
-----------
CHEMICALS 3.7%
Akzo Nobel NV Netherlands 160,000 8,021,746
BASF AG Germany 140,900 7,362,036
DSM NV, Br. Netherlands 150,000 6,010,269
Kemira OY Finland 447,900 2,728,073
Lyondell Chemical Co. United States 200,000 2,550,000
-----------
26,672,124
-----------
DATA PROCESSING & REPRODUCTION 1.6%
(a)3Com Corp. United States 170,600 8,018,200
Compaq Computer Corp. United States 120,000 3,247,500
-----------
11,265,700
-----------
ELECTRICAL & ELECTRONICS 7.4%
(a)ABB Ltd. Switzerland 35,975 4,386,370
Alcatel SA France 45,000 10,329,206
Catic Shenzhen Holdings Ltd., H China 9,945,000 678,054
Fuji Photo Film Co. Ltd. Japan 200,000 7,300,484
Hitachi Ltd. Japan 303,500 4,870,969
</TABLE>
149
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRICAL & ELECTRONICS (CONT.)
Koninklijke Philips Electronics NV Netherlands 60,000 $ 8,154,636
Marconi PLC United Kingdom 627,100 11,087,276
Motorola Inc. United States 40,000 5,890,000
-----------
52,696,995
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS .7%
Hewlett Packard Co. United States 45,000 5,127,188
-----------
ENERGY EQUIPMENT & SERVICES .2%
TransCanada PipeLines Ltd. Canada 150,000 1,296,770
-----------
ENERGY SOURCES 4.3%
Amerada Hess Corp. United States 55,000 3,121,250
Burlington Resources Inc. United States 150,000 4,959,375
Norsk Hydro ASA Norway 97,000 4,056,044
Occidental Petroleum Corp. United States 175,000 3,784,375
(a)Ranger Oil Ltd. Canada 273,050 849,799
(a)Renaissance Energy Ltd. Canada 254,800 2,555,225
Shell Transport & Trading Co. PLC United Kingdom 616,053 5,119,919
Societe Elf Aquitaine SA, Br. France 37,072 5,710,275
Valero Energy Corp. United States 28,500 566,437
-----------
30,722,699
-----------
FINANCIAL SERVICES 3.1%
AXA SA France 27,702 3,859,818
ING Groep NV Netherlands 106,397 6,420,453
Merrill Lynch & Co. Inc. United States 105,000 8,767,500
Nomura Securities Co. Ltd. Japan 180,000 3,249,988
-----------
22,297,759
-----------
FOOD & HOUSEHOLD PRODUCTS 2.6%
Archer-Daniels Midland Co. United States 656,318 7,998,876
IBP Inc. United States 220,543 3,969,774
Northern Foods PLC United Kingdom 2,208,797 3,516,113
Tate & Lyle PLC United Kingdom 450,000 2,952,632
-----------
18,437,395
-----------
FOREST PRODUCTS & PAPER 2.3%
Assidoman AB Sweden 249,730 4,066,738
Bowater Inc. United States 100,000 5,431,250
Carter Holt Harvey Ltd. New Zealand 880,712 1,150,427
Metsa Serla OY, B Finland 270,000 3,139,535
Stora Enso OYJ, R Finland 159,700 2,783,053
-----------
16,571,003
-----------
HEALTH & PERSONAL CARE 2.0%
Aetna Inc. United States 110,000 6,139,375
Aventis SA France 60,000 3,485,352
Medeva PLC United Kingdom 1,564,200 4,449,136
-----------
14,073,863
-----------
INDUSTRIAL COMPONENTS .5%
BAE Systems PLC United Kingdom 107,950 171,842
Michelin SA, B France 90,000 3,533,676
-----------
3,705,518
-----------
INSURANCE 4.8%
Ace Ltd. Bermuda 121,500 2,027,531
Allstate Corp. United States 195,000 4,680,000
Partnerre Ltd. Bermuda 127,900 4,148,756
Torchmark Corp. United States 240,000 6,975,000
</TABLE>
150
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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
Unumprovident Corp. United States 81,100 $ 2,600,269
XL Capital Ltd., A Bermuda 35,000 1,815,625
Zurich Allied AG Switzerland 11,500 6,556,986
Zurich Allied PLC United Kingdom 440,000 5,219,387
-----------
34,023,554
-----------
MACHINERY & ENGINEERING 4.7%
First Tractor Company Ltd., H China 6,860,000 970,734
Invensys PLC United Kingdom 1,459,542 7,854,736
KCI Konecranes International PLC Finland 232,100 8,921,351
Laird Group PLC United Kingdom 1,183,700 4,686,822
Makita Corp. Japan 653,000 5,879,141
METSO OYJ Finland 392,800 5,101,299
-----------
33,414,083
-----------
MERCHANDISING 3.5%
Hudsons Bay Co. Canada 276,500 3,289,162
J.C. Penney Co. Inc. United States 80,000 1,595,000
Marks & Spencer PLC United Kingdom 1,616,900 7,689,009
Matsuzakaya Co. Ltd. Japan 51,000 152,224
Safeway PLC United Kingdom 1,838,498 6,328,685
Sears, Roebuck & Co. United States 155,900 4,745,206
Somerfield PLC United Kingdom 1,000,000 1,446,418
-----------
25,245,704
-----------
METALS & MINING 5.7%
Anglo American Platinum Corp. Ltd. South Africa 353,665 10,744,980
Barrick Gold Corp. Canada 250,000 4,452,244
Companhia Siderurgica Nacional Sid Nacional CSN Brazil 129,100,000 5,002,491
Corus Group PLC United Kingdom 3,500,000 9,135,058
Industrias Penoles SA Mexico 1,875,300 5,403,239
Pohang Iron & Steel Co. Ltd. South Korea 53,400 6,103,789
-----------
40,841,801
-----------
MULTI-INDUSTRY 6.0%
Beijing Datang Power Generation Co. Ltd., H China 6,860,000 1,129,581
Broken Hill Proprietary Co. Ltd. Australia 444,654 5,838,596
Cheung Kong Holdings Ltd. Hong Kong 1,180,000 14,990,030
Hutchison Whampoa Ltd. Hong Kong 366,600 5,329,105
Pacific Dunlop Ltd. Australia 1,979,000 2,801,103
Saab AB, B Sweden 296,997 2,863,463
Swire Pacific Ltd., A Hong Kong 1,421,800 8,395,269
Swire Pacific Ltd., B Hong Kong 1,304,000 1,149,083
-----------
42,496,230
-----------
REAL ESTATE 2.1%
China Resources Beijing Land Ltd. China 4,652,000 532,615
General Growth Properties Inc. United States 164,500 4,606,000
Hang Lung Development Co. Ltd. Hong Kong 3,624,000 4,102,554
Highwoods Properties Inc. United States 164,900 3,833,925
National Health Investors Inc. United States 123,400 1,835,575
New World Development Co. Ltd. Hong Kong 13,457 30,295
-----------
14,940,964
-----------
TELECOMMUNICATIONS 7.9%
Cable & Wireless HKT Ltd. Hong Kong 2,857,746 8,253,219
Embratel Participacoes SA Brazil 35,487,000 6,277,170
(a)General Motors Corp., H United States 66,000 6,336,000
Nippon Telegraph & Telephone Corp. Japan 458 7,843,617
</TABLE>
151
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FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
SK Telecom Co. Ltd., ADR South Korea 211,710 $ 8,124,371
Telecom Corp. of New Zealand Ltd. New Zealand 161,000 757,101
Telecomunicacoes de Sao Paulo SA Brazil 276,690,000 3,830,621
Telefonica de Argentina SA, ADR Argentina 167,000 5,156,125
Telefonos de Mexico SA (Telmex), ADR Mexico 85,100 9,573,750
-----------
56,151,974
-----------
TEXTILES & APPAREL .7%
Adidas-Salomon AG Germany 60,000 4,500,151
Courtaulds Textiles PLC United Kingdom 271,300 287,185
-----------
4,787,336
-----------
TRANSPORTATION 2.9%
Airborne Freight Corp. United States 150,000 3,300,000
British Airways PLC United Kingdom 1,205,032 7,848,278
Singapore Airlines Ltd. Singapore 821,600 9,323,470
-----------
20,471,748
-----------
UTILITIES ELECTRICAL & GAS 7.9%
CLP Holdings Ltd. Hong Kong 800,000 3,684,312
Electrabel SA Belgium 10,500 3,435,518
Entergy Corp. United States 183,900 4,735,425
Evn AG Austria 19,824 2,993,657
Hong Kong Electric Holdings Ltd. Hong Kong 2,944,000 9,202,959
Iberdrola SA, Br. Spain 494,700 6,852,987
Korea Electric Power Corp. South Korea 106,600 3,304,553
National Grid Group PLC United Kingdom 775,100 5,881,175
National Power PLC United Kingdom 747,800 4,302,355
Potomac Electric Power Co. United States 100,000 2,293,750
Transportadora de Gas del Sur SA, B, ADR Argentina 386,900 3,554,644
Veba AG Germany 128,400 6,269,405
-----------
56,510,740
-----------
TOTAL COMMON STOCKS (COST $568,225,819) 660,863,974
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
RIGHTS
------
<S> <C> <C> <C>
PREFERRED STOCKS AND RIGHTS 2.4%
Banco Bradesco SA, pfd. Brazil 451,500,022 3,541,520
(a)Banco Bradesco SA, pfd., rts., 2/09/00 Brazil 29,317,744 116,362
Centrais Eletricas Brasileiras SA (Electrobras), ADR, pfd. Brazil 158,760 1,893,864
Centrais Geradoras do Sul do Brasil SA, ADR, pfd. Brazil 17,640 96,183
Embratel Participacoes SA, ADR, pfd. Brazil 98,400 2,681,400
News Corp. Ltd., pfd. Australia 507,513 4,348,027
Telecomunicacoes de Sao Paulo SA, ADR, pfd. Brazil 98,400 2,404,650
Telemig Celular Participacoes SA, ADR, pfd. Brazil 4,920 227,242
Telesp Celular Participacoes SA, ADR, pfd. Brazil 39,360 1,667,880
-----------
TOTAL PREFERRED STOCKS AND RIGHTS (COST $16,101,675) 16,977,128
-----------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $584,327,494) 677,841,102
-----------
</TABLE>
152
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL GROWTH FUND COUNTRY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(h)REPURCHASE AGREEMENT (COST $34,348,000) 4.8%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $34,356,587)
Collateralized by U.S. Treasury Notes and Bonds United States $ 34,348,000 $ 34,348,000
------------
TOTAL INVESTMENTS (COST $618,675,494) 99.9% 712,189,102
OTHER ASSETS, LESS LIABILITIES .1% 604,348
------------
TOTAL NET ASSETS 100.0% $712,793,450
============
</TABLE>
(a)Non-income producing.
(h)At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
153
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES FUND AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.9%
ARGENTINA 1.5%
Republic of Argentina, 11.75%, 4/07/09 $ 1,355,000 $ 1,353,306
-----------
AUSTRALIA 4.1%
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 4,100,000 AUD 2,687,966
Queensland Treasury Corp., 6.50%, 6/14/05 1,612,000 AUD 1,035,525
-----------
3,723,491
-----------
BELGIUM 3.4%
Kingdom of Belgium, 7.75%, 10/15/04 2,782,000 EUR 3,118,512
-----------
BRAZIL 1.3%
Republic of Brazil, FRN, 7.00%, 4/15/09 1,510,000 1,216,494
-----------
BULGARIA 2.6%
Republic of Bulgaria, Series A, FRN, 6.50%, 7/28/24 2,970,000 2,385,296
-----------
CANADA 1.9%
Government of Canada:
8.75%, 12/01/05 1,037,000 CAD 804,312
7.00%, 12/01/06 1,229,000 CAD 884,644
-----------
1,688,956
-----------
COLOMBIA 1.0%
Republic of Columbia, 9.75%, 4/23/09 960,000 919,973
-----------
DENMARK 2.4%
Kingdom of Denmark, 7.00%, 12/15/04 15,100,000 DKK 2,191,280
-----------
GERMANY 15.9%
Federal Republic of Germany:
3.25%, 2/17/04 5,489,000 EUR 5,222,646
4.50%, 7/04/09 9,796,000 EUR 9,250,627
-----------
14,473,273
-----------
ITALY 6.7%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00 2,272,406 EUR 2,354,308
7.75%, 11/01/06 3,305,318 EUR 3,770,186
-----------
6,124,494
-----------
JAPAN 4.8%
International Bank for Recon/Dev., 5.25%, 3/20/02 397,400,000 JPY 4,325,179
-----------
MEXICO 8.1%
United Mexican States:
9.75%, 4/06/05 4,000,000 4,165,000
9.875%, 1/15/07 1,700,000 1,772,250
11.50%, 5/15/26 1,230,000 1,465,238
-----------
7,402,488
-----------
NEW ZEALAND 2.9%
Government of New Zealand, 7.00%, 7/15/09 5,050,000 NZD 2,581,738
-----------
PERU 1.0%
Republic of Peru, FRN, 4.50%, 3/07/17 1,300,000 900,250
-----------
SPAIN 2.7%
Bonos Y Oblig Del Estado, 3.25%, 1/31/05 2,671,000 EUR 2,465,021
-----------
SWEDEN 3.8%
Kingdom of Sweden, 6.00%, 2/09/05 28,700,000 SEK 3,453,212
-----------
TURKEY .6%
Republic of Turkey, 12.375%, 6/15/09 535,000 575,125
-----------
</TABLE>
154
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES FUND AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
UNITED KINGDOM 10.3%
United Kingdom:
6.50%, 12/07/03 $ 4,100,000 GBP $ 6,691,646
7.50%, 12/07/06 1,500,000 GBP 2,643,717
-----------
9,335,363
-----------
UNITED STATES 20.2%
U.S. Treasury Bond, 5.25%, 11/15/28 9,035,000 7,448,228
U.S. Treasury Notes:
4.50%, 1/31/01 8,970,000 8,824,238
7.25%, 8/15/04 2,019,000 2,083,986
-----------
18,356,452
-----------
VENEZUELA 1.7%
Republic of Venezuela, 144A, 9.125%, 6/18/07 1,940,000 1,522,900
-----------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $93,439,070) 88,112,803
-----------
(h)REPURCHASE AGREEMENT (COST $1,568,000) 1.7%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $1,568,392)
Collateralized by Treasury Notes and Bonds 1,568,000 1,568,000
-----------
TOTAL INVESTMENTS (COST $95,007,070) 98.6% 89,680,803
NET EQUITY IN FORWARD CONTRACTS (.2%) (169,791)
OTHER ASSETS, LESS LIABILITIES 1.6% 1,468,899
-----------
TOTAL NET ASSETS 100.0% $90,979,911
===========
</TABLE>
* Securities traded in U.S. dollars unless otherwise indicated.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
155
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 90.3%
AEROSPACE & MILITARY TECHNOLOGY .6%
BAE Systems PLC ....................................... United Kingdom 557,125 $ 3,687,035
Hong Kong Aircraft Engineering Co. Ltd. ............... Hong Kong 513,400 851,979
-----------
4,539,014
-----------
APPLIANCES & HOUSEHOLD DURABLES 2.5%
Sony Corp. ............................................ Japan 65,000 19,273,866
-----------
AUTOMOBILES 2.7%
Autoliv Inc., SDR ..................................... Sweden 317,000 9,280,776
Fiat SpA .............................................. Italy 339,141 9,679,500
Volvo AB, B ........................................... Sweden 91,500 2,366,843
-----------
21,327,119
-----------
BANKING 8.6%
Australia & New Zealand Banking Group Ltd. ............ Australia 1,193,500 8,682,322
Banco Popular Espanol SA .............................. Spain 62,400 4,067,653
BPI Socieda de Gestora de Participacoes Socias SA ..... Portugal 1,609,890 6,855,768
Foreningssparbanken AB, A ............................. Sweden 244,500 3,593,474
Kookmin Bank .......................................... South Korea 9,710 152,213
(a)Merita AS ............................................. Finland 1,254,500 7,375,697
National Bank of Canada ............................... Canada 447,000 5,719,275
National Westminster Bank PLC ......................... United Kingdom 641,668 13,823,286
Svenska Handelsbanken, A .............................. Sweden 466,200 5,865,185
Unibanco Uniao de Bancos Brasileiros SA, GDR .......... Brazil 358,700 10,805,838
-----------
66,940,711
-----------
BROADCASTING & PUBLISHING 1.4%
Wolters Kluwer NV ..................................... Netherlands 331,600 11,216,913
-----------
BUILDING MATERIALS & COMPONENTS 3.2%
Anglian Group PLC ..................................... United Kingdom 2,028,800 7,377,216
Hepworth PLC .......................................... United Kingdom 1,330,100 4,094,963
Pioneer International Ltd. ............................ Australia 4,462,117 13,445,847
-----------
24,918,026
-----------
BUSINESS & PUBLIC SERVICES .7%
Lex Service PLC ....................................... United Kingdom 902,000 5,495,645
-----------
CHEMICALS 5.2%
Akzo Nobel NV ......................................... Netherlands 129,200 6,477,560
BASF AG ............................................... Germany 200,900 10,497,040
(a)Clariant AG ........................................... Switzerland 29,800 14,202,951
Imperial Chemical Industries PLC ...................... United Kingdom 857,000 9,085,638
-----------
40,263,189
-----------
CONSTRUCTION & HOUSING 1.2%
Fletcher Challenge Building Ltd. ...................... New Zealand 6,285,000 9,260,612
-----------
ELECTRICAL & ELECTRONICS 8.9%
Alcatel SA ............................................ France 62,610 14,371,368
Hitachi Ltd. .......................................... Japan 783,000 12,566,619
Koninklijke Philips Electronics NV .................... Netherlands 147,772 20,083,781
Marconi PLC ........................................... United Kingdom 1,213,000 21,446,126
(a)Thomson Multimedia .................................... France 25,600 1,378,838
-----------
69,846,732
-----------
ENERGY SOURCES 2.4%
Total Fina SA, B ...................................... France 138,373 18,458,092
-----------
FINANCIAL SERVICES 4.0%
ING Groep NV .......................................... Netherlands 171,785 10,366,247
Lend Lease Corp. Ltd. ................................. Australia 607,000 8,503,890
Nomura Securities Co. Ltd. ............................ Japan 675,000 12,187,454
-----------
31,057,591
-----------
</TABLE>
156
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 1.5%
McBride PLC .......................................... United Kingdom 1,000,000 $ 1,624,190
Tate & Lyle PLC ...................................... United Kingdom 1,540,500 10,107,843
-----------
11,732,033
-----------
FOREST PRODUCTS & PAPER 2.6%
Cartiere Burgo SpA ................................... Italy 696,200 4,584,561
Kimberly Clark de Mexico SA de CV, A ................. Mexico 1,115,000 4,354,090
Mayr-Melnhof Karton AG ............................... Austria 39,400 1,824,625
(a) PT Indah Kiat Pulp & Paper Corp., wts., 4/13/01 ...... Indonesia 760,053 201,230
Stora Enso OYJ, R., fgn. ............................. Finland 567,304 9,738,552
-----------
20,703,058
-----------
HEALTH & PERSONAL CARE 3.3%
Aventis SA ........................................... France 185,080 10,751,149
Internatio-Muller NV ................................. Netherlands 240,308 5,032,122
Nycomed Amersham PLC ................................. United Kingdom 1,575,700 9,814,321
-----------
25,597,592
-----------
INDUSTRIAL COMPONENTS .6%
(a) BAE Systems PLC ...................................... United Kingdom 164,275 261,504
Meggitt PLC .......................................... United Kingdom 1,487,610 4,664,033
-----------
4,925,537
-----------
INSURANCE 5.0%
Ace Ltd. ............................................. Bermuda 682,500 11,389,219
Muenchener Rueckversicherungs-Gesellschaft ........... Germany 66,000 16,810,631
Zurich Allied PLC .................................... United Kingdom 920,100 10,914,450
-----------
39,114,300
-----------
LEISURE & TOURISM 3.8%
(a) Amadeus Global Travel Distribution SA, 144A .......... Spain 1,351,700 21,432,875
Kuoni Reisen Holding AG, B ........................... Switzerland 1,890 7,844,835
-----------
29,277,710
-----------
MACHINERY & ENGINEERING 3.5%
Bucher Holding AG, Br. ............................... Switzerland 12,800 10,448,980
IHC Caland NV ........................................ Netherlands 187,500 6,842,721
Invensys PLC ......................................... United Kingdom 1,820,854 9,799,188
-----------
27,090,889
-----------
MERCHANDISING 2.9%
David Jones Ltd. ..................................... Australia 2,463,527 2,231,880
Hudsons Bay Co. ...................................... Canada 357,000 4,246,767
Marks & Spencer PLC .................................. United Kingdom 1,634,000 7,770,327
Safeway PLC .......................................... United Kingdom 1,695,778 5,837,399
Storehouse ........................................... United Kingdom 3,314,000 2,396,714
-----------
22,483,087
-----------
METALS & MINING 3.8%
Boehler-Uddeholm AG .................................. Austria 33,000 1,521,595
Boehler-Uddeholm AG, 144A ............................ Austria 27,055 1,247,477
Companhia Siderurgica Nacional CSN, ADR .............. Brazil 244,565 8,987,764
Corus Group PLC ...................................... United Kingdom 4,033,200 10,526,719
Grupo Mexico SA de CV, B ............................. Mexico 1,291,200 6,398,083
Pohang Iron & Steel Co. Ltd. ......................... South Korea 10,450 1,194,468
-----------
29,876,106
-----------
MULTI-INDUSTRY 3.6%
Cheung Kong Holdings Ltd. ............................ Hong Kong 928,600 11,796,392
Elementis PLC ........................................ United Kingdom 3,336,000 4,340,029
</TABLE>
157
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MULTI-INDUSTRY (CONT.)
Jardine Strategic Holdings Ltd. ........................ Hong Kong 2,574,940 $ 5,124,131
Swire Pacific Ltd., B .................................. Hong Kong 7,937,100 6,994,164
------------
28,254,716
------------
REAL ESTATE .1%
Hang Lung Development Co. Ltd. ......................... Hong Kong 779,000 881,868
------------
RECREATION & OTHER CONSUMER GOODS
Yue Yuen Industrial Holdings Ltd. ...................... Hong Kong 800 1,914
------------
TELECOMMUNICATIONS 10.6%
Korea Telecom Corp., ADR ............................... South Korea 187,620 14,024,595
Nippon Telegraph & Telephone Corp. ..................... Japan 1,300 22,263,542
Nokia Corp., A ......................................... Finland 89,300 16,182,422
Smartone Telecommunications Holdings Ltd. .............. Hong Kong 1,602,000 7,728,179
Telecomunicacoes Brasileiras SA, ADR ................... Brazil 126,640 16,273,240
Telefonica del Peru SA, ADR ............................ Peru 238,700 3,192,613
Telefonica del Peru SA, B .............................. Peru 2,365,602 3,081,317
------------
82,745,908
------------
TRANSPORTATION 1.9%
Air New Zealand Ltd., B ................................ New Zealand 1,132,000 1,656,112
British Airways PLC .................................... United Kingdom 1,175,000 7,652,682
Mayne Nickless Ltd., A ................................. Australia 2,125,500 5,483,883
------------
14,792,677
------------
UTILITIES ELECTRICAL & GAS 5.7%
CLP Holdings Ltd. ...................................... Hong Kong 1,573,000 7,244,279
Iberdrola SA, Br. ...................................... Spain 767,800 10,636,190
Korea Electric Power Corp. ............................. South Korea 66,000 2,045,971
Shandong Huaneng Power Development Co. Ltd., ADR ....... China 338,300 1,458,919
Thames Water Group PLC ................................. United Kingdom 896,939 11,067,326
Transportadora de Gas del Sur SA, B, Reg S, ADR ........ Argentina 516,300 4,743,506
Veba AG ................................................ Germany 151,650 7,404,636
------------
44,600,827
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $558,603,713) .... 704,675,732
============
</TABLE>
<TABLE>
<CAPTION>
SHARES/
RIGHTS
-----------
<S> <C> <C> <C>
PREFERRED STOCKS AND RIGHTS 3.1%
Banco Bradesco SA, pfd. ............................... Brazil 525,200,000 4,119,615
(a) Banco Bradesco SA, pfd., rts., 2/09/00 ................ Brazil 34,103,385 135,356
Banco Itau SA, pfd. ................................... Brazil 42,090,000 3,611,376
Petroleo Brasileiro SA, pfd. .......................... Brazil 30,000,000 7,639,081
Volkswagen AG, pfd. ................................... Germany 275,000 8,859,358
----------
TOTAL PREFERRED STOCKS AND RIGHTS (COST $20,772,912) 24,364,786
===========
</TABLE>
158
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENT (COST $4,986,250) .7%
U.S. Treasury Bill, 4.95%, 1/20/00 ............................ United States $ 5,000,000 $ 4,988,170
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $584,362,875) ..................................... 734,028,688
-----------
(h)REPURCHASE AGREEMENTS 6.0%
Barclays Bank PLC, 3.00%, 1/03/00, (Maturity
Value $23,759,939)
Collateralized by U.S. Treasury Notes and Bonds ............ United States 23,754,000 23,754,000
Paribas Corp., 3.00%, 1/03/00, (Maturity
Value $23,355,838)
Collateralized by U.S. Treasury Notes and Bonds ............ United States 23,350,000 23,350,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $47,104,000) ............... 47,104,000
------------
TOTAL INVESTMENTS (COST $631,466,875) 100.1% ................. 781,132,688
OTHER ASSETS, LESS LIABILITIES (.1%) ......................... (863,696)
------------
TOTAL NET ASSETS 100.0% ...................................... $780,268,992
============
</TABLE>
(a)Non-income producing.
(h)At December 31, 1999, all repurchase agreements held by the Fund
had been entered into on that date.
See notes to financial statements.
159
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 88.2%
APPLIANCES & HOUSEHOLD DURABLES 1.3%
Fisher & Paykel Ltd. ................................... New Zealand 70,222 $ 267,844
Guangdong Kelon Electrical Holdings. Ltd., H ........... China 92,000 69,827
----------
337,671
----------
AUTOMOBILES 2.1%
Bilia AB, A ............................................ Sweden 28,100 247,795
Volvo AB, B ............................................ Sweden 11,600 300,059
----------
547,854
----------
BANKING 4.1%
Banco de Valencia SA ................................... Spain 9,816 81,528
Banco Pastor SA ........................................ Spain 8,000 326,185
Bank Austria AG, 144A .................................. Austria 6,000 338,266
Unibanco Uniao de Bancos Brasileiros SA, GDR ........... Brazil 10,235 308,329
----------
1,054,308
----------
BROADCASTING & PUBLISHING 3.4%
GTC Transcontinental Group Ltd., B ..................... Canada 63,300 875,579
----------
BUILDING MATERIALS & COMPONENTS 8.8%
Caradon PLC ............................................ United Kingdom 117,500 296,233
Cristaleria Espanola SA, Br. ........................... Spain 1,291 50,039
Danske Traelast AS ..................................... Denmark 3,752 329,866
Gujarat Ambuja Cements Ltd. ............................ India 95,000 711,954
Sarna Kunststoff Holding AG ............................ Switzerland 52 57,143
Schuttersveld NV ....................................... Netherlands 11,146 188,516
(a) Siam City Cement Public Co. Ltd., fgn. ................. Thailand 112,701 606,597
----------
2,240,348
----------
BUSINESS & PUBLIC SERVICES 4.4%
Kardex AG, Br. ......................................... Switzerland 1,494 461,569
Lex Service PLC ........................................ United Kingdom 54,100 329,617
Scribona AB, B ......................................... Sweden 19,045 67,850
Sifo Group AB .......................................... Sweden 20,745 263,429
----------
1,122,465
----------
CHEMICALS 1.6%
Energia e Industrias Aragonesas Eia SA ................. Spain 34,500 159,423
Yule Catto & Company PLC ............................... United Kingdom 61,600 243,903
----------
403,326
----------
CONSTRUCTION & HOUSING 2.8%
Grupo Dragados SA ...................................... Spain 42,465 374,503
Hollandsche Beton Groep NV ............................. Netherlands 9,600 91,815
Leighton Holdings Ltd. ................................. Australia 67,050 259,708
----------
726,026
----------
ELECTRICAL & ELECTRONICS 2.8%
Techtronic Industries Co. Ltd. ......................... Hong Kong 1,706,000 278,719
Varitronix International Ltd. .......................... Hong Kong 187,500 431,755
----------
710,474
----------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.9%
Swisslog Holding AG .................................... Switzerland 1,000 291,994
VTech Holdings Ltd. .................................... Hong Kong 136,000 442,632
----------
734,626
----------
(a) ENERGY SOURCES 1.1%
Gas Authority of India Ltd., GDR, 144A ................. India 29,000 274,050
----------
</TABLE>
160
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 4.8%
Dah Sing Financial Holdings Ltd. ..................... Hong Kong 134,800 $ 537,570
Housing Development Finance Corp. Ltd. ............... India 45,500 299,149
Morgan Stanley Growth Fund ........................... India 7,100 2,489
Mutual Risk Management Ltd. .......................... Bermuda 23,350 392,572
----------
1,231,780
----------
FOOD & HOUSEHOLD PRODUCTS 7.0%
(a) Charoen Pokphand Feedmill Public Co. Ltd., fgn. ...... Thailand 86,273 252,865
Geest PLC ............................................ United Kingdom 44,750 296,877
Hazlewood Foods PLC .................................. United Kingdom 111,770 162,569
Illovo Sugar Ltd. .................................... South Africa 187,000 223,306
McBride PLC .......................................... United Kingdom 64,100 104,111
National Foods Ltd. .................................. Australia 182,091 320,374
Perkins Foods PLC .................................... United Kingdom 189,240 420,520
----------
1,780,622
----------
FOREST PRODUCTS & PAPER 1.0%
Crown Van Gelder Papierfabrieken NV .................. Netherlands 6,115 72,644
(a) Empaques Ponderosa SA de CV, B ....................... Mexico 151,800 72,896
Munksjo AB ........................................... Sweden 12,995 100,843
----------
246,383
----------
HEALTH & PERSONAL CARE 3.2%
Internatio-Muller NV ................................. Netherlands 5,844 122,375
Moulin International Holdings Ltd. ................... Hong Kong 2,271,176 219,127
Ono Pharmaceutical Co Ltd. ........................... Japan 12,000 321,769
(a) SkyePharma PLC ....................................... United Kingdom 200,000 155,955
----------
819,226
----------
INDUSTRIAL COMPONENTS 4.4%
Granges AB ........................................... Sweden 14,679 306,352
Sylea SA ............................................. France 4,447 217,134
Weir Group PLC ....................................... United Kingdom 120,900 429,853
Yamato Kogyo Co. Ltd. ................................ Japan 41,000 184,968
----------
1,138,307
----------
MACHINERY & ENGINEERING 2.1%
Arcadis NV ........................................... Netherlands 37,875 299,324
Laird Group PLC ...................................... United Kingdom 62,000 245,487
----------
544,811
----------
MERCHANDISING 13.4%
Giordano International Ltd. .......................... Hong Kong 933,000 960,185
Li & Fung Ltd. ....................................... Hong Kong 482,000 1,209,108
Northwest Company Fund ............................... Canada 31,365 276,578
SA des Galeries Lafayette ............................ France 4,300 713,420
Samas-Groep NV ....................................... Netherlands 11,125 138,881
Somerfield PLC ....................................... United Kingdom 82,800 119,763
----------
3,417,935
----------
METALS & MINING 6.4%
Arbed SA ............................................. Luxembourg 1,448 146,360
Boehler-Uddeholm AG .................................. Austria 4,993 230,222
Elkem ASA, A ......................................... Norway 23,850 550,740
Iluka Resources Ltd. ................................. Australia 110,370 292,730
Pohang Iron & Steel Co. Ltd. ......................... South Korea 2,625 300,046
PT Tambang Timah ..................................... Indonesia 165,500 115,465
----------
1,635,563
----------
</TABLE>
161
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 3.3%
Amer Group Ltd., A .................................... Finland 11,300 $ 229,231
Elementis PLC ......................................... United Kingdom 142,000 184,737
Nagron Nationaal Grondbezit NV ........................ Netherlands 7,400 168,368
Zehnder Holding AG, Br. ............................... Switzerland 465 256,954
-----------
839,290
-----------
(a) TELECOMMUNICATIONS .3%
Digital Telecommunications Philippines Inc. ........... Philippines 2,198,000 76,357
-----------
TEXTILES & APPAREL 1.2%
Gamma Holding NV ...................................... Netherlands 3,000 115,373
Inner Mongolia Erdos Cashmere Products Co. Ltd., B .... China 497,000 112,322
(a) Yizheng Chemical Fibre Co. Ltd., H .................... China 326,000 91,214
-----------
318,909
-----------
TRANSPORTATION 3.5%
(a) Anangel-American Shipholdings Ltd., ADR ............... Greece 35,000 188,125
(a) Neptune Orient Lines Ltd. ............................. Singapore 105,000 140,588
(a) Orient Overseas International Ltd. .................... Hong Kong 801,000 311,703
Stolt Nielsen SA, ADR ................................. Norway 15,000 262,500
-----------
902,916
-----------
UTILITIES ELECTRICAL & GAS 2.3%
Endesa SA ............................................. Spain 21,090 418,488
Guangdong Electric Power Development Co Ltd., B ....... China 338,520 157,644
-----------
576,132
-----------
TOTAL COMMON STOCKS (COST $19,652,772) 22,554,958
-----------
PREFERRED STOCKS 5.2%
Ballast Nedam NV, pfd. ................................ Netherlands 6,700 147,045
Confab Industrial SA, pfd. ............................ Brazil 212,800 206,145
Fertilizantes Fosfatados SA, pfd. ..................... Brazil 41,995,000 181,324
Moebel Walther AG, pfd. ............................... Germany 50 393
Telemig Celular Participacoes SA, ADR, pfd. ........... Brazil 10,695 493,975
Weg SA, pfd. .......................................... Brazil 507,200 308,840
-----------
TOTAL PREFERRED STOCKS (COST $1,276,410) .............. 1,337,722
-----------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE
AGREEMENTS (COST $20,929,182) .................... 23,892,680
===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C> <C>
(h) REPURCHASE AGREEMENTS 6.4%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity
Value $826,207)
Collateralized by U.S. Treasury Notes and Bonds ...... United States $826,000 826,000
Morgan Stanley Group Inc., 3.00%, 1/03/00
(Maturity Value $820,205)
Collateralized by U.S. Treasury Notes and Bonds ...... United States 820,000 820,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $1,646,000) ......... 1,646,000
-----------
TOTAL INVESTMENTS (COST $22,575,182) 99.8% ............ 25,538,680
OTHER ASSETS, LESS LIABILITIES .2% .................... 51,469
-----------
TOTAL NET ASSETS 100.0% ............................... $25,590,149
===========
</TABLE>
(a) Non-income producing.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
162
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 94.2%
BANKING 17.3%
DBS Group Holdings Ltd. ...................................................... Singapore 295,663 $ 4,846,352
HSBC Holdings PLC ............................................................ Hong Kong 93,000 1,304,046
Overseas Union Bank Ltd. ..................................................... Singapore 593,629 3,475,162
(a) Philippine National Bank ..................................................... Philippines 1,443,750 3,403,381
(a) PT Bank Pan Indonesia TBK .................................................... Indonesia 12,365,250 1,194,497
(a) Thai Farmers Bank Public Co. Ltd. ............................................ Thailand 36,570 41,900
(a) Thai Farmers Bank Public Co. Ltd., fgn. ...................................... Thailand 1,466,880 2,462,388
------------
16,727,726
------------
BROADCASTING & PUBLISHING 4.3%
South China Morning Post Ltd. ................................................ Hong Kong 4,888,000 4,212,981
------------
BUILDING MATERIALS & COMPONENTS 2.0%
Gujarat Ambuja Cements Ltd., GDR, Reg S ...................................... India 41,600 319,280
Okumura Corp. ................................................................ Japan 467,000 1,576,699
------------
1,895,979
------------
BUSINESS & PUBLIC SERVICES 1.5%
Kurita Water Industries Ltd. ................................................. Japan 93,000 1,478,025
------------
CONSTRUCTION & HOUSING 3.5%
Daito Trust Construction Co. Ltd. ............................................ Japan 37,200 415,012
Road King Infrastructure Ltd. ................................................ Hong Kong 3,831,977 2,316,883
Toda Corp. ................................................................... Japan 184,000 707,658
------------
3,439,553
------------
ELECTRICAL & ELECTRONICS 1.1%
Fuji Photo Film Co. Ltd. ..................................................... Japan 28,000 1,022,068
Hitachi Ltd. ................................................................. Japan 800 12,840
------------
1,034,908
------------
(a) ENERGY SOURCES 1.2%
Gas Authority of India Ltd., GDR, 144A ....................................... India 121,500 1,148,175
------------
FINANCIAL SERVICES 8.1%
Commerce Asset-Holding Bhd. .................................................. Malaysia 1,572,000 4,033,421
(a) Commerce Asset-Holding Bhd., wts., 3/16/02 ................................... Malaysia 163,750 173,230
Nomura Securities Co. Ltd. ................................................... Japan 143,000 2,581,935
Public Finance Bhd., fgn. .................................................... Malaysia 928,000 1,054,989
------------
7,843,575
------------
FOREST PRODUCTS & PAPER 5.5%
(a) Asia Pulp & Paper Co. Ltd., ADR .............................................. Indonesia 213,000 1,677,375
Carter Holt Harvey Ltd. ...................................................... New Zealand 2,411,800 3,150,407
(a) PT Inti Indorayon Utama ...................................................... Indonesia 129,000 17,538
(a) PT Tjiwi Kimia TBK ........................................................... Indonesia 1,388,741 452,148
(a) PT Tjiwi Kimia TBK, wts., 7/15/02 ............................................ Indonesia 192,880 34,781
------------
5,332,249
------------
INDUSTRIAL COMPONENTS 5.5%
Fuji Heavy Industries Ltd. ................................................... Japan 476,000 3,260,753
Mitsubishi Heavy Industries Ltd. ............................................. Japan 605,000 2,018,936
------------
5,279,689
------------
MERCHANDISING .6%
Takashimaya Co. Ltd. ......................................................... Japan 81,418 560,926
------------
MISC MATERIALS & COMMODITIES 2.4%
Golden Hope Plantations Bhd. ................................................. Malaysia 2,607,000 2,346,300
------------
MULTI-INDUSTRY 17.3%
Broken Hill Proprietary Co. Ltd. ............................................. Australia 211,000 2,770,567
Cheung Kong Holdings Ltd. .................................................... Hong Kong 270,000 3,429,922
</TABLE>
163
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONT.)
<S> <C> <C> <C>
MULTI-INDUSTRY (CONT.)
Hutchison Whampoa Ltd. ....................................................... Hong Kong 188,000 $ 2,732,875
SIME Darby Bhd. .............................................................. Malaysia 1,798,800 2,281,636
Swire Pacific Ltd., A ........................................................ Hong Kong 435,000 2,568,534
Wheelock and Company Ltd. .................................................... Hong Kong 2,818,000 2,954,486
------------
16,738,020
------------
REAL ESTATE 5.4%
City Developments Ltd. ....................................................... Singapore 639,600 3,744,281
New World Development Co. Ltd. ............................................... Hong Kong 658,978 1,483,517
------------
5,227,798
------------
TELECOMMUNICATIONS 2.7%
Cable & Wireless HKT Ltd. .................................................... Hong Kong 918,139 2,651,601
------------
TEXTILES & APPAREL 3.4%
Nisshinbo Industries Inc. .................................................... Japan 469,000 2,120,448
Wacoal Corp. ................................................................. Japan 132,000 1,161,305
------------
3,281,753
------------
TRANSPORTATION 10.7%
East Japan Railway Co. ....................................................... Japan 300 1,617,654
Guangshen Railway Co. Ltd., H., ADR .......................................... China 142,800 794,325
Hitachi Zosen Corp. .......................................................... Japan 843,000 635,230
Malaysian International Shipping Corp., fgn. ................................. Malaysia 1,467,267 2,413,268
Singapore Airlines Ltd. ...................................................... Singapore 432,300 4,905,716
------------
10,366,193
------------
UTILITIES ELECTRICAL & GAS 1.7%
CLP Holdings Ltd. ............................................................ Hong Kong 363,000 1,671,757
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $105,567,445) ......................... 91,237,208
------------
PREFERRED STOCKS (COST $233,259) .3%
Volkswagen AG, pfd. .......................................................... Germany 7,240 233,243
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $105,800,704) ............ 91,470,451
------------
PRINCIPAL
AMOUNT
---------
(h) REPURCHASE AGREEMENT (COST $1,103,000) 1.1%
Barclays Bank PLC, 3.00%, 1/03/00, (Maturity Value $1,103,276)
Collateralized by U.S. Treasury Notes and Bonds ........................... United States $1,103,000 1,103,000
------------
TOTAL INVESTMENTS (COST $106,903,704) 95.6% .................................. 92,573,451
OTHER ASSETS, LESS LIABILITIES 4.4% .......................................... 4,276,924
------------
TOTAL NET ASSETS 100.0% ....................................................... $ 96,850,375
============
</TABLE>
(a) Non-income producing.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
164
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
CURRENCY ABBREVIATIONS
- --------------------------------------------------------------------------------
ARS - Argentinian Peso
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - Eurodollar
GBP - British Pound
JPY - Japanese Yen
NZD - New Zealand Dollar
SEK - Swedish Krona
ZAR - South African Rand
See notes to financial statements.
165
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ...................................... $668,413,801 $ 9,954,271 $836,133,850 $ 370,407,419 $ 805,841,331
==================================================================================
Value ..................................... 966,283,904 11,482,423 965,338,636 308,651,646 765,475,932
Cash ....................................... -- -- -- 78 --
Receivables:
Investment securities sold ................ 22,963,274 8,831 1,585,665 -- 2,722,742
Capital shares sold ....................... 9,230 6,509 500 400 1,114
Dividends and interest .................... 657,175 2,821 2,678,085 6,681,072 10,200,768
----------------------------------------------------------------------------------
Total assets ................................ 989,913,583 11,500,584 969,602,886 315,333,196 778,400,556
----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........... 1,178,221 -- 2,930,053 -- 386,777
Capital shares redeemed ................... 741,166 97,616 852,234 561,586 1,142,937
Affiliates ................................ 381,836 6,555 395,914 145,690 324,187
Professional fees ......................... 18,620 5,154 23,085 11,064 20,183
Custodian fees ............................ 39,058 60 2,737 900 8,130
Postage and mailing fees .................. 19,500 134 22,147 13,866 61,600
Other liabilities .......................... 33,731 586 34,814 20,899 38,282
----------------------------------------------------------------------------------
Total liabilities ........................... 2,412,132 110,105 4,260,984 754,005 1,982,096
----------------------------------------------------------------------------------
Net assets, at value ....................... $987,501,451 $ 11,390,479 $965,341,902 $ 314,579,191 $ 776,418,460
==================================================================================
Net assets consist of:
Undistributed net investment income ........ $ 14,830,361 $ 8,353 $ 34,321,327 $ 553,992 $ 66,903,760
Net unrealized appreciation (depreciation) . 297,916,752 1,528,152 129,204,786 (61,755,773) (40,366,752)
Accumulated net realized gain (loss) ....... 179,575,913 (1,815,371) 99,851,855 (7,698,408) 31,607,941
Capital shares ............................. 495,178,425 11,669,345 701,963,934 383,479,380 718,273,511
----------------------------------------------------------------------------------
Net assets, at value ....................... $987,501,451 $ 11,390,479 $965,341,902 $ 314,579,191 $ 776,418,460
----------------------------------------------------------------------------------
CLASS 1:
Net assets, at value ....................... $987,010,844 $ 11,307,496 $964,552,554 $ 314,131,070 $ 775,115,984
==================================================================================
Shares outstanding ......................... 39,708,482 1,151,882 54,258,632 31,854,851 52,763,566
==================================================================================
Net asset value and offering price per share $ 24.86 $ 9.82 $ 17.78 $ 9.86 $ 14.69
==================================================================================
CLASS 2:
Net assets, at value ....................... $ 490,607 $ 82,983 $ 789,348 $ 448,121 $ 1,302,476
==================================================================================
Shares outstanding ......................... 19,798 8,478 44,525 45,594 88,922
==================================================================================
Net asset value and offering price per share $ 24.78 $ 9.79 $ 17.73 $ 9.83 $ 14.65
==================================================================================
</TABLE>
See notes to financial statements.
166
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN LARGE FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CAP GROWTH MONEY MARKET NATURAL RESOURCES REAL ESTATE RISING DIVIDENDS
SECURITIES FUND FUND SECURITIES FUND FUND FUND
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ...................................... $296,591,908 $374,423,913 $ 42,023,306 $ 168,965,027 $405,938,782
=====================================================================================
Value ..................................... 409,649,931 374,423,913 43,000,367 159,612,641 447,688,693
Receivables:
Investment securities sold ................ 2,297,284 -- -- -- 3,678,852
Capital shares sold ....................... 574,585 18,606 196 22,263 --
Dividends and interest .................... 263,902 1,670,247 17,633 1,644,788 969,559
-------------------------------------------------------------------------------------
Total assets ................................ 412,785,702 376,112,766 43,018,196 161,279,692 452,337,104
-------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........... 3,941,450 -- -- -- --
Capital shares redeemed ................... 517,117 3,288,313 57,482 176,689 901,053
Affiliates ................................ 251,167 162,841 22,006 77,941 290,866
Professional fees ......................... 10,052 10,931 5,732 8,397 14,293
Custodian fees ............................ 884 928 360 888 1,342
Postage and mailing fees .................. 3,443 7,100 1,020 7,310 14,165
Distributions to shareholders .............. -- 3,639 -- -- --
Other liabilities .......................... 5,122 9,671 2,179 6,724 17,480
-------------------------------------------------------------------------------------
Total liabilities ........................... 4,729,235 3,483,423 88,779 277,949 1,239,199
-------------------------------------------------------------------------------------
Net assets, at value ....................... $408,056,467 $372,629,343 $ 42,929,417 $ 161,001,743 $451,097,905
=====================================================================================
Net assets consist of:
Undistributed net investment income ........ $ 2,086,309 $ -- $ 303,873 $ 11,229,198 $ 7,986,383
Net unrealized appreciation (depreciation) . 113,058,023 -- 977,144 (9,352,386) 41,749,911
Accumulated net realized gain (loss) ....... 23,069,651 -- (21,709,873) 1,863,614 62,037,403
Capital shares ............................. 269,842,484 372,629,343 63,358,273 157,261,317 339,324,208
-------------------------------------------------------------------------------------
Net assets, at value ....................... $408,056,467 $372,629,343 $ 42,929,417 $ 161,001,743 $451,097,905
=====================================================================================
CLASS 1:
Net assets, at value ....................... $407,514,949 $364,027,743 $ 42,860,980 $ 158,552,597 $450,548,979
=====================================================================================
Shares outstanding ......................... 19,338,106 364,027,743 3,920,071 10,626,952 33,103,810
=====================================================================================
Net asset value and offering price per share $ 21.07 $ 1.00 $ 10.93 $ 14.92 $ 13.61
=====================================================================================
CLASS 2:
Net assets, at value ....................... $ 541,518 $ 8,601,600 $ 68,437 $ 2,449,146 $ 548,926
=====================================================================================
Shares outstanding ......................... 25,776 8,601,600 6,271 164,643 40,467
=====================================================================================
Net asset value and offering price per share $ 21.01 $ 1.00 $ 10.91 $ 14.88 $ 13.56
=====================================================================================
</TABLE>
See notes to financial statements.
167
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
SMALL CAP U.S. GOVERNMENT VALUE ZERO COUPON ZERO COUPON
FUND FUND SECURITIES FUND FUND - 2000 FUND - 2005
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ...................................... $ 270,107,360 $ 530,147,911 $ 12,525,372 $69,904,479 $63,480,525
===================================================================================
Value ..................................... 492,179,597 513,423,554 12,519,607 71,048,688 66,083,068
Receivables:
Investment securities sold ................ 786,759 69,247 -- -- --
Capital shares sold ....................... 2,277,635 1,404 118,161 26 --
Dividends and interest .................... 258,996 4,179,403 15,319 -- --
-----------------------------------------------------------------------------------
Total assets ................................ 495,502,987 517,673,608 12,653,087 71,048,714 66,083,068
-----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........... 380,813 -- 55,855 -- --
Capital shares redeemed ................... 593,752 489,174 17 81,145 142,329
Affiliates ................................ 280,429 224,127 8,010 37,877 35,800
Professional fees ......................... 9,701 14,550 5,174 6,263 6,171
Custodian fees ............................ 795 1,575 27 213 255
Postage and mailing fees .................. 6,180 15,000 270 1,710 1,365
Other liabilities .......................... 12,455 18,876 372 3,966 2,284
-----------------------------------------------------------------------------------
Total liabilities ........................... 1,284,125 763,302 69,725 131,174 188,204
-----------------------------------------------------------------------------------
Net assets, at value ....................... $ 494,218,862 $ 516,910,306 $ 12,583,362 $70,917,540 $65,894,864
===================================================================================
Net assets consist of:
Undistributed net investment income ........ $ -- $ 429,066 $ 67,960 $ 68,432 $ 57,529
Accumulated net operating loss ............. (103) -- -- -- --
Net unrealized appreciation (depreciation) . 222,072,237 (16,724,357) (5,765) 1,144,209 2,602,543
Accumulated net realized gain (loss) ....... 35,868,908 (10,874,414) (607,950) 654,117 1,576,658
Capital shares ............................. 236,277,820 544,080,011 13,129,117 69,050,782 61,658,134
-----------------------------------------------------------------------------------
Net assets, at value ....................... $ 494,218,862 $ 516,910,306 $ 12,583,362 $70,917,540 $65,894,864
===================================================================================
CLASS 1:
Net assets, at value ....................... $ 488,062,459 $ 515,033,351 $ 11,320,426 $70,917,540 $65,894,864
===================================================================================
Shares outstanding ......................... 18,165,015 43,707,548 1,432,771 5,642,029 4,541,817
===================================================================================
Net asset value and offering price per share $ 26.87 $ 11.78 $ 7.90 $ 12.57 $ 14.51
===================================================================================
CLASS 2:
Net assets, at value ....................... $ 6,156,403 $ 1,876,955 $ 1,262,936 -- --
===================================================================================
Shares outstanding ......................... 229,712 159,393 160,310 -- --
===================================================================================
Net asset value and offering price per share $ 26.80 $ 11.78 $ 7.88 -- --
===================================================================================
</TABLE>
See notes to financial statements.
168
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON
ZERO COUPON MUTUAL DISCOVERY MUTUAL SHARES DEVELOPING MARKETS
FUND - 2010 SECURITIES FUND SECURITIES FUND EQUITY FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost .......................................... $62,664,376 $166,938,099 $398,488,380 $147,089,731
====================================================================
Value ......................................... 66,432,342 197,700,850 447,327,389 187,915,549
Cash ........................................... -- 1,632,574 2,419,529 --
Receivables:
Investment securities sold .................... -- 3,345,798 8,114,832 498,432
Capital shares sold ........................... -- 79,409 82,121 2,369,754
Dividends and interest ........................ -- 395,218 942,716 412,280
Unrealized gain on forward exchange contracts
(Note 6) ..................................... -- 2,192,491 1,657,673 --
Deposits with brokers for securities sold
short ........................................ -- 5,265,787 9,023,384 --
--------------------------------------------------------------------
Total assets .................................... 66,432,342 210,612,127 469,567,644 191,196,015
--------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............... -- 1,301,351 3,507,413 --
Capital shares redeemed ....................... 330,804 130,162 540,336 141,885
Affiliates .................................... 36,320 159,380 285,098 190,986
Professional fees ............................. 6,257 6,471 11,020 5,295
Custodian fees ................................ 120 7,186 6,937 106,327
Postage and mailing fees ...................... 4,550 13,689 8,621 12,274
Funds advanced by custodian .................... -- -- -- 1,343,934
Securities sold short, at value (proceeds
$4,261,538 and $8,791,377, respectively) ....... -- 5,113,253 10,521,527 --
Due to broker, variation margin ................ -- 124,606 203,014 --
Unrealized loss on forward exchange contracts
(Note 6) ....................................... -- 553,422 478,156 --
Other liabilities .............................. 4,949 12,821 10,928 19,948
--------------------------------------------------------------------
Total liabilities ............................... 383,000 7,422,341 15,573,050 1,820,649
--------------------------------------------------------------------
Net assets, at value ........................... $66,049,342 $203,189,786 $453,994,594 $189,375,366
====================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
GLOBAL ASSET
ALLOCATION FUND
-----------------
<S> <C>
Assets:
Investments in securities:
Cost .......................................... $59,141,054
-----------------
Value ......................................... 61,336,545
Cash ........................................... 964
Receivables:
Investment securities sold .................... 184,517
Capital shares sold ........................... 4,400
Dividends and interest ........................ 485,988
Unrealized gain on forward exchange contracts
(Note 6) ..................................... --
Deposits with brokers for securities
sold short ................................... --
-----------------
Total assets .................................... 62,012,414
-----------------
Liabilities:
Payables:
Investment securities purchased ............... --
Capital shares redeemed ....................... 244,521
Affiliates .................................... 43,156
Professional fees ............................. 3,503
Custodian fees ................................ 37,101
Postage and mailing fees ...................... 6,994
Funds advanced by custodian .................... --
Securities sold short, at value (proceeds
$4,261,538 and $8,791,377, respectively) ....... --
Due to broker, variation margin ................ --
Unrealized loss on forward exchange contracts
(Note 6) ....................................... 34,062
Other liabilities .............................. 3,339
-----------------
Total liabilities ............................... 372,676
-----------------
Net assets, at value ........................... $61,639,738
=================
</TABLE>
See notes to financial statements.
169
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON TEMPLETON
ZERO COUPON MUTUAL DISCOVERY MUTUAL SHARES DEVELOPING MARKETS GLOBAL ASSET
FUND - 2010 SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets consist of:
Undistributed net investment income ........ $ 58,754 $ 4,226,422 $ 8,337,233 $ 1,222,672 $ 103,182
Net unrealized appreciation ................ 3,767,966 31,507,187 48,194,718 40,825,818 2,157,734
Accumulated net realized gain (loss) ....... 903,707 (7,818,567) 7,886,339 (71,121,088) (1,856,176)
Capital shares ............................. 61,318,915 175,274,744 389,576,304 218,447,964 61,234,998
-------------------------------------------------------------------------------------
Net assets, at value ....................... $66,049,342 $ 203,189,786 $453,994,594 $ 189,375,366 $ 61,639,738
=====================================================================================
CLASS 1:
Net assets, at value ....................... $66,049,342 $ 202,776,796 $448,278,273 $ 189,029,214 $ 61,587,834
=====================================================================================
Shares outstanding ......................... 4,668,716 14,940,641 33,894,944 18,016,256 5,214,732
=====================================================================================
Net asset value and offering price
per share ................................. $ 14.15 $ 13.57 $ 13.23 $ 10.49 $ 11.81
=====================================================================================
CLASS 2:
Net assets, at value ....................... -- $ 412,990 $ 5,716,321 $ 346,152 $ 51,904
=====================================================================================
Shares outstanding ......................... -- 30,497 431,392 33,093 4,401
=====================================================================================
Net asset value and offering price
per share ................................. -- $ 13.54 $ 13.25 $ 10.46 $ 11.79
=====================================================================================
</TABLE>
See notes to financial statements.
170
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
GROWTH FUND SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ....................................... $618,675,494 $ 95,007,070 $ 631,466,875 $ 22,575,182 $ 106,903,704
====================================================================================
Value ...................................... 712,189,102 89,680,803 781,132,688 25,538,680 92,573,451
Cash ........................................ 1,048 842 -- 243 865,453
Receivables:
Investment securities sold ................. 55,761 -- 61,059 -- 3,687,557
Capital shares sold ........................ 81,193 -- 4,141 41,346 25,000
Dividends and interest ..................... 1,526,955 1,668,566 1,852,850 58,116 45,680
------------------------------------------------------------------------------------
Total assets ................................. 713,854,059 91,350,211 783,050,738 25,638,385 97,197,141
------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............ -- -- 38,774 -- --
Capital shares redeemed .................... 363,294 123,169 1,934,454 10,007 195,707
Affiliates ................................. 498,764 45,155 538,494 21,851 103,299
Professional fees .......................... 17,057 5,160 24,843 2,176 4,016
Custodian fees ............................. 104,938 9,732 88,830 10,323 17,778
Postage and mailing fees ................... 42,643 7,312 33,596 1,980 9,063
Funds advanced by custodian ................. -- -- 61,484 -- --
Unrealized loss on forward exchange contracts
(Note 6) .................................... -- 169,791 -- -- --
Other liabilities ........................... 33,913 9,981 61,271 1,899 16,903
------------------------------------------------------------------------------------
Total liabilities ............................ 1,060,609 370,300 2,781,746 48,236 346,766
------------------------------------------------------------------------------------
Net assets, at value ........................ $712,793,450 $ 90,979,911 $ 780,268,992 $ 25,590,149 $ 96,850,375
====================================================================================
Net assets consist of:
Undistributed net investment income ......... $ 11,248,397 $ 229,905 $ -- $ 502,859 $ 91,959
Accumulated distributions in excess of net
investment income ........................... -- -- (580,604) -- --
Net unrealized appreciation (depreciation) .. 93,513,608 (5,517,389) 149,665,813 2,963,498 (14,330,253)
Accumulated net realized gain (loss) ........ 73,981,403 (7,482,293) 185,159,922 (4,537,241) (51,642,014)
Capital shares .............................. 534,050,042 103,749,688 446,023,861 26,661,033 162,730,683
------------------------------------------------------------------------------------
Net assets, at value ........................ $712,793,450 $ 90,979,911 $ 780,268,992 $ 25,590,149 $ 96,850,375
====================================================================================
CLASS 1:
Net assets, at value ........................ $708,310,592 $ 90,537,399 $ 777,036,693 $ 23,541,460 $ 96,738,284
====================================================================================
Shares outstanding .......................... 45,321,675 8,179,658 43,288,146 2,126,632 9,490,308
====================================================================================
Net asset value and offering price
per share ............................... $ 15.63 $ 11.07 $ 17.95 $ 11.07 $ 10.19
====================================================================================
CLASS 2:
Net assets, at value ........................ $ 4,482,858 $ 442,512 $ 3,232,299 $ 2,048,689 $ 112,091
====================================================================================
Shares outstanding .......................... 287,317 40,077 180,538 185,021 10,984
====================================================================================
Net asset value and offering price
per share ............................... $ 15.60 $ 11.04 $ 17.90 $ 11.07 $ 10.20
====================================================================================
</TABLE>
See notes to financial statements.
171
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND
SECURITIES FUND SECURITIES FUND INCOME FUND
-------------------------------------------------
<S> <C> <C> <C>
Investment income:+
Dividends ........................................................... $ 19,529,589 $ 63,373 $ 36,607,257
Interest ............................................................ 1,138,951 27,531 3,087,666
-------------------------------------------------
Total investment income .............................................. 20,668,540 90,904 39,694,923
-------------------------------------------------
Expenses:
Management fees (Note 3) ............................................ 4,247,909 59,620 5,454,205
Administrative fees (Note 3) ........................................ -- 15,012 --
Distribution fees (Note 3)
Class 2 ............................................................ 538 79 1,395
Custodian fees ...................................................... 163,582 232 8,910
Reports to shareholders ............................................. 85,845 902 109,550
Professional fees ................................................... 44,244 5,352 53,507
Trustees' fees and expenses ......................................... 7,343 82 9,640
Other ............................................................... 18,412 607 13,189
-------------------------------------------------
Total expenses ....................................................... 4,567,873 81,886 5,650,396
-------------------------------------------------
Net investment income ............................................... 16,100,667 9,018 34,044,527
-------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ 179,577,293 (1,553,921) 99,968,490
Foreign currency transactions ...................................... (1,270,291) (583) (237,791)
-------------------------------------------------
Net realized gain (loss) ............................................ 178,307,002 (1,554,504) 99,730,699
Net unrealized appreciation (depreciation) on:
Investments ........................................................ 100,162,131 652,159 (115,708,567)
Translation of assets and liabilities denominated in
foreign currencies .................................................. 46,650 -- 5,820
-------------------------------------------------
Net unrealized appreciation (depreciation) .......................... 100,208,781 652,159 (115,702,747)
-------------------------------------------------
Net realized and unrealized gain (loss) .............................. 278,515,783 (902,345) (15,972,048)
-------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................................... $ 294,616,450 $ (893,327) $ 18,072,479
=================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN HIGH FRANKLIN INCOME
INCOME FUND SECURITIES FUND
--------------------------------------
<S> <C> <C>
Investment income:+
Dividends ........................................................... $ 104,720 $ 24,123,563
Interest ............................................................ 40,581,814 52,504,261
--------------------------------------
Total investment income .............................................. 40,686,534 76,627,824
--------------------------------------
Expenses:
Management fees (Note 3) ............................................ 1,992,885 4,605,869
Administrative fees (Note 3) ........................................ -- --
Distribution fees (Note 3)
Class 2 ............................................................ 344 1,250
Custodian fees ...................................................... 4,176 42,728
Reports to shareholders ............................................. 43,584 134,635
Professional fees ................................................... 23,108 44,745
Trustees' fees and expenses ......................................... 3,225 8,114
Other ............................................................... 18,344 22,791
--------------------------------------
Total expenses ....................................................... 2,085,666 4,860,132
--------------------------------------
Net investment income ............................................... 38,600,868 71,767,692
--------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ (7,698,408) 24,923,522
Foreign currency transactions ...................................... (1,982) (93,012)
--------------------------------------
Net realized gain (loss) ............................................ (7,700,390) 24,830,510
Net unrealized appreciation (depreciation) on:
Investments ........................................................ (29,388,750) (113,078,223)
Translation of assets and liabilities denominated in
foreign currencies .................................................. 465 (719)
--------------------------------------
Net unrealized appreciation (depreciation) .......................... (29,388,285) (113,078,942)
--------------------------------------
Net realized and unrealized gain (loss) .............................. (37,088,675) (88,248,432)
--------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................................... $ 1,512,193 $(16,480,740)
======================================
</TABLE>
+Net of foreign taxes and fees of $708,880, $542, $313,282, and $38,336 for the
Franklin Global Communications Securities Fund, the Franklin Global Health Care
Securities Fund, the Franklin Growth and Income Fund, and the Franklin Income
Securities Fund, respectively.
See notes to financial statements.
172
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
LARGE CAP GROWTH MONEY MARKET NATURAL RESOURCES REAL ESTATE
SECURITIES FUND FUND SECURITIES FUND FUND
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:+
Dividends ........................................... $ 2,583,330 $ -- $ 542,986 $ 11,325,218
Interest ............................................ 2,058,028 19,768,523 66,359 300,341
-----------------------------------------------------------------
Total investment income .............................. 4,641,358 19,768,523 609,345 11,625,559
-----------------------------------------------------------------
Expenses:
Management fees (Note 3) ............................ 2,501,063 1,971,026 293,810 1,197,913
Distribution fees (Note 3)
Class 2 ............................................ 1,056 6,301 120 844
Custodian fees ...................................... 3,333 3,894 1,466 2,848
Reports to shareholders ............................. 22,900 34,596 4,549 23,690
Professional fees ................................... 18,418 20,932 7,120 14,001
Trustees' fees and expenses ......................... 2,766 3,287 393 1,802
Other ............................................... 4,247 4,365 948 2,368
-----------------------------------------------------------------
Total expenses ....................................... 2,553,783 2,044,401 308,406 1,243,466
-----------------------------------------------------------------
Net investment income ............................... 2,087,575 17,724,122 300,939 10,382,093
-----------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments ........................................ 26,589,913 208 1,696,606 2,394,868
Foreign currency transactions ...................... -- -- 12,610 --
-----------------------------------------------------------------
Net realized gain ................................... 26,589,913 208 1,709,216 2,394,868
Net unrealized appreciation (depreciation) on:
Investments ........................................ 68,147,813 -- 11,169,592 (25,421,990)
Translation of assets and liabilities denominated in
foreign currencies .................................. -- -- 83 --
-----------------------------------------------------------------
Net unrealized appreciation (depreciation) .......... 68,147,813 -- 11,169,675 (25,421,990)
-----------------------------------------------------------------
Net realized and unrealized gain (loss) .............. 94,737,726 208 12,878,891 (23,027,122)
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................... $96,825,301 $17,724,330 $13,179,830 $(12,645,029)
=================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN RISING
DIVIDENDS
FUND
----------------
<S> <C>
Investment income:+
Dividends ........................................... $ 11,987,239
Interest ............................................ 417,263
----------------
Total investment income .............................. 12,404,502
----------------
Expenses:
Management fees (Note 3) ............................ 4,308,795
Distribution fees (Note 3)
Class 2 ............................................ 708
Custodian fees ...................................... 5,764
Reports to shareholders ............................. 60,158
Professional fees ................................... 29,748
Trustees' fees and expenses ......................... 4,917
Other ............................................... 7,079
----------------
Total expenses ....................................... 4,417,169
----------------
Net investment income ............................... 7,987,333
----------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments ........................................ 62,450,636
Foreign currency transactions ...................... --
----------------
Net realized gain ................................... 62,450,636
Net unrealized appreciation (depreciation) on:
Investments ........................................ (130,647,558)
Translation of assets and liabilities denominated in
foreign currencies .................................. --
----------------
Net unrealized appreciation (depreciation) .......... (130,647,558)
----------------
Net realized and unrealized gain (loss) .............. (68,196,922)
----------------
Net increase (decrease) in net assets resulting
from operations ..................................... $ (60,209,589)
================
</TABLE>
+Net of foreign taxes and fees of $23,179, $14,987, and $27,887 for the Franklin
Large Cap Growth Securities Fund, the Franklin Natural Resources Securities
Fund, and the Franklin Rising Dividends Fund, respectively.
See notes to financial statements.
173
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
SMALL CAP U.S. GOVERNMENT VALUE SECURITIES ZERO COUPON ZERO COUPON
FUND FUND FUND FUND - 2000 FUND - 2005
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:+
Dividends .................................... $ 1,421,876 $ -- $ 126,152 $ -- $ --
Interest ..................................... 850,619 41,275,425 27,280 6,070,884 4,946,023
-----------------------------------------------------------------------------
Total investment income ....................... 2,272,495 41,275,425 153,432 6,070,884 4,946,023
-----------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ..................... 2,375,111 3,000,062 62,295 506,237 470,096
Administrative fees (Note 3) ................. -- -- 15,666 -- --
Distribution fees (Note 3)
Class 2 ..................................... 1,972 3,195 573 -- --
Custodian fees ............................... 3,187 6,255 103 854 1,066
Reports to shareholders ...................... 26,331 61,929 895 7,589 5,452
Professional fees ............................ 18,046 31,359 5,453 8,405 8,054
Trustees' fees and expenses .................. 2,590 5,135 86 681 633
Other ........................................ 6,930 4,676 336 -- --
-----------------------------------------------------------------------------
Total expenses ................................ 2,434,167 3,112,611 85,407 523,766 485,301
-----------------------------------------------------------------------------
Net investment income (loss) ................. (161,672) 38,162,814 68,025 5,547,118 4,460,722
-----------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................. 36,534,514 2,048,000 (517,910) 654,496 1,576,953
Foreign currency transactions ............... (103) -- -- -- --
-----------------------------------------------------------------------------
Net realized gain (loss) ..................... 36,534,411 2,048,000 (517,910) 654,496 1,576,953
Net unrealized appreciation (depreciation)
on investments ............................... 205,811,890 (45,913,508) 396,623 (3,836,376) (10,787,808)
-----------------------------------------------------------------------------
Net realized and unrealized gain (loss) ....... 242,346,301 (43,865,508) (121,287) (3,181,880) (9,210,855)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .............................. $ 242,184,629 $ (5,702,694) $ (53,262) $ 2,365,238 $ (4,750,133)
=============================================================================
</TABLE>
+Net of foreign taxes and fees of $152 for the Franklin Value Securities Fund.
See notes to financial statements.
174
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON
FRANKLIN DEVELOPING
ZERO COUPON MUTUAL DISCOVERY MUTUAL SHARES MARKETS
FUND - 2010 SECURITIES FUND SECURITIES FUND EQUITY FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:+
Dividends ........................................... $ -- $ 3,428,109 $ 5,743,802 $ 4,068,177
Interest ............................................ 5,211,404 1,464,797 5,503,121 32,409
----------------------------------------------------------------
Total investment income .......................... 5,211,404 4,892,906 11,246,923 4,100,586
----------------------------------------------------------------
Expenses:
Management fees (Note 3) ............................ 502,424 1,617,147 2,833,172 2,116,025
Administrative fees (Note 3) ........................ -- 302,448 667,459 --
Distribution fees (Note 3)
Class 2 ............................................ -- 478 3,794 848
Custodian fees ...................................... 737 30,400 28,000 203,000
Reports to shareholders ............................. 10,354 18,200 57,824 9,600
Professional fees ................................... 8,758 13,100 37,100 28,900
Trustees' fees and expenses ......................... 677 1,800 3,900 1,400
Dividends for securities sold short ................. -- 40,701 108,548 --
Other ............................................... 719 2,155 -- 153
----------------------------------------------------------------
Total expenses ................................... 523,669 2,026,429 3,739,797 2,359,926
----------------------------------------------------------------
Net investment income .......................... 4,687,735 2,866,477 7,507,126 1,740,660
----------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments++ ...................................... 996,100 2,136,546 10,284,316 (34,617,401)
Short sale transactions ............................ -- (400,198) 4,016,951 --
Foreign currency transactions ...................... -- 5,275,927 4,802,319 (83,976)
----------------------------------------------------------------
Net realized gain (loss) ....................... 996,100 7,012,275 19,103,586 (34,701,377)
Net unrealized appreciation (depreciation) on:
Investments ........................................ (16,515,434) 29,826,229 30,546,374 107,019,557
Translation of assets and liabilities denominated in
foreign currencies ................................ -- 2,642,118 1,007,670 --
----------------------------------------------------------------
Net unrealized appreciation (depreciation) ..... (16,515,434) 32,468,347 31,554,044 107,019,557
----------------------------------------------------------------
Net realized and unrealized gain (loss) .............. (15,519,334) 39,480,622 50,657,630 72,318,180
----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................... $(10,831,599) $ 42,347,099 $58,164,756 $ 74,058,840
================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
GLOBAL ASSET
ALLOCATION FUND
---------------
<S> <C>
Investment income:+
Dividends ........................................... $ 1,320,763
Interest ............................................ 1,474,063
---------------
Total investment income .......................... 2,794,826
---------------
Expenses:
Management fees (Note 3) ............................ 450,496
Administrative fees (Note 3) ........................ 103,961
Distribution fees (Note 3)
Class 2 ............................................ 98
Custodian fees ...................................... --
Reports to shareholders ............................. 7,139
Professional fees ................................... 4,400
Trustees' fees and expenses ......................... 100
Dividends for securities sold short ................. --
Other ............................................... --
---------------
Total expenses ................................... 566,194
---------------
Net investment income .......................... 2,228,632
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments++ ...................................... (760,254)
Short sale transactions ............................ --
Foreign currency transactions ...................... (248,788)
---------------
Net realized gain (loss) ....................... (1,009,042)
Net unrealized appreciation (depreciation) on:
Investments ........................................ 3,381,134
Translation of assets and liabilities denominated in
foreign currencies ................................ (43,069)
---------------
Net unrealized appreciation (depreciation) ..... 3,338,065
---------------
Net realized and unrealized gain (loss) .............. 2,329,023
---------------
Net increase (decrease) in net assets resulting
from operations ..................................... $ 4,557,655
===============
</TABLE>
+Net of foreign taxes and fees of $310,558, $228,493, $401,706, and $119,197,
for the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Developing Markets Equity Fund, and the Templeton Global Asset
Allocation Fund, respectively.
++Net of foreign taxes of $181,680 for the Templeton Developing Markets Equity
Fund.
See notes to financial statements.
175
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL
GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER
GROWTH FUND SECURITIES FUND EQUITY FUND COMPANIES FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:+
Dividends ........................................... $ 17,650,467 $ -- $ 23,609,099 $ 826,264
Interest ............................................ 1,839,194 7,427,021 1,793,509 32,478
----------------------------------------------------------------
Total investment income .......................... 19,489,661 7,427,021 25,402,608 858,742
----------------------------------------------------------------
Expenses:
Management fees (Note 3) ............................ 5,923,920 714,454 6,729,368 201,942
Administrative fees (Note 3) ........................ -- -- -- 35,637
Distribution fees (Note 3)
Class 2 ............................................ 4,155 328 6,771 1,086
Custodian fees ...................................... 215,000 39,100 509,300 20,200
Reports to shareholders ............................. 65,000 9,600 57,100 3,400
Professional fees ................................... 30,700 6,800 46,800 2,700
Trustees' fees and expenses ......................... 5,800 800 7,000 200
Other ............................................... 4,289 864 7,534 164
----------------------------------------------------------------
Total expenses ................................... 6,248,864 771,946 7,363,873 265,329
----------------------------------------------------------------
Net investment income .......................... 13,240,797 6,655,075 18,038,735 593,413
----------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................ 73,984,430 (6,186,749) 185,163,322 (1,993,271)
Foreign currency transactions ...................... (990,366) 131,489 (2,364,590) (20,383)
----------------------------------------------------------------
Net realized gain (loss) ....................... 72,994,064 (6,055,260) 182,798,732 (2,013,654)
Net unrealized appreciation (depreciation) on:
Investments ........................................ 47,953,928 (8,129,020) (12,829,338) 6,488,119
Translation of assets and liabilities denominated in
foreign currencies ................................ -- (241,188) -- --
----------------------------------------------------------------
Net unrealized appreciation (depreciation) ..... 47,953,928 (8,370,208) (12,829,338) 6,488,119
----------------------------------------------------------------
Net realized and unrealized gain (loss) .............. 120,947,992 (14,425,468) 169,969,394 4,474,465
----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................... $ 134,188,789 $ (7,770,393) $ 188,008,129 $ 5,067,878
================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
PACIFIC
GROWTH FUND
-------------
<S> <C>
Investment income:+
Dividends ........................................... $ 1,938,963
Interest ............................................ 60,334
-------------
Total investment income .......................... 1,999,297
-------------
Expenses:
Management fees (Note 3) ............................ 995,038
Administrative fees (Note 3) ........................ --
Distribution fees (Note 3)
Class 2 ............................................ 217
Custodian fees ...................................... 76,600
Reports to shareholders ............................. --
Professional fees ................................... 2,700
Trustees' fees and expenses ......................... 700
Other ............................................... 444
-------------
Total expenses ................................... 1,075,699
-------------
Net investment income .......................... 923,598
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................ (26,964,120)
Foreign currency transactions ...................... 151,613
-------------
Net realized gain (loss) ....................... (26,812,507)
Net unrealized appreciation (depreciation) on:
Investments ........................................ 59,369,564
Translation of assets and liabilities denominated in
foreign currencies ................................ (81,252)
-------------
Net unrealized appreciation (depreciation) ..... 59,288,312
-------------
Net realized and unrealized gain (loss) .............. 32,475,805
-------------
Net increase (decrease) in net assets resulting
from operations ..................................... $ 33,399,403
=============
</TABLE>
+Net of foreign taxes and fees of $1,502,264, $2,441,553, $93,421, and $162,316
for the Templeton Global Growth Fund, the Templeton International Equity Fund,
the Templeton International Smaller Companies Fund, and the Templeton Pacific
Growth Fund, respectively.
See notes to financial statements.
176
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL HEALTH FRANKLIN GROWTH
COMMUNICATIONS SECURITIES FUND CARE SECURITIES FUND AND INCOME FUND
------------------------------ ------------------------- --------------------------------
1999 1998 1999 1998* 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 16,100,667 $ 33,039,638 $ 9,018 $ 25,087 $ 34,044,527 $ 44,009,803
Net realized gain (loss) from
investments and foreign
currency transactions ............ 178,307,002 80,008,445 (1,554,504) (261,450) 99,730,699 119,155,296
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............... 100,208,781 (5,715,083) 652,159 875,993 (115,702,747) (59,404,856)
--------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations ................ 294,616,450 107,333,000 (893,327) 639,630 18,072,479 103,760,243
Distributions to shareholders from:
Net investment income:
Class 1 .......................... (32,989,434) (42,481,848) (25,070) -- (42,738,181) (43,569,458)
Class 2 .......................... (10,171) -- (99) -- (22,072) --
Net realized gains:
Class 1 .......................... (79,892,779) (61,944,426) -- -- (119,137,890) (102,500,145)
Class 2 .......................... (24,631) -- -- -- (61,531) --
--------------------------------------------------------------------------------------------
Total distributions
to shareholders .................. (112,917,015) (104,426,274) (25,169) -- (161,959,674) (146,069,603)
Capital share transactions: (Note 2)
Class 1 .......................... (181,373,622) (146,055,631) 3,243,389 8,350,695 (210,389,340) 22,576,507
Class 2 .......................... 420,442 -- 75,261 -- 875,164 --
--------------------------------------------------------------------------------------------
Total capital share transactions .... (180,953,180) (146,055,631) 3,318,650 8,350,695 (209,514,176) 22,576,507
Net increase (decrease)
in net assets ................... 746,255 (143,148,905) 2,400,154 8,990,325 (353,401,371) (19,732,853)
Net assets
Beginning of year .................. 986,755,196 1,129,904,101 8,990,325 -- 1,318,743,273 1,338,476,126
--------------------------------------------------------------------------------------------
End of year ........................ $ 987,501,451 $ 986,755,196 $11,390,479 $8,990,325 $ 965,341,902 $1,318,743,273
============================================================================================
Undistributed net investment
income included in net assets:
End of year ....................... $ 14,830,361 $ 32,999,590 $ 8,353 $ 25,087 $ 34,321,327 $ 43,273,575
============================================================================================
</TABLE>
*For the period May 1, 1998 (effective date) to December 31, 1998.
See notes to financial statements.
177
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP
FRANKLIN HIGH INCOME FUND FRANKLIN INCOME SECURITIES FUND GROWTH SECURITIES FUND
---------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 38,600,868 $ 48,463,944 $ 71,767,692 $ 90,721,586 $ 2,087,575 $ 1,514,533
Net realized gain (loss) from
investments and foreign
currency transactions ............ (7,700,390) 11,863,739 24,830,510 21,750,117 26,589,913 (3,325,719)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............... (29,388,285) (53,325,986) (113,078,942) (93,203,950) 68,147,813 31,691,954
---------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ........... 1,512,193 7,001,697 (16,480,740) 19,267,753 96,825,301 29,880,768
Distributions to shareholders from:
Net investment income:
Class 1 ........................ (85,622,207) (44,113,847) (80,764,333) (102,762,930) (1,509,956) (539,187)
Class 2 ........................ (105,289) -- (43,625) -- (1,301) --
Net realized gains:
Class 1 ......................... (12,520,156) (2,617,950) (28,938,989) (24,268,308) -- --
Class 2 ......................... (13,492) -- (15,631) -- -- --
---------------------------------------------------------------------------------------------
Total distributions
to shareholders .................. (98,261,144) (46,731,797) (109,762,578) (127,031,238) (1,511,257) (539,187)
Capital share transactions: (Note 2)
Class 1 ........................ (35,847,371) (9,697,227) (284,567,490) (113,183,247) 91,430,051 82,255,070
Class 2 ........................ 567,008 -- 1,389,381 -- 360,734 --
---------------------------------------------------------------------------------------------
Total capital share transactions ... (35,280,363) (9,697,227) (283,178,109) (113,183,247) 91,790,785 82,255,070
Net increase (decrease)
in net assets ............. (132,029,314) (49,427,327) (409,421,427) (220,946,732) 187,104,829 111,596,651
Net assets
Beginning of year ................ 446,608,505 496,035,832 1,185,839,887 1,406,786,619 220,951,638 109,354,987
---------------------------------------------------------------------------------------------
End of year ...................... $ 314,579,191 $446,608,505 $ 776,418,460 $1,185,839,887 $408,056,467 $220,951,638
=============================================================================================
Undistributed net investment
income included in net assets:
End of year ...................... $ 553,992 $ 48,138,649 $ 66,903,760 $ 82,921,968 $ 2,086,309 $ 1,509,991
=============================================================================================
</TABLE>
See notes to financial statements.
178
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN NATURAL
FRANKLIN MONEY MARKET FUND RESOURCES SECURITIES FUND FRANKLIN REAL ESTATE FUND
-------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 17,724,122 $ 19,603,887 $ 300,939 $ 751,162 $ 10,382,093 $ 20,084,431
Net realized gain (loss) from
investments and foreign
currency transactions ............ 208 (371) 1,709,216 (16,988,914) 2,394,868 24,686,332
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............... -- -- 11,169,675 (1,662,177) (25,421,990) (114,230,527)
-------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ........... 17,724,330 19,603,516 13,179,830 (17,899,929) (12,645,029) (69,459,764)
Distributions to shareholders from:
Net investment income:*
Class 1 ........................ (17,613,140) (19,603,516) (735,982) (946,913) (18,056,331) (15,362,062)
Class 2 ........................ (111,190) -- (752) -- (5,537) --
Net realized gains:
Class 1 ........................ -- -- -- -- (25,020,454) (9,509,537)
Class 2 ........................ -- -- -- -- (7,673) --
-------------------------------------------------------------------------------------------
Total distributions
to shareholders .................... (17,724,330) (19,603,516) (736,734) (946,913) (43,089,995) (24,871,599)
Capital share transactions: (Note 2)
Class 1 ........................ (50,313,015) 46,891,619 (15,517,295) (10,150,422) (67,959,433) (63,932,493)
Class 2 ........................ 8,601,600 -- 76,570 -- 2,405,793 --
-------------------------------------------------------------------------------------------
Total capital share transactions .. (41,711,415) 46,891,619 (15,440,725) (10,150,422) (65,553,640) (63,932,493)
Net increase (decrease)
in net assets ............. (41,711,415) 46,891,619 (2,997,629) (28,997,264) (121,288,664) (158,263,856)
Net assets
Beginning of year ................ 414,340,758 367,449,139 45,927,046 74,924,310 282,290,407 440,554,263
-------------------------------------------------------------------------------------------
End of year ..................... $372,629,343 $414,340,758 $ 42,929,417 $ 45,927,046 $ 161,001,743 $ 282,290,407
===========================================================================================
Undistributed net investment
income included in net assets:
End of year ..................... $ -- $ -- $ 303,873 $ 727,057 $ 11,229,198 $ 18,909,704
===========================================================================================
</TABLE>
*For the Franklin Money Market Fund, distributions were increased by net
realized gains of $208 and decreased by net realized losses of $371 from
security transactions for the years ended December 31, 1999 and 1998,
respectively.
See notes to financial statements.
179
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND FRANKLIN SMALL CAP FUND FRANKLIN U.S. GOVERNMENT FUND
---------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ..... $ 7,987,333 $ 9,364,650 $ (161,672) $ 1,603,412 $ 38,162,814 $ 45,349,259
Net realized gain (loss) from
investments and foreign
currency transactions ........... 62,450,636 93,670,542 36,534,411 (229,426) 2,048,000 2,808,941
Net unrealized appreciation (de-
preciation) on investments ...... (130,647,558) (58,097,205) 205,811,890 (8,381,265) (45,913,508) 3,506,133
---------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ............ (60,209,589) 44,937,987 242,184,629 (7,007,279) (5,702,694) 51,664,333
Distributions to shareholders from:
Net investment income:
Class 1 ........................ (9,355,158) (8,600,227) (1,492,353) (201,399) (82,724,494) (50,958,932)
Class 2 ........................ (5,248) -- (619) -- (257,323) --
Net realized gains:
Class 1 ........................ (93,725,124) (105,391,578) (208,580) (25,854,889) -- --
Class 2 ........................ (52,582) -- (53) -- -- --
---------------------------------------------------------------------------------------------
Total distributions
to shareholders ................... (103,138,112) (113,991,805) (1,701,605) (26,056,288) (82,981,817) (50,958,932)
Capital share transactions: (Note 2)
Class 1 ........................ (138,053,357) 40,625,030 (66,396,634) 35,061,886 (107,385,179) (54,957,919)
Class 2 ........................ 629,967 -- 4,672,614 -- 2,148,073 --
---------------------------------------------------------------------------------------------
Total capital share transactions ... (137,423,390) 40,625,030 (61,724,020) 35,061,886 (105,237,106) (54,957,919)
Net increase (decrease)
in net assets ............. (300,771,091) (28,428,788) 178,759,004 1,998,319 (193,921,617) (54,252,518)
Net assets
Beginning of year .................. 751,868,996 780,297,784 315,459,858 313,461,539 710,831,923 765,084,441
---------------------------------------------------------------------------------------------
End of year ........................ $ 451,097,905 $ 751,868,996 $494,218,862 $ 315,459,858 $ 516,910,306 $710,831,923
=============================================================================================
Undistributed net investment income
(accumulated net operating loss)
included in net assets:
End of year ....................... $ 7,986,383 $ 9,359,456 $ (103) $ 1,532,535 $ 429,066 $ 45,248,069
=============================================================================================
</TABLE>
See notes to financial statements.
180
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN VALUE SECURITIES FUND FRANKLIN ZERO COUPON FUND - 2000
-----------------------------------------------------------------------------
1999 1998* 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 68,025 $ 28,176 $ 5,547,118 $ 6,767,257
Net realized gain (loss) from
investments ................................ (517,910) (90,040) 654,496 1,752,805
Net unrealized appreciation
(depreciation) on investments .............. 396,623 (402,388) (3,836,376) (1,138,823)
-----------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations .......................... (53,262) (464,252) 2,365,238 7,381,239
Distributions to shareholders from:
Net investment income:
Class 1 .................................... (28,103) -- (12,195,607) (7,809,331)
Class 2 .................................... (138) -- -- --
Net realized gains:
Class 1 .................................... -- -- (1,752,252) (1,249,416)
-----------------------------------------------------------------------------
Total distributions
to shareholders ............................. (28,241) -- (13,947,859) (9,058,747)
Capital share transactions: (Note 2)
Class 1 .................................... 2,419,613 9,477,723 (11,042,665) (16,430,117)
Class 2 .................................... 1,231,781 -- -- --
-----------------------------------------------------------------------------
Total capital share transactions ............. 3,651,394 9,477,723 (11,042,665) (16,430,117)
Net increase (decrease)
in net assets ............................ 3,569,891 9,013,471 (22,625,286) (18,107,625)
Net assets
Beginning of year ............................ 9,013,471 -- 93,542,826 111,650,451
-----------------------------------------------------------------------------
End of year .................................. $ 12,583,362 $ 9,013,471 $ 70,917,540 $ 93,542,826
=============================================================================
Undistributed net investment income
included in net assets:
End of year ................................. $ 67,960 $ 28,176 $ 68,432 $ 6,716,921
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN ZERO COUPON FUND - 2005
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................. $ 4,460,722 $ 4,640,880
Net realized gain (loss) from
investments ........................... 1,576,953 454,474
Net unrealized appreciation
(depreciation) on investments ......... (10,787,808) 4,293,862
--------------------------------
Net increase (decrease)
in net assets resulting
from operations ..................... (4,750,133) 9,389,216
Distributions to shareholders from:
Net investment income:
Class 1 ............................... (9,038,860) (4,795,119)
Class 2 ............................... -- --
Net realized gains:
Class 1 ............................... (453,570) (1,109,296)
--------------------------------
Total distributions
to shareholders ........................ (9,492,430) (5,904,415)
Capital share transactions: (Note 2)
Class 1 ............................... (4,349,958) 3,707,073
Class 2 ............................... -- --
--------------------------------
Total capital share transactions ........ (4,349,958) 3,707,073
Net increase (decrease)
in net assets ....................... (18,592,521) 7,191,874
Net assets
Beginning of year ....................... 84,487,385 77,295,511
--------------------------------
End of year ............................. $ 65,894,864 $ 84,487,385
================================
Undistributed net investment income
included in net assets:
End of year ............................ $ 57,529 $ 4,635,667
================================
</TABLE>
*For the period May 1, 1998 (effective date) to December 31, 1998.
See notes to financial statements.
181
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN ZERO COUPON FUND - 2010 MUTUAL DISCOVERY SECURITIES FUND
------------------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 4,687,735 $ 4,911,607 $ 2,866,477 $ 4,620,204
Net realized gain (loss) from
investments and foreign
currency transactions ..................... 996,100 2,320,295 7,012,275 (11,326,928)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ........................ (16,515,434) 4,482,254 32,468,347 (12,566,983)
------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ......................... (10,831,599) 11,714,156 42,347,099 (19,273,707)
Distributions to shareholders from:
Net investment income:
Class 1 ................................... (9,535,103) (4,888,749) (5,872,849) (3,306,778)
Class 2 ................................... -- -- (5,671) --
Net realized gains:
Class 1 ................................... (2,318,943) (676,395) -- (3,076,305)
------------------------------------------------------------------------------
Total distributions
to shareholders ............................ (11,854,046) (5,565,144) (5,878,520) (6,383,083)
Capital share transactions: (Note 2)
Class 1 ................................... (4,780,148) 1,851,397 (58,299,042) 51,660,205
Class 2 ................................... -- -- 364,072 --
------------------------------------------------------------------------------
Total capital share transactions ............ (4,780,148) 1,851,397 (57,934,970) 51,660,205
Net increase (decrease)
in net assets .......................... (27,465,793) 8,000,409 (21,466,391) 26,003,415
Net assets
Beginning of year ........................... 93,515,135 85,514,726 224,656,177 198,652,762
------------------------------------------------------------------------------
End of year ................................. $ 66,049,342 $ 93,515,135 $ 203,189,786 $ 224,656,177
==============================================================================
Undistributed net investment income
included in net assets:
End of year ................................ $ 58,754 $ 4,906,277 $ 4,226,422 $ 4,105,301
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 7,507,126 $ 12,337,999
Net realized gain (loss) from
investments and foreign
currency transactions ............... 19,103,586 (9,502,532)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies .................. 31,554,044 (8,967,243)
----------------------------------
Net increase (decrease)
in net assets resulting
from operations ................... 58,164,756 (6,131,776)
Distributions to shareholders from:
Net investment income:
Class 1 ............................. (12,213,087) (5,124,853)
Class 2 ............................. (45,323) --
Net realized gains:
Class 1 ............................. -- (4,478,333)
----------------------------------
Total distributions
to shareholders ...................... (12,258,410) (9,603,186)
Capital share transactions: (Note 2)
Class 1 ............................. (79,961,449) 110,391,317
Class 2 ............................. 5,606,010 --
----------------------------------
Total capital share transactions ...... (74,355,439) 110,391,317
Net increase (decrease)
in net assets .................... (28,449,093) 94,656,355
Net assets
Beginning of year ..................... 482,443,687 387,787,332
----------------------------------
End of year ........................... $ 453,994,594 $ 482,443,687
==================================
Undistributed net investment income
included in net assets:
End of year .......................... $ 8,337,233 $ 11,568,707
==================================
</TABLE>
See notes to financial statements.
182
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
MARKETS EQUITY FUND TEMPLETON GLOBAL ASSET ALLOCATION FUND
----------------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 1,740,660 $ 4,306,111 $ 2,228,632 $ 3,890,233
Net realized gain (loss) from
investments and foreign
currency transactions ..................... (34,701,377) (27,689,978) (1,009,042) 2,718,229
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ........................ 107,019,557 (32,987,790) 3,338,065 (7,345,527)
----------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ......................... 74,058,840 (56,371,657) 4,557,655 (737,065)
Distributions to shareholders from:
Net investment income:
Class 1 ................................... (3,408,057) (7,007,398) (4,646,077) (3,274,568)
Class 2 ................................... (2,002) -- (3,126) --
Net realized gains:
Class 1 ................................... -- (22,786,132) (4,576,289) (3,894,373)
Class 2 ................................... -- -- (2,855) --
----------------------------------------------------------------------------------
Total distributions
to shareholders ............................ (3,410,059) (29,793,530) (9,228,347) (7,168,941)
Capital share transactions: (Note 2)
Class 1 ................................... (43,768,402) (31,081,577) (15,413,754) (3,826,198)
Class 2 ................................... 61,700 -- 54,566 --
--------------------------------------------------------------------------------
Total capital share transactions ............ (43,706,702) (31,081,577) (15,359,188) (3,826,198)
Net increase (decrease)
in net assets ........................... 26,942,079 (117,246,764) (20,029,880) (11,732,204)
Net assets
Beginning of year ........................... 162,433,287 279,680,051 81,669,618 93,401,822
----------------------------------------------------------------------------------
End of year ................................. $ 189,375,366 $ 162,433,287 $ 61,639,738 $ 81,669,618
==================================================================================
Undistributed net investment income
included in net assets:
End of year ................................ $ 1,222,672 $ 3,107,117 $ 103,182 $ 2,772,913
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................ $ 13,240,797 $ 17,620,120
Net realized gain (loss) from
investments and foreign
currency transactions ............... 72,994,064 76,153,893
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies .................. 47,953,928 (33,429,013)
----------------------------------
Net increase (decrease)
in net assets resulting
from operations ................... 134,188,789 60,345,000
Distributions to shareholders from:
Net investment income:
Class 1 ............................. (15,661,321) (20,206,508)
Class 2 ............................. (19,742) --
Net realized gains:
Class 1 ............................. (75,768,827) (73,600,973)
Class 2 ............................. (95,513) --
----------------------------------
Total distributions
to shareholders ...................... (91,545,403) (93,807,481)
Capital share transactions: (Note 2)
Class 1 ............................. (80,925,896) 22,098,260
Class 2 ............................. 3,995,606 --
----------------------------------
Total capital share transactions ...... (76,930,290) 22,098,260
Net increase (decrease)
in net assets ..................... (34,286,904) (11,364,221)
Net assets
Beginning of year ..................... 747,080,354 758,444,575
----------------------------------
End of year ........................... $ 712,793,450 $ 747,080,354
==================================
Undistributed net investment income
included in net assets:
End of year .......................... $ 11,248,397 $ 14,679,029
==================================
</TABLE>
See notes to financial statements.
183
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TEMPLETON GLOBAL INCOME
SECURITIES FUND
-------------------------------------
1999 1998
-------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................................................. $ 6,655,075 $ 11,448,872
Net realized gain (loss) from investments and foreign
currency transactions ............................................................. (6,055,260) (5,620,478)
Net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign currencies ........... (8,370,208) 5,419,749
-------------------------------------
Net increase (decrease) in net assets resulting from operations .................. (7,770,393) 11,248,143
Distributions to shareholders from:
Net investment income:
Class 1 ........................................................................... (9,277,104) (12,370,027)
Class 2 ........................................................................... (19,727) --
In excess of net investment income:
Class 1 ........................................................................... -- --
Class 2 ........................................................................... -- --
Net realized gains:
Class 1 ........................................................................... -- --
Class 2 ........................................................................... -- --
-------------------------------------
Total distributions to shareholders ................................................. (9,296,831) (12,370,027)
Capital share transactions: (Note 2)
Class 1 ........................................................................... (43,358,906) (32,953,553)
Class 2 ........................................................................... 465,304 --
-------------------------------------
Total capital share transactions .................................................... (42,893,602) (32,953,553)
Net decrease in net assets ....................................................... (59,960,826) (34,075,437)
Net assets
Beginning of year ................................................................... 150,940,737 185,016,174
-------------------------------------
End of year ......................................................................... $ 90,979,911 $ 150,940,737
=====================================
Undistributed net investment income (accumulated distributions in excess of
net investment income) included in net assets:
End of year ........................................................................ $ 229,905 $ 4,943,426
=====================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL
EQUITY FUND
---------------------------------------
1999 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................ $ 18,038,735 $ 32,119,117
Net realized gain (loss) from investments and foreign
currency transactions ........................................................... 182,798,732 24,006,171
Net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign currencies ......... (12,829,338) 3,813,638
---------------------------------------
Net increase (decrease) in net assets resulting from operations ................ 188,008,129 59,938,926
Distributions to shareholders from:
Net investment income:
Class 1 ......................................................................... (45,793,540) (34,702,026)
Class 2 ......................................................................... (143,933) --
In excess of net investment income:
Class 1 ......................................................................... (577,524) --
Class 2 ......................................................................... (3,081) --
Net realized gains:
Class 1 ......................................................................... (24,017,474) (69,708,108)
Class 2 ......................................................................... (55,641) --
---------------------------------------
Total distributions to shareholders ............................................... (70,591,193) (104,410,134)
Capital share transactions: (Note 2)
Class 1 ......................................................................... (295,288,883) (161,058,239)
Class 2 ......................................................................... 2,240,837 --
---------------------------------------
Total capital share transactions .................................................. (293,048,046) (161,058,239)
Net decrease in net assets ..................................................... (175,631,110) (205,529,447)
Net assets
Beginning of year ................................................................. 955,900,102 1,161,429,549
---------------------------------------
End of year ....................................................................... $ 780,268,992 $ 955,900,102
=======================================
Undistributed net investment income (accumulated distributions in excess of
net investment income) included in net assets:
End of year ...................................................................... $ (580,604) $ 30,263,329
=======================================
</TABLE>
See notes to financial statements.
184
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 593,413 $ 691,086
Net realized loss from investments and foreign currency transactions ................... (2,013,654) (2,334,096)
Net unrealized appreciation (depreciation) on investments and translation
of assets and liabilities denominated in foreign currencies ........................... 6,488,119 (2,224,314)
---------------------------------
Net increase (decrease) in net assets resulting from operations ...................... 5,067,878 (3,867,324)
Distributions to shareholders from:
Net investment income:
Class 1 ............................................................................... (690,707) (741,651)
Class 2 ............................................................................... (424) --
Net realized gains:
Class 1 ............................................................................... -- (858,571)
---------------------------------
Total distributions to shareholders ..................................................... (691,131) (1,600,222)
Capital share transactions: (Note 2)
Class 1 ............................................................................... (5,614,919) (1,733,715)
Class 2 ............................................................................... 1,828,877 --
---------------------------------
Total capital share transactions ........................................................ (3,786,042) (1,733,715)
Net increase (decrease) in net assets ................................................ 590,705 (7,201,261)
Net assets
Beginning of year ....................................................................... 24,999,444 32,200,705
---------------------------------
End of year ............................................................................. $ 25,590,149 $ 24,999,444
=================================
Undistributed net investment income included in net assets:
End of year ............................................................................. $ 502,859 $ 620,960
=================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON PACIFIC GROWTH FUND
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................... $ 923,598 $ 3,011,920
Net realized loss from investments and foreign currency transactions .................... (26,812,507) (24,149,643)
Net unrealized appreciation (depreciation) on investments and translation
of assets and liabilities denominated in foreign currencies ............................ 59,288,312 (1,803,583)
---------------------------------
Net increase (decrease) in net assets resulting from operations ....................... 33,399,403 (22,941,306)
Distributions to shareholders from:
Net investment income:
Class 1 ................................................................................ (982,376) (5,322,439)
Class 2 ................................................................................ (876) --
Net realized gains:
Class 1 ................................................................................ -- (1,619,542)
---------------------------------
Total distributions to shareholders ...................................................... (983,252) (6,941,981)
Capital share transactions: (Note 2)
Class 1 ................................................................................ (34,404,047) (36,751,143)
Class 2 ................................................................................ 68,886 --
---------------------------------
Total capital share transactions ......................................................... (34,335,161) (36,751,143)
Net increase (decrease) in net assets ................................................. (1,919,010) (66,634,430)
Net assets
Beginning of year ........................................................................ 98,769,385 165,403,815
---------------------------------
End of year .............................................................................. $ 96,850,375 $ 98,769,385
=================================
Undistributed net investment income included in net assets:
End of year .............................................................................. $ 91,959 $ --
=================================
</TABLE>
See notes to financial statements.
185
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Variable Insurance Products Trust (the Trust) is registered
under the Investment Company Act of 1940, as an open-end investment company,
consisting of twenty-five series (the Funds). All Funds are diversified except
the Franklin Global Health Care Securities Fund, the Franklin Value Securities
Fund, and the Templeton Global Income Securities Fund. Shares of the Funds are
sold only to insurance company separate accounts to fund the benefits of
variable life insurance policies or variable annuity contracts. As of December
31, 1999, over 90% of the total Trust shares were sold through one insurance
company. The Funds and their investment objectives are:
CAPITAL GROWTH
- --------------------------------------------------------------------------------
Franklin Global Health Care Securities Fund
Franklin Large Cap Growth Securities Fund
Franklin Natural Resources Securities Fund
Franklin Small Cap Fund
Mutual Discovery Securities Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
GROWTH AND INCOME
- --------------------------------------------------------------------------------
Franklin Global Communications Securities Fund
Franklin Growth and Income Fund
Franklin Income Securities Fund
Franklin Real Estate Fund
Franklin Rising Dividends Fund
Franklin Value Securities Fund
Mutual Shares Securities Fund
Templeton Global Asset Allocation Fund
CURRENT INCOME
- --------------------------------------------------------------------------------
Franklin High Income Fund
Franklin U.S. Government Fund
Franklin Zero Coupon Fund - 2000
Franklin Zero Coupon Fund - 2005
Franklin Zero Coupon Fund - 2010
Templeton Global Income Securities Fund
CAPITAL PRESERVATION AND INCOME
- --------------------------------------------------------------------------------
Franklin Money Market Fund
Effective July 1, 1999, the name of the Trust, Franklin Valuemark Funds, changed
to Franklin Templeton Variable Insurance Products Trust. The Funds' investment
objectives and other policies did not change as a result of the name change.
Effective November 15, 1999 and December 15, 1999, the name of the Franklin
Global Utilities Securities Fund and the Franklin Capital Growth Fund changed to
Franklin Global Communications Securities Fund and Franklin Large Cap Growth
Securities Fund, respectively. The funds' investment objectives and other
policies did not change as a result of the name change.
The following summarizes the Funds' 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. Restricted securities and 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.
Securities in the Franklin Money Market Fund are valued at amortized cost which
approximates value.
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.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FORWARD EXCHANGE CONTRACTS
The Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Global Asset Allocation Fund, and the Templeton Global Income
Securities Fund may enter into forward exchange contracts to hedge against
foreign exchange risks. These contracts are valued
186
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
C. FORWARD EXCHANGE CONTRACTS (CONT.)
daily and each fund's equity therein is included in the Statements of Assets and
Liabilities. Realized and unrealized gains and losses are included in the
Statements of Operations.
D. CONTRACTS FOR DIFFERENCES
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund are
engaged in short contracts for differences. Short contracts for differences are
contracts entered into between a broker and the fund under which the parties
agree to make payments to each other so as to replicate the economic
consequences that would apply had a short sale of the underlying security taken
place. Upon entering into short contracts for differences, the funds are
required to pledge to the broker an amount of cash and/or other assets equal to
a certain percentage of the contract amount ("initial margin"). Subsequent
payments known as "variation margin", are made or received by the funds
periodically, depending on fluctuations in the value of the underlying security.
When the contract is closed, the funds record a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Should market conditions move unexpectedly,
the fund may not achieve the anticipated benefits of the contracts for the
differences and may realize a loss.
E. OPTIONS
In order to produce incremental income or protect against changes in the value
of the underlying securities, the Mutual Discovery Securities Fund and the
Mutual Shares Securities Fund may write put and covered call options.
Premiums received by these funds upon writing put or covered call options are
recorded as an asset and an equivalent liability which is subsequently adjusted
daily to equal the current market value of the option written. Each fund will
realize a gain or loss upon the expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call option or
the purchase cost for a written put option is adjusted by the amount of the
premium received or paid. The risk in writing a call option is that the funds
give up the opportunity for profit if the market price of the security increases
and the option is exercised. The risk in writing a put option is that the funds
may incur a loss if the market price of the security decreases and the option is
exercised. All collateral covering written options are held in a segregated
account by the custodian bank.
F. SECURITIES SOLD SHORT
The Mutual Discovery Securities Fund and Mutual Shares Securities Fund are
engaged in selling securities short, which obligates the funds to replace a
security borrowed with the same security at the current market value. The funds
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the funds replace the borrowed security.
The funds would realize a gain if the price of the security declines between
those dates.
The funds are required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the funds must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short.
G. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
H. 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. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. For the Franklin Money Market
Fund, dividends from net investment income and capital gains or losses are
normally declared daily. Such distributions are reinvested in additional shares
of the fund.
187
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
H. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
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.
I. DEFERRED TAXES
Deferred taxes are recorded for estimated tax liabilities inherent in certain of
the funds' foreign portfolio securities which may arise from subsequent sales of
those securities and asset repatriation from countries that impose such taxes.
J. 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. SHARES OF BENEFICIAL INTEREST
Effective January 6, 1999, all funds except the Franklin Zero Coupon Fund -
2000, the Franklin Zero Coupon Fund - 2005, and the Franklin Zero Coupon Fund -
2010 offered two classes of shares: Class 1 and Class 2. Outstanding shares
before that date were designated Class 1 shares. Each class of 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 ($.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL HEALTH
COMMUNICATIONS SECURITIES FUND CARE SECURITIES FUND(2)
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ......................................... 1,541,846 $ 31,772,461 1,376,672 $ 12,987,503
Shares issued in reinvestment of distributions ...... 5,759,297 112,882,214 2,665 25,069
Shares redeemed ..................................... (15,853,370) (326,028,297) (1,066,945) (9,769,183)
-----------------------------------------------------------------------
Net increase (decrease) ............................. (8,552,227) $(181,373,622) 312,392 $ 3,243,389
=======================================================================
Year ended December 31, 1998
Shares sold ......................................... 2,621,862 $ 52,650,625 1,315,108 $ 12,754,095
Shares issued in reinvestment of distributions ...... 5,388,353 104,426,274 -- --
Shares redeemed ..................................... (15,318,738) (303,132,530) (475,618) (4,403,400)
-----------------------------------------------------------------------
Net increase (decrease) ............................. (7,308,523) $(146,055,631) 839,490 $ 8,350,695
=======================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ......................................... 20,226 $ 430,720 10,177 $ 91,223
Shares issued in reinvestment of distributions ...... 1,779 34,802 11 99
Shares redeemed ..................................... (2,207) (45,080) (1,710) (16,061)
-----------------------------------------------------------------------
Net increase ........................................ 19,798 $ 420,442 8,478 $ 75,261
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
GROWTH AND INCOME FUND
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ..................................... 4,366,236 $ 86,298,047
Shares issued in reinvestment of distributions .. 8,533,267 161,876,071
Shares redeemed ................................. (23,423,299) (458,563,458)
---------------------------
Net increase (decrease) ......................... (10,523,796) $(210,389,340)
===========================
Year ended December 31, 1998
Shares sold ..................................... 9,617,417 $ 198,201,953
Shares issued in reinvestment of distributions .. 7,392,186 146,069,603
Shares redeemed ................................. (15,929,952) (321,695,049)
---------------------------
Net increase (decrease) ......................... 1,079,651 $ 22,576,507
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ..................................... 77,868 $ 1,487,846
Shares issued in reinvestment of distributions .. 4,414 83,603
Shares redeemed ................................. (37,757) (696,285)
---------------------------
Net increase .................................... 44,525 $ 875,164
===========================
</TABLE>
188
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME FUND FRANKLIN INCOME SECURITIES FUND
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ........................................... 11,859,183 $ 149,857,086 2,371,113 $ 38,308,568
Shares issued in reinvestment of distributions ........ 9,071,907 98,142,363 7,222,075 109,703,322
Shares redeemed ....................................... (22,697,184) (283,846,820) (26,903,414) (432,579,380)
---------------------------------------------------------------------
Net increase (decrease) ............................... (1,766,094) $ (35,847,371) (17,310,226) $(284,567,490)
=====================================================================
Year ended December 31, 1998
Shares sold ........................................... 12,350,296 $ 169,850,148 5,561,398 $ 97,914,458
Shares issued in reinvestment of distributions ........ 3,423,575 46,731,797 7,512,196 127,031,238
Shares redeemed ....................................... (16,477,344) (226,279,172) (19,594,845) (338,128,943)
---------------------------------------------------------------------
Net increase (decrease) ............................... (703,473) $ (9,697,227) (6,521,251) $(113,183,247)
=====================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ........................................... 135,662 $ 1,640,852 85,908 $ 1,343,308
Shares issued in reinvestment of distributions ........ 11,129 118,780 3,906 59,256
Shares redeemed ....................................... (101,197) (1,192,624) (892) (13,183)
---------------------------------------------------------------------
Net increase .......................................... 45,594 $ 567,008 88,922 $ 1,389,381
=====================================================================
<CAPTION>
FRANKLIN LARGE CAP
GROWTH SECURITIES FUND
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold .................................... 14,376,691 $ 244,620,121
Shares issued in reinvestment of distributions.. 84,591 1,509,956
Shares redeemed ................................ (8,863,652) (154,700,026)
---------------------------
Net increase (decrease) ........................ 5,597,630 $ 91,430,051
===========================
Year ended December 31, 1998
Shares sold .................................... 9,664,745 $ 140,653,465
Shares issued in reinvestment of distributions.. 37,058 539,187
Shares redeemed ................................ (4,111,363) (58,937,582)
---------------------------
Net increase (decrease) ........................ 5,590,440 $ 82,255,070
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold .................................... 89,707 $ 1,579,229
Shares issued in reinvestment of distributions.. 73 1,300
Shares redeemed ................................ (64,004) (1,219,795)
---------------------------
Net increase ................................... 25,776 $ 360,734
===========================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NATURAL
FRANKLIN MONEY MARKET FUND RESOURCES SECURITIES FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ........................................ 705,526,809 $ 705,526,809 4,167,717 $ 40,856,708
Shares issued in reinvestment of distributions ..... 17,609,674 17,609,674 68,783 735,982
Shares redeemed .................................... (773,449,498) (773,449,498) (5,792,628) (57,109,985)
-----------------------------------------------------------------------
Net decrease ....................................... (50,313,015) $ (50,313,015) (1,556,128) $(15,517,295)
=======================================================================
Year ended December 31, 1998
Shares sold ........................................ 748,602,052 $ 748,602,052 3,505,454 $ 36,314,081
Shares issued in reinvestment of distributions ..... 19,603,629 19,603,629 91,844 946,913
Shares redeemed .................................... (721,314,062) (721,314,062) (4,685,716) (47,411,416)
-----------------------------------------------------------------------
Net increase (decrease) ............................ 46,891,619 $ 46,891,619 (1,088,418) $(10,150,422)
=======================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ........................................ 219,800,400 $ 219,800,400 38,482 $ 417,911
Shares issued in reinvestment of distributions ..... 111,092 111,092 70 752
Shares redeemed .................................... (211,309,892) (211,309,892) (32,281) (342,093)
-----------------------------------------------------------------------
Net increase ....................................... 8,601,600 $ 8,601,600 6,271 $ 76,570
=======================================================================
<CAPTION>
FRANKLIN REAL ESTATE FUND
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold .................................... 575,363 $ 10,691,098
Shares issued in reinvestment of distributions . 2,652,511 43,076,785
Shares redeemed ................................ (6,765,476) (121,727,316)
---------------------------
Net decrease ................................... (3,537,602) $ (67,959,433)
===========================
Year ended December 31, 1998
Shares sold .................................... 1,938,333 $ 46,066,967
Shares issued in reinvestment of distributions . 1,117,322 24,871,599
Shares redeemed ................................ (6,098,998) (134,871,059)
---------------------------
Net increase (decrease) ........................ (3,043,343) $ (63,932,493)
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold .................................... 165,395 $ 2,415,677
Shares issued in reinvestment of distributions . 815 13,209
Shares redeemed ................................ (1,567) (23,093)
---------------------------
Net increase ................................... 164,643 $ 2,405,793
===========================
</TABLE>
189
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND FRANKLIN SMALL CAP FUND
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ........................................... 2,446,386 $ 40,314,130 5,623,402 $ 95,075,835
Shares issued in reinvestment of distributions ........ 6,599,250 103,080,282 106,977 1,700,933
Shares redeemed ....................................... (17,468,289) (281,447,769) (10,564,693) (163,173,402)
---------------------------------------------------------------------
Net decrease .......................................... (8,422,653) $(138,053,357) (4,834,314) $ (66,396,634)
=====================================================================
Year ended December 31, 1998
Shares sold ........................................... 10,051,992 $ 190,031,986 10,354,452 $ 146,238,628
Shares issued in reinvestment of distributions ........ 6,443,856 113,991,805 1,866,496 26,056,288
Shares redeemed ....................................... (14,609,606) (263,398,761) (10,047,779) (137,233,030)
---------------------------------------------------------------------
Net increase (decrease) ............................... 1,886,242 $ 40,625,030 2,173,169 $ 35,061,886
=====================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ........................................... 38,839 $ 603,609 237,253 $ 4,844,539
Shares issued in reinvestment of distributions ........ 3,710 57,830 42 673
Shares redeemed ....................................... (2,082) (31,472) (7,583) (172,598)
---------------------------------------------------------------------
Net increase .......................................... 40,467 $ 629,967 229,712 $ 4,672,614
=====================================================================
<CAPTION>
FRANKLIN U.S. GOVERNMENT FUND
----------------------------
SHARES AMOUNT
----------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold .................................... 4,229,311 $ 56,773,998
Shares issued in reinvestment of distributions . 6,745,264 82,724,494
Shares redeemed ................................ (18,460,763) (246,883,671)
---------------------------
Net decrease ................................... (7,486,188) $(107,385,179)
===========================
Year ended December 31, 1998
Shares sold .................................... 10,470,243 $ 144,337,382
Shares issued in reinvestment of distributions . 3,808,590 50,958,932
Shares redeemed ................................ (18,034,303) (250,254,233)
---------------------------
Net increase (decrease) ........................ (3,755,470) $ (54,957,919)
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold .................................... 165,968 $ 2,244,294
Shares issued in reinvestment of distributions . 21,095 257,323
Shares redeemed ................................ (27,670) (353,544)
---------------------------
Net increase ................................... 159,393 $ 2,148,073
===========================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN ZERO
FRANKLIN VALUE SECURITIES FUND(2) COUPON FUND - 2000
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ........................................... 1,587,252 $ 12,476,029 400,191 $ 5,693,223
Shares issued in reinvestment of distributions ........ 3,306 28,103 1,068,352 13,947,859
Shares redeemed ....................................... (1,314,579) (10,084,519) (2,141,833) (30,683,747)
--------------------------------------------------------------------
Net increase (decrease) ............................... 275,979 $ 2,419,613 (673,290) $(11,042,665)
====================================================================
Year ended December 31, 1998
Shares sold ........................................... 1,367,931 $ 11,279,710 646,397 $ 9,539,377
Shares issued in reinvestment of distributions ........ -- -- 637,042 9,058,747
Shares redeemed ....................................... (211,139) (1,801,987) (2,343,411) (35,028,241)
--------------------------------------------------------------------
Net increase (decrease) ............................... 1,156,792 $ 9,477,723 (1,059,972) $(16,430,117)
====================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ........................................... 195,613 $ 1,501,629
Shares issued in reinvestment of distributions ........ 16 138
Shares redeemed ....................................... (35,319) (269,986)
------------------------------
Net increase .......................................... 160,310 $ 1,231,781
==============================
<CAPTION>
FRANKLIN ZERO
COUPON FUND - 2005
-------------------------
SHARES AMOUNT
-------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ....................................... 616,940 $ 10,348,925
Shares issued in reinvestment of distributions .... 625,547 9,492,430
Shares redeemed ................................... (1,462,565) (24,191,313)
-------------------------
Net increase (decrease) ........................... (220,078) $ (4,349,958)
=========================
Year ended December 31, 1998
Shares sold ....................................... 977,903 $ 16,942,756
Shares issued in reinvestment of distributions .... 357,194 5,904,415
Shares redeemed ................................... (1,107,098) (19,140,098)
-------------------------
Net increase (decrease) ........................... 227,999 $ 3,707,073
=========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold .......................................
Shares issued in reinvestment of distributions ....
Shares redeemed ...................................
Net increase ......................................
</TABLE>
190
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN ZERO
COUPON FUND - 2010 MUTUAL DISCOVERY SECURITIES FUND
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ........................................... 1,559,718 $ 27,125,932 1,982,385 $ 23,245,306
Shares issued in reinvestment of distributions ........ 779,588 11,854,045 476,305 5,872,849
Shares redeemed ....................................... (2,579,464) (43,760,125) (7,422,698) (87,417,197)
--------------------------------------------------------------------
Net decrease .......................................... (240,158) $ (4,780,148) (4,964,008) $(58,299,042)
====================================================================
Year ended December 31, 1998
Shares sold ........................................... 2,622,702 $ 48,365,327 7,041,503 $ 90,113,407
Shares issued in reinvestment of distributions ........ 314,060 5,565,143 482,835 6,383,083
Shares redeemed ....................................... (2,825,253) (52,079,073) (3,946,113) (44,836,285)
--------------------------------------------------------------------
Net increase .......................................... 111,509 $ 1,851,397 3,578,225 $ 51,660,205
====================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ........................................... 33,335 $ 398,375
Shares issued in reinvestment of distributions ........ 461 5,671
Shares redeemed ....................................... (3,299) (39,974)
------------------------------
Net increase .......................................... 30,497 $ 364,072
==============================
<CAPTION>
MUTUAL SHARES SECURITIES FUND
----------------------------
SHARES AMOUNT
----------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold .................................... 5,163,014 $ 66,279,367
Shares issued in reinvestment of distributions . 914,838 12,213,087
Shares redeemed ................................ (12,518,155) (158,453,903)
---------------------------
Net decrease ................................... (6,440,303) $ (79,961,449)
===========================
Year ended December 31, 1998
Shares sold .................................... 12,012,852 $ 150,206,617
Shares issued in reinvestment of distributions . 760,950 9,603,186
Shares redeemed ................................ (4,280,005) (49,418,486)
---------------------------
Net increase ................................... 8,493,797 $ 110,391,317
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold .................................... 436,840 $ 5,671,654
Shares issued in reinvestment of distributions . 3,403 45,323
Shares redeemed ................................ (8,851) (110,967)
---------------------------
Net increase ................................... 431,392 $ 5,606,010
===========================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING TEMPLETON GLOBAL
MARKETS EQUITY FUND ASSET ALLOCATION FUND
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ......................................... 3,881,288 $ 32,963,868 369,621 $ 4,473,677
Shares issued in reinvestment of distributions ...... 371,653 3,408,057 779,230 9,222,366
Shares redeemed ..................................... (9,742,060) (80,140,327) (2,380,619) (29,109,797)
----------------------------------------------------------------------
Net decrease ........................................ (5,489,119) $ (43,768,402) (1,231,768) $(15,413,754)
======================================================================
Year ended December 31, 1998
Shares sold ......................................... 6,171,249 $ 49,413,698 1,163,365 $ 15,880,669
Shares issued in reinvestment of distributions ...... 4,042,542 29,793,530 556,595 7,168,941
Shares redeemed ..................................... (13,892,294) (110,288,805) (2,081,709) (26,875,808)
----------------------------------------------------------------------
Net increase (decrease) ............................. (3,678,503) $ (31,081,577) (361,749) $ (3,826,198)
======================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ......................................... 3,208,177 $ 28,287,279 4,796 $ 59,342
Shares issued in reinvestment of distributions ...... 218 2,002 506 5,981
Shares redeemed ..................................... (3,175,302) (28,227,581) (901) (10,757)
----------------------------------------------------------------------
Net increase ........................................ 33,093 $ 61,700 4,401 $ 54,566
======================================================================
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ..................................... 3,559,626 $ 53,423,886
Shares issued in reinvestment of distributions .. 6,314,237 91,430,148
Shares redeemed ................................. (15,136,586) (225,779,930)
---------------------------
Net decrease .................................... (5,262,723) $ (80,925,896)
===========================
Year ended December 31, 1998
Shares sold ..................................... 6,659,421 $ 103,474,286
Shares issued in reinvestment of distributions .. 6,496,363 93,807,481
Shares redeemed ................................. (12,002,187) (175,183,507)
---------------------------
Net increase (decrease) ......................... 1,153,597 $ 22,098,260
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ..................................... 3,228,083 $ 46,873,543
Shares issued in reinvestment of distributions .. 7,976 115,255
Shares redeemed ................................. (2,948,742) (42,993,192)
---------------------------
Net increase .................................... 287,317 $ 3,995,606
===========================
</TABLE>
191
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL TEMPLETON INTERNATIONAL
INCOME SECURITIES FUND EQUITY FUND
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ......................................... 755,763 $ 9,398,931 9,536,395 $ 154,330,253
Shares issued in reinvestment of distributions ...... 815,256 9,277,104 4,250,735 70,388,538
Shares redeemed ..................................... (5,116,543) (62,034,941) (32,083,168) (520,007,674)
----------------------------------------------------------------------
Net decrease ........................................ (3,545,524) $(43,358,906) (18,296,038) $(295,288,883)
======================================================================
Year ended December 31, 1998
Shares sold ......................................... 884,521 $ 11,354,195 6,071,020 $ 98,428,488
Shares issued in reinvestment of distributions ...... 1,004,061 12,370,027 6,374,245 104,410,134
Shares redeemed ..................................... (4,428,598) (56,677,775) (22,907,488) (363,896,861)
----------------------------------------------------------------------
Net decrease ........................................ (2,540,016) $(32,953,553) (10,462,223) $(161,058,239)
======================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ......................................... 40,368 $ 470,374 6,929,787 $ 113,531,523
Shares issued in reinvestment of distributions ...... 1,764 19,727 12,090 202,655
Shares redeemed ..................................... (2,055) (24,797) (6,761,339) (111,493,341)
----------------------------------------------------------------------
Net increase ........................................ 40,077 $ 465,304 180,538 $ 2,240,837
======================================================================
<CAPTION>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
-------------------------
SHARES AMOUNT
-------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold ....................................... 583,886 $ 6,152,029
Shares issued in reinvestment of distributions .... 64,794 690,707
Shares redeemed ................................... (1,240,556) (12,457,655)
-------------------------
Net decrease ...................................... (591,876) $ (5,614,919)
=========================
Year ended December 31, 1998
Shares sold ....................................... 1,335,385 $ 13,968,902
Shares issued in reinvestment of distributions .... 147,758 1,600,222
Shares redeemed ................................... (1,687,180) (17,302,839)
-------------------------
Net decrease ...................................... (204,037) $ (1,733,715)
=========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold ....................................... 2,831,182 $ 29,929,003
Shares issued in reinvestment of distributions .... 40 424
Shares redeemed ................................... (2,646,201) (28,100,550)
-------------------------
Net increase ...................................... 185,021 $ 1,828,877
=========================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON PACIFIC GROWTH FUND
----------------------------
SHARES AMOUNT
----------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold .................................... 37,570,852 $ 339,701,623
Shares issued in reinvestment of distributions.. 96,595 982,376
Shares redeemed ................................ (41,329,954) (375,088,046)
---------------------------
Net decrease ................................... (3,662,507) $ (34,404,047)
===========================
Year ended December 31, 1998
Shares sold .................................... 12,315,500 $ 91,136,520
Shares issued in reinvestment of distributions.. 1,116,074 6,941,981
Shares redeemed ................................ (18,106,232) (134,829,644)
---------------------------
Net decrease ................................... (4,674,658) $ (36,751,143)
===========================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold .................................... 494,861 $ 4,788,916
Shares issued in reinvestment of distributions . 86 876
Shares redeemed ................................ (483,963) (4,720,906)
---------------------------
Net increase ................................... 10,984 $ 68,886
===========================
</TABLE>
(1) For the period January 6, 1999 (effective date) to December 31, 1999.
(2) For the period May 1, 1998 (effective date) to December 31, 1998.
192
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Advisory Services, LLC (Advisory Services) Investment manager
Franklin Mutual Advisers, LLC (Franklin Mutual) Investment manager
Templeton Asset Management Ltd. (TAML) Investment manager
Templeton Global Advisors Ltd. (TGAL) Investment manager
Templeton Investment Counsel, Inc. (TICI) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds, except the Franklin Global Health Care Securities Fund, the
Franklin Large Cap Growth Securities Fund, the Franklin Rising Dividends Fund,
the Franklin Small Cap Fund, the Franklin Value Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton
Developing Markets Equity Fund, the Templeton Global Asset Allocation Fund, the
Templeton Global Growth Fund, the Templeton International Equity Fund, the
Templeton International Smaller Companies Fund, and the Templeton Pacific Growth
Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.50% over $100 million, up to and including $250 million
.45% over $250 million, up to and including $10 billion
</TABLE>
Fees are further reduced on net assets over $10 billion.
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Income Securities Fund and receives fees from Advisers based on
the average daily net assets of the fund.
The Templeton International Equity Fund and the Templeton Pacific Growth Fund
pay an investment management fee to Advisers based on the average net assets of
each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
1.00% First $100 million
.90% over $100 million, up to and including $250 million
.80% over $250 million, up to and including $500 million
.75% over $500 million
</TABLE>
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton International Equity Fund and the Templeton Pacific Growth Fund, and
receives fees from Advisers based on the average daily net assets of each fund.
The Franklin Large Cap Growth Securities Fund and the Franklin Small Cap Fund
pay an investment management fee to Advisers based on the average net assets of
each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.75% First $500 million
.625% over $500 million, up to and including $1 billion
.50% over $1 billion
</TABLE>
193
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin Global Health Care Securities Fund and the Franklin Value
Securities Fund pay an investment management fee to Advisers and Advisory
Services, respectively, based on the average net assets of each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.60% First $200 million
.50% over $200 million, up to and including $1.3 billion
.40% over $1.3 billion
</TABLE>
For the Franklin Global Health Care Securities Fund and the Franklin Value
Securities Fund, management fees were reduced on assets invested in the Franklin
Institutional Fiduciary Trust Money Market Portfolio.
The Franklin Rising Dividends Fund pays an investment management fee to Advisory
Services based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.75% First $500 million
.625% over $500 million, up to and including $1 billion
.50% over $1 billion
</TABLE>
The Templeton Global Growth Fund pays an investment management fee to TGAL based
on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
1.00% First $100 million
.90% over $100 million, up to and including $250 million
.80% over $250 million, up to and including $500 million
.75% over $500 million
</TABLE>
The Templeton Global Asset Allocation Fund pays an investment management fee to
TGAL based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.65% First $200 million
.585% over $200 million, up to and including $1.3 billion
.52% over $1.3 billion
</TABLE>
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Asset Allocation Fund and receives from TGAL fees based on the
average daily net assets of the fund.
The Templeton International Smaller Companies Fund pays an investment management
fee to TICI based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.85% First $200 million
.765% over $200 million, up to and including $1.3 billion
.68% over $1.3 billion
</TABLE>
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund pay
an investment management fee to Franklin Mutual of .80% and .60%, respectively,
per year of the average daily net assets of each fund.
The Templeton Developing Markets Equity Fund pays an investment management fee
to TAML of 1.25% per year of the average daily net assets of the fund.
194
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Under an agreement with their respective investment managers, FT Services
provides administrative services to the Funds, except for the Franklin Global
Health Care Securities Fund, the Franklin Value Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton
Global Asset Allocation Fund, and the Templeton International Smaller Companies
Fund. The fee is paid by each fund's respective investment managers based on the
average daily net assets, and is not an additional expense of the Funds.
The Franklin Global Health Care Securities Fund, the Franklin Value Securities
Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund,
the Templeton Global Asset Allocation Fund, and the Templeton International
Smaller Companies Fund, pay administrative fees to FT Services based on the
average net assets of each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.15% First $200 million
.135% over $200 million, up to and including $700 million
.10% over $700 million, up to and including $1.2 billion
</TABLE>
Fees are further reduced on net assets over $1.2 billion.
The Funds reimburse Distributors up to .25% per year of their average daily net
assets of Class 2, for costs incurred in marketing the Funds' shares. Effective
July 1, 1999, the rate changed from .30% to .25%.
Investor Services, under terms of an agreement, performs shareholder servicing
for the Funds and is not paid by the Funds for the services.
4. INCOME TAXES
At December 31, 1999, certain funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL
HEALTH CARE FRANKLIN HIGH FRANKLIN MONEY
SECURITIES FUND INCOME FUND MARKET FUND
------------------------------------------------------------------------
<S> <C> <C> <C>
Capital loss carryovers expiring in:
2000 ................................................... $ -- $ -- $ 210
2001 ................................................... -- -- 523
2002 ................................................... -- -- 7,568
2003 ................................................... -- -- --
2004 ................................................... -- -- --
2005 ................................................... -- -- --
2006 ................................................... 239,954 -- 371
2007 ................................................... 1,380,953 2,294,320 --
------------------------------------------------------------------------
$1,620,907 $2,294,320 $8,672
========================================================================
<CAPTION>
FRANKLIN NATURAL FRANKLIN U.S.
RESOURCES GOVERNMENT FRANKLIN VALUE
SECURITIES FUND FUND SECURITIES FUND
------------------------------------------------------------------------
<S> <C> <C> <C>
2000 ................................................... $ -- $ -- $ --
2001 ................................................... -- -- --
2002 ................................................... -- 8,408,494 --
2003 ................................................... -- 826,481 --
2004 ................................................... 146,066 -- --
2005 ................................................... 3,313,053 169,754 --
2006 ................................................... 14,821,804 -- 64,007
2007 ................................................... 3,374,600 -- 382,947
------------------------------------------------------------------------
$21,655,523 $9,404,729 $446,954
========================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
MUTUAL DEVELOPING TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
DISCOVERY MARKETS GLOBAL ASSET GLOBAL INCOME SMALLER PACIFIC
SECURITIES FUND EQUITY FUND ALLOCATION FUND SECURITIES FUND COMPANIES FUND GROWTH FUND
----------------------------------------------------------------------------------------------
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C> <C> <C>
2003 .............................. $ -- $ -- $ -- $1,035,267 $ -- $ --
2006 .............................. 5,888,540 21,232,197 -- -- 2,543,971 24,460,805
2007 .............................. -- 46,658,065 867,232 5,093,383 1,878,044 27,181,209
----------------------------------------------------------------------------------------------
$ 5,888,540 $67,890,262 $ 867,232 $6,128,650 $ 4,422,015 $51,642,014
==============================================================================================
</TABLE>
195
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At December 31, 1999, the following funds had deferred capital losses and/or
deferred currency losses occurring subsequent to October 31, 1999. For tax
purposes, such losses will be reflected in the year ending December 31, 2000.
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL
COMMUNICATIONS HEALTH CARE FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$2,111,384 $165,657 $5,404,088 $799,463
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE
CAP GROWTH FRANKLIN REAL FRANKLIN SMALL FRANKLIN U.S. FRANKLIN VALUE
SECURITIES FUND ESTATE FUND CAP FUND GOVERNMENT FUND SECURITIES FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$65,023 $4,078,609 $103 $1,160,146 $27,329
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON TEMPLETON
ZERO COUPON DEVELOPING MARKETS GLOBAL ASSET
FUND - 2005 EQUITY FUND ALLOCATION FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
$20,685 $1,522,503 $989,065
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON INTERNATIONAL
GLOBAL INCOME INTERNATIONAL SMALLER
SECURITIES FUND EQUITY FUND COMPANIES FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
$1,407,836 $1,004,292 $115,743
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, and passive foreign investment company shares.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales, foreign currency
transactions, mortgage dollar rolls, and passive foreign investment company
shares.
At December 31, 1999, the net unrealized appreciation (depreciation) based on
the cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ........................ $ 668,413,801 $ 9,983,079 $ 837,266,947 $ 370,407,419 $ 805,870,987
====================================================================================
Unrealized appreciation .................... $ 313,538,706 $ 2,207,409 $ 190,308,475 $ 4,887,920 $ 68,757,518
Unrealized depreciation .................... (15,668,603) (708,065) (62,236,786) (66,643,693) (109,152,573)
------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) . $ 297,870,103 $ 1,499,344 $ 128,071,689 $ (61,755,773) $ (40,395,055)
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE FRANKLIN NATURAL
CAP GROWTH RESOURCES FRANKLIN REAL FRANKLIN RISING FRANKLIN SMALL
SECURITIES FUND SECURITIES FUND ESTATE FUND DIVIDENDS FUND CAP FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ........................ $ 296,621,987 $ 42,077,656 $ 168,965,027 $ 406,330,429 $ 270,173,246
====================================================================================
Unrealized appreciation .................... $ 137,194,930 $ 6,719,016 $ 15,914,488 $ 102,809,592 $ 260,048,654
Unrealized depreciation .................... (24,166,986) (5,796,305) (25,266,874) (61,451,328) (38,042,303)
------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) . $ 113,027,944 $ 922,711 $ (9,352,386) $ 41,358,264 $ 222,006,351
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
FRANKLIN U.S. FRANKLIN VALUE ZERO COUPON ZERO COUPON ZERO COUPON
GOVERNMENT FUND SECURITIES FUND FUND - 2000 FUND - 2005 FUND - 2010
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ......................... $ 530,457,451 $ 12,659,039 $ 69,904,479 $ 63,480,525 $ 62,689,444
===================================================================================
Unrealized appreciation ..................... $ 5,012,097 $ 1,443,892 $ 1,148,429 $ 3,499,491 $ 4,544,862
Unrealized depreciation ..................... (22,045,994) (1,583,324) (4,220) (896,948) (801,964)
-----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) .. $ (17,033,897) $ (139,432) $ 1,144,209 $ 2,602,543 $ 3,742,898
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
DEVELOPING TEMPLETON TEMPLETON
MUTUAL DISCOVERY MUTUAL SHARES MARKETS GLOBAL ASSET GLOBAL
SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND GROWTH FUND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost .................. $ 167,568,589 $ 399,801,882 $ 148,899,740 $ 59,141,054 $ 618,675,494
=========================================================================================
Unrealized appreciation .............. $ 39,138,423 $ 70,275,572 $ 54,120,646 $ 9,010,581 $ 154,202,623
Unrealized depreciation .............. (9,006,162) (22,750,065) (15,104,837) (6,815,090) (60,689,015)
-----------------------------------------------------------------------------------------
Net unrealized appreciation .......... $ 30,132,261 $ 47,525,507 $ 39,015,809 $ 2,195,491 $ 93,513,608
=========================================================================================
</TABLE>
196
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost .............................. $ 95,009,731 $ 631,466,875 $ 22,596,326 $ 106,903,704
==========================================================================
Unrealized appreciation .......................... $ 1,079,119 $ 207,364,579 $ 5,930,679 $ 17,141,287
Unrealized depreciation .......................... (6,408,047) (57,698,766) (2,988,325) (31,471,540)
--------------------------------------------------------------------------
Net unrealized appreciation (depreciation) ....... $ (5,328,928) $ 149,665,813 $ 2,942,354 $ (14,330,253)
==========================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............................. $ 752,683,868 $21,629,912 $432,685,375 $ 83,262,259 $112,780,907
Sales ................................. $1,093,589,415 $17,527,160 $736,112,176 $171,312,742 $418,601,155
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE FRANKLIN NATURAL
CAP GROWTH RESOURCES FRANKLIN REAL FRANKLIN RISING FRANKLIN SMALL
SECURITIES FUND SECURITIES FUND ESTATE FUND DIVIDENDS FUND CAP FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............................. $228,846,076 $23,024,294 $ 21,466,517 $ 30,770,030 $122,071,236
Sales ................................. $121,643,551 $35,695,966 $114,760,248 $255,295,565 $192,579,951
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
FRANKLIN U.S. FRANKLIN VALUE ZERO COUPON ZERO COUPON ZERO COUPON
GOVERNMENT FUND SECURITIES FUND FUND - 2000 FUND - 2005 FUND - 2010
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............................. $ 47,441,883 $10,341,416 $ 8,326,710 $11,925,345 $15,493,910
Sales ................................. $208,085,728 $ 6,082,421 $36,297,810 $25,939,091 $32,795,648
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
DEVELOPING TEMPLETON TEMPLETON
MUTUAL DISCOVERY MUTUAL SHARES MARKETS GLOBAL ASSET GLOBAL
SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND GROWTH FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............................. $184,687,953 $320,934,150 $ 53,185,619 $23,733,351 $314,057,492
Sales ................................. $219,375,099 $351,652,090 $100,367,019 $42,897,139 $458,734,579
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases .................................................. $ 91,652,922 $256,702,244 $3,623,134 $12,174,908
Sales ...................................................... $133,666,738 $551,033,216 $7,738,628 $53,179,778
</TABLE>
Transactions in call options written during the year ended December 31, 1999
were as follows:
MUTUAL DISCOVERY SECURITIES FUND
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------------
<S> <C> <C>
Options outstanding at December 31, 1998 ...... 9 $ 1,346
Options written ............................... 14 5,776
Options expired ............................... (23) (7,122)
-------------------------
Options outstanding at December 31, 1999 ...... -- --
=========================
</TABLE>
MUTUAL SHARES SECURITIES FUND
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
-------------------------
<S> <C> <C>
Options outstanding at December 31, 1998 ...... 12 $ 1,795
Options written ............................... 31 12,681
Options expired ............................... (43) (14,476)
-------------------------
Options outstanding at December 31, 1999 ...... -- --
=========================
</TABLE>
197
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Each of the funds listed below has been a party to financial instruments with
off-balance-sheet risk, primarily forward exchange contracts, in order to
minimize the impact on the funds 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 on the
Statements 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 funds' 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. At December
31, 1999, certain funds have outstanding forward exchange contracts for the sale
or purchase of currencies as set out below. The contracts are reported in the
financial statements at each 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.
MUTUAL DISCOVERY SECURITIES FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR DATE GAINS (LOSSES)
----------------------------------------------------
<S> <C> <C> <C>
200,000 New Zealand Dollars ................ U.S. $ 104,200 1/18/00 U.S. $ 337
2,875,000 British Pounds ..................... 4,623,765 1/20/00 23,000
109,060,257 Japanese Yen ....................... 1,077,646 3/24/00 4,312
472,157 British Pounds ..................... 762,156 5/22/00 759
----------- ----------
U.S. $ 6,567,767 U.S. $ 28,408
----------- ----------
CONTRACTS TO SELL
- -----------------------------------------------------
9,535,672 European Unit ...................... U.S. $10,085,061 1/19/00 U.S. $ 470,541
35,271,263 Swedish Krona ...................... 4,370,665 1/19/00 218,086
821,950 British Pounds ..................... 1,344,277 1/20/00 15,787
36,779,162 Swedish Krona ...................... 4,441,784 2/17/00 103,069
8,847,469 Swiss Francs ....................... 5,718,929 3/10/00 117,599
709,165 European Unit ...................... 736,933 3/10/00 19,222
993,960 Singapore Dollars .................. 600,000 3/14/00 186
22,472,356 Swedish Krona ...................... 2,664,211 3/17/00 7,984
3,300,000 British Pounds ..................... 5,425,450 3/24/00 92,065
31,920,000 Japanese Yen ....................... 319,968 3/24/00 3,298
21,319,871 European Unit ...................... 22,660,357 4/12/00 1,032,914
2,122,302 British Pounds ..................... 3,436,644 5/22/00 7,411
6,957,425 European Unit ...................... 7,125,877 5/30/00 44,173
42,500,000 Swedish Krona ...................... 5,055,912 6/15/00 4,059
1,026,119 European Unit ...................... 1,053,509 6/19/00 7,634
----------- ----------
U.S. $75,039,577 $2,144,028
----------- ----------
Net unrealized gain on offsetting forward
exchange contracts ............................ $ 20,055
----------
Unrealized gain on forward exchange contracts . U.S. $2,192,491
----------
CONTRACTS TO BUY
- -----------------------------------------------------
600,000 British Pounds ..................... U.S. $ 970,920 1/20/00 U.S. $ (1,160)
543,983 British Pounds ..................... 879,557 3/24/00 (384)
48,508,687 Japanese Yen ....................... 482,768 3/24/00 (1,526)
1,118,891 British Pounds ..................... 1,814,509 5/22/00 (6,596)
----------- ----------
U.S. $ 4,147,754 U.S. $ (9,666)
----------- ----------
</TABLE>
198
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
MUTUAL DISCOVERY SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE GAINS (LOSSES)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,477,014 New Zealand Dollars ............... U.S. $ 768,579 1/18/00 U.S. $ (3,435)
8,311,977 British Pounds .................... 13,053,857 1/20/00 (380,510)
5,392,306 Canadian Dollars .................. 3,668,483 1/31/00 (63,694)
129,056 British Pounds .................... 207,148 2/17/00 (1,443)
2,662,590 Singapore Dollars ................. 1,600,084 3/14/00 (6,680)
591,655,229 Japanese Yen ...................... 5,795,119 3/24/00 (74,535)
206,600 British Pounds .................... 332,760 5/22/00 (1,066)
2,112,775 Swedish Krona ..................... 250,000 6/15/00 (1,140)
2,541,050 European Unit ..................... 2,584,930 6/19/00 (5,166)
----------- ----------
U.S. $28,260,960 U.S. $ (537,669)
----------- ----------
CONTRACTS TO BUY
- -------------------------------------------------------
528,932 European Unit ..................... SEK 4,581,500 1/19/00 U.S. $ (6,087)
----------- ----------
Unrealized loss on forward exchange contracts .. (553,422)
----------
Net unrealized gain on forward exchange contracts U.S. $1,639,069
==========
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND
IN UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR SETTLEMENT DATE GAINS (LOSSES)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 British Pounds .................... U.S. $ 801,235 1/20/00 U.S. $ 6,898
400,000 Canadian Dollars .................. 275,473 1/31/00 1,379
321,344 Swiss Francs ...................... 202,805 3/10/00 638
31,144,875 Japanese Yen ...................... 306,770 3/24/00 2,210
252,546 British Pounds .................... 406,389 5/22/00 1,676
----------- ----------
U.S. $ 1,992,672 U.S. $ 12,801
----------- ----------
CONTRACTS TO SELL
- -------------------------------------------------------
14,663,910 European Unit ..................... U.S. $15,467,692 1/19/00 U.S. $ 682,528
19,759,585 Swedish Krona ..................... 2,448,524 1/19/00 122,176
98,706 British Pounds .................... 160,841 2/17/00 1,305
16,550,500 Swedish Krona ..................... 2,012,364 2/17/00 59,956
1,100,000 European Unit ..................... 1,178,911 2/29/00 66,451
5,976,665 Swiss Francs ...................... 3,863,265 3/10/00 79,441
442,057 European Unit ..................... 458,091 3/10/00 10,708
31,117,386 Swedish Krona ..................... 3,689,123 3/17/00 11,055
1,200,000 British Pounds .................... 1,965,000 3/24/00 25,587
11,262,369 European Unit ..................... 11,963,405 4/12/00 538,559
1,858,407 British Pounds .................... 3,009,318 5/22/00 6,490
4,123,913 European Unit ..................... 4,228,944 5/30/00 31,366
58,500,000 Swedish Krona ..................... 6,959,315 6/15/00 5,587
684,044 European Unit ..................... 700,910 6/19/00 3,663
----------- ----------
U.S. $58,105,703 U.S. $1,644,872
----------- ----------
Unrealized gain on forward exchange contracts . U.S. $1,657,673
----------
CONTRACTS TO BUY
- -------------------------------------------------------
697,728 Swiss Francs ...................... U.S. $ 443,297 3/10/00 U.S. $ (1,566)
865,041 British Pounds .................... 1,422,477 5/22/00 (24,737)
----------- ----------
U.S. $ 1,865,774 U.S. $ (26,303)
----------- ----------
</TABLE>
199
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
MUTUAL SHARES SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE GAINS (LOSSES)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
117,327 British Pounds ....................... U.S. $ 189,131 1/18/00 U.S. $ (499)
8,488,490 British Pounds ....................... 13,336,936 1/20/00 (382,720)
4,522,798 Canadian Dollars ..................... 3,085,637 1/31/00 (44,728)
216,272 British Pounds ....................... 347,457 2/17/00 (2,100)
240,189 European Unit ........................ 243,072 3/10/00 (12)
78,050,315 Japanese Yen ......................... 764,194 3/24/00 (10,123)
111,488 British Pounds ....................... 179,562 5/22/00 (581)
2,000,000 European Unit ........................ 2,033,600 6/19/00 (5,003)
----------- ----------
U.S. $20,179,589 U.S. $ (445,766)
----------- ----------
CONTRACTS TO BUY
- -------------------------------------------------------
528,932 European Unit ........................ SEK 4,581,500 1/19/00 U.S. $ (6,087)
----------
Unrealized loss on forward exchange contracts .... $ (478,156)
----------
Net unrealized gain on forward exchange contracts U.S. $1,179,517
==========
</TABLE>
TEMPLETON GLOBAL ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
IN NET UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE LOSS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
87,495,000 Japanese Yen .......... U.S. $ 832,534 3/14/00 U.S. $ (34,062)
==========
</TABLE>
TEMPLETON GLOBAL INCOME SECURITIES FUND
<TABLE>
<CAPTION>
IN NET UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE LOSS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
436,264,000 Japanese Yen .......... U.S. $ 4,151,194 3/14/00 U.S. $ (169,791)
==========
</TABLE>
7. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Income Fund and the Franklin Income Securities Fund have 96.1%
and 43.1%, respectively, of their portfolios invested in lower rated and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At December 31, 1999, the
Franklin High Income Fund, the Franklin Income Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, and the Templeton
Global Asset Allocation Fund, held defaulted securities with a value aggregating
$5,736,500, $475,000, $5,057,094, $16,666,079, and $238,625, representing 1.8%,
.1%, 2.5%, 3.7%, and .4%, respectively, of each fund's net assets. For
information as to specific securities, see the accompanying Statement of
Investments.
For financial reporting purposes, the funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
The following funds have investments in excess of 10% of their total net assets
in the following:
Franklin High Income Fund - Consumer Services and Telecommunications
industries.
Franklin Income Securities Fund - Utilities industry.
Templeton Global Income Securities Fund - Germany and United Kingdom.
Such concentration may subject each fund more significantly to economic changes
occurring within these countries or industries.
200
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
8. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at December 31,1999 are as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ ACQUISITION
SHARES ISSUER DATE COST VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FRANKLIN HIGH INCOME FUND
$5,000,000 ICO Global Communications Holding Ltd., 15.00%, 8/01/05
(.7% of Net Assets) ................................. 7/31/98 $5,000,000 $2,300,000
MUTUAL DISCOVERY SECURITIES FUND
13,770 Security Capital European Realty (.1% of Net Assets) .. 4/08/98 $ 275,400 $ 198,391
MUTUAL SHARES SECURITIES FUND
27,030 Security Capital European Realty (.1% of Net Assets) .. 4/08/98 $ 540,600 $ 389,435
</TABLE>
9. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies", at December 31, 1999
were as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF
HELD AT SHARES
BEGINNING GROSS GROSS HELD VALUE AT DIVIDEND CAPITAL
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME GAINS (LOSSES)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN REAL ESTATE FUND
Candlewood Hotel Co. Inc. ......... 650,000 -- (300,000) 350,000 * $ -- $(1,793,962)
FRANKLIN RISING DIVIDENDS FUND
West Pharmaceutical Services Inc. . 784,300 -- (57,500) 726,800 * $369,357 $ 554,118
</TABLE>
*As of December 31, 1999, no longer an affiliate.
10. LENDING OF PORTFOLIO SECURITIES
The Franklin Small Cap Fund loans securities to certain brokers for which it
receives cash collateral against the loaned securities in an amount equal to at
least 102% of the market value of the loaned securities. Net interest income
from the investment of the cash collateral received was $172,296 for the year
ended December 31, 1999. At December 31, 1999, there were no securities on loan.
11. CREDIT FACILITY
The following funds, along with certain other Franklin Templeton Funds, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency 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 Trust had not utilized this credit facility.
Franklin Global Communications Securities Fund
Franklin Global Health Care Securities Fund
Franklin Growth and Income Fund
Franklin High Income Fund
Franklin Income Securities Fund
Franklin Large Cap Growth Securities Fund
Franklin Natural Resources Securities Fund
Franklin Real Estate Fund
Franklin Rising Dividends Fund
Franklin Small Cap Fund
Franklin Value Securities Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Developing Markets Equity Fund
Templeton Global Asset Allocation Fund
Templeton Global Growth Fund
Templeton Global Income Securities Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
201
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
12. OTHER CONSIDERATIONS
Advisers, as the Franklin High Income Fund's Manager, may serve as a member of
various bondholder's steering committees, representing bondholder's interests in
certain corporate restructuring negotiations or on creditors committees.
Currently, the Manager serves on the Official Committee of Unsecured Creditors
of International Wireless Communications Holdings Inc. As a result of this
involvement, Advisers may be in possession of certain material non-public
information. The fund's Manager has not nor does it intend to sell any of its
holdings in these securities while in possession of such information.
13. SUBSEQUENT EVENT
On February 8, 2000, Templeton Variable Products Series Fund (TVP) shareholders
approved a proposal to merge the funds of the TVP Trust into similar
corresponding funds of the Franklin Templeton Variable Insurance Products Trust.
202
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements 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 each of the funds constituting the
Franklin Templeton Variable Insurance Products Trust, (hereafter referred to as
the "Funds") at December 31, 1999, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, 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
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with 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
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 2, 2000 except for Note 13, as to which the date is February 8, 2000.
203
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended December 31, 1999.
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN FRANKLIN LARGE
COMMUNICATIONS GROWTH AND FRANKLIN INCOME CAP GROWTH FRANKLIN REAL FRANKLIN RISING FRANKLIN SMALL
SECURITIES FUND INCOME FUND SECURITIES FUND SECURITIES FUND ESTATE FUND DIVIDENDS FUND CAP FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$67,908,917 $90,915,588 $31,790,906 $15,017,938 $5,942,659 $61,087,938 $16,776,954
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN TEMPLETON
ZERO COUPON ZERO COUPON ZERO COUPON MUTUAL SHARES TEMPLETON GLOBAL INTERNATIONAL
FUND - 2000 FUND - 2005 FUND - 2010 SECURITIES FUND GROWTH FUND EQUITY FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$654,496 $1,597,637 $928,805 $10,186,671 $58,491,916 $176,558,548
</TABLE>
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate
the following percentage amounts of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended
December 31, 1999.
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN FRANKLIN LARGE NATURAL
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME CAP GROWTH RESOURCES
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND SECURITIES FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
35.26% 100.00% 64.64% 0.10% 23.26% 100% 53.78%
</TABLE>
<TABLE>
<CAPTION>
MUTUAL TEMPLETON
FRANKLIN RISING FRANKLIN SMALL FRANKLIN VALUE DISCOVERY MUTUAL SHARES GLOBAL ASSET TEMPLETON GLOBAL
DIVIDENDS FUND CAP FUND SECURITIES FUND SECURITIES FUND SECURITIES FUND ALLOCATION FUND GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
66.31% 26.48% 100.00% 12.07% 35.83% 3.12% 10.92%
</TABLE>
<PAGE>
Dear Contract Owner:
It is a pleasure to bring you the 1999 annual report for Franklin(R)
Templeton(R) Valuemark(R) Income Plus (VIP), a variable payout annuity, and the
Franklin Templeton Variable Insurance Products Trust for the period ended
December 31, 1999.
In the accompanying report from the Franklin Templeton portfolio managers, you
will find a summary covering each portfolio's performance as well as global
market conditions for the 12 months under review. It is important to remember
that financial markets fluctuate daily, and past investment conditions and
results are not predictive of future trends.
We look to the future with confidence and believe Franklin Templeton VIP will
continue to be an appropriate vehicle for investors seeking to meet their
long-term retirement and other financial and insurance needs. As always, we
thank you for your continued support and look forward to serving you in the
years to come.
Sincerely,
/s/ Lowell C. Anderson
Lowell C. Anderson
Chairman of the Board
Allianz Life Insurance Company of North America
VIP A99 02/00
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE [FRANKLIN TEMPLETON
PRODUCTS TRUST ANNUAL REPORT CELEBRATING OVER
TABLE OF CONTENTS 50 YEARS GRAPHIC]
<TABLE>
<S> <C>
LETTER TO CONTRACT OWNERS ................................................. 2
A WORD ABOUT RISK ......................................................... 5
PORTFOLIO GOALS AND PRIMARY INVESTMENTS ................................... 6
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Franklin Global Health Care Securities Fund ............................. 9
Franklin Large Cap Growth Securities Fund ............................... 11
Franklin Natural Resources Securities Fund .............................. 13
Franklin Small Cap Fund ................................................. 14
Mutual Discovery Securities Fund ........................................ 16
Templeton Developing Markets Equity Fund ................................ 18
Templeton Global Growth Fund ............................................ 20
Templeton International Equity Fund ..................................... 23
Templeton International Smaller Companies Fund .......................... 26
Templeton Pacific Growth Fund ........................................... 27
Portfolios Seeking Growth and Income
Franklin Global Communications Securities Fund .......................... 29
Franklin Growth and Income Fund ......................................... 32
Franklin Income Securities Fund ......................................... 35
Franklin Real Estate Fund ............................................... 37
Franklin Rising Dividends Securities Fund ............................... 39
Franklin Value Securities Fund .......................................... 42
Mutual Shares Securities Fund ........................................... 43
Templeton Global Asset Allocation Fund .................................. 45
Portfolios Seeking Income
Franklin High Income Fund ............................................... 48
Franklin U.S. Government Fund ........................................... 50
Franklin Zero Coupon Funds .............................................. 51
Templeton Global Income Securities Fund ................................. 53
Portfolio Seeking Capital Preservation and Income
Franklin Money Market Fund .............................................. 55
IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ............................. 57
REPORT OF SPECIAL MEETINGS OF SHAREHOLDERS ................................ 58
INDEX DEFINITIONS ......................................................... 63
FINANCIAL HIGHLIGHTS & STATEMENT OF INVESTMENTS ........................... 70
FINANCIAL STATEMENTS ...................................................... 158
NOTES TO FINANCIAL STATEMENTS ............................................. 178
INDEPENDENT AUDITORS' REPORT .............................................. 195
TAX DESIGNATION ........................................................... 196
</TABLE>
Thank you for investing with Franklin Templeton Variable Insurance Products
Trust (Franklin Templeton VIP Trust). We encourage our investors to maintain a
long-term perspective, and remember that all securities markets move both up and
down, as do portfolio unit prices. We appreciate your past support and look
forward to serving your investment needs in the years ahead.
<PAGE>
LETTER TO CONTRACT OWNERS
Dear Contract Owners:
The year under review saw the world economy's resurgence, when many emerging
countries shook off many of the problems that confronted them for a better part
of the prior two years, and most developed countries' economies, including
long-floundering Japan, enjoyed stronger growth. The U.S. economy, benefiting
from low domestic inflation and insatiable consumer demand, continued its
sustained expansion for a ninth consecutive year. This type of environment is
generally favorable for equity markets, and many showed strong performances for
the period. However, such global growth was far less friendly to the
fixed-income markets, which endured one of the most difficult years on record,
as interest rates rose in response to the robust world economy.
Asian, European and Latin American emerging countries began to see the benefits
of their painful, economic restructurings induced by the International Monetary
Fund (IMF) during the past two years. In Asia, those countries that most
enthusiastically embraced reforms, Thailand and South Korea, witnessed solid
economic improvements and substantial stock market gains, with the Korean KOSPI
index rising 97.7% and the Thai SET Index gaining 36.3% for the 12-month period
ended December 31, 1999. However, almost all economies were recovering and their
market returns were strong, including those that suffered the least in the
1997-98 meltdown, Taiwan and Singapore, and those that bore the brunt of it,
most notably Indonesia.
Russia was a major beneficiary of better times in 1999. As a leading
oil-exporting country, with the world's seventh largest oil reserves, Russia's
fiscal condition quickly improved when oil prices increased 111.7% during the
period to $25.60 on December 31, 1999. In addition, the country once again found
foreign investors' favor in 1999, only a few months after its debt default threw
the world financial system into a state of panic. For the year, the Moscow Times
Index was up a surprising 234.4%.
In Latin America, Brazil was once again the center of attention, after its
ill-managed currency devaluation in January 1999. Contrary to most predictions,
the devaluation did not send Brazil into a deep recession as the government was
able to keep inflation below 10%, stabilize the currency and meet strict
IMF-mandated budget guidelines. Investors reacted positively, propelling the
Bovespa to a 76.6% yearly gain.
2
<PAGE>
Early in 1999, most of Europe slipped into an economic slowdown, surprising many
economists who had expected that the euro's launch on January 1 would lead to
stronger growth. However, toward the end of the period, many European
industrialized countries, most notably France, showed signs of returning to a
stronger footing. Greater labor flexibility, more confident consumers and a
flurry of merger and acquisition activity all suggest continued, faster growth
in the coming year. For the year, the France CAC was up 33.2%, leading the
Morgan Stanley Capital International (MSCI(R)) Europe Index to a 16.2% gain.
Perhaps most inspiring during the period were Japan's tentative, yet concrete,
steps to pull itself out of its worst recession since the 1940s. Facing enormous
pressures within and from the global community, Japan enacted measures designed
to open its economy and reform the financial industry to place the sector back
on solid ground. At the same time, many Japanese companies started to implement
restructuring efforts, shedding non-core businesses and ending the practice of
lifetime employment. For the one-year period, the Nikkei Index posted a 54.9%
return.
Domestically, the U.S. economy continued to surge ahead, with the fourth quarter
gross domestic product growing an annualized 5.8% despite three 0.25%
interest-rate increases by the Federal Reserve Board to slow the economy. This
environment was seemingly ideal for stocks, and the U.S. equity markets posted
another year of significant gains, with the Dow Jones(R) Industrial Average,
Nasdaq and Standard & Poor's 500(R) (S&P 500(R)) Indexes increasing 27.2%, 85.9%
and 21.0%, respectively. However, these returns were exceedingly deceptive as
fully 62.2% of stocks on the New York Stock Exchange and 37.8% on the Nasdaq
were lower at the end of 1999 than at the beginning. Nasdaq's brawny gains and
the S&P 500's much smaller increase were almost entirely due to the performance
of technology and Internet-related securities.
Although the backdrop was ideal for stocks, it was difficult for most
fixed-income investments. Strong growth, increasing inflation fears and tough
comparisons to 1998 (when many central banks pushed interest rates to multi-year
lows) meant that rates had nowhere to go but up. Since interest rates and bond
prices move in opposite directions, prices for most fixed-income securities
suffered during the period. The 30-year Treasury bond yield rose from 5.10% on
January 1, 1999, to 6.48% at the end of the period, while the price fell by
19.9% over the same 12-month period. Foreign government bonds followed a similar
path, with the J.P. Morgan Global Government Bond Index forfeiting 5.1% for the
year.
It is important to remember, of course, that securities markets always have
been, and always will be, subject to volatility. No one can predict exactly how
they will perform in the future. For this reason, we urge you to exercise
patience and focus not on day-to-day market movements, but on your long-term
investment goals. As always, we appreciate your support, welcome your questions
and comments, and look forward to serving your investment needs in the years
ahead.
Sincerely,
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
Trustee and Vice President
Franklin Templeton Variable Insurance Products Trust
4
<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, historically have outperformed other asset
classes over the long term, but tend to rise and fall more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.
Bonds and other debt obligations are affected by the creditworthiness of their
issuers, and changes in interest rates, with prices declining as interest rates
increase. High yield, lower-rated ("junk") bonds generally have greater price
swings and higher default risks than investment grade bonds. An investment in
Franklin Money Market Fund is neither insured nor guaranteed by the U.S.
government. The portfolio attempts to maintain a stable net asset value of $1.00
per share, but there can be no assurance that it will.
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 geographical sectors or use of complex
securities, are discussed in the Franklin Templeton Variable Insurance Products
Trust (formerly, Franklin Valuemark Funds) prospectus. Your investment
representative can help you determine which portfolios may be right for you.
5
<PAGE>
PORTFOLIO GOALS AND PRIMARY INVESTMENTS
The portfolio descriptions are provided for your convenience. For more complete
information, including portfolio policies and risks, please refer to your funds'
prospectus or contact your investment representative.
PORTFOLIOS SEEKING CAPITAL GROWTH
GLOBAL GROWTH
- --------------------------------------------------------------------------------
FRANKLIN GLOBAL HEALTH CARE Seeks capital appreciation. The portfolio
SECURITIES FUND concentrates its investments in U.S. and
foreign equity securities issued by large
and small capitalization health care
companies, including pharmaceutical,
biotechnology, medical and health
services, and medical supply companies.
- --------------------------------------------------------------------------------
FRANKLIN NATURAL RESOURCES Seeks capital appreciation, with current
SECURITIES FUND income as a secondary goal. The portfolio
concentrates its investments in U.S. and
foreign equity securities of companies,
including those in emerging markets, that
own, produce, refine, process or market
natural resources, as well as those that
provide support services for natural
resources companies.
- --------------------------------------------------------------------------------
MUTUAL DISCOVERY SECURITIES FUND Seeks capital appreciation. Using a
value-driven approach, the portfolio
invests primarily in U.S. and foreign
equity securities. Investments include
securities of small capitalization
companies, undervalued stocks,
reorganizing companies and distressed
companies.
- --------------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS Seeks long-term capital appreciation. The
EQUITY FUND portfolio invests primarily in emerging
markets equity securities.
- --------------------------------------------------------------------------------
TEMPLETON GLOBAL GROWTH FUND Seeks long-term capital growth. The
portfolio invests primarily in equity
securities of companies of any nation,
including the U.S. and emerging markets.
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL EQUITY FUND Seeks long-term capital growth. The
portfolio invests primarily in equity
securities of companies with primary
operations outside the U.S., including
emerging markets.
- --------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL SMALLER Seeks long-term capital appreciation. The
COMPANIES FUND portfolio invests primarily in equity
securities of smaller companies located
outside the U.S., including emerging
markets.
- --------------------------------------------------------------------------------
TEMPLETON PACIFIC GROWTH FUND Seeks long-term capital growth. The
portfolio invests primarily in equity
securities of companies with primary
operations in Pacific Rim countries, most
of which have emerging markets.
- --------------------------------------------------------------------------------
6
<PAGE>
PORTFOLIOS SEEKING CAPITAL GROWTH (CONT.)
DOMESTIC GROWTH
- --------------------------------------------------------------------------------
FRANKLIN LARGE CAP GROWTH SECURITIES Seeks capital appreciation. The portfolio
FUND (FORMERLY, CAPITAL GROWTH FUND) invests primarily in U.S. equity
securities of large- or medium-cap
companies, with significant positions
expected in the technology (including
computers, telecommunications and
electronics), health care and finance
industries.
- --------------------------------------------------------------------------------
FRANKLIN SMALL CAP FUND Seeks long-term capital growth. The
portfolio invests primarily in equity
securities of U.S. small capitalization
growth companies. The portfolio may also
invest a small portion in foreign
securities.
- --------------------------------------------------------------------------------
PORTFOLIOS SEEKING GROWTH AND INCOME
- --------------------------------------------------------------------------------
FRANKLIN GLOBAL COMMUNICATIONS Seeks both capital appreciation and
SECURITIES FUND current income. The portfolio invests
(FORMERLY, GLOBAL UTILITIES primarily in equity securities of
SECURITIES FUND) companies that are primarily engaged in
providing communications services and
communications equipment in any nation,
including the U.S. and emerging markets.
- --------------------------------------------------------------------------------
FRANKLIN GROWTH AND INCOME FUND Seeks capital appreciation, with current
income as a secondary goal. The portfolio
invests primarily in common stocks
offering above-market current dividend
yields, and may invest a smaller portion
in foreign securities, including emerging
markets.
- --------------------------------------------------------------------------------
FRANKLIN INCOME SECURITIES FUND Seeks to maximize income while maintaining
prospects for capital appreciation. The
portfolio invests in debt and equity
securities, including lower-rated "junk
bonds." May also invest in foreign
securities, including emerging markets.
- --------------------------------------------------------------------------------
FRANKLIN REAL ESTATE FUND Seeks capital appreciation, with current
income as a secondary goal. The portfolio
concentrates its investments in equity
securities of companies, including small
capitalization companies, in the real
estate industry, primarily real estate
investment trusts (REITs).
- --------------------------------------------------------------------------------
FRANKLIN RISING DIVIDENDS SECURITIES Seeks long-term capital appreciation. The
FUND portfolio invests primarily in equity
securities of companies that have paid
consistently rising dividends over the
past ten years, including small
capitalization companies.
- --------------------------------------------------------------------------------
FRANKLIN VALUE SECURITIES FUND Seeks long-term total return. The
portfolio invests primarily in equity
securities of companies, including small
capitalization companies, which in the
portfolio manager's opinion, are selling
substantially below the underlying value
of their assets or private market value.
Such companies may include takeover
candidates, turnarounds and companies
emerging from bankruptcy. The portfolio
may also invest a small portion in foreign
securities.
- --------------------------------------------------------------------------------
7
<PAGE>
PORTFOLIOS SEEKING GROWTH AND INCOME (CONT.)
- --------------------------------------------------------------------------------
MUTUAL SHARES SECURITIES FUND Seeks capital appreciation, with income as
a secondary goal. Using a value-driven
approach, the portfolio invests primarily
in U.S. equity securities. Investments
include securities of small capitalization
companies, undervalued stocks,
reorganizing companies and distressed
companies. The portfolio may also invest
in foreign securities.
- --------------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET ALLOCATION Seeks high total return. The portfolio
FUND will invest in equity securities of
companies of any nation, debt securities
of companies and governments of any
nation, and in money market instruments.
The portfolio may invest to a lesser
extent in lower-rated "junk bonds."
- --------------------------------------------------------------------------------
PORTFOLIOS SEEKING INCOME
- --------------------------------------------------------------------------------
FRANKLIN HIGH INCOME FUND Seeks a high level of current income, with
capital appreciation as a secondary goal.
The portfolio invests in debt securities,
including lower-rated "junk bonds," and
dividend-paying common and preferred
stocks. The portfolio may also invest in
foreign securities, including emerging
markets.
- --------------------------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT FUND Seeks to earn income. The portfolio
invests exclusively in U.S. government
securities, primarily fixed and
variable-rate mortgage-backed securities.
- --------------------------------------------------------------------------------
THREE FRANKLIN ZERO COUPON FUNDS The three zero coupon bond portfolios seek
(MATURITY DATES: 2000, 2005, 2010) a high investment return consistent with
capital preservation. The portfolios
invest in dollar-denominated zero coupon
securities issued by the U.S. government,
its agencies and authorities. Each zero
coupon portfolio seeks to return a
reasonably assured target dollar amount,
predictable at the time of the investment,
on a specific date in the future. The
portfolios may not be appropriate for
those who intend to redeem units before
the maturity dates.
- --------------------------------------------------------------------------------
TEMPLETON GLOBAL INCOME SECURITIES Seeks high current income, with capital
FUND appreciation as a secondary goal. The
portfolio invests in debt securities of
governments and their political
subdivisions and agencies, supranational
organizations and companies of any nation,
including emerging markets. The portfolio
may also invest in lower-rated "junk
bonds."
- --------------------------------------------------------------------------------
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
- --------------------------------------------------------------------------------
FRANKLIN MONEY MARKET FUND Seeks high current income consistent with
capital preservation and liquidity. The
portfolio also tries to maintain a stable
share price of $1.00. The portfolio
invests in high-quality U.S.
dollar-denominated money market debt
instruments.
- --------------------------------------------------------------------------------
8
<PAGE>
PORTFOLIO SUMMARIES
As you read the following portfolio summaries, please remember the discussions
accurately reflect 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. Keep
in mind that market and economic conditions are changing constantly, which can
be expected to affect our strategies and the portfolios' compositions. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
PORTFOLIOS SEEKING CAPITAL GROWTH
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
During the year under review, most health care-related securities posted
negative returns, in an environment where the Standard & Poor's 500 (S&P 500)
Index returned 21.0%. We believe that the primary reasons for the health care
sector's underperformance related to exceptional growth in non-health care
sectors and concerns about a Medicare Prescription Drug benefit and its impact
on pharmaceutical prices. Since 1994, most large health care companies have
posted above average earnings growth as measured by overall S&P earnings growth.
However, in 1999, the strong U.S. economy boosted near-term earnings growth
rates for more economically sensitive businesses, thus making health care
relatively less attractive as an investment. In the long term, we believe the
health care industry can continue growing earnings strongly, and that once the
economy cools, such stocks will likely return to favor.
Our largest sector throughout the year was the large-cap pharmaceutical group,
however, our actual weighting underwent two shifts during the year. We reduced
our positions in April and May due to rising concerns about valuation.
Subsequently, the group fell under significant selling pressure apparently due
to several proposals for a prescription drug benefit for seniors enrolled in the
Medicare program. While the sector's profitability is certainly threatened by
proposed government price controls on drugs, we believe that increased access to
drugs will generate substantially greater volume for such companies and result
in improved health care for the senior population. In the fall, we increased our
weighting as the stocks were trading at attractive valuations, and we felt that
any negative impact from political issues already was incorporated in the stock
prices. Subsequently, the group rallied in October as the drug benefit proposals
faded from the political forefront.
TOP 10 HOLDINGS
Franklin Global Health Care Securities Fund 12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Inhale Therapeutic Systems Inc. 4.9%
Baxter International Inc. 4.5%
Abgenix Inc. 3.8%
Warner-Lambert Co. 3.8%
Eli Lilly & Co. 3.6%
Schering-Plough Corp. 3.4%
CIMA Labs Inc. 2.9%
Vertex Pharmaceuticals Inc. 2.8%
Shire Pharmaceuticals Group PLC 2.7%
American Home Products Corp. 2.7%
</TABLE>
You will find a complete listing of the portfolios' securities including the
number of shares and dollar value beginning on page 76 of this report.
9
<PAGE>
Although the group finished the year on a down note, we do believe that,
although volatile, 2000 may be a better year overall for pharmaceutical stocks.
In November 1999, American Home Products and Warner-Lambert Co. agreed to merge
operations, and Pfizer Inc. launched its own hostile bid for Warner-Lambert. We
feel that this is the beginning of a trend and anticipate additional mergers,
which should be positive for the group. Also, while we expect the Medicare
Prescription Drug Benefit to be a major issue in the 2000 presidential campaign,
we do not anticipate its actual implementation for at least two more years. At
the reporting period's close, 25.0% of the fund's total net assets were invested
in large-cap pharmaceutical stocks.
Although most sectors within health care did perform poorly, the year's bright
spot was the biotechnology sector. Many biotech companies are beginning to reap
the benefits of many years of leading-edge research through product releases and
the turn to profitability. These companies launched several major products in
1999 and many more advanced to late-stage trials, which are needed for
government approval. One of these positions was Inhale Therapeutic Systems Inc.,
which made up 4.9% of total net assets at the end of the period. This company
has developed an inhaled insulin product that allows diabetics to reduce the
number of injections they must receive. The product is moving through Phase III
trials and should be on the market within a couple of years. We also held
several large-cap biotechnology bellwethers such as Genentech Inc. and Amgen
Inc., whose stock prices rose more than 85% during the period. Looking forward,
we think that the biotechnology sector will continue to be a strong performer
for us.
Although we steadily reduced our weighting in health care services over the past
two years, a handful of specific company declines and a general contraction in
these stocks' valuations negatively impacted the portfolio during the 12 months
under review. Perhaps our largest disappointment was McKesson HBOC Inc., a
position we sold during the period. The company is the result of a merger
between the leading drug distributor McKesson and health care information
systems vendor HBO & Co. During their year-end audit process, the company
learned of certain accounting improprieties that had occurred in the HBO
operations. The fund also was negatively impacted by earnings disappointments at
Serologicals Corp., a specialty blood products manufacturer, and Pediatrix
Medical Group Inc., a leading operator of neonatal intensive care units. We
subsequently liquidated our position in Pediatrix.
Looking forward, we are excited about the prospects for health care companies in
the years to come. New product releases and increased merger and acquisition
activity, combined with positive demographics should allow many of these
companies to continue to grow. As always, we will adhere by our overriding goal
- -- to seize upon the investment opportunities that present themselves in the
health care sector in a timely and disciplined fashion. By following this
strategy, we feel that we can provide our shareholders with opportunities to
invest in many of today's newest and fastest growing health care companies.
10
<PAGE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Global Health Care Securities Fund - Class 1
$10,000 Investments (5/1/98 - 12/31/99)
<TABLE>
<CAPTION>
Global Health Care S&P 500
Securities Fund S&P Health Care
- Class 1 Composite Index
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 -4.40% $ 9,560 -1.72% $ 9,828 -1.93% $ 9,807
06/30/1998 5.33% $10,070 4.06% $10,227 7.31% $10,524
07/31/1998 -4.37% $ 9,630 -1.07% $10,118 0.53% $10,580
08/31/1998 -14.23% $ 8,260 -14.46% $ 8,655 -11.23% $ 9,392
09/30/1998 12.83% $ 9,320 6.41% $ 9,209 11.87% $10,506
10/31/1998 1.18% $ 9,430 8.13% $ 9,958 3.62% $10,887
11/30/1998 7.00% $10,090 6.06% $10,562 6.11% $11,552
12/31/1998 6.14% $10,710 5.76% $11,170 4.31% $12,050
01/31/1999 1.03% $10,820 4.18% $11,637 0.49% $12,109
02/28/1999 -11.46% $ 9,580 -3.11% $11,275 1.21% $12,255
03/31/1999 -1.46% $ 9,440 4.00% $11,726 2.67% $12,583
04/30/1999 -6.57% $ 8,820 3.87% $12,180 -6.22% $11,800
05/31/1999 -1.25% $ 8,710 -2.36% $11,892 -2.87% $11,461
06/30/1999 4.71% $ 9,120 5.55% $12,552 4.69% $11,999
07/31/1999 1.00% $ 9,211 -3.12% $12,161 -5.68% $11,317
08/31/1999 -2.61% $ 8,971 -0.50% $12,100 3.62% $11,727
09/30/1999 -8.27% $ 8,229 -2.74% $11,768 -7.86% $10,805
10/31/1999 2.19% $ 8,409 6.33% $12,513 12.05% $12,107
11/30/1999 7.15% $ 9,011 2.03% $12,767 0.36% $12,151
12/31/1999 9.23% $ 9,843 5.89% $13,519 -9.01% $11,056
</TABLE>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
(formerly, Capital Growth Fund)
During the 12 months under review, major U.S. equity market indexes posted
strong results for the fifth consecutive year. A further widening in the
disparity in the rates of investment return among the stock market's various
segments also characterized the reporting period. Large-capitalization and
technology-related shares performed far better than most small-cap stocks and
stocks from traditional non-technology related industries. 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 monetary policy easings and job-creating government policies, many
European economies also performed well, posting their greatest 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 $10.76 per barrel in 1998 to $25 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 5.10% at the beginning of the year under review, to 6.48% on
December 31, 1999. During the spring of 1999, global economic recovery
apparently 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.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -8.10%
Since Inception (5/1/98) -0.94%
</TABLE>
TOP 10 INDUSTRY BREAKDOWN
Franklin Large Cap Growth Securities Fund 12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Electronic Technology 24.5%
Telecommunications/Utilities 13.5%
Health Technology 12.1%
Technology Services 9.6%
Finance 6.2%
Retail Trade 4.9%
Industrial Services 4.2%
Transportation 3.7%
Consumer Non-Durables 2.9%
Commercial Services 2.7%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
11
<PAGE>
TOP 10 HOLDINGS
Franklin Large Cap Growth Securities Fund 12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
JDS Uniphase Corp. 4.3%
Electronic Technology
Cisco Systems Inc. 2.9%
Electronic Technology
Microsoft Corp. 2.3%
Technology Services
Wal-Mart Stores Inc. 2.0%
Retail Trade
Genentech Inc. 2.0%
Health Technology
Applied Materials Inc. 1.7%
Electronic Technology
Oracle Corp. 1.6%
Technology Services
Medtronic Inc. 1.6%
Health Technology
Automatic Data Processing Inc. 1.6%
Technology Services
Qwest Communications
International Inc. 1.6%
Utilities
</TABLE>
During the period under review, Franklin Large Cap Growth Securities Fund
benefited significantly from the electronic technology sector's strong
performance. JDS Uniphase Corp., a leading provider of laser-based fiber-optic
networking components, and the portfolio's largest position on December 31,
1999, appreciated dramatically, and our investments in EMC Corp., Oracle Corp.,
Xilinx Inc., Microsoft Corp., Cisco Systems Inc., Applied Materials Inc. and
Hewlett-Packard Co. also proved to be strong performers. Outside the electronic
technology area, several holdings appreciated more than 40% during 1999 -- AES
Corp., Amgen Inc., Enron Corp., Genentech Inc., KPNQwest NV, Wal-Mart Stores
Inc., Global Crossing Ltd., Vodafone Airtouch PLC, De Beers Consolidated Mines
AG, Expeditors International of Washington Inc., Air Express International
Corp., and Qwest Communications International Inc.
As in any year, some of the portfolio's investments performed below our
expectations. For example, our holdings in health technology industry leaders
such as Eli Lilly & Co., Abbott Laboratories, Schering-Plough Corp. and American
Home Products 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 companies should eventually resume their upward trend. Other
consumer-related companies, such as Mattel Inc., Albertson's Inc. and Hershey
Foods Corp., also provided disappointing results when they failed to meet
earnings expectations.
As we enter 2000, we believe the portfolio's holdings should continue to benefit
from our economy's 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 GPU Inc., Maytag Corp., Albertson's
and Waste Management Inc. represent our belief that positioning a portion of the
portfolio in stocks we feel 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 trying to purchase shares of outstanding growth
companies when opportune and holding them for the long term, as we seek to keep
portfolio turnover low and provide investors with consistent growth over time.
12
<PAGE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Large Cap Growth Securities Fund -- Class 1
$10,000 Investment (5/1/96 - 12/31/99)
<TABLE>
<CAPTION>
Large Cap Growth
Securities Fund -
Class 1 S&P 500
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
05/01/1996 $10,000 $10,000
05/31/1996 2.20% $10,220 2.58% $10,258
06/30/1996 -0.39% $10,180 0.38% $10,297
07/31/1996 -3.83% $ 9,790 -4.42% $ 9,842
08/31/1996 3.98% $10,180 2.11% $10,050
09/30/1996 7.17% $10,910 5.63% $10,615
10/31/1996 -0.27% $10,880 2.76% $10,908
11/30/1996 8.00% $11,750 7.56% $11,733
12/31/1996 -3.32% $11,360 -1.98% $11,501
01/31/1997 4.84% $11,910 6.25% $12,219
02/28/1997 -3.69% $11,470 0.78% $12,315
03/31/1997 -5.23% $10,870 -4.11% $11,809
04/30/1997 3.86% $11,290 5.97% $12,514
05/31/1997 8.68% $12,270 6.09% $13,276
06/30/1997 1.70% $12,479 4.48% $13,870
07/31/1997 6.50% $13,290 7.96% $14,974
08/31/1997 -2.49% $12,959 -5.60% $14,136
09/30/1997 6.03% $13,740 5.48% $14,911
10/31/1997 -4.66% $13,099 -3.34% $14,413
11/30/1997 1.68% $13,320 4.63% $15,080
12/31/1997 0.90% $13,440 1.72% $15,339
01/31/1998 -0.60% $13,360 1.11% $15,509
02/28/1998 7.65% $14,381 7.21% $16,628
03/31/1998 2.16% $14,692 5.12% $17,479
04/30/1998 2.04% $14,992 1.01% $17,656
05/31/1998 -3.21% $14,512 -1.72% $17,352
06/30/1998 3.93% $15,081 4.06% $18,056
07/31/1998 -2.13% $14,759 -1.07% $17,863
08/31/1998 -12.94% $12,849 -14.46% $15,280
09/30/1998 5.09% $13,503 6.41% $16,260
10/31/1998 7.74% $14,548 8.13% $17,582
11/30/1998 4.28% $15,172 6.06% $18,647
12/31/1998 6.56% $16,167 5.76% $19,721
01/31/1999 3.61% $16,751 4.18% $20,545
02/28/1999 -3.54% $16,158 -3.11% $19,906
03/31/1999 2.80% $16,610 4.00% $20,703
04/30/1999 3.63% $17,213 3.87% $21,504
05/31/1999 -1.23% $17,001 -2.36% $20,996
06/30/1999 6.80% $18,157 5.55% $22,162
07/31/1999 -1.74% $17,841 -3.12% $21,470
08/31/1999 -0.51% $17,750 -0.50% $21,363
09/30/1999 -2.39% $17,326 -2.74% $20,778
10/31/1999 6.18% $18,397 6.33% $22,093
11/30/1999 6.20% $19,538 2.03% $22,541
12/31/1999 8.94% $21,284 5.89% $23,869
</TABLE>
FRANKLIN NATURAL RESOURCES SECURITIES FUND
During the first half of the year under review, Franklin Natural Resources
Securities Fund benefited from signs of a continued Asian economic recovery and
interest rate cuts by European central banks. These events apparently bolstered
investors' enthusiasm about the global economy and preceded a partial recovery
in commodities and commodity-related companies' stock prices. However, such
stocks fell during the third and fourth quarters of 1999, providing a
disconnection between some companies' improving fundamentals (increasing cash
flow and earnings) and declining stock prices.
By combining top-down industry research, to determine the industries we believe
are the most compelling, with bottom-up stock specific analysis, we identified a
portfolio of companies that we felt were likely to outperform our benchmark. We
capitalized on the summer's seasonal correction to increase specific sector
weightings in the pulp and paper, oil and gas exploration and production (E&P)
and to a lesser extent oilfield services industries.
In the energy arena, the portfolio focused primarily on natural-gas related
securities. We felt these securities exhibited the best underlying fundamentals,
offering a better value for the risk compared with oil-related securities.
Although we were optimistic about crude oil prices, we felt there was greater
risk in forecasting future oil prices due to OPEC's historical inconsistency in
abiding by its oil-producing quotas.
We have maintained a large portion of the portfolio in energy-related
securities. Although this position negatively affected the portfolio, as
investors generally sold E&P companies' stocks in the fourth quarter, we remain
positive on the group for the intermediate term. Apache Corp. and Barrett
Resources Corp. were two of the portfolio's E&P stocks that we regard to be high
quality. Apache is a diversified E&P company with 50% of its production and
reserves in natural gas. Apache also has been able to capitalize on two
attractive acquisitions from Royal Dutch/Shell Group. Barrett
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +31.65%
3-Year +23.28%
Since Inception (5/1/96) +22.85%
</TABLE>
TOP 10 HOLDINGS
Franklin Natural Resources Securities Fund 12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Conoco Inc. 3.6%
Energy Minerals, U.S.
Transocean Sedco Forex Inc. 3.3%
Industrial Services, U.S.
Newfield Exploration Co. 3.2%
Energy Minerals, U.S.
Weatherford International Inc. 3.2%
Industrial Services, U.S.
Barrett Resources Corp. 3.1%
Energy Minerals, U.S.
ISPAT International NV 2.6%
Non-Energy Minerals,
Netherlands
Diamond Offshore Drilling Inc. 2.5%
Industrial Services, U.S.
Enron Corp. 2.5%
Utilities, U.S.
Tosco Corp. 2.4%
Energy Minerals, U.S.
Abitibi-Consolidated Inc. 2.4%
Process Industries, Canada
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
13
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +32.25%
5-Year -3.17%
10-Year +0.37%
Since Inception (1/24/89) +2.36%
</TABLE>
Resources is primarily a Rocky Mountain-focused exploration company based in
Wyoming, with approximately 90% of its reserves in natural gas.
We increased our weighting in pulp and paper stocks during the third quarter of
1999, with an emphasis on paper, pulp and newsprint producers. We found some
investment ideas that we believe are very compelling in this sector due to the
favorable pricing environment and company-imposed supply restraints.
Over the last several months, we have seen a rebound in the Asian economies that
were hurt in the severe, 1997 downturn of commodity prices. Partially because of
this, several economists are predicting the global gross domestic product growth
in 2000 and 2001 will be approximately 3.9% and 4.5%, respectively, higher than
in 1999.(1) We believe this rebound very likely will have a positive impact on
commodity prices. Even if the U.S. economy slows, we feel the natural resource
sectors will perform strongly given that Asian economies appear to be returning
to growth. Looking forward, we anticipate greater demand for commodities
combined with a smaller supply that should lead to moderately faster growth and
sustained levels of profitability for commodity-related industries.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Natural Resources Securities Fund -- Class 1
$10,000 Investment (1/1/90 - 12/31/99)
<TABLE>
<CAPTION>
Natural Resources S&P 500 FT/S&P Actuaries
Securities Fund - World: Energy
Class 1 50%/Basic
Industries 50%
Composite Index
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 3.94% $10,394 -6.71% $9,329 -3.20% $9,680
02/28/1990 -5.73% $9,799 1.29% $9,449 -2.44% $9,444
03/31/1990 -1.17% $9,685 2.65% $9,700 -5.91% $8,886
04/30/1990 -6.48% $9,057 -2.49% $9,458 -2.37% $8,675
05/31/1990 6.12% $9,611 9.75% $10,380 9.62% $9,510
06/30/1990 -4.75% $9,155 -0.67% $10,311 -1.81% $9,338
07/31/1990 5.78% $9,685 -0.32% $10,278 6.58% $9,952
08/31/1990 -2.86% $9,408 -9.04% $9,349 -6.70% $9,285
09/30/1990 -1.65% $9,253 -4.87% $8,893 -8.52% $8,494
10/31/1990 -9.15% $8,406 -0.43% $8,855 5.82% $8,988
11/30/1990 -2.52% $8,194 6.46% $9,427 -2.89% $8,729
12/31/1990 4.57% $8,569 2.79% $9,690 0.57% $8,778
01/31/1991 -7.70% $7,909 4.36% $10,113 -0.21% $8,760
02/28/1991 8.86% $8,609 7.15% $10,836 11.49% $9,766
03/31/1991 -0.85% $8,536 2.42% $11,098 -3.61% $9,414
04/30/1991 -0.48% $8,495 0.24% $11,125 1.95% $9,597
05/31/1991 2.78% $8,732 4.31% $11,604 0.38% $9,634
06/30/1991 3.73% $9,057 -4.58% $11,073 -5.14% $9,139
07/31/1991 1.10% $9,157 4.66% $11,589 4.99% $9,595
08/31/1991 -4.99% $8,700 2.37% $11,863 -0.97% $9,502
09/30/1991 0.19% $8,716 -1.67% $11,665 2.73% $9,761
10/31/1991 3.62% $9,032 1.34% $11,822 2.09% $9,965
11/30/1991 1.20% $9,140 -4.03% $11,345 -6.92% $9,276
12/31/1991 -6.55% $8,542 11.44% $12,643 4.17% $9,662
01/31/1992 6.81% $9,123 -1.86% $12,408 -1.97% $9,472
02/29/1992 -1.55% $8,982 1.29% $12,568 -2.32% $9,252
03/31/1992 -3.70% $8,650 -1.95% $12,323 -3.62% $8,917
04/30/1992 -1.34% $8,533 2.94% $12,685 4.86% $9,351
05/31/1992 4.87% $8,949 0.49% $12,747 4.76% $9,796
06/30/1992 2.55% $9,177 -1.49% $12,557 -4.55% $9,350
07/31/1992 0.74% $9,245 4.09% $13,071 -0.54% $9,300
08/31/1992 -3.23% $8,946 -2.05% $12,803 2.01% $9,486
09/30/1992 -1.24% $8,835 1.17% $12,953 -0.85% $9,406
10/31/1992 -6.09% $8,297 0.34% $12,997 -5.05% $8,931
11/30/1992 -6.80% $7,733 3.40% $13,439 -0.83% $8,857
12/31/1992 3.43% $7,998 1.23% $13,604 0.99% $8,944
01/31/1993 -0.75% $7,938 0.84% $13,718 0.59% $8,997
02/28/1993 4.95% $8,331 1.36% $13,905 4.15% $9,371
03/31/1993 9.54% $9,125 2.11% $14,198 6.40% $9,970
04/30/1993 6.74% $9,741 -2.42% $13,855 5.82% $10,551
05/31/1993 12.81% $10,988 2.67% $14,225 2.18% $10,781
06/30/1993 0.58% $11,052 0.29% $14,266 -2.39% $10,523
07/31/1993 8.88% $12,033 -0.40% $14,209 2.48% $10,784
08/31/1993 -7.58% $11,121 3.79% $14,747 3.73% $11,186
09/30/1993 -8.20% $10,208 -0.77% $14,634 -2.01% $10,961
10/31/1993 9.44% $11,172 2.07% $14,937 1.72% $11,150
11/30/1993 -0.85% $11,078 -0.95% $14,795 -5.69% $10,515
12/31/1993 12.35% $12,446 1.21% $14,974 4.54% $10,993
01/31/1994 0.69% $12,532 3.40% $15,483 7.71% $11,840
02/28/1994 -4.19% $12,007 -2.71% $15,063 -1.55% $11,657
03/31/1994 1.15% $12,145 -4.36% $14,407 -3.50% $11,249
04/30/1994 -4.68% $11,577 1.28% $14,591 5.19% $11,833
05/31/1994 3.27% $11,956 1.64% $14,830 0.29% $11,867
06/30/1994 -2.12% $11,703 -2.45% $14,467 -0.36% $11,824
07/31/1994 1.92% $11,928 3.28% $14,941 3.82% $12,276
08/31/1994 4.43% $12,456 4.10% $15,554 2.70% $12,607
09/30/1994 6.53% $13,269 -2.44% $15,174 -1.85% $12,374
10/31/1994 -3.57% $12,795 2.25% $15,516 4.39% $12,917
11/30/1994 -7.98% $11,774 -3.64% $14,951 -5.74% $12,176
12/31/1994 3.60% $12,198 1.48% $15,172 -0.02% $12,173
01/31/1995 -11.78% $10,761 2.59% $15,565 -1.25% $12,021
02/28/1995 4.51% $11,246 3.90% $16,172 0.79% $12,116
03/31/1995 9.31% $12,293 2.95% $16,650 5.24% $12,751
04/30/1995 0.99% $12,414 2.94% $17,139 4.23% $13,291
05/31/1995 -0.70% $12,328 4.00% $17,825 -0.10% $13,277
06/30/1995 -0.10% $12,316 2.32% $18,238 -2.11% $12,997
07/31/1995 3.24% $12,715 3.32% $18,844 4.87% $13,630
08/31/1995 -0.63% $12,635 0.25% $18,891 -2.96% $13,227
09/30/1995 0.42% $12,688 4.22% $19,688 1.10% $13,372
10/31/1995 -11.18% $11,270 -0.36% $19,617 -2.09% $13,093
11/30/1995 8.73% $12,254 4.39% $20,478 3.49% $13,550
12/31/1995 1.88% $12,484 1.93% $20,873 3.73% $14,055
01/31/1996 16.55% $14,550 3.40% $21,583 1.86% $14,316
02/29/1996 0.73% $14,657 0.93% $21,784 0.68% $14,414
03/31/1996 0.48% $14,728 0.96% $21,993 4.16% $15,013
04/30/1996 0.54% $14,807 1.47% $22,316 2.69% $15,417
05/31/1996 3.83% $15,375 2.58% $22,892 -0.42% $15,352
06/30/1996 -11.83% $13,556 0.38% $22,979 -0.29% $15,308
07/31/1996 -2.08% $13,275 -4.42% $21,963 -3.34% $14,797
08/31/1996 3.83% $13,783 2.11% $22,427 1.88% $15,075
09/30/1996 -5.60% $13,011 5.63% $23,689 3.08% $15,539
10/31/1996 0.70% $13,102 2.76% $24,343 2.12% $15,869
11/30/1996 -0.90% $12,984 7.56% $26,184 3.56% $16,433
12/31/1996 0.00% $12,984 -1.98% $25,665 -0.50% $16,351
01/31/1997 -4.97% $12,339 6.25% $27,269 0.52% $16,436
02/28/1997 11.41% $13,747 0.78% $27,482 -0.77% $16,310
03/31/1997 -10.44% $12,311 -4.11% $26,352 1.40% $16,538
04/30/1997 -5.54% $11,630 5.97% $27,926 0.01% $16,540
05/31/1997 6.17% $12,348 6.09% $29,626 5.79% $17,497
06/30/1997 -3.83% $11,875 4.48% $30,954 3.52% $18,113
07/31/1997 0.39% $11,921 7.96% $33,417 3.59% $18,764
08/31/1997 1.86% $12,143 -5.60% $31,546 -4.63% $17,895
09/30/1997 6.68% $12,954 5.48% $33,275 4.22% $18,650
10/31/1997 -8.04% $11,912 -3.34% $32,163 -5.97% $17,537
11/30/1997 -11.22% $10,575 4.63% $33,653 -3.61% $16,903
12/31/1997 -0.52% $10,520 1.72% $34,231 -1.87% $16,587
01/31/1998 -4.56% $10,041 1.11% $34,611 -0.13% $16,566
02/28/1998 5.33% $10,575 7.21% $37,107 5.70% $17,510
03/31/1998 5.23% $11,129 5.12% $39,007 4.22% $18,249
04/30/1998 3.89% $11,562 1.01% $39,401 2.69% $18,740
05/31/1998 -9.57% $10,456 -1.72% $38,723 -2.12% $18,343
06/30/1998 -6.84% $9,740 4.06% $40,295 -2.77% $17,835
07/31/1998 -10.85% $8,683 -1.07% $39,864 -5.89% $16,784
08/31/1998 -24.46% $6,559 -14.46% $34,100 -13.63% $14,496
09/30/1998 20.11% $7,878 6.41% $36,285 8.07% $15,666
10/31/1998 7.24% $8,449 8.13% $39,236 5.13% $16,470
11/30/1998 -6.87% $7,869 6.06% $41,613 1.51% $16,719
12/31/1998 -0.24% $7,850 5.76% $44,010 -0.93% $16,563
01/31/1999 -5.48% $7,420 4.18% $45,850 -4.95% $15,743
02/28/1999 -3.15% $7,186 -3.11% $44,424 0.24% $15,781
03/31/1999 15.62% $8,309 4.00% $46,201 11.00% $17,517
04/30/1999 19.48% $9,927 3.87% $47,989 14.38% $20,036
05/31/1999 -4.90% $9,441 -2.36% $46,856 -5.58% $18,918
06/30/1999 7.43% $10,142 5.55% $49,457 3.63% $19,605
07/31/1999 2.36% $10,381 -3.12% $47,914 3.46% $20,283
08/31/1999 1.65% $10,553 -0.50% $47,674 -0.17% $20,248
09/30/1999 -2.16% $10,325 -2.74% $46,368 -2.11% $19,821
10/31/1999 -5.06% $9,802 6.33% $49,303 -0.28% $19,766
11/30/1999 0.10% $9,812 2.03% $50,304 0.32% $19,829
12/31/1999 5.81% $10,381 5.89% $53,267 4.34% $20,690
</TABLE>
FRANKLIN SMALL CAP FUND
Technology stocks' market outperformance characterized the year under review as
infrastructure investment, bandwidth demands and increasing use of electronics
in daily life appeared to drive such companies' earnings growth. However,
technology stocks' strength belied the general stock market's weakness. After
significant gains in 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, the gap widened between strong
technology and weak non-tech stock performances, possibly due to investors
chasing the best-performing technology stock to ever-higher valuations.
Fortunately, we had previously established positions in many of these technology
stocks and were thus positioned to benefit from their robust fourth-quarter
performance.
1. Source: Morgan Stanley Dean Witter.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
14
<PAGE>
During 1999, Franklin Small Cap Fund posted strong total returns, handily
beating its benchmark, the Russell 2000(R) Growth Index. The portfolio's
outperformance was primarily attributable to its significant positions in
technology stocks and its small allocation to financial and retail stocks. We
traditionally have found more growth potential in the technology sector and
anticipate maintaining large positions in this sector for the near future,
despite its inherent volatility. We also anticipate having relatively small
positions in retail and financials, two sectors in which we believe it is often
difficult to find small-cap companies that can sustain consistent revenue and
earnings growth.
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 underappreciated non-tech
growth stocks in sectors as disparate as health care and producer manufacturing.
Although mutual fund flows and investor interest still seem to favor technology
stocks, we find it encouraging that some investors are apparently appreciating
the strong fundamental growth potential that may exist in the uncovered nooks of
the market. In particular, we are optimistic about the stock performance and
fundamental improvements we see in the home builder and real estate investment
trust sectors. Accordingly, we added selectively to a handful of non-tech stocks
that we believe may be strong performers when the market eventually broadens.
As we look forward to the 21st century, we continue to see strong growth
potential for small-cap companies. We believe that such companies likely will be
prominent innovators in creating and delivering new products, services and
technologies in the next century. In our opinion, healthy growth prospects for
the global economy should set the stage for a broadening of small-cap stock
performance to include other sectors in addition to technology.
TOP 10 INDUSTRY BREAKDOWN
Franklin Small Cap Fund 12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Technology Services 34.1%
Electronic Technology 22.7%
Telecommunications 9.4%
Finance 5.4%
Consumer Services 3.5%
Industrial Services 2.6%
Producer Manufacturing 2.5%
Transportation 2.5%
Real Estate 2.3%
Energy Minerals 2.1%
</TABLE>
15
<PAGE>
We are replacing the Russell 2500 Index with the Russell 2000 Growth Index
because it more closely mirrors our growth style of investing. The Russell 2500
Index primarily represents value-oriented small cap names that are trading at
valuations reflecting their relatively slow or non-existent growth. PERFORMANCE
SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY FEES,
CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS
THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD
BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable sales
charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +96.94%
3-Year +31.81%
Since Inception (11/1/95) +30.41%
</TABLE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Small Cap Fund -- Class 1
$10,000 Investments (11/1/96 - 12/31/99)
<TABLE>
<CAPTION>
Small Cap Fund - S&P 500 Russell 2500 Russell
Class 1 Index 2000 Growth
Index
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/01/1995 $10,000 $10,000 $10,000 $10,000
11/30/1995 -3.00% $9,700 4.39% $10,439 4.27% $10,427 4.41% $10,441
12/31/1995 5.46% $10,230 1.93% $10,640 1.71% $10,605 2.22% $10,673
01/31/1996 1.37% $10,370 3.40% $11,002 0.71% $10,681 -0.83% $10,584
02/29/1996 4.63% $10,850 0.93% $11,105 3.01% $11,002 4.56% $11,067
03/31/1996 2.67% $11,140 0.96% $11,211 2.04% $11,227 1.98% $11,286
04/30/1996 9.96% $12,250 1.47% $11,376 4.62% $11,745 7.68% $12,153
05/31/1996 4.16% $12,760 2.58% $11,669 2.71% $12,063 5.13% $12,776
06/30/1996 -4.75% $12,154 0.38% $11,714 -3.07% $11,693 -6.50% $11,946
07/31/1996 -9.05% $11,054 -4.42% $11,196 -7.32% $10,837 -12.21% $10,487
08/31/1996 9.59% $12,114 2.11% $11,432 5.75% $11,460 7.40% $11,263
09/30/1996 4.46% $12,654 5.63% $12,076 4.33% $11,957 5.15% $11,843
10/31/1996 -1.98% $12,404 2.76% $12,409 -0.66% $11,878 -4.31% $11,333
11/30/1996 4.52% $12,964 7.56% $13,347 4.83% $12,451 2.78% $11,648
12/31/1996 1.85% $13,204 -1.98% $13,083 1.37% $12,622 1.95% $11,875
01/31/1997 2.20% $13,494 6.25% $13,901 2.76% $12,970 2.50% $12,172
02/28/1997 -4.67% $12,864 0.78% $14,009 -1.49% $12,777 -6.04% $11,437
03/31/1997 -7.08% $11,954 -4.11% $13,433 -4.53% $12,198 -7.06% $10,629
04/30/1997 0.67% $12,034 5.97% $14,235 1.27% $12,353 -1.16% $10,506
05/31/1997 14.21% $13,744 6.09% $15,102 9.21% $13,491 15.03% $12,085
06/30/1997 3.81% $14,269 4.48% $15,779 4.09% $14,043 3.39% $12,495
07/31/1997 6.35% $15,175 7.96% $17,035 5.86% $14,866 5.12% $13,134
08/31/1997 1.02% $15,330 -5.60% $16,081 1.39% $15,072 3.00% $13,528
09/30/1997 9.68% $16,813 5.48% $16,962 6.54% $16,058 7.98% $14,608
10/31/1997 -4.23% $16,103 -3.34% $16,396 -4.49% $15,337 -6.01% $13,730
11/30/1997 -2.37% $15,721 4.63% $17,155 0.45% $15,406 -2.38% $13,403
12/31/1997 -1.38% $15,505 1.72% $17,450 1.89% $15,697 0.06% $13,411
01/31/1998 -0.40% $15,443 1.11% $17,644 -1.53% $15,457 -1.33% $13,233
02/28/1998 7.87% $16,659 7.21% $18,916 7.26% $16,579 8.83% $14,401
03/31/1998 3.96% $17,318 5.12% $19,884 4.39% $17,307 4.19% $15,005
04/30/1998 1.43% $17,565 1.01% $20,085 0.38% $17,373 0.61% $15,096
05/31/1998 -7.10% $16,319 -1.72% $19,740 -4.64% $16,567 -7.27% $13,999
06/30/1998 0.05% $16,327 4.06% $20,541 0.12% $16,586 1.02% $14,142
07/31/1998 -9.80% $14,726 -1.07% $20,321 -6.87% $15,447 -8.35% $12,961
08/31/1998 -23.48% $11,269 -14.46% $17,383 -18.86% $12,534 -23.08% $9,969
09/30/1998 9.53% $12,343 6.41% $18,497 7.10% $13,424 10.14% $10,980
10/31/1998 6.53% $13,149 8.13% $20,001 5.47% $14,158 5.22% $11,554
11/30/1998 7.57% $14,145 6.06% $21,213 4.95% $14,859 7.76% $12,450
12/31/1998 8.54% $15,353 5.76% $22,435 6.06% $15,759 9.05% $13,577
01/31/1999 4.23% $16,003 4.18% $23,372 -0.17% $15,732 4.50% $14,188
02/28/1999 -8.60% $14,626 -3.11% $22,646 -6.57% $14,699 -9.15% $12,890
03/31/1999 5.51% $15,432 4.00% $23,551 2.14% $15,013 3.56% $13,348
04/30/1999 7.83% $16,641 3.87% $24,463 8.95% $16,357 8.83% $14,527
05/31/1999 -0.20% $16,607 -2.36% $23,885 1.55% $16,610 0.16% $14,550
06/30/1999 7.68% $17,883 5.55% $25,211 5.20% $17,474 5.27% $15,317
07/31/1999 -0.01% $17,881 -3.12% $24,425 -1.97% $17,130 -3.09% $14,844
08/31/1999 1.38% $18,128 -0.50% $24,302 -3.13% $16,594 -3.74% $14,289
09/30/1999 3.60% $18,780 -2.74% $23,637 -1.49% $16,347 1.93% $14,565
10/31/1999 11.98% $21,030 6.33% $25,133 2.19% $16,705 2.56% $14,937
11/30/1999 16.64% $24,530 2.03% $25,643 5.65% $17,648 10.57% $16,516
12/31/1999 23.26% $30,236 5.89% $27,153 10.85% $19,563 17.63% $19,428
</TABLE>
MUTUAL DISCOVERY SECURITIES FUND
During the 12 months 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.
However, in the process, the market became increasingly two-tiered, and a select
group of companies achieved "over the top" success while the majority of
publicly-traded equities languished. For example, the tech-heavy Nasdaq market
rose 85.9% for the year. But while the top companies in that index comprised
half of that index's value, the other half of its value was divided between the
more than 4,700 other companies in the index. Furthermore, although the Dow
Jones Industrial Index rose more than 27%, and the S&P 500 climbed 21.0% during
the year, about 62% of the stocks listed on the New York Stock Exchange and 51%
of those comprising the S&P 500 fell in value during 1999.
The portfolio's impressive performance was achieved not by investing in volatile
emerging markets or high-flying Internet companies, but by sticking to our
longstanding, value strategy during a period when growth investing seemed
clearly in favor with a majority of investors interested in buying "hot" stocks.
Throughout the reporting period, we conducted in-depth fundamental analysis and
bought securities only when we saw substantial upside with relatively little
risk. Many market participants appeared to be interested only in positive
momentum during 1999, and were unconcerned about valuations. But we believe risk
still matters. In addition to focusing our attention upon identifying
opportunities that we believed traded at a meaningful discount to their
intrinsic value, we linked our equity positions to the dollar seeking to
minimize the volatility of overseas currencies' unexpected movements.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
16
<PAGE>
The casino-like atmosphere of 1999 attracted many investors to index funds.
Unfortunately, many people often forget two vital aspects of index investing: 1)
an index is 100% of the risk of its market, and 2) most indexes are weighted to
very large companies. We try to lessen market risk by diversifying into special
situations such as distressed securities and arbitrage. Believing that the
large-cap universe was generally overvalued during 1999, we stayed away from
those stocks, opting instead to focus on out-of-favor mid- to small-cap
companies. After all, we feel that the best bargains can generally be purchased
in the most overlooked areas, and rarely in the most popular.
We recalibrated the portfolio somewhat during the year, cutting the number of
positions. For the most part, we did not eliminate any large positions, only
smaller ones. We did make some new purchases, adding to our stake in
pharmaceutical, defense, and media companies whose stocks were selling at 60
cents on the dollar -- well below our perception of their intrinsic values.
Continuing to focus on Europe, we increased our exposure to French stocks. The
European economy is a great restructuring story we expect to continue for
several years to come, with France in particular benefiting from a wave of
corporate consolidation.
A number of stocks contributed to the portfolio's success in 1999. Among them:
Lagardere SCA, a French conglomerate undergoing a restructuring; Compagnie
Financiere Richemont AG, a Swiss conglomerate we purchased at a substantial
discount to the sum of its pieces; and AMFM Inc., a radio business that is
merging with Capstar, another media company.
Looking forward, we see attractive values in mid-size companies around the
world. U.S. financial stocks have fallen considerably and we expect to find
great value in this sector. In Europe, we intend to take advantage of any
opportunities that arise as European companies react to the rapidly changing
business and market environment there. The U.K. continues to offer interesting
opportunities on the heels of a remarkable economic turnaround. We also believe
that Aventis SA, a life science company formed by the merger of France's
Rhone-Poulenc SA and Germany's Hoechst AG, and whose stock we purchased at a
huge discount, may continue to enjoy significant upside potential. In short, we
see no dearth of good companies trading with above-average earnings prospects at
below-average price-to-earnings ratios, and shall continue to concentrate on
mining overlooked, out-of-favor sectors for tomorrow's gems as we strive to
provide our shareholders the best risk-adjusted returns over the long term.
TOP 10 HOLDINGS
Mutual Discovery Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Lagardere SCA 4.1%
Multi-Industry, France
Aventis SA 3.2%
Health & Personal Care, France
Investor AB, B 2.9%
Multi-Industry, Sweden
Modern Times Group AB 2.9%
Broadcasting & Publishing, Sweden
Compagnie Generale
D'Industrie et de Participation 2.5%
Multi-Industry, France
Corporacion Financiera
Alba SA 2.5%
Multi-Industry, Spain
Suez Lyonnaise des Eaux SA 1.9%
Business &Public Services, France
Invensys PLC 1.8%
Machinery & Engineering, U.K.
Compagnie Financiere
Richemont AG 1.6%
Multi-Industry, Switzerland
Total Fina SA, B 1.5%
Energy Sources, France
</TABLE>
17
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +23.76%
3-Year +11.96%
Since Inception (11/8/96) +12.08%
</TABLE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton Developing Markets Equity Fund
Based on Total Net Assets
12/31/99
Latin America 40.5%
Asia 35.9%
Mid-East/Africa 13.9%
Europe 8.9%
Short-Term Investments & Other Net Assets 0.8%
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Mutual Discovery Securities Fund -- Class 1
$10,000 Investment (11/8/96 - 12/31/99)
<TABLE>
<CAPTION>
Mutual Discovery
Securities Fund - S&P 500 Russell 2000
Class 1 Index
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/08/1996 $10,000 $10,000 $10,000
11/30/1996 $10,140 5.54% $10,554 3.02% $10,302
12/31/1996 $10,200 -1.98% $10,345 2.62% $10,572
01/31/1997 $10,660 6.25% $10,992 2.00% $10,783
02/28/1997 $10,790 0.78% $11,078 -2.42% $10,523
03/31/1997 $10,690 -4.11% $10,622 -4.72% $10,026
04/30/1997 $10,630 5.97% $11,257 0.28% $10,054
05/31/1997 $10,910 6.09% $11,942 11.12% $11,172
06/30/1997 $11,325 4.48% $12,477 4.29% $11,651
07/31/1997 $11,735 7.96% $13,470 4.65% $12,193
08/31/1997 $11,715 -5.60% $12,716 2.29% $12,472
09/30/1997 $12,356 5.48% $13,413 7.32% $13,385
10/31/1997 $11,975 -3.34% $12,965 -4.39% $12,798
11/30/1997 $12,025 4.63% $13,565 -0.65% $12,714
12/31/1997 $12,175 1.72% $13,798 1.75% $12,937
01/31/1998 $12,155 1.11% $13,952 -1.58% $12,732
02/28/1998 $12,796 7.21% $14,958 7.39% $13,673
03/31/1998 $13,496 5.12% $15,723 4.12% $14,237
04/30/1998 $13,756 1.01% $15,882 0.55% $14,315
05/31/1998 $13,896 -1.72% $15,609 -5.39% $13,543
06/30/1998 $13,483 4.06% $16,243 0.21% $13,572
07/31/1998 $12,971 -1.07% $16,069 -8.10% $12,473
08/31/1998 $11,127 -14.46% $13,745 -19.42% $10,050
09/30/1998 $10,655 6.41% $14,626 7.83% $10,837
10/31/1998 $10,922 8.13% $15,816 4.08% $11,280
11/30/1998 $11,485 6.06% $16,774 5.24% $11,871
12/31/1998 $11,567 5.76% $17,740 6.19% $12,605
01/31/1999 $11,629 4.18% $18,482 1.33% $12,773
02/28/1999 $11,454 -3.11% $17,907 -8.10% $11,738
03/31/1999 $11,803 4.00% $18,623 1.56% $11,922
04/30/1999 $12,540 3.87% $19,344 8.96% $12,990
05/31/1999 $12,510 -2.36% $18,887 1.46% $13,179
06/30/1999 $12,961 5.55% $19,936 4.52% $13,775
07/31/1999 $12,786 -3.12% $19,314 -2.74% $13,398
08/31/1999 $12,638 -0.50% $19,217 -3.70% $12,902
09/30/1999 $12,501 -2.74% $18,691 0.02% $12,904
10/31/1999 $12,733 6.33% $19,874 0.41% $12,957
11/30/1999 $13,419 2.03% $20,277 5.97% $13,731
12/31/1999 $14,316 5.89% $21,471 11.32% $15,285
</TABLE>
TEMPLETON DEVELOPING MARKETS EQUITY FUND
The year 1999 saw a recovery in most emerging markets despite volatility caused
by such events as Brazil's floating its currency, 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, and earthquakes in
Turkey, Greece and Taiwan.
Political change was widespread throughout emerging markets countries 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, Czech and Russian governments was in question for most of the year in
Europe. In Poland, tax-reform debates characterized the year, and in the Czech
Republic, questions remained throughout the year, as friction between ruling
party leaders became more evident. Questions about the future of Boris Yeltsin
were not laid to rest until December 31, 1999, when he resigned and handed over
control of Russia to Vladimir Putin.
Asia led the global economic recovery, with the improvement slowly shifting
gears to one apparently led by domestic consumption rather than by trade. Export
and import levels increased, with trade balances declining from 1998's huge
surpluses as import growth outpaced that of exports.
In Latin America, the rapid stock market advances early in the year continued,
seeming to signal forthcoming economic improvements. However, most Latin
American economies were weak, but improving commodity prices near year-end
contributed to the belief that the worst was over. In Brazil, the currency
devaluation's adverse effects on inflation and economic growth seemed modest.
The election of a new president in Argentina, questions concerning the currency
peg and debate over the level of national debt caused market concern, although
the government is expected to reduce the fiscal deficit. Continued reform in
Brazil, coupled with Venezuela's restructuring and new governments in Argentina
and Chile, led many to conclude that these economies will return to growth in
2000.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
18
<PAGE>
Efforts to meet European Union (E.U.) admission standards apparently proved
beneficial for eastern and southern European economies. However, natural
disasters in Turkey and Greece coupled with stalled privatization attempts in
other eastern European countries hampered economic growth. The long-term outlook
for emerging Europe seems bright as E.U. membership prompts these countries to
reform their economies.
Finally, African and Middle Eastern markets continued to develop toward
international importance. In South Africa, the strengthening of gold prices
during the year in addition to greater demand for diamonds and other natural
resources seemed to help propel the nation's economy. The ongoing streamlining
of large corporations and increased international demand for services provided
by other South African corporate leaders appears to have augmented this
strength.
During the 12 months under review, the portfolio posted a strong performance.
Varying individual stock performances resulted in some changes in the
portfolio's composition. We sold our holdings in Sri Lanka, Croatia, Shenzhen
(China) and Jordan as we felt better bargains could be found elsewhere, while we
added Austria. Strong growth in the Mexican, Brazilian and South African stock
markets resulted in increased exposure to these countries. However, the
portfolio's regional exposure remained largely unchanged except for Asia, which
decreased in favor of greater exposure to South Africa. At the end of the
12-month period, holdings in Mexico comprised the greatest portion of the
portfolio's total net assets at 15.1%, followed by holdings in South Africa at
13.5% and Brazil at 13.1%.
Varying individual performances led to the replacement of four companies in the
portfolio's top ten holdings. South Africa's Anglo American PLC and South
African Breweries PLC replaced Hong Kong's New World Development Co. Ltd. and
Thailand's Thai Farmers Bank Public Co. Ltd. In addition, Grupo Financiero
Banamex Accival SA de CV (Mexico) and PT Telekomunikasi Indonesia-Persero
(Indonesia) replaced Compania de Telecomunicaciones de Chile SA (Chile) and
Molinos Rio de la Plata SA (Argentina). Telecommunications stocks' strong
performance caused them to become the portfolio's top sector, with 23.0% of
total net assets. The portfolio was virtually fully invested, with a cash level
of 0.8% of total net assets at year-end.
Looking forward, we are excited about the potential of emerging markets, as we
believe that the recovery has just begun, and our studies show that bull markets
generally last longer than bear markets. Interest rates have fallen in many
emerging countries, but most markets' indexes and valuations are still below
their all-time highs. Some of the emerging market currencies still appear to be
undervalued, which should help export competitiveness. The major Asian countries
have increased their foreign exchange reserves. Furthermore, successful
elections in Chile, India, Russia, Mexico, Malaysia,
TOP 10 HOLDINGS
Templeton Developing Markets Equity Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Telefonos de Mexico SA
(Telmex) 6.9%
Telecommunications, Mexico
Cemex SA 4.6%
Building Materials &
Components, Mexico
Akbank 3.5%
Banking, Turkey
Centrais Eletricas Brasileiras SA
(Eletrobras) 3.1%
Utilities Electrical & Gas, Brazil
Grupo Financiero Banamex
Accival SA de CV 2.6%
Banking, Mexico
Anglo American PLC 2.4%
Metals & Mining, South Africa
PT Telekomunikasi Indonesia
(Persero) 2.1%
Telecommunications, Indonesia
Cheung Kong Holdings Ltd. 2.0%
Multi-Industry, Hong Kong
CEZ AS 1.8%
Utilities Electrical & Gas,
Czech Republic
South African Breweries PLC 1.8%
Beverages & Tobacco,
South Africa
</TABLE>
19
<PAGE>
Although we use MSCI Emerging Markets Free Index as the portfolio's benchmark
index, we retained MSCI World Index in the graph to show how global developed
markets have performed.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and the International Finance Corporation.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +54.64%
5-Year +6.70%
Since Inception (3/15/94) +4.93%
</TABLE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton Global Growth Fund
Based on Total Net Assets
12/31/99
Europe 37.6%
North America 24.2%
Asia 20.0%
Latin America 7.9%
Australia/New Zealand 3.9%
Mid-East/Africa 1.5%
Short-Term Investments & Other Net Assets 4.9%
Argentina and Indonesia reduced some of the political risk, making rapid
economic and social reform more likely going forward. Finally, many emerging
market countries continue to overhaul their financial systems. Banks are
recapitalizing their balance sheets and companies are making efforts to rectify
the problem of excessive borrowing as well as streamlining their work forces in
response to the changing economic environment.
We believe that recovery and growth will drive the emerging markets.
Improvements in domestic and international demand should continue to spur
economic growth. We favor companies and countries most proactive in reform, as
improved corporate governance and better corporate efficiency should benefit
stock prices for years to come.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Temple Developing Markets Equity Fund -- Class 1
$10,000 Investment (3/15/94 - 12/31/99)
<TABLE>
<CAPTION>
Templeton Developing MSCI Emerging MSCI World Index IFC Investable
Markets Equity Fund - Markets Free Index Composite Index
Class 1
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/15/1994 $10,000 $10,000 $10,000 $10,000
03/31/1994 $10,000 $9,512 $9,774 $9,452
04/30/1994 $10,060 $9,321 $10,077 $9,272
05/31/1994 $10,040 $9,640 $10,105 $9,491
06/30/1994 $9,990 $9,375 $10,079 $9,154
07/31/1994 $10,250 $9,958 $10,272 $9,811
08/31/1994 $10,530 $11,193 $10,583 $11,073
09/30/1994 $10,520 $11,321 $10,307 $11,347
10/31/1994 $10,410 $11,116 $10,602 $10,972
11/30/1994 $10,000 $10,538 $10,144 $10,559
12/31/1994 $9,560 $9,692 $10,245 $9,434
01/31/1995 $8,910 $8,661 $10,093 $8,173
02/28/1995 $8,780 $8,439 $10,242 $8,067
03/31/1995 $9,150 $8,492 $10,737 $8,046
04/30/1995 $9,540 $8,873 $11,114 $8,385
05/31/1995 $9,800 $9,345 $11,211 $8,698
06/30/1995 $9,855 $9,373 $11,209 $8,749
07/31/1995 $10,438 $9,583 $11,773 $9,028
08/31/1995 $10,167 $9,358 $11,512 $8,786
09/30/1995 $10,096 $9,313 $11,850 $8,722
10/31/1995 $9,735 $8,957 $11,666 $8,391
11/30/1995 $9,664 $8,797 $12,073 $8,349
12/31/1995 $9,825 $9,187 $12,428 $8,639
01/31/1996 $10,880 $9,840 $12,655 $9,375
02/29/1996 $10,659 $9,684 $12,734 $9,156
03/31/1996 $10,860 $9,759 $12,949 $9,290
04/30/1996 $11,222 $10,149 $13,255 $9,662
05/31/1996 $11,382 $10,104 $13,269 $9,580
06/30/1996 $11,390 $10,167 $13,339 $9,693
07/31/1996 $10,782 $9,472 $12,870 $9,056
08/31/1996 $10,957 $9,715 $13,021 $9,336
09/30/1996 $11,194 $9,799 $13,533 $9,474
10/31/1996 $11,184 $9,538 $13,629 $9,271
11/30/1996 $11,617 $9,697 $14,396 $9,408
12/31/1996 $11,947 $9,741 $14,168 $9,449
01/31/1997 $12,833 $10,406 $14,340 $10,117
02/28/1997 $13,214 $10,851 $14,508 $10,611
03/31/1997 $12,957 $10,566 $14,224 $10,350
04/30/1997 $13,101 $10,585 $14,691 $10,174
05/31/1997 $13,730 $10,888 $15,601 $10,519
06/30/1997 $14,275 $11,471 $16,381 $10,974
07/31/1997 $14,826 $11,642 $17,138 $11,084
08/31/1997 $13,449 $10,160 $15,994 $9,669
09/30/1997 $14,243 $10,442 $16,865 $9,976
10/31/1997 $11,573 $8,729 $15,980 $8,343
11/30/1997 $10,958 $8,410 $16,265 $7,943
12/31/1997 $10,905 $8,613 $16,466 $8,057
01/31/1998 $9,951 $7,937 $16,928 $7,526
02/28/1998 $11,032 $8,766 $18,076 $8,294
03/31/1998 $11,499 $9,146 $18,842 $8,619
04/30/1998 $11,636 $9,046 $19,029 $8,641
05/31/1998 $9,877 $7,807 $18,793 $7,564
06/30/1998 $8,932 $6,988 $19,242 $6,793
07/31/1998 $8,981 $7,209 $19,213 $7,061
08/31/1998 $6,631 $5,125 $16,654 $5,076
09/30/1998 $7,088 $5,450 $16,952 $5,317
10/31/1998 $8,152 $6,024 $18,487 $5,933
11/30/1998 $8,895 $6,525 $19,590 $6,379
12/31/1998 $8,548 $6,430 $20,550 $6,281
01/31/1999 $8,016 $6,327 $21,003 $6,130
02/28/1999 $8,165 $6,388 $20,446 $6,240
03/31/1999 $9,303 $7,230 $21,301 $6,961
04/30/1999 $11,035 $8,124 $22,143 $7,918
05/31/1999 $10,812 $8,077 $21,337 $7,774
06/30/1999 $11,616 $8,994 $22,335 $8,624
07/31/1999 $11,140 $8,750 $22,272 $8,499
08/31/1999 $10,724 $8,829 $22,235 $8,592
09/30/1999 $10,421 $8,530 $22,023 $8,354
10/31/1999 $10,724 $8,712 $23,171 $8,499
11/30/1999 $11,530 $9,493 $23,825 $9,259
12/31/1999 $13,219 $10,700 $25,757 $10,500
</TABLE>
TEMPLETON GLOBAL GROWTH FUND
With most markets around the world well into positive territory for the 12
months under review, 1999 turned out to be lucrative for many investors.
Templeton Global Growth Fund also posted solid returns for the year; however, it
lagged its benchmark, the Morgan Stanley Capital International (MSCI(R)) AC
World Free Index, which increased 26.8% for the period.
We believe the major reason for the portfolio's underperformance was investors'
focus on a small number of stocks, primarily those of technology and
telecommunications companies. On December 31, 1999, only 20 stocks accounted for
nearly half of the MSCI AC World Free Index's 12-month return. Yet, those same
companies made up less than 1% of the more than 2,000 stocks that comprise the
index. Of these 20 names, only 4 were not involved in technology or
telecommunications-related businesses, which we feel shows how infatuated
investors were with these areas.
The fund's shareholders can rightly question why we did not participate to a
greater extent in the rapid appreciation of such companies (of which we only
held two). Quite simply our analysis indicated that many of these companies'
share prices were too
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
20
<PAGE>
high when compared with other investment opportunities around the world. The 20
stocks described above had a median price-to-earnings ratio of 90 and
price-to-book value of 17.2, hardly fitting our criteria of undervalued or
unloved companies. Even given some of these companies' sizable growth rates,
such extremely high valuations were difficult for us to justify.
Nowhere did the trend toward momentum-based buying seem greater than in the U.S.
market, where growth stocks with the strongest price momentum widened the gap
over value names during the course of the year. Since 1954, the stocks with the
greatest momentum generally were valued at a 23% premium to the overall market
on a price-to-earnings basis. However, at the beginning of 1999, such stocks
were valued at a 120% premium to the overall market; so high that many analysts
concluded this valuation gap would not persist. To many investors' surprise,
these leading growth stocks' premiums widened to 240% above the overall market
in December 1999.
At Templeton, we have always felt that to achieve superior long-term investment
performance, we must go against the crowd. At a time when the crowd looks so
successful, this philosophy may be hard to follow. However, as valuations become
progressively more stretched we question whether these momentum stocks will
continue to live up to expectations. History has shown this long-term value
focus generally serves our shareholders well, especially in a more difficult
economic environment. During the period, we continued to follow our disciplined
approach, which uncovered some investments in the U.S. we believed were
attractive among the names that were neglected by the recent narrow market.
These are companies whose current valuations we believe are low in relation to
their future growth prospects.
In fact, we feel that 1999 provided first-hand evidence of how well a contrarian
approach still works in today's global environment. In 1998, our analysis
uncovered a number of apparently undervalued companies in Hong Kong. As a
result, we increased the portfolio's Asian weighting at a time when many other
investors were pulling money out of the region. Although these investments
initially hurt our performance, we were substantially rewarded in 1999 as Asian
markets overall increased 72.6%, as measured by IFCT Asia Index, while Hong
Kong's market, the Hang Seng, increased roughly 2.5 times from its low during
the Asian crisis in 1998 and was back into record territory at the end of the
reporting period.
Asia continued its rebuilding process during the year. We expect growth in 1999
to have more than doubled to approximately 5.5%, after gross domestic product
(GDP) growth outside of Japan hit a low of 2.7% in 1998. However, this
improvement masks some of the even more dramatic turnarounds in individual
countries. For example, Korea's GDP fell 6% in 1998 but is expected to have
risen nearly 7% in 1999. In Thailand, GDP collapsed nearly 10% in 1998, but is
projected to have expanded by more than 3.5% in 1999.
TOP 10 HOLDINGS
Templeton Global Growth Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Cheung Kong Holdings Ltd. 2.1%
Multi-Industry, Hong Kong
Sony Corp. 1.7%
Appliances & Household
Durables, Japan
Marconi PLC 1.6%
Electrical & Electronics, U.K.
Anglo American Platinum
Corp. Ltd. 1.5%
Metals & Mining, South Africa
Alcatel SA 1.4%
Electrical & Electronics, France
HSBC Holdings PLC 1.4%
Banking, Hong Kong
Telefonos de Mexico SA
(Telmex), ADR 1.3%
Telecommunications, Mexico
Singapore Airlines Ltd. 1.3%
Transportation, Singapore
Hong Kong Electric
Holdings Ltd. 1.3%
Utilities Electrical & Gas,
Hong Kong
Corus Group PLC 1.3%
Metals & Mining, U.K.
</TABLE>
21
<PAGE>
Japan seemed to be one of the principal countries to benefit from this rebound,
as regional demand provided some support for its economy, whose domestic
consumption has yet to show a sustained rebound. Our visits with Japanese
corporations painted a mixed picture of the underlying economy. However, these
visits also suggested to us that some subtle changes were taking place at the
corporate management level, again on a specific company-by-company basis. During
the period, we took advantage of opportunities to make investments in companies
we believe had made real changes that were beneficial to the shareholder and
unappreciated by the market.
Like Asia's, our Latin American holdings also saw a resurgence during the past
12 months. Mexico proved to be the region's best-performing market, apparently
thanks to improved commodity prices, particularly oil, a strong U.S. economy,
and increasing investor comfort over the upcoming elections. In Brazil, currency
stabilization toward the end of the year seemed to have helped boost investor
sentiment about this country's companies. Our Brazilian holdings were primarily
concentrated in the telecommunications sector where we believed the prospects
for continued growth remained strong due to these companies' expanding customer
bases and increasing services.
Looking to Europe, we believe that more signs of an economic acceleration
emerged during the past year. European unemployment fell below 10% in October
for the first time in seven years. Furthermore, falling tax rates and continued
productivity gains could be beneficial to European companies looking ahead.
However, European stocks generally did not perform as well as their global
peers, despite signs of an improving economic outlook. This provided us with
some opportunities to uncover stocks we felt were bargains on the continent
instead of the U.K., where we focused much of our buying over the past year.
Another trend we believe will benefit our European holdings is accelerating
consolidation through merger and acquisition (M&A) activity. In 1999, there was
an estimated $150 billion-plus worth of buyouts compared with less than $12
billion in 1994. This was particularly evident in the metals and energy sectors,
where recent activity included Total Fina SA's bid for portfolio holding Societe
Elf Aquitaine SA, portfolio holding Veba AG's merger with The Viag Group, and
our former holding Pechiney SA's tie up with Alcan Aluminum Ltd. and A.L. Group
SA.
M&A activity offers shareholders a number of possible benefits in addition to
the potential for substantial price appreciation. Such activity can force an
underperforming management to focus on increasing shareholder value or else risk
being taken over by a better-performing competitor. It can also improve price
discipline in certain fragmented industries while offering cost-cutting
potential and better economies of scale for others. Since some M&A activity can
be detrimental, our industry analysts work to determine the implications for
each of our investments.
22
<PAGE>
Looking forward, we are confident we have invested your portfolio in what we
believe to be the most fundamentally undervalued companies around the world. We
remain self-critical, striving to find ways to improve and enhance a research
approach that is the foundation of our organization. We believe that this
approach combined with our analytical team's diligence and experience will
produce above-average long-term returns for your portfolio despite occasionally
difficult short-term periods.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Templeton Global Growth Fund - Class 1
$10,000 Investment (3/15/94 - 12/31/99)
<TABLE>
<CAPTION>
Templeton Global MSCI All Countries
Growth Fund - World Index
Class 1
-----------------------------------------
<S> <C> <C>
03/15/1994 $10,000 $10,000
03/31/1994 $10,030 $9,763
04/30/1994 $10,079 $10,028
05/31/1994 $10,118 $10,088
06/30/1994 $10,020 $10,039
07/31/1994 $10,295 $10,261
08/31/1994 $10,551 $10,626
09/30/1994 $10,482 $10,377
10/31/1994 $10,492 $10,643
11/30/1994 $10,285 $10,180
12/31/1994 $10,315 $10,216
01/31/1995 $10,226 $10,008
02/28/1995 $10,335 $10,115
03/31/1995 $10,335 $10,578
04/30/1995 $10,630 $10,963
05/31/1995 $10,896 $11,084
06/30/1995 $11,053 $11,087
07/31/1995 $11,498 $11,623
08/31/1995 $11,399 $11,368
09/30/1995 $11,617 $11,681
10/31/1995 $11,231 $11,486
11/30/1995 $11,310 $11,847
12/31/1995 $11,627 $12,204
01/31/1996 $12,132 $12,475
02/29/1996 $12,181 $12,527
03/31/1996 $12,379 $12,720
04/30/1996 $12,706 $13,031
05/31/1996 $12,894 $13,044
06/30/1996 $12,886 $13,116
07/31/1996 $12,416 $12,626
08/31/1996 $12,814 $12,782
09/30/1996 $12,988 $13,254
10/31/1996 $13,080 $13,307
11/30/1996 $13,672 $14,018
12/31/1996 $14,102 $13,815
01/31/1997 $14,510 $14,047
02/28/1997 $14,592 $14,238
03/31/1997 $14,561 $13,953
04/30/1997 $14,623 $14,402
05/31/1997 $15,287 $15,261
06/30/1997 $16,058 $16,042
07/31/1997 $16,684 $16,767
08/31/1997 $16,245 $15,591
09/30/1997 $17,164 $16,422
10/31/1997 $15,891 $15,444
11/30/1997 $15,839 $15,681
12/31/1997 $16,006 $15,887
01/31/1998 $15,912 $16,236
02/28/1998 $17,185 $17,347
03/31/1998 $18,103 $18,087
04/30/1998 $18,155 $18,257
05/31/1998 $17,644 $17,910
06/30/1998 $17,395 $18,233
07/31/1998 $17,407 $18,239
08/31/1998 $14,891 $15,684
09/30/1998 $14,998 $15,996
10/31/1998 $16,391 $17,456
11/30/1998 $17,135 $18,516
12/31/1998 $17,442 $19,376
01/31/1999 $17,194 $19,772
02/28/1999 $16,663 $19,275
03/31/1999 $17,548 $20,142
04/30/1999 $19,379 $21,012
05/31/1999 $18,564 $20,270
06/30/1999 $19,532 $21,279
07/31/1999 $19,410 $21,192
08/31/1999 $19,329 $21,167
09/30/1999 $18,883 $20,938
10/31/1999 $18,748 $21,999
11/30/1999 $19,640 $22,682
12/31/1999 $21,112 $24,572
</TABLE>
TEMPLETON INTERNATIONAL EQUITY FUND
The 12 months under review will go down as a year of contrasts. January 1999
ushered in the euro, a currency devaluation in Brazil, worries of a U.S.
slowdown, Year 2000 (Y2K) bug fears and a growing optimism in Asia. As we exited
the year, we believed unbridled optimism reigned in most markets -- inflation
was well under control, the Internet was revolutionizing global economies, Y2K
concerns diminished and cash was flowing into the equity markets. Unfortunately
for value investors, the bulk of the money went toward growth sectors such as
telecommunications and technology, pushing those stock prices to unprecedented
levels, while, except for a brief second quarter flurry, largely bypassing
shares in economically sensitive companies.
In Europe, the introduction of the euro, the 11-country common currency, did not
live up to its fanfare apparently due to worries over most European economies'
health and concerns such governments would continue to interfere in the free
market, principally by bailing out struggling companies. However, the currency
weakness seemed to benefit export-oriented companies' operations, as a less
valuable currency meant that their products were more price-competitive. In
addition, the weak currency appeared to help companies in commodity industries.
Commodity prices are generally U.S.-dollar denominated, which enables such
companies to earn revenues in the stronger U.S. dollar, but pay expenses in the
weaker euro. Consequently, the portfolio's holdings in oil, metals, and paper
and forest shares boosted its performance.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +21.04%
5-Year +15.40%
Since Inception (3/15/94) +13.76%
</TABLE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton International Equity Fund
Based on Total Net Assets
12/31/99
Europe 58.8%
Asia 16.2%
Latin America 9.4%
Australia/New Zealand 6.3%
North America 2.7%
Short-Term Investments & Other Net Assets 6.6%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
23
<PAGE>
TOP 10 HOLDINGS
Templeton International Equity Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Nippon Telegraph &
Telephone Corp. 2.9%
Telecommunications, Japan
Marconi PLC 2.7%
Electrical & Electronics, U.K.
Amadeus Global Travel
Distribution SA 2.7%
Leisure & Tourism, Spain
Koninklijke Philips
Electronics NV 2.6%
Electrical & Electronics,
Netherlands
Sony Corp. 2.5%
Electrical & Electronics, Japan
Total Fina SA 2.4%
Energy Sources, France
Muenchener Rueck
Versicherungs-Geselschaft 2.2%
Insurance, Germany
Telecomunicacoes Brasileiras
SA (Telebras) 2.1%
Telecommunications, Brazil
Nokia Corp. 2.1%
Telecommunications, Finland
Alcatel SA 1.8%
Electrical & Electronics, France
</TABLE>
The most significant hurdle for value investors in 1999 was the "Internet fever"
that appeared to grip European investors and their willingness to pay seemingly
high multiples to invest in telecommunications and technology stocks. While the
portfolio owned many of these shares in prior years, we sold most in early 1999
and missed out on the second half technology rally. In general, the portfolio
was a net seller of European equities during the year, reducing its exposure
from 68.7% of total net assets on January 1, 1999, to 58.8% at the end of the
period, as we felt there was better value elsewhere. However, with economic
indicators picking up across the continent, we believe European cyclical shares,
which we consider to be value stocks, could perform well in the first half of
2000.
Asian markets turned in strong performances as the region appeared to continue
to rebound from the 1997-1998 "Asian Crisis." Fueled by growing domestic
consumption and strong exports to the developed world, many companies seemed to
have successfully restructured operations and repaired their balance sheets. We
initiated positions in a handful of Japanese names, which combined with their
strong performances, increased our Asia weighting, from 2.8% of total net assets
at the beginning of the period, to 16.2% on December 31, 1999.
In Latin America, the key Mexican and Brazilian markets provided extremely
volatile yet generally strong performances. Aided by its proximity to the
booming U.S. economy, Mexico was the best-performing market in the region.
Brazil, after months of currency-induced turmoil, recovered in the final months
of the year as interest rates finally stabilized. Driven by strong performance,
our holdings in Latin America increased from 8.6% of total net assets on January
1, 1999, to 9.4% at the end of the year under review.
For the year, the portfolio's performance tracked that of the unmanaged MSCI All
Country World ex-U.S. Free Index. The portfolio's technology- and
telecommunications-related names posted the period's strongest performances,
particularly Koninklijke Philips Electronics NV, Finnish wireless phone
manufacturer Nokia Corp. and U.K. communications and information technology
company Marconi PLC. In addition, many of the portfolio's emerging markets
positions did well, including Brazilian bank Uniao de Bancos Brasileiros SA
(Unibanco). However, these were partially offset by poor performances in our
U.K. retail holdings Safeway PLC and Storehouse, whose stocks still looked
extremely inexpensive to us relative to fixed assets at the end of the period.
The utilities industry was another relatively weak sector, as rising interest
rates seemed to hurt portfolio holdings such as Thames Water Group PLC and
Iberdrola SA.
We made a handful of portfolio changes during the year to take advantage of what
we believed were unsustainable valuation discrepancies. While we acknowledge the
Internet's tremendous growth, we believed that on a longer-term basis, investors
were
24
<PAGE>
severely undervaluing "old economy" stocks. Therefore, during the year, we sold
several stocks based on valuations we believed to be high, most notably
telephone operator British Telecommunications PLC, international energy company
BG PLC, German investment bank Deutsche Bank AG, and Electrolux AB, a Swedish
household appliance maker. We then reallocated these assets across a number of
stocks, which we felt offered greater value.
The largest buys in the period included Chinese electric utility CLP Holdings
Ltd., British financial services firm Zurich Allied PLC, Dutch publisher Wolters
Kluwer NV, and several Japanese companies -- electronics firms Hitachi Ltd. and
Sony Corp., telecommunications services company Nippon Telegraph &Telephone
Corp., and investment bank Nomura Securities Co. Ltd. In some cases, we invested
in different companies within the same industry to take advantage of apparent
valuation gaps. Most notably, we reinvested our freed-up assets from Telefonica
SAinto Nippon Telegraph & Telephone.
The strategies employed by the portfolio are consistent with the methods used by
the Templeton organization for more than 50 years. Our team of 35 analysts
scours the globe looking for out-of-favor securities we believe are trading at
depressed levels relative to long-term "normalized" earnings. To us, normalized
earnings represent what a company can earn in the middle of a typical economic
cycle, which requires us to forecast earnings and cash flow out five years. We
then purchase stocks that seem inexpensive on a five-year basis and on average
hold them for the same period. We do this because we believe that over the long
term a bottom-up value-based contrarian approach produces superior returns.
Going forward, we remain positive regarding the international markets'
longer-term outlook, but are concerned in the short-term due to many stocks'
high valuations. By seeking to purchase out-of-favor securities trading at low
valuations and maintaining a diversified portfolio, we are attempting to reduce
short-term volatility while positioning the portfolio for strong long-term
performance.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Templeton International Equity Fund - Class 1
$10,000 Investment (1/27/92 - 12/31/99)
<TABLE>
<CAPTION>
Templeton MSCI EAFE Index MSCI All Country
International World Free Ex-U.S.
Equity Fund - Index
Class 1
--------------------------------------------------------------
<S> <C> <C> <C>
01/27/1992 $10,000 $10,000 $10,000
01/31/1992 $10,000 $9,972 $9,982
02/29/1992 $10,000 $9,618 $9,675
03/31/1992 $10,000 $8,986 $9,090
04/30/1992 $10,010 $9,031 $9,120
05/31/1992 $10,270 $9,638 $9,674
06/30/1992 $10,040 $9,184 $9,207
07/31/1992 $9,760 $8,952 $9,011
08/31/1992 $9,860 $9,516 $9,492
09/30/1992 $9,740 $9,332 $9,297
10/31/1992 $9,570 $8,845 $8,889
11/30/1992 $9,670 $8,931 $8,938
12/31/1992 $9,760 $8,980 $9,012
01/31/1993 $9,630 $8,981 $9,011
02/28/1993 $9,770 $9,255 $9,287
03/31/1993 $9,930 $10,064 $10,052
04/30/1993 $10,200 $11,022 $10,940
05/31/1993 $10,410 $11,258 $11,183
06/30/1993 $10,218 $11,085 $11,049
07/31/1993 $10,419 $11,476 $11,417
08/31/1993 $11,132 $12,098 $12,029
09/30/1993 $11,042 $11,828 $11,782
10/31/1993 $11,694 $12,196 $12,208
11/30/1993 $11,403 $11,132 $11,279
12/31/1993 $12,547 $11,938 $12,158
01/31/1994 $13,461 $12,950 $13,158
02/28/1994 $13,230 $12,917 $13,059
03/31/1994 $12,748 $12,363 $12,461
04/30/1994 $12,868 $12,890 $12,883
05/31/1994 $12,939 $12,819 $12,888
06/30/1994 $12,601 $13,003 $12,979
07/31/1994 $13,117 $13,131 $13,190
08/31/1994 $13,512 $13,445 $13,634
09/30/1994 $13,249 $13,024 $13,296
10/31/1994 $13,461 $13,461 $13,654
11/30/1994 $12,885 $12,817 $12,995
12/31/1994 $12,652 $12,900 $12,965
01/31/1995 $12,389 $12,408 $12,377
02/28/1995 $12,571 $12,376 $12,309
03/31/1995 $12,531 $13,151 $13,004
04/30/1995 $13,087 $13,649 $13,512
05/31/1995 $13,330 $13,490 $13,452
06/30/1995 $13,624 $13,257 $13,266
07/31/1995 $14,202 $14,086 $14,019
08/31/1995 $13,897 $13,552 $13,533
09/30/1995 $14,202 $13,820 $13,764
10/31/1995 $13,792 $13,452 $13,396
11/30/1995 $13,824 $13,830 $13,711
12/31/1995 $13,992 $14,391 $14,253
01/31/1996 $14,464 $14,453 $14,449
02/29/1996 $14,801 $14,506 $14,449
03/31/1996 $15,032 $14,817 $14,718
04/30/1996 $15,473 $15,252 $15,165
05/31/1996 $15,693 $14,975 $14,937
06/30/1996 $15,714 $15,063 $15,013
07/31/1996 $15,235 $14,626 $14,514
08/31/1996 $15,692 $14,662 $14,599
09/30/1996 $15,848 $15,055 $14,961
10/31/1996 $16,137 $14,905 $14,812
11/30/1996 $16,750 $15,502 $15,383
12/31/1996 $17,207 $15,306 $15,205
01/31/1997 $17,507 $14,774 $14,926
02/28/1997 $17,786 $15,019 $15,199
03/31/1997 $18,042 $15,077 $15,167
04/30/1997 $17,886 $15,161 $15,295
05/31/1997 $18,565 $16,151 $16,240
06/30/1997 $19,587 $17,046 $17,136
07/31/1997 $20,100 $17,325 $17,483
08/31/1997 $19,683 $16,034 $16,108
09/30/1997 $21,077 $16,936 $16,979
10/31/1997 $19,659 $15,638 $15,533
11/30/1997 $19,194 $15,482 $15,339
12/31/1997 $19,218 $15,621 $15,516
01/31/1998 $19,098 $16,339 $15,980
02/28/1998 $20,303 $17,391 $17,046
03/31/1998 $21,638 $17,931 $17,635
04/30/1998 $22,174 $18,077 $17,761
05/31/1998 $22,019 $17,993 $17,439
06/30/1998 $21,790 $18,133 $17,373
07/31/1998 $21,881 $18,321 $17,539
08/31/1998 $18,600 $16,055 $15,065
09/30/1998 $18,117 $15,567 $14,747
10/31/1998 $19,332 $17,195 $16,292
11/30/1998 $20,182 $18,080 $17,167
12/31/1998 $20,287 $18,797 $17,759
01/31/1999 $19,738 $18,746 $17,740
02/28/1999 $19,515 $18,303 $17,343
03/31/1999 $20,744 $19,072 $18,180
04/30/1999 $22,535 $19,849 $19,089
05/31/1999 $21,515 $18,831 $18,193
06/30/1999 $22,600 $19,570 $19,029
07/31/1999 $22,468 $20,156 $19,475
08/31/1999 $22,328 $20,234 $19,542
09/30/1999 $22,090 $20,443 $19,674
10/31/1999 $22,356 $21,213 $20,407
11/30/1999 $23,491 $21,954 $21,223
12/31/1999 $25,699 $23,929 $23,247
</TABLE>
In an effort to be consistent with other funds that have similar investment
goals, we are replacing MSCI AC World ex-US Free Index with MSCI EAFE(R) Index.
MSCI EAFE is a widely recognized index whose components match the portfolio's
primary investments.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +26.63%
5-Year +15.22%
Since Inception (1/27/92) +12.64%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
25
<PAGE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton International
Smaller Companies Fund
Based on Total Net Assets
12/31/99
Europe 44.2%
Asia 31.7%
Latin America 6.1%
North America 6.0%
Australia/New Zealand 4.5%
Mid-East/Africa 0.9%
Short-Term Investments & Other Net Assets 6.6%
TOP 10 HOLDINGS
Templeton International Smaller Companies Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Li & Fung Ltd. 4.7%
Merchandising, Hong Kong
Giordano International Ltd. 3.8%
Merchandising, Hong Kong
GTC Transcontinental
Group Ltd., B 3.4%
Broadcasting & Publishing,
Canada
SA des Galeries Lafayette 2.8%
Merchandising, France
Gujarat Ambuja Cements Ltd. 2.8%
Building Materials &
Components, India
Siam City Cement
Public Co. Ltd., fgn. 2.4%
Building Materials &
Components, Thailand
Elkem ASA, A 2.2%
Metals & Mining, Norway
Dah Sing Financial Holdings Ltd. 2.1%
Financial Services, Hong Kong
Telemig Celular
Participacoes SA, ADR 1.9%
Telecommunications, Brazil
Kardex AG, Br. 1.8%
Business & Public Services,
Switzerland
</TABLE>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Spurred on by persistent strength in the global economic environment,
particularly by signs of sustained recovery in Asia, international stock markets
performed strongly for the year. In Asia, economic recovery, following the 1997
currency crisis, appeared firmly established. Returns from Japan were
impressive, buoyed by the yen's strength and a rising stock market, as hopes
rose that corporate Japan would, at last, implement the necessary restructuring.
In Latin America, the Brazilian and Mexican stock market indexes ended
significantly higher as investors appeared to regain confidence in the region's
economic fundamentals. European market performance for the year was mixed -- the
better economic outlook pushed share prices higher, although this was partially
offset in U.S.-dollar terms by the fall in the euro's value. Overall, Europe
underperformed other international regions.
For the year under review, the portfolio's performance was below that of our
benchmark, the Salomon Global ex-U.S. less than $1 Billion Index, which had a
return of 30.3%. Most of the underperformance was due to our low exposure to
Japan and the technology sector. However, for the last three months of 1999, the
fund outperformed our benchmark despite our continuing low exposure to both the
technology sector and to Japan.
Although the portfolio benefited significantly from strong performances in Hong
Kong, South Korea and Singapore, the underweight position in Japan hurt results.
While the Nikkei posted a 54.5% return, sector performances differed widely.
Almost all sectors underperformed the local market indexes; however, the
parabolic rise in the richly priced communications and securities sectors more
than made up for this. As value investors, we did not find these two sectors
attractive at either the beginning or the end of the period.
A number of the portfolio's European companies performed well, yet investor
preferences for larger, technology-related companies held back overall results.
In addition, certain companies fell into the "value trap," whereby they were
recognized as inexpensive, but were simply too small for investors to take a
meaningful position. We are optimistic about prospects for 2000, and note that
the growing pace of merger and acquisition (M&A) activity should help to improve
the stock performances in some of these undervalued businesses.
Within the portfolio, a number of stocks performed particularly well. These
included trading company Li & Fung Ltd. and retailer Giordano International Ltd.
in Hong Kong, Indian cement manufacturer Gujarat Ambuja Cements Ltd.,
telecommunications services provider Telemig Celular Participacoes SA and steel
producer Confab Industrial SA in Brazil, French retailer SA de Galeries
Lafayette, Swedish furniture manufacturer Granges AB, and Swedish research and
consulting firm Sifo Group AB.
26
<PAGE>
However, during the period we took the opportunity to trim positions in some of
these stocks where we felt stock prices fully reflected business prospects.
Given the rise in the world's markets throughout the period, we were
particularly selective in buying shares during the fourth quarter of 1999.
However, we did find some values we believed were compelling. We increased our
positions in a few classic value stocks, such as Orient Overseas International
Ltd. of Hong Kong. In Europe, we added to our small weighting in Sifo Group.
In the coming year, we will continue to focus on company fundamentals as the
basis for stock selection. We will concentrate our search on small companies we
believe are able to avert the threat of pricing pressure as we focus on
value-added rather than commodity-product companies. Furthermore, we believe
that based on the divergence in valuations between the small- and large-cap
sectors, small-cap stocks worldwide have tremendous upside potential.
Regionally, we believe Europe will continue to have immense possibilities. In
Japan, we plan to focus on newer, entrepreneurial companies, although we
continue to remain cautious about the country's overall economic fundamentals.
In India, recent elections appear to signal the end of a period of unstable
government and usher in possibilities for meaningful economic reform. Similarly
in China, we believe the agreement with the U.S. concerning entry into the World
Trade Organization during the fourth quarter will likely provide interesting
investment opportunities as foreign direct investment returns to Asia's largest
nation.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Templeton International Smaller Companies Fund - Class 1
$10,000 Investment (5/1/96 - 12/31/99)
<TABLE>
<CAPTION>
Templeton Salomon
International Global
Smaller Companies ex-U.S. less than
Fund - Class 1 $1 Billion Index
-----------------------------------------------
<S> <C> <C>
05/01/1996 $10,000 $10,000
05/31/1996 $10,150 $9,929
06/30/1996 $10,330 $9,908
07/31/1996 $10,210 $9,465
08/31/1996 $10,330 $9,637
09/30/1996 $10,410 $9,694
10/31/1996 $10,690 $9,704
11/30/1996 $10,890 $9,890
12/31/1996 $11,250 $9,721
01/31/1997 $11,330 $9,791
02/28/1997 $11,450 $10,022
03/31/1997 $11,490 $9,803
04/30/1997 $11,440 $9,611
05/31/1997 $11,670 $10,127
06/30/1997 $11,936 $10,341
07/31/1997 $12,026 $10,188
08/31/1997 $12,117 $9,652
09/30/1997 $12,569 $9,672
10/31/1997 $11,574 $9,092
11/30/1997 $11,232 $8,426
12/31/1997 $11,081 $8,170
01/31/1998 $10,689 $8,345
02/28/1998 $11,684 $9,047
03/31/1998 $12,227 $9,364
04/30/1998 $12,328 $9,396
05/31/1998 $12,066 $9,206
06/30/1998 $11,327 $8,739
07/31/1998 $11,105 $8,552
08/31/1998 $9,362 $7,292
09/30/1998 $9,066 $7,290
10/31/1998 $9,404 $7,796
11/30/1998 $9,805 $8,127
12/31/1998 $9,721 $8,273
01/31/1999 $9,467 $8,144
02/28/1999 $9,425 $8,026
03/31/1999 $9,827 $8,643
04/30/1999 $10,820 $9,494
05/31/1999 $10,756 $9,343
06/30/1999 $11,380 $9,988
07/31/1999 $11,565 $10,202
08/31/1999 $11,729 $10,373
09/30/1999 $11,359 $10,212
10/31/1999 $11,272 $10,105
11/30/1999 $11,424 $10,306
12/31/1999 $12,040 $10,779
</TABLE>
TEMPLETON PACIFIC GROWTH FUND
The Asian economies' broad-based recovery fueled a strong rebound in those
equity markets during 1999. Although deflation underscored the fragility of the
upturn in the third quarter, economic and equity market performance ended the
year on a resoundingly positive note. Your portfolio benefited from this
recovery, as its largest
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Salomon Smith Barney.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +23.90%
3-Year +2.30%
Since Inception (5/1/96) +5.20%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
27
<PAGE>
TOP 10 HOLDINGS
Templeton Pacific Growth Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COMPANY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Singapore Airlines Ltd. 5.1%
Transportation, Singapore
DBS Group Holdings Ltd. 5.0%
Banking, Singapore
South China Morning Post Ltd. 4.3%
Broadcasting & Publishing,
Hong Kong
Commerce-Asset Holding Bhd. 4.2%
Financial Services, Malaysia
City Developments Ltd. 3.9%
Real Estate, Singapore
Overseas Union Bank Ltd. 3.6%
Banking, Singapore
Cheung Kong Holdings Ltd. 3.5%
Multi-Industry, Hong Kong
Philippine National Bank 3.5%
Banking, Philippines
Fuji Heavy Industries Ltd. 3.4%
Industrial Components, Japan
Carter Holt Harvey Ltd. 3.3%
Forest Products & Paper,
New Zealand
</TABLE>
weightings on December 31, 1999, were Hong Kong, Japan and Singapore at 26.2%,
19.8%, and 17.5% respectively.
Japan clearly delivered the most impressive returns for the year under review.
Policymakers took action to shore up its deflating and floundering economy,
while corporate restructuring announcements signaled to investors that business
executives seemed serious about putting their houses in order. In one example of
an unprecedented move in Japanese corporate history, Sony Corp. announced its
intention to trim its headquarters staff by two-thirds. This combination of
government and business initiatives made Japan the fourth-best performing
developed market for the past year. Within this environment, we focused on
purchasing stock in companies where we perceived there was value. Such companies
included Nomura Securities Co. Ltd., Fuji Photo Film Co. Ltd. and Kurita Water
Industries Ltd.
Looking ahead, a key question facing investors after such a huge market rally is
how much more upward pressure is on the yen. As of the end of the reporting
period, the Japanese economy exhibited positive momentum, while the Bank of
Japan had not yet capitulated to pressure for an interest-rate reduction.
Consequently, the yen strengthened further. Although we do not know what the
Bank of Japan will ultimately do, we are confident that corporate Japan will
likely continue restructuring and that ongoing fiscal stimulus should help the
Japanese economy remain firm.
Along with Japan, Hong Kong experienced improving economic fundamentals in 1999.
Declining interest rates, firming real estate prices and falling business
inventories underpinned this revitalization. In an environment of mounting
consumer confidence and falling unemployment, consumption and exports primarily
contributed to Hong Kong's economic recovery. Although Hong Kong's corporate
sector has passed the peak of the restructuring process, in our opinion, China's
is just developing. China is now in a position to exert considerable influence
on Hong Kong's economy. As of the end of the reporting period, signs pointed to
a possible 10% Chinese currency devaluation in the near future. As the
surrounding region stabilizes, the central government's incentive to maintain
its currency, the renminbi, at recent levels should recede. Although we do not
believe devaluation would destroy regional economic recovery, we would expect a
corresponding pullback in Chinese and Hong Kong equity shares. Seeking to take
advantage of the Hong Kong market's recent strength, we sold our position in
Cathay Pacific Airways Ltd., and took some profits in Cheung Kong Holdings Ltd.
and Cable and Wireless HKT Ltd. (Hong Kong Telecommunications Ltd.).
Among our smaller holdings, we saw opportunity in the political turmoil between
Pakistan and India. We purchased an Indian natural gas transmission company, Gas
Authority of India Ltd., and initiated a position in an Indian cement producer,
Gujarat Ambuja Cements Ltd. The latter position performed extremely well, due to
the Indian market's sharp recovery.
28
<PAGE>
Going forward, we expect greater volatility across all Asian markets, as
investors delve deeper into the details of those countries' restructurings to
establish their long-term outlook for various securities. Japan provides one
example of a country where restructuring continues, yet many policymakers remain
unsure about future monetary and fiscal policies. For Asia as a whole, we
believe that some restructuring has been cosmetic and that not all changes have
cut to the region's core problems, such as underutilization of capital assets
and labor. Therefore, we expect a mixed picture with regard to regional equity
performance in the future.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Templeton Pacific Growth Fund - Class 1
$10,000 Investment (1/27/92 - 12/31/99)
<TABLE>
<CAPTION>
Templeton Pacific MSCI Pacific
Growth Fund - Index
Class 1
-----------------------------------------
<S> <C> <C>
01/27/1992 $10,000 $10,000
01/31/1992 $10,000 $9,949
02/29/1992 $10,000 $9,253
03/31/1992 $10,000 $8,375
04/30/1992 $10,010 $7,993
05/31/1992 $10,210 $8,618
06/30/1992 $10,450 $7,942
07/31/1992 $9,900 $7,834
08/31/1992 $9,570 $8,908
09/30/1992 $9,790 $8,706
10/31/1992 $10,230 $8,401
11/30/1992 $10,110 $8,561
12/31/1992 $9,880 $8,465
01/31/1993 $9,980 $8,450
02/28/1993 $10,330 $8,862
03/31/1993 $10,270 $9,935
04/30/1993 $10,920 $11,519
05/31/1993 $11,290 $11,856
06/30/1993 $11,100 $11,664
07/31/1993 $11,230 $12,355
08/31/1993 $11,770 $12,723
09/30/1993 $11,840 $12,249
10/31/1993 $13,110 $12,522
11/30/1993 $12,970 $10,757
12/31/1993 $14,610 $11,509
01/31/1994 $14,720 $12,843
02/28/1994 $14,300 $13,177
03/31/1994 $13,330 $12,451
04/30/1994 $13,520 $12,991
05/31/1994 $14,080 $13,302
06/30/1994 $13,704 $13,739
07/31/1994 $13,956 $13,446
08/31/1994 $14,549 $13,682
09/30/1994 $14,006 $13,342
10/31/1994 $14,097 $13,681
11/30/1994 $13,191 $12,920
12/31/1994 $13,322 $13,009
01/31/1995 $12,356 $12,189
02/28/1995 $12,869 $11,889
03/31/1995 $13,191 $12,804
04/30/1995 $13,372 $13,351
05/31/1995 $13,895 $12,820
06/30/1995 $13,639 $12,279
07/31/1995 $14,166 $13,166
08/31/1995 $14,001 $12,672
09/30/1995 $14,259 $12,792
10/31/1995 $13,691 $12,172
11/30/1995 $13,763 $12,772
12/31/1995 $14,384 $13,398
01/31/1996 $15,552 $13,423
02/29/1996 $15,500 $13,273
03/31/1996 $15,531 $13,683
04/30/1996 $16,224 $14,381
05/31/1996 $16,276 $13,759
06/30/1996 $16,132 $13,764
07/31/1996 $15,255 $13,134
08/31/1996 $15,634 $12,790
09/30/1996 $15,862 $13,210
10/31/1996 $15,353 $12,599
11/30/1996 $16,176 $12,943
12/31/1996 $15,981 $12,272
01/31/1997 $15,732 $11,241
02/28/1997 $15,797 $11,477
03/31/1997 $15,201 $11,059
04/30/1997 $15,299 $11,291
05/31/1997 $16,165 $12,397
06/30/1997 $16,457 $13,167
07/31/1997 $16,733 $12,854
08/31/1997 $14,030 $11,581
09/30/1997 $14,350 $11,538
10/31/1997 $11,714 $10,139
11/30/1997 $10,688 $9,582
12/31/1997 $10,236 $9,163
01/31/1998 $9,387 $9,661
02/28/1998 $10,688 $10,009
03/31/1998 $10,390 $9,459
04/30/1998 $9,673 $9,273
05/31/1998 $8,339 $8,645
06/30/1998 $7,530 $8,630
07/31/1998 $7,293 $8,481
08/31/1998 $6,062 $7,480
09/30/1998 $6,630 $7,457
10/31/1998 $8,288 $8,749
11/30/1998 $8,880 $9,153
12/31/1998 $8,892 $9,409
01/31/1999 $8,560 $9,479
02/28/1999 $8,300 $9,295
03/31/1999 $8,986 $10,469
04/30/1999 $10,987 $11,170
05/31/1999 $10,573 $10,506
06/30/1999 $11,449 $11,474
07/31/1999 $11,555 $12,350
08/31/1999 $11,496 $12,226
09/30/1999 $11,058 $12,792
10/31/1999 $11,437 $13,289
11/30/1999 $11,662 $13,950
12/31/1999 $12,187 $14,863
</TABLE>
PORTFOLIOS SEEKING GROWTH AND INCOME
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
(formerly, Global Utilities Securities Fund)
Global communications stocks performed very well for the 12-month period ended
December 31, 1999, principally due to the continued rise in telecommunications
stock prices. Growing demand for data, Internet, wireless and long-distance
services caused revenue and earnings estimates to increase rapidly during the
past year. Data traffic expanded as a proportion of total telecommunications
traffic as Internet usage weaves its way deeper into our everyday lives. The
robust demand for wireless phone service that has existed in Europe for the past
several years is starting to be replicated in other parts of the world. At the
end of the period, the U.S. had more than 75 million wireless telecom
subscribers, representing close to 30% of the population. Some of the
portfolio's largest telecommunications holdings appreciated significantly over
the period with Sprint Corp. PCS Group (+343%), Vodafone AirTouch PLC, ADR
(+53%), Nextel Communications Inc., A (+337%) and VoiceStream Wireless Corp.
(+421%) among the top performers.
Telecommunications stocks grew as a percentage of the portfolio's total net
assets as a result of their relatively strong performance. On December 31, 1999,
such stocks represented 72% of total net assets, compared with 25.1% at the
beginning of the
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is MSCI.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +37.02%
5-Year -1.77%
Since Inception (1/27/92) +2.53%
</TABLE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Franklin Global Communications Securities Fund
Based on Total Net Assets
12/31/99
North America 57.6%
Europe 20.3%
Asia 6.7%
Short-Term Investments & Other Net Assets 15.4%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
29
<PAGE>
TOP 10 HOLDINGS
Franklin Global Communications Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Global Crossing Ltd. 4.1%
Other Telecommunications,
Bermuda
Vodafone AirTouch PLC 3.0%
Cellular Telephone, U.K.
AT&T Corp. 2.9%
Major U.S. Telecommunications, U.S.
Global TeleSystems Group Inc. 2.8%
Other Telecommunications, U.S.
MCI Worldcom Inc. 2.7%
Major U.S. Telecommunications, U.S.
VoiceStream Wireless Corp. 2.7%
Cellular Telephone, U.S.
Equant NV, N.Y. shares 2.6%
EDP Service, Netherlands
Sprint Corp. (PCS Group) 2.6%
Cellular Telephone, U.S.
Telecom Italia SpA 2.5%
Other Telecommunications,
Italy
GTE Corp. 2.3%
Major U.S. Telecommunications, U.S.
</TABLE>
period. The percentage of these holdings should continue to increase over the
next year in accordance with the portfolio's name and investment strategy change
on November 15, 1999.
Electric and gas utility stocks turned in mixed performances over the period
with electric stocks falling around 19% and gas utilities remaining more or less
flat since the beginning of the year. We trimmed our holdings in such stocks as
a result of their relatively poor performance when individual equity valuations
warranted. At the end of the period, electric utilities made up 9.0% of the
portfolio's total net assets and gas utility stocks were 2.0% of total net
assets. We expect that the percentage of the portfolio invested in these
industries will continue to decline.
Over the period, the U.S., Europe and Asia experienced solid performances with
Latin America producing mixed results. The portfolio's largest weightings at the
end of the period were the U.S. at 54.8%, Europe at 20.3%, while Asia comprised
6.7% and Latin America represented 0% of total net assets compared with 73.9%,
17.9%, 2.0% and 2.2%, respectively, one year earlier.
U.S.
In the U.S., telecommunications stocks were strong performers during the past 12
months apparently driven by increasing traffic volumes, continued deregulation
and strong growth in wireless services. One of the larger portfolio holdings,
Sprint Corp (PCS Group), is a good example of the type of company we look for
when making investments. We believe the company is uniquely positioned to take
advantage of wireless communications growth due to its state-of-the-art digital
network, well-known brand name and strong balance sheet.
The past 12 months have been challenging for electric and gas utility investors.
Strong U.S.-economic growth caused investors to seek opportunities in other,
more economically sensitive, industries. However, many of these companies
continued to restructure their organizations, streamlining their financial and
operational structures to prepare for an increase in competition that should
result from deregulation, which should create substantial shareholder value over
the coming years.
EUROPE
European telecommunication companies were solid performers over the past year.
Both incumbent providers and new entrants moved quickly to improve Europe's
underdeveloped telecommunications infrastructure. However, many regions still
have a significant amount of pent-up demand for basic phone service. Telecom
Italia SpA, a portfolio holding, is an example of a former monopoly provider
that is streamlining its existing operations and achieving success in new areas
such as wireless communications. The portfolio also has investments in emerging
companies that are
30
<PAGE>
capitalizing on the growing need for bandwidth, such as Equant NV. European
communications is one of the global utilities sector's fastest growing areas and
we remain very optimistic about this area's opportunities over the next several
years.
ASIA
Asian economies and stock markets underwent significant volatility during the
past year as the region attempted to recover from the financial crisis that
began in late 1997. The widespread negative investor sentiment that seemed to
envelop Asian stocks allowed us to find a few companies whose equities we felt
were undervalued. One example was Nippon Telegraph & Telephone Corp. (NTT) of
Japan, the world's largest telephone company in terms of sales, which is poised
to benefit from the Japanese telecommunications industry deregulation. NTT could
make significant gains in efficiency as competition arrives and the company is
forced to match the new marketplace standards.
We believe the worst of the Asian crisis has passed and that the region will
begin to deliver improved returns to equity investors. We will continue to
follow our contrarian approach of investing in undervalued Asian companies that
we feel have upside commensurate with their risks and strong management teams
capable of navigating these difficult times.
LATIN AMERICA
For most of the past year, Latin America's financial markets were prone to
significant volatility, repeatedly whipsawed by the latest economic news from
Asia and Eastern Europe. We remain optimistic toward Latin America's long-term
prospects, but are cautiously investing new funds only in stocks whose
valuations we believe provide ample upside potential to compensate for the risks
inherent to the region.
LOOKING AHEAD
We are very optimistic about the potential of global telecommunications and
utility stocks to deliver strong shareholder returns over the long term. Global
utility companies are selling services into a rapidly expanding segment of the
economy in both developed and emerging nations. New Internet applications must
be accompanied by improvements in telecom infrastructure that will allow the
content to reach the end users. Wireless telecommunications growth should
continue to drive the need for network construction, new handsets and additional
functionality. Utilities servicing the developing world also have an enormous
opportunity to provide more basic necessities such as electricity, clean water
and basic phone service. These countries' ongoing economic development depends
on such rudimentary utility services, which should present global utility
investors with excellent investment opportunities for many years into the
future.
31
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +39.42%
5-Year +22.55%
10-Year +14.05%
Since Inception (1/24/89) +14.80%
</TABLE>
NAME & OBJECTIVE CHANGE
Franklin Global Utilities Fund officially changed its name and investment
strategy to Franklin Global Communications Securities Fund on November 15, 1999.
As was communicated to investors earlier in the year, the change was a result of
a shift in the global markets as well as management's belief that communications
stocks offered superior growth prospects and reasonable valuations relative to
other sectors with comparable growth rates.
Investors should consider carefully the substantial risks involved in a
portfolio that concentrates in a single industry sector rather than diversifying
across many different sectors.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Global Communications Securities Fund - Class 1
$10,000 Investments (1/1/90 - 12/31/99)
<TABLE>
<CAPTION>
Global
Communications S&P 500 FT S&P CPI
Securities Fund Actuaries World
- Class 1 Utilities Index
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 -3.79% $9,621 -6.71% $9,329 -7.60% $9,240 1.03% $10,103
02/28/1990 0.60% $9,679 1.29% $9,449 -2.82% $8,979 0.47% $10,150
03/31/1990 -0.70% $9,611 2.65% $9,700 -4.78% $8,550 0.55% $10,206
04/30/1990 -4.41% $9,187 -2.49% $9,458 -2.51% $8,336 0.16% $10,223
05/31/1990 4.07% $9,561 9.75% $10,380 9.98% $9,167 0.23% $10,246
06/30/1990 0.61% $9,619 -0.67% $10,311 -2.87% $8,904 0.54% $10,301
07/31/1990 1.38% $9,752 -0.32% $10,278 -0.57% $8,854 0.38% $10,341
08/31/1990 -6.22% $9,146 -9.04% $9,349 -7.81% $8,162 0.92% $10,436
09/30/1990 0.09% $9,154 -4.87% $8,893 -4.93% $7,760 0.84% $10,523
10/31/1990 7.08% $9,802 -0.43% $8,855 11.70% $8,668 0.60% $10,587
11/30/1990 2.46% $10,043 6.46% $9,427 -0.07% $8,662 0.22% $10,610
12/31/1990 1.41% $10,184 2.79% $9,690 2.07% $8,841 0.00% $10,610
01/31/1991 -1.06% $10,076 4.36% $10,113 1.94% $9,012 0.60% $10,674
02/28/1991 3.63% $10,441 7.15% $10,836 4.71% $9,437 0.15% $10,690
03/31/1991 1.67% $10,616 2.42% $11,098 -2.08% $9,241 0.15% $10,706
04/30/1991 0.78% $10,699 0.24% $11,125 0.88% $9,322 0.15% $10,722
05/31/1991 -0.16% $10,682 4.31% $11,604 0.83% $9,399 0.30% $10,754
06/30/1991 -0.75% $10,602 -4.58% $11,073 -4.21% $9,004 0.29% $10,785
07/31/1991 3.95% $11,021 4.66% $11,589 5.57% $9,505 0.15% $10,801
08/31/1991 2.71% $11,319 2.37% $11,863 1.71% $9,668 0.29% $10,832
09/30/1991 3.47% $11,712 -1.67% $11,665 3.44% $10,000 0.44% $10,880
10/31/1991 1.46% $11,883 1.34% $11,822 1.40% $10,140 0.15% $10,896
11/30/1991 1.94% $12,113 -4.03% $11,345 -1.60% $9,978 0.29% $10,928
12/31/1991 3.88% $12,583 11.44% $12,643 7.02% $10,678 0.07% $10,936
01/31/1992 -3.39% $12,156 -1.86% $12,408 -4.29% $10,220 0.15% $10,952
02/29/1992 -0.21% $12,130 1.29% $12,568 -1.24% $10,094 0.36% $10,992
03/31/1992 -0.63% $12,054 -1.95% $12,323 -3.20% $9,771 0.51% $11,048
04/30/1992 2.97% $12,412 2.94% $12,685 3.38% $10,101 0.14% $11,063
05/31/1992 1.93% $12,651 0.49% $12,747 2.45% $10,348 0.14% $11,079
06/30/1992 1.20% $12,803 -1.49% $12,557 -1.18% $10,226 0.36% $11,118
07/31/1992 5.38% $13,491 4.09% $13,071 3.85% $10,620 0.21% $11,142
08/31/1992 -0.39% $13,439 -2.05% $12,803 2.45% $10,880 0.28% $11,173
09/30/1992 0.45% $13,500 1.17% $12,953 -1.82% $10,682 0.28% $11,204
10/31/1992 -0.65% $13,413 0.34% $12,997 -2.07% $10,461 0.35% $11,243
11/30/1992 0.13% $13,430 3.40% $13,439 2.05% $10,675 0.14% $11,259
12/31/1992 2.66% $13,788 1.23% $13,604 2.55% $10,948 -0.07% $11,251
01/31/1993 1.58% $14,005 0.84% $13,718 1.35% $11,095 0.49% $11,306
02/28/1993 5.41% $14,764 1.36% $13,905 5.05% $11,656 0.35% $11,346
03/31/1993 0.89% $14,894 2.11% $14,198 5.76% $12,327 0.35% $11,386
04/30/1993 0.06% $14,903 -2.42% $13,855 1.93% $12,565 0.28% $11,418
05/31/1993 -0.41% $14,842 2.67% $14,225 1.74% $12,784 0.14% $11,434
06/30/1993 2.44% $15,205 0.29% $14,266 1.94% $13,032 0.14% $11,450
07/31/1993 1.99% $15,507 -0.40% $14,209 2.45% $13,351 0.00% $11,450
08/31/1993 2.75% $15,934 3.79% $14,747 4.25% $13,918 0.28% $11,482
09/30/1993 -0.50% $15,854 -0.77% $14,634 -1.53% $13,705 0.21% $11,506
10/31/1993 -0.62% $15,756 2.07% $14,937 1.78% $13,949 0.41% $11,553
11/30/1993 -4.74% $15,009 -0.95% $14,795 -5.21% $13,223 0.07% $11,561
12/31/1993 1.54% $15,240 1.21% $14,974 3.13% $13,636 0.00% $11,561
01/31/1994 -2.04% $14,929 3.40% $15,483 3.45% $14,107 0.27% $11,592
02/28/1994 -5.06% $14,173 -2.71% $15,063 -4.16% $13,520 0.34% $11,632
03/31/1994 -3.51% $13,675 -4.36% $14,407 -3.88% $12,995 0.34% $11,671
04/30/1994 2.34% $13,996 1.28% $14,591 1.81% $13,231 0.14% $11,688
05/31/1994 -5.21% $13,266 1.64% $14,830 -1.63% $13,015 0.07% $11,696
06/30/1994 -3.85% $12,756 -2.45% $14,467 -2.24% $12,723 0.34% $11,736
07/31/1994 5.13% $13,410 3.28% $14,941 2.62% $13,057 0.27% $11,767
08/31/1994 0.98% $13,541 4.10% $15,554 2.22% $13,347 0.40% $11,814
09/30/1994 -2.48% $13,205 -2.44% $15,174 -2.77% $12,977 0.27% $11,846
10/31/1994 1.93% $13,460 2.25% $15,516 1.46% $13,166 0.07% $11,854
11/30/1994 0.56% $13,534 -3.64% $14,951 -4.07% $12,631 0.13% $11,870
12/31/1994 -0.41% $13,478 1.48% $15,172 -0.71% $12,541 0.00% $11,870
01/31/1995 5.83% $14,263 2.59% $15,565 0.81% $12,642 0.40% $11,917
02/28/1995 0.39% $14,320 3.90% $16,172 0.14% $12,660 0.40% $11,965
03/31/1995 -1.44% $14,114 2.95% $16,650 2.81% $13,016 0.33% $12,005
04/30/1995 2.12% $14,413 2.94% $17,139 3.52% $13,474 0.33% $12,044
05/31/1995 5.51% $15,208 4.00% $17,825 1.35% $13,656 0.20% $12,068
06/30/1995 -0.10% $15,192 2.32% $18,238 0.56% $13,732 0.20% $12,092
07/31/1995 0.20% $15,222 3.32% $18,844 2.87% $14,127 0.00% $12,092
08/31/1995 0.97% $15,370 0.25% $18,891 -0.32% $14,081 0.26% $12,124
09/30/1995 5.66% $16,240 4.22% $19,688 4.80% $14,757 0.20% $12,148
10/31/1995 2.25% $16,606 -0.36% $19,617 -0.93% $14,620 0.33% $12,188
11/30/1995 1.67% $16,883 4.39% $20,478 1.29% $14,809 -0.07% $12,180
12/31/1995 4.86% $17,704 1.93% $20,873 3.38% $15,309 -0.07% $12,171
01/31/1996 1.79% $18,021 3.40% $21,583 1.40% $15,524 0.59% $12,243
02/29/1996 -1.81% $17,694 0.93% $21,784 -1.09% $15,354 0.32% $12,282
03/31/1996 -0.06% $17,684 0.96% $21,993 -0.94% $15,210 0.52% $12,346
04/30/1996 -2.07% $17,319 1.47% $22,316 2.68% $15,618 0.39% $12,394
05/31/1996 2.23% $17,704 2.58% $22,892 -0.86% $15,483 0.19% $12,418
06/30/1996 4.42% $18,487 0.38% $22,979 1.29% $15,683 0.06% $12,425
07/31/1996 -5.25% $17,517 -4.42% $21,963 -4.87% $14,919 0.19% $12,449
08/31/1996 2.14% $17,893 2.11% $22,427 0.05% $14,927 0.19% $12,472
09/30/1996 0.58% $17,997 5.63% $23,689 1.28% $15,118 0.32% $12,512
10/31/1996 3.24% $18,581 2.76% $24,343 2.42% $15,484 0.32% $12,552
11/30/1996 1.80% $18,915 7.56% $26,184 4.89% $16,241 0.19% $12,576
12/31/1996 0.22% $18,956 -1.98% $25,665 2.22% $16,601 0.00% $12,576
01/31/1997 2.15% $19,363 6.25% $27,269 0.79% $16,732 0.32% $12,616
02/28/1997 -0.11% $19,342 0.78% $27,482 0.55% $16,825 0.31% $12,655
03/31/1997 -3.29% $18,706 -4.11% $26,352 -2.83% $16,348 0.25% $12,687
04/30/1997 -0.95% $18,529 5.97% $27,926 1.46% $16,587 0.12% $12,702
05/31/1997 6.36% $19,707 6.09% $29,626 6.61% $17,683 -0.06% $12,695
06/30/1997 3.28% $20,354 4.48% $30,954 4.62% $18,500 0.12% $12,710
07/31/1997 2.38% $20,838 7.96% $33,417 1.41% $18,761 0.12% $12,725
08/31/1997 -3.40% $20,129 -5.60% $31,546 -4.86% $17,850 0.19% $12,749
09/30/1997 5.23% $21,181 5.48% $33,275 6.72% $19,049 0.25% $12,781
10/31/1997 -1.67% $20,826 -3.34% $32,163 -1.45% $18,773 0.25% $12,813
11/30/1997 6.64% $22,209 4.63% $33,653 7.00% $20,087 -0.06% $12,806
12/31/1997 8.20% $24,030 1.72% $34,231 4.16% $20,922 -0.12% $12,790
01/31/1998 -3.05% $23,297 1.11% $34,611 3.27% $21,607 0.19% $12,814
02/28/1998 4.36% $24,313 7.21% $37,107 2.58% $22,164 0.19% $12,839
03/31/1998 7.58% $26,157 5.12% $39,007 8.96% $24,150 0.19% $12,863
04/30/1998 -3.21% $25,318 1.01% $39,401 -2.18% $23,624 0.18% $12,886
05/31/1998 -2.43% $24,703 -1.72% $38,723 -1.16% $23,350 0.18% $12,910
06/30/1998 3.61% $25,594 4.06% $40,295 3.25% $24,108 0.12% $12,925
07/31/1998 -2.91% $24,849 -1.07% $39,864 3.12% $24,861 0.12% $12,941
08/31/1998 -6.73% $23,176 -14.46% $34,100 -7.88% $22,902 0.12% $12,956
09/30/1998 5.41% $24,431 6.41% $36,285 5.24% $24,102 0.12% $12,972
10/31/1998 1.93% $24,901 8.13% $39,236 5.88% $25,519 0.24% $13,003
11/30/1998 2.36% $25,489 6.06% $41,613 3.84% $26,499 0.00% $13,003
12/31/1998 4.82% $26,718 5.76% $44,010 7.91% $28,595 -0.06% $12,995
01/31/1999 -1.52% $26,312 4.18% $45,850 3.86% $29,698 0.24% $13,026
02/28/1999 -4.12% $25,228 -3.11% $44,424 -2.33% $29,006 0.12% $13,042
03/31/1999 1.45% $25,594 4.00% $46,201 -1.03% $28,708 0.30% $13,081
04/30/1999 7.30% $27,462 3.87% $47,989 4.11% $29,888 0.73% $13,176
05/31/1999 1.81% $27,959 -2.36% $46,856 0.54% $30,049 0.00% $13,176
06/30/1999 4.21% $29,136 5.55% $49,457 3.81% $31,194 0.00% $13,176
07/31/1999 -0.59% $28,964 -3.12% $47,914 -0.22% $31,125 0.30% $13,216
08/31/1999 -2.43% $28,261 -0.50% $47,674 -4.04% $29,868 0.24% $13,248
09/30/1999 0.32% $28,351 -2.74% $46,368 2.28% $30,549 0.48% $13,311
10/31/1999 8.51% $30,764 6.33% $49,303 7.04% $32,699 0.18% $13,335
11/30/1999 6.97% $32,908 2.03% $50,304 7.57% $35,175 0.06% $13,343
12/31/1999 13.21% $37,249 5.89% $53,267 7.52% $37,820 0.00% $13,343
</TABLE>
FRANKLIN GROWTH AND INCOME FUND
The year under review perhaps could be best described as a tale of two stock
markets. To borrow from the author Charles Dickens, "It was the best of times;
it was the worst of times." Namely, the major U.S. stock market indexes recorded
double-digit percentage gains for an unprecedented five consecutive years, yet
the average stock in the market has been in a decline since April 1998, or for
some 20 months. During that time, the Value Line geometric composite of 1,625
stocks, a widely used proxy for the average stock, fell 13.9%. Also, more stocks
in the S&P 500 Index fell than advanced in 1999 as its median return was -0.4%
for the year.
The "new-economy technology stocks," many of which are not profitable and do not
pay dividends, performed extremely well in the past year, whereas the balance of
the stock market, especially high dividend-paying stocks, yielded mixed results.
For example, according to our research, the top 25% of stocks in the S&P 500 as
measured by dividend yield, declined an average 3.5%, while the 25%
lowest-yielding stocks
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
32
<PAGE>
gained an average 41.5% in 1999. Franklin Growth and Income Fund, which invests
in above-average yielding stocks, reflected these market trends.
Thus, while most major market indexes registered positive results, in our view a
stealth bear market ensued for most stocks in 1999. Influencing the financial
markets, in our opinion, were several sequential factors. Unlike in 1998, the
economies in the U.S. and abroad experienced faster-than-expected growth. The
Federal Reserve Board responded by reversing the previous year's actions with
three separate interest-rate hikes, causing rates to rise worldwide. These
higher interest rates put pressure on stock market valuations, which had been at
the upper end of historical norms.
The portfolio seeks to invest in stocks that offer current income and sell at
attractive valuations. We look for stocks selling at bargain prices according to
measurements such as relative dividend yields, book value, revenues and
normalized earnings. This generally entails investing in stocks of quality
companies at what we feel are temporarily depressed prices. At the same time, we
collect current investment returns, in the form of dividends, which can provide
a cushion against possible stock declines. Our investments typically fall into
three categories: cyclical stocks, "special situation" stocks, and traditional,
high dividend-paying stocks such as utilities and real estate investment trusts
(REITs).
Our increased investments in cyclical stocks more than one year ago paid off in
1999, as many of these companies responded to the past year's
stronger-than-expected economy. Our mineral and metal holdings DeBeers
Consolidated Mines AG and Corus Group PLC both gained over 100% during the
period. Forest product company Weyerhaeuser Co. and chemical producers Dow
Chemical Co., E.I. duPont de Nemours and Co. and Imperial Chemical Industries
PLC also performed well. Energy stocks, which represented 8.1% of the
portfolio's total net assets at year-end, also experienced generally favorable
results in 1999. We added to existing positions and initiated an investment in
Royal Dutch Petroleum Co., one of the world's largest oil companies, during
weakness early in the year. We subsequently took profits in the company and
other holdings as prices rose sharply during the period's final quarter.
We also became more active in our "special situation" investments in 1999. We
determined that our traditional dividend-yield requirements were too restrictive
for sectors that offer above-average growth potential, such as technology and
health care. Thus, we took advantage of some weakness and modified our criteria
to allow for greater participation in these exciting areas. New technology
positions included Motorola Inc., Raytheon Co., Hewlett-Packard Co., Automatic
Data Processing Inc. and International Business Machines Corp. In our opinion,
each of these investments offered excellent long-term value, current income and
attractive long-term growth prospects. New health care investments included
Baxter International Inc., Abbott Laboratories
TOP 10 HOLDINGS
Franklin Growth and Income Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
U.S. West Inc. 3.2%
Telecommunications
Bell Atlantic Corp. 3.2%
Telecommunications
GTE Corp. 2.8%
Telecommunications
AT&T Corp. 2.4%
Telecommunications
General Electric Co. 2.1%
Process Industries
St. Paul Cos. Inc. 2.1%
Insurance
Exxon Mobil Corp. 2.0%
Energy Minerals
General Mills Inc. 2.0%
Consumer Non-Durables
Pharmacia & Upjohn Inc. 1.9%
Health Technology
Texaco Inc. 1.8%
Energy Minerals
</TABLE>
33
<PAGE>
and American Home Products Corp. Uncertainty over Medicare reform apparently
resulted in weak performances for these and many other health care companies
during the year. Unfortunately, we expect to see this trend continuing over the
near term. However, looking forward over the next few years, we believe that the
industry's growth potential remains favorable, and we look to add to our
investments as opportunities arise in 2000.
Our investments in the financial sector generally yielded disappointing results
in 1999. We responded to rising interest rate trends by reducing our investments
in banks and insurance companies during the second half of the year. While many
of these stocks recently offered potentially attractive valuations in terms of
price to earnings and dividend yields, we will remain underweighted in these
investments compared with other sectors until signs of rising interest rate
trends abate.
The portfolio's holdings in REITs and high yielding utilities also experienced
generally disappointing returns for the period. REITs performed poorly despite
mostly favorable fundamentals. We maintained a large position in these
investments as their combination of high dividend yields averaging 8% and
continued solid cash-flow growth were very attractive in our opinion. We reduced
our overall weighting in electric utilities, which represented 4.0% of total net
assets on December 31, 1999. However, gas utilities and telephone investments
were bright spots for the portfolio in 1999. Two of our gas companies -- MCN
Energy Group Inc. and Consolidated Natural Gas Co. -- rose in response to
acquisition bids during the year. Likewise, three of our telephone investments
- -- Ameritech Corp., GTE Corp. and U.S. West Inc. -- were subject to merger
activity as well. Telephone stocks represented our biggest investment at 13.3%
of the portfolio's total net assets at year-end. We believed that attractive
growth prospects, current income and reasonable valuations supported our
continued significant investment in this sector.
Looking forward, we anticipate continued high levels of financial market
volatility. Although we believe there are many bargains to be found among our
high dividend-yielding stocks, general market valuations remain at historically
high levels and could continue to be affected by rising interest-rate trends.
Our investment discipline attempts to take advantage of such volatility. Growth
style investing has outperformed traditional value investing for five
consecutive years, a long period by historical standards. While it is impossible
to predict when or if this cycle will reverse itself, we believe our strategy
and the portfolio's investments are well positioned to benefit if the market
returns to a value style of investing.
34
<PAGE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Growth & Income Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
<TABLE>
<CAPTION>
Growth & Income Fund - S&P 500 Russell 3000 CPI
Class 1 Value Index
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,485 $9,329 $9,371 $10,103
02/28/1990 $9,640 $9,449 $9,607 $10,150
03/31/1990 $9,873 $9,700 $9,720 $10,206
04/30/1990 $9,677 $9,458 $9,342 $10,223
05/31/1990 $10,519 $10,380 $10,097 $10,246
06/30/1990 $10,392 $10,311 $9,882 $10,301
07/31/1990 $10,323 $10,278 $9,777 $10,341
08/31/1990 $9,461 $9,349 $8,899 $10,436
09/30/1990 $9,079 $8,893 $8,453 $10,523
10/31/1990 $8,982 $8,855 $8,315 $10,587
11/30/1990 $9,501 $9,427 $8,888 $10,610
12/31/1990 $9,765 $9,690 $9,116 $10,610
01/31/1991 $10,382 $10,113 $9,545 $10,674
02/28/1991 $10,813 $10,836 $10,199 $10,690
03/31/1991 $10,833 $11,098 $10,379 $10,706
04/30/1991 $10,862 $11,125 $10,456 $10,722
05/31/1991 $11,273 $11,604 $10,851 $10,754
06/30/1991 $10,547 $11,073 $10,391 $10,785
07/31/1991 $10,926 $11,589 $10,815 $10,801
08/31/1991 $11,295 $11,863 $11,020 $10,832
09/30/1991 $11,215 $11,665 $10,945 $10,880
10/31/1991 $11,335 $11,822 $11,123 $10,896
11/30/1991 $10,847 $11,345 $10,560 $10,928
12/31/1991 $11,714 $12,643 $11,432 $10,936
01/31/1992 $12,222 $12,408 $11,511 $10,952
02/29/1992 $12,232 $12,568 $11,812 $10,992
03/31/1992 $11,784 $12,323 $11,644 $11,048
04/30/1992 $11,804 $12,685 $12,098 $11,063
05/31/1992 $11,873 $12,747 $12,177 $11,079
06/30/1992 $11,606 $12,557 $12,079 $11,118
07/31/1992 $11,949 $13,071 $12,544 $11,142
08/31/1992 $11,778 $12,803 $12,172 $11,173
09/30/1992 $12,070 $12,953 $12,344 $11,204
10/31/1992 $12,301 $12,997 $12,378 $11,243
11/30/1992 $12,765 $13,439 $12,812 $11,259
12/31/1992 $12,886 $13,604 $13,136 $11,251
01/31/1993 $12,987 $13,718 $13,544 $11,306
02/28/1993 $12,906 $13,905 $13,985 $11,346
03/31/1993 $13,269 $14,198 $14,407 $11,386
04/30/1993 $13,097 $13,855 $14,210 $11,418
05/31/1993 $13,450 $14,225 $14,509 $11,434
06/30/1993 $13,291 $14,266 $14,813 $11,450
07/31/1993 $13,098 $14,209 $14,986 $11,450
08/31/1993 $13,585 $14,747 $15,532 $11,482
09/30/1993 $13,504 $14,634 $15,588 $11,506
10/31/1993 $13,707 $14,937 $15,611 $11,553
11/30/1993 $13,595 $14,795 $15,282 $11,561
12/31/1993 $14,215 $14,974 $15,588 $11,561
01/31/1994 $15,018 $15,483 $16,174 $11,592
02/28/1994 $14,825 $15,063 $15,669 $11,632
03/31/1994 $13,941 $14,407 $15,075 $11,671
04/30/1994 $14,022 $14,591 $15,351 $11,688
05/31/1994 $14,063 $14,830 $15,509 $11,696
06/30/1994 $13,609 $14,467 $15,135 $11,736
07/31/1994 $14,003 $14,941 $15,586 $11,767
08/31/1994 $14,470 $15,554 $16,051 $11,814
09/30/1994 $14,044 $15,174 $15,557 $11,846
10/31/1994 $14,250 $15,516 $15,720 $11,854
11/30/1994 $13,720 $14,951 $15,085 $11,870
12/31/1994 $13,928 $15,172 $15,287 $11,870
01/31/1995 $14,042 $15,565 $15,700 $11,917
02/28/1995 $14,602 $16,172 $16,317 $11,965
03/31/1995 $15,018 $16,650 $16,646 $12,005
04/30/1995 $15,464 $17,139 $17,169 $12,044
05/31/1995 $15,941 $17,825 $17,857 $12,068
06/30/1995 $16,039 $18,238 $18,136 $12,092
07/31/1995 $16,309 $18,844 $18,771 $12,092
08/31/1995 $16,504 $18,891 $19,065 $12,124
09/30/1995 $17,216 $19,688 $19,714 $12,148
10/31/1995 $17,086 $19,617 $19,459 $12,188
11/30/1995 $17,756 $20,478 $20,425 $12,180
12/31/1995 $18,500 $20,873 $20,949 $12,171
01/31/1996 $18,878 $21,583 $21,553 $12,243
02/29/1996 $18,684 $21,784 $21,732 $12,282
03/31/1996 $18,878 $21,993 $22,110 $12,346
04/30/1996 $18,975 $22,316 $22,243 $12,394
05/31/1996 $19,170 $22,892 $22,547 $12,418
06/30/1996 $19,525 $22,979 $22,538 $12,425
07/31/1996 $18,803 $21,963 $21,650 $12,449
08/31/1996 $19,068 $22,427 $22,302 $12,472
09/30/1996 $19,573 $23,689 $23,158 $12,512
10/31/1996 $20,151 $24,343 $23,987 $12,552
11/30/1996 $21,114 $26,184 $25,681 $12,576
12/31/1996 $21,126 $25,665 $25,470 $12,576
01/31/1997 $21,728 $27,269 $26,616 $12,616
02/28/1997 $22,234 $27,482 $26,994 $12,655
03/31/1997 $21,752 $26,352 $26,050 $12,687
04/30/1997 $22,041 $27,926 $27,071 $12,702
05/31/1997 $23,209 $29,626 $28,646 $12,695
06/30/1997 $23,879 $30,954 $29,898 $12,710
07/31/1997 $25,112 $33,417 $32,048 $12,725
08/31/1997 $24,611 $31,546 $31,064 $12,749
09/30/1997 $25,986 $33,275 $32,959 $12,781
10/31/1997 $25,228 $32,163 $32,039 $12,813
11/30/1997 $26,358 $33,653 $33,350 $12,806
12/31/1997 $26,988 $34,231 $34,340 $12,790
01/31/1998 $26,795 $34,611 $33,842 $12,814
02/28/1998 $27,925 $37,107 $36,096 $12,839
03/31/1998 $29,441 $39,007 $38,233 $12,863
04/30/1998 $28,953 $39,401 $38,481 $12,886
05/31/1998 $28,529 $38,723 $37,835 $12,910
06/30/1998 $28,446 $40,295 $38,255 $12,925
07/31/1998 $27,729 $39,864 $37,371 $12,941
08/31/1998 $25,259 $34,100 $31,784 $12,956
09/30/1998 $26,795 $36,285 $33,605 $12,972
10/31/1998 $28,159 $39,236 $36,075 $13,003
11/30/1998 $29,093 $41,613 $37,699 $13,003
12/31/1998 $29,236 $44,010 $38,973 $12,995
01/31/1999 $28,605 $45,850 $39,191 $13,026
02/28/1999 $28,101 $44,424 $38,474 $13,042
03/31/1999 $28,433 $46,201 $39,190 $13,081
04/30/1999 $30,801 $47,989 $42,846 $13,176
05/31/1999 $31,032 $46,856 $42,499 $13,176
06/30/1999 $31,535 $49,457 $43,757 $13,176
07/31/1999 $30,775 $47,914 $42,493 $13,216
08/31/1999 $29,993 $47,674 $40,920 $13,248
09/30/1999 $29,247 $46,368 $39,533 $13,311
10/31/1999 $29,960 $49,303 $41,585 $13,335
11/30/1999 $29,610 $50,304 $41,294 $13,343
12/31/1999 $29,559 $53,267 $41,562 $13,343
</TABLE>
FRANKLIN INCOME SECURITIES FUND
Aside from temporary weakness in the third quarter, the U.S. stock market
continued its relentless climb in 1999, driven in part by healthy economic
growth and a benign inflationary environment. Improved stability abroad also
helped fuel equity market optimism. However, these very same factors weighed on
the U.S. bond market, driving up the 30-year U.S. Treasury bond yield from 5.10%
on December 31, 1998, to 6.48% on December 31, 1999. The interest-rate increase
negatively affected the portfolio's rate-sensitive sectors such as Treasury
bonds and utility stocks.
Corporate bonds increased from 23.7% to 29.2% of the portfolio's total net
assets during the period under review, resulting from a combination of solid
performance and additional investment. Although this sector's total return was
only slightly positive, we believe it performed well given the rise in Treasury
bond rates. Several new portfolio purchases focused on the telecommunications
sector, which we believe offered strong growth and attractive total return
potential. Recent purchases included issues from PSINet Inc., Crown Castle
International Corp., Level 3 Communications Inc., Microcell Telecommunications
Inc., NEXTLINK Communications Inc., VoiceStream Wireless Corp., and Williams
Communications Group Inc. In addition to telecommunications, we also initiated
positions in the cable television sector, with new issues from Cablevision SA,
Charter Communications Holdings LLC, and United Pan-Europe Communications NV.
The portfolio's foreign bonds bounced back during the year, as several
developing countries made progress on economic and political reforms. For
example, we believe the South Korean government's success with economic reforms
allowed the country's growth to exceed expectations. We also feel the Brazilian
government made great strides toward restoring economic growth, while Russia's
recently elected parliament will likely be more supportive of the president than
its predecessor, hopefully paving
We are replacing the S&P 500 Index with the Russell 3000 Value Index because
this index more closely matches our investment characteristics then the S&P 500,
in terms of dividend yield, industry representation and market capitalization.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +1.10%
5-Year +16.24%
10-Year +11.45%
Since Inception (1/24/89) +10.71%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
35
<PAGE>
TOP FIVE STOCK HOLDINGS
Franklin Income Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Philip Morris Cos. Inc. 1.9%
Consumer Non-Durables
Florida Progress Corp. 1.6%
Utilities
Texas Utilities Co. 1.3%
Utilities
Entergy Corp. 1.3%
Utilities
New England Electric System 1.3%
Utilities
</TABLE>
TOP FIVE BOND HOLDINGS
Franklin Income Securities Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
ISSUER NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
U.S. Treasury Bonds 9.7%
Republic of Brazil 5.7%
Republic of Argentina 4.3%
Republic of Korea 2.6%
Consoltex Group Inc. 1.3%
</TABLE>
the way for further political and economic reforms. Moreover, our new position
in Turkey benefited from the country's progress toward eventually joining the
European Union. We took advantage of regional market strength by trimming bond
positions in Russia, Korea, Argentina and South Africa.
U.S. Treasury bonds suffered price declines based on strong domestic economic
growth and the Federal Reserve Board's three interest-rate increases during the
reporting period. Although we believe the lack of inflationary pressures should
keep interest rates from rising significantly, we trimmed our U.S. government
holdings to provide funds for other, more attractive investments.
The portfolio's equity sectors delivered mixed results during the past 12
months, with the fund's largest equity sector, utility stocks, performing poorly
due to the rise in interest rates. We felt relative utility stock valuations and
yields were very attractive at recent levels, and going forward believe the
sector should benefit from future consolidation and industry deregulation.
Energy stocks, for their part, rebounded in March after OPEC's announced
production cuts pushed oil prices higher. We added to the portfolio's energy
sector throughout the period with new convertible positions in Key Energy
Services Inc., Parker Drilling Co., Newfield Financial Trust I and Kerr-McGee
Corp. (convertible into Devon Energy Corp.). Real estate was another investment
category that looked good to us, taking into account recent valuations that
seemed attractive. After strong performance in the first part of the year, the
sector languished amid concerns related to oversupply and rising interest rates.
We sought to take advantage of this weakness by adding to the portfolio's
existing real estate positions and initiating a position in Apartment Investment
& Management Co. convertible preferred stock.
Finally, gold-related companies experienced volatility during the year, as the
price of gold bullion ranged between $253 and $326 an ounce. Although the fund's
gold positions delivered disappointing returns during the review period, our
platinum sector holdings performed extremely well, with returns in excess of
100%.
Looking ahead, with the stock market apparently continuing to display an extreme
divergence between growth- and value-oriented sectors, we remain committed to
our value-oriented approach. We believe the portfolio is well diversified, and
will continue to search for new investment opportunities across asset classes
and industries.
36
<PAGE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Income Securities Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
GRAPHIC MATERIAL (45)
This graph compares the performance of Franklin Income Securities Fund -Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the Lehman
Brothers Government/Corporate Bond Index, the S&P 500 Index, the Lipper Income
Funds Objective Average and the Lipper Annuity Income Funds Objective Average
from 1/1/90-12/31/99.
We are replacing the Lipper Income Funds Objective Average with the Lipper
Annuity Income Funds Objective Average because the former is based on a peer
group of mutual funds, while the latter is based on a peer group of annuity
sub-accounts and better reflects the portfolio's performance.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal and Lipper, Inc.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Lipper
Lehman Annuity Lipper
Income Brothers Income Income
Securities Government/ Funds Funds
Fund - Corporate Objective Objective
Class 1 S&P 500 Bond Index Average Average
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,761 $9,329 $9,863 $9,692 $9,661
02/28/1990 $9,661 $9,449 $9,885 $9,731 $9,704
03/31/1990 $9,810 $9,700 $9,886 $9,820 $9,764
04/30/1990 $9,604 $9,458 $9,795 $9,672 $9,529
05/31/1990 $9,960 $10,380 $10,079 $10,133 $9,982
06/30/1990 $10,119 $10,311 $10,241 $10,198 $10,047
07/31/1990 $10,316 $10,278 $10,368 $10,229 $10,060
08/31/1990 $9,745 $9,349 $10,218 $9,739 $9,542
09/30/1990 $9,267 $8,893 $10,303 $9,451 $9,327
10/31/1990 $8,855 $8,855 $10,439 $9,368 $9,308
11/30/1990 $9,136 $9,427 $10,666 $9,715 $9,681
12/31/1990 $9,258 $9,690 $10,827 $9,896 $9,866
01/31/1991 $9,520 $10,113 $10,948 $10,203 $10,089
02/28/1991 $10,456 $10,836 $11,043 $10,668 $10,593
03/31/1991 $10,784 $11,098 $11,119 $10,846 $10,786
04/30/1991 $11,177 $11,125 $11,247 $10,969 $10,892
05/31/1991 $11,401 $11,604 $11,298 $11,220 $11,108
06/30/1991 $11,424 $11,073 $11,286 $10,997 $10,856
07/31/1991 $11,918 $11,589 $11,427 $11,383 $11,233
08/31/1991 $12,119 $11,863 $11,690 $11,650 $11,520
09/30/1991 $12,338 $11,665 $11,934 $11,672 $11,647
10/31/1991 $12,682 $11,822 $12,040 $11,859 $11,839
11/30/1991 $12,773 $11,345 $12,161 $11,661 $11,676
12/31/1991 $12,843 $12,643 $12,571 $12,429 $12,345
01/31/1992 $13,318 $12,408 $12,385 $12,433 $12,318
02/29/1992 $13,631 $12,568 $12,450 $12,628 $12,487
03/31/1992 $13,702 $12,323 $12,382 $12,470 $12,344
04/30/1992 $13,854 $12,685 $12,456 $12,607 $12,560
05/31/1992 $14,116 $12,747 $12,698 $12,783 $12,759
06/30/1992 $14,234 $12,557 $12,883 $12,747 $12,699
07/31/1992 $14,599 $13,071 $13,213 $13,104 $13,115
08/31/1992 $14,589 $12,803 $13,330 $13,003 $13,038
09/30/1992 $14,546 $12,953 $13,513 $13,134 $13,145
10/31/1992 $14,395 $12,997 $13,306 $13,135 $13,065
11/30/1992 $14,481 $13,439 $13,294 $13,398 $13,268
12/31/1992 $14,664 $13,604 $13,523 $13,588 $13,486
01/31/1993 $14,986 $13,718 $13,818 $13,836 $13,717
02/28/1993 $15,287 $13,905 $14,105 $13,998 $14,005
03/31/1993 $15,577 $14,198 $14,153 $14,264 $14,321
04/30/1993 $15,706 $13,855 $14,262 $14,198 $14,291
05/31/1993 $15,910 $14,225 $14,255 $14,422 $14,476
06/30/1993 $16,212 $14,266 $14,579 $14,581 $14,652
07/31/1993 $16,487 $14,209 $14,672 $14,668 $14,761
08/31/1993 $16,751 $14,747 $15,009 $15,035 $15,147
09/30/1993 $16,850 $14,634 $15,062 $15,091 $15,185
10/31/1993 $17,147 $14,937 $15,124 $15,263 $15,264
11/30/1993 $17,048 $14,795 $14,953 $15,083 $15,029
12/31/1993 $17,389 $14,974 $15,018 $15,321 $15,214
01/31/1994 $17,543 $15,483 $15,244 $15,663 $15,517
02/28/1994 $17,301 $15,063 $14,911 $15,412 $15,132
03/31/1994 $16,652 $14,407 $14,546 $14,899 $14,614
04/30/1994 $16,619 $14,591 $14,425 $14,912 $14,682
05/31/1994 $16,498 $14,830 $14,399 $14,932 $14,720
06/30/1994 $16,369 $14,467 $14,366 $14,715 $14,542
07/31/1994 $16,631 $14,941 $14,654 $15,033 $14,843
08/31/1994 $16,847 $15,554 $14,659 $15,316 $15,114
09/30/1994 $16,699 $15,174 $14,438 $15,063 $14,889
10/31/1994 $16,743 $15,516 $14,422 $15,158 $14,926
11/30/1994 $16,538 $14,951 $14,396 $14,829 $14,574
12/31/1994 $16,299 $15,172 $14,491 $14,925 $14,625
01/31/1995 $16,470 $15,565 $14,770 $15,085 $14,897
02/28/1995 $16,754 $16,172 $15,112 $15,497 $15,278
03/31/1995 $16,971 $16,650 $15,213 $15,746 $15,523
04/30/1995 $17,461 $17,139 $15,426 $16,066 $15,821
05/31/1995 $18,064 $17,825 $16,073 $16,662 $16,337
06/30/1995 $18,266 $18,238 $16,201 $16,960 $16,513
07/31/1995 $18,520 $18,844 $16,138 $17,294 $16,800
08/31/1995 $18,702 $18,891 $16,345 $17,424 $16,955
09/30/1995 $19,126 $19,688 $16,511 $17,748 $17,353
10/31/1995 $19,114 $19,617 $16,754 $17,721 $17,255
11/30/1995 $19,429 $20,478 $17,031 $18,202 $17,793
12/31/1995 $19,950 $20,873 $17,281 $18,407 $18,127
01/31/1996 $20,519 $21,583 $17,388 $18,770 $18,457
02/29/1996 $20,180 $21,784 $17,020 $18,719 $18,417
03/31/1996 $20,168 $21,993 $16,877 $18,798 $18,500
04/30/1996 $20,083 $22,316 $16,760 $18,873 $18,570
05/31/1996 $20,313 $22,892 $16,732 $19,045 $18,730
06/30/1996 $20,755 $22,979 $16,954 $19,094 $18,848
07/31/1996 $20,381 $21,963 $16,993 $18,638 $18,393
08/31/1996 $20,691 $22,427 $16,951 $18,925 $18,706
09/30/1996 $21,103 $23,689 $17,252 $19,555 $19,181
10/31/1996 $21,465 $24,343 $17,654 $19,870 $19,532
11/30/1996 $22,097 $26,184 $17,979 $20,727 $20,198
12/31/1996 $22,200 $25,665 $17,780 $20,534 $20,099
01/31/1997 $22,535 $27,269 $17,801 $21,047 $20,455
02/28/1997 $22,884 $27,482 $17,838 $21,106 $20,568
03/31/1997 $22,380 $26,352 $17,626 $20,671 $20,144
04/30/1997 $22,458 $27,926 $17,883 $21,132 $20,432
05/31/1997 $23,206 $29,626 $18,050 $21,880 $21,149
06/30/1997 $23,673 $30,954 $18,266 $22,421 $21,682
07/31/1997 $24,267 $33,417 $18,825 $23,484 $22,567
08/31/1997 $24,126 $31,546 $18,614 $22,988 $22,201
09/30/1997 $24,904 $33,275 $18,907 $23,724 $22,963
10/31/1997 $24,480 $32,163 $19,209 $23,389 $22,712
11/30/1997 $25,159 $33,653 $19,311 $23,738 $23,051
12/31/1997 $25,994 $34,231 $19,514 $24,039 $23,438
01/31/1998 $25,739 $34,611 $19,789 $24,212 $23,506
02/28/1998 $26,135 $37,107 $19,749 $24,888 $24,138
03/31/1998 $26,942 $39,007 $19,811 $25,445 $24,691
04/30/1998 $26,602 $39,401 $19,910 $25,547 $24,743
05/31/1998 $26,291 $38,723 $20,123 $25,460 $24,597
06/30/1998 $26,326 $40,295 $20,328 $25,720 $24,776
07/31/1998 $25,686 $39,864 $20,344 $25,481 $24,514
08/31/1998 $24,312 $34,100 $20,741 $24,161 $23,004
09/30/1998 $25,733 $36,285 $21,334 $25,002 $23,694
10/31/1998 $25,827 $39,236 $21,183 $25,557 $24,161
11/30/1998 $26,467 $41,613 $21,310 $26,178 $24,767
12/31/1998 $26,420 $44,010 $21,363 $26,699 $25,240
01/31/1999 $25,984 $45,850 $21,515 $26,955 $25,369
02/28/1999 $25,220 $44,424 $21,003 $26,267 $24,882
03/31/1999 $25,533 $46,201 $21,108 $26,722 $25,292
04/30/1999 $26,891 $47,989 $21,160 $27,617 $26,124
05/31/1999 $26,891 $46,856 $20,942 $27,338 $25,915
06/30/1999 $26,891 $49,457 $20,877 $27,743 $26,273
07/31/1999 $26,579 $47,914 $20,819 $27,402 $25,960
08/31/1999 $26,651 $47,674 $20,802 $27,207 $25,701
09/30/1999 $26,403 $46,368 $20,990 $26,908 $25,511
10/31/1999 $26,438 $49,303 $21,044 $27,419 $25,960
11/30/1999 $25,925 $50,304 $21,032 $27,548 $26,017
12/31/1999 $25,941 $53,267 $20,903 $28,038 $26,519
</TABLE>
FRANKLIN REAL ESTATE FUND
During the year under review, real estate securities turned in a weak overall
performance. Investor concerns about a slowdown in real estate investment
trusts' (REITs') cash-flow growth rate and a lack of investor interest in value
stocks in general apparently weighed on the group. For the 12 months ended
December 31, 1999, the Wilshire Real Estate Securities Index, the fund's
benchmark and a good indicator of real estate securities' performance, declined
3.2%, compared with a 21.0% gain for the Standard & Poor's 500 (S&P 500) Index.
On the bright side, as a result of their lower stock prices, REITs were trading
at what we considered the most attractive valuations seen in the last several
years.
The diversified property sector, which includes REITs that have investments
across a number of property types, represented the portfolio's largest
weighting, with 23.3% of total net assets on December 31, 1999. During the year,
the fund initiated a position in Reckson Associates Realty Corp., a REIT that
owns and manages office, industrial and retail properties in the northeast U.S.
Reckson's exposure to supply-constrained markets such as New York should enable
the company to sustain robust internal growth going forward.
Given what appeared to be reduced domestic economic risk over the near term, we
believed that office stocks represented an attractive combination of low
valuations and favorable supply and demand fundamentals. Accordingly, this
sector represented the second-largest property-type weighting at the period's
end, with 21.4% of total net
We are replacing the Lipper Growth & Income Funds Objective Average with the
Lipper Annuity Growth & Income Funds Objective Average because the former is
based on a peer group of mutual funds, while the latter is based on a peer group
of annuity sub-accounts and better reflects the portfolio's performance.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Indexes' sources are Standard & Poor's Micropal and Lipper, Inc.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -1.82%
5-Year +9.74%
10-Year +10.00%
Since Inception (1/24/89) +9.97%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
37
<PAGE>
TOP 10 HOLDINGS
Franklin Real Estate Fund
12/31/99
<TABLE>
<CAPTION>
SECURITY % OF TOTAL
SECURITY TYPE NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Equity Office Properties Trust 5.7%
Equity REIT - Office
Equity Residential
Properties Trust 4.7%
Equity REIT - Apartments
Apartment Investment &
Management Co. 4.3%
Equity REIT - Apartments
Security Capital Group Inc. 4.1%
Diversified Property Type
Starwood Hotels & Resorts
Worldwide Inc. 4.0%
Hotels
MeriStar Hospitality Corp. 3.9%
Equity REIT - Hotels
Public Storage Inc. 3.8%
Equity REIT - Storage
Glenborough Realty Trust Inc. 3.6%
Equity REIT -
Diversified Property Type
Liberty Property Trust 3.6%
Equity REIT -
Diversified Property Type
Prologis Trust 3.3%
Equity REIT - Industrial
</TABLE>
assets. During the 12 months under review, the portfolio initiated a position in
CarrAmerica Realty Corp., a national, suburban office REIT. We believe the
company has strong growth opportunities coming from internal growth, a healthy
development pipeline and an expanding executive suites business.
With 15.6% of total net assets, the apartment sector was the third-largest
property sector at the end of the period under review. This sector was the
best-performing property type during the year apparently due to investor
expectations of continued, stable cash-flow growth and the balanced supply and
demand environment for apartments. During the past year, we made some changes to
the apartment group. We reduced our exposure to southern U.S.-based apartments
where we were concerned about excess building potentially leading to oversupply.
As a result, we sold our positions in Gables Residential Trust and Post
Properties Inc. In this same sector, we added a new apartment position,
Apartment Investment & Management Co. (AIMCO). AIMCO is the country's largest
apartment owner and operator with approximately 400,000 units in 49 states, and
we believe it offers significant growth prospects for the next several years.
Looking ahead, we expect real estate industry fundamentals to continue to
benefit from an environment of supply and demand balance and relatively low
interest rates. In addition, earnings growth going into 2000, while leveling
off, does appear solid to us given continued rent growth and selective
development opportunities. Overall, we are optimistic about the prospects for
investing in real estate securities because they appear to possess a combination
of strong fundamentals, favorable valuations and attractive growth
opportunities. We believe this sector should once again attract investors given
such companies' earnings visibility and underlying asset values.
38
<PAGE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Real Estate Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
This graph compares the performance of Franklin Real Estate Fund - Class 1, as
tracked by the growth in value of a $10,000 investment, to that of S&P 500 Index
and Wilshire Real Estate Securities Index from 1/1/90 -12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Wilshire
Real
Real Estate Estate
Securities Fund - Securities
Class 1 S&P 500 Index
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 -2.96% $9,704 -6.71% $9,329 -4.71% $9,529
02/28/1990 -0.20% $9,685 1.29% $9,449 -0.04% $9,525
03/31/1990 0.98% $9,780 2.65% $9,700 -0.23% $9,503
04/30/1990 -1.39% $9,644 -2.49% $9,458 -1.94% $9,319
05/31/1990 0.70% $9,712 9.75% $10,380 -0.44% $9,278
06/30/1990 0.80% $9,789 -0.67% $10,311 0.19% $9,296
07/31/1990 -1.19% $9,673 -0.32% $10,278 -3.83% $8,940
08/31/1990 -7.01% $8,995 -9.04% $9,349 -11.68% $7,895
09/30/1990 -6.57% $8,405 -4.87% $8,893 -11.59% $6,980
10/31/1990 -2.76% $8,172 -0.43% $8,855 -7.20% $6,478
11/30/1990 6.28% $8,685 6.46% $9,427 4.07% $6,741
12/31/1990 1.34% $8,802 2.79% $9,690 -1.29% $6,654
01/31/1991 10.12% $9,692 4.36% $10,113 9.73% $7,302
02/28/1991 2.20% $9,905 7.15% $10,836 5.88% $7,731
03/31/1991 6.74% $10,574 2.42% $11,098 8.91% $8,420
04/30/1991 1.74% $10,758 0.24% $11,125 -0.81% $8,352
05/31/1991 1.17% $10,883 4.31% $11,604 1.55% $8,481
06/30/1991 -2.72% $10,588 -4.58% $11,073 -4.93% $8,063
07/31/1991 1.24% $10,719 4.66% $11,589 -0.42% $8,029
08/31/1991 -0.38% $10,678 2.37% $11,863 -1.21% $7,932
09/30/1991 1.98% $10,890 -1.67% $11,665 -1.14% $7,842
10/31/1991 -1.30% $10,749 1.34% $11,822 -2.25% $7,665
11/30/1991 -0.75% $10,668 -4.03% $11,345 -3.32% $7,411
12/31/1991 6.52% $11,364 11.44% $12,643 7.78% $7,987
01/31/1992 9.05% $12,393 -1.86% $12,408 4.71% $8,364
02/29/1992 -2.77% $12,050 1.29% $12,568 -0.25% $8,343
03/31/1992 -1.84% $11,828 -1.95% $12,323 -2.16% $8,162
04/30/1992 -1.45% $11,656 2.94% $12,685 -1.66% $8,027
05/31/1992 2.34% $11,929 0.49% $12,747 0.40% $8,059
06/30/1992 -0.89% $11,822 -1.49% $12,557 -3.01% $7,817
07/31/1992 4.01% $12,296 4.09% $13,071 0.37% $7,845
08/31/1992 -1.09% $12,162 -2.05% $12,803 -1.51% $7,727
09/30/1992 1.44% $12,337 1.17% $12,953 3.80% $8,021
10/31/1992 1.59% $12,533 0.34% $12,997 1.07% $8,106
11/30/1992 1.15% $12,677 3.40% $13,439 0.86% $8,176
12/31/1992 3.90% $13,171 1.23% $13,604 4.92% $8,578
01/31/1993 4.07% $13,707 0.84% $13,718 6.95% $9,175
02/28/1993 3.61% $14,201 1.36% $13,905 4.84% $9,619
03/31/1993 6.53% $15,128 2.11% $14,198 6.71% $10,264
04/30/1993 -3.95% $14,531 -2.42% $13,855 -5.67% $9,682
05/31/1993 -0.85% $14,407 2.67% $14,225 -1.57% $9,530
06/30/1993 3.45% $14,904 0.29% $14,266 2.62% $9,780
07/31/1993 1.96% $15,196 -0.40% $14,209 2.03% $9,978
08/31/1993 2.67% $15,602 3.79% $14,747 2.08% $10,186
09/30/1993 5.14% $16,405 -0.77% $14,634 4.53% $10,647
10/31/1993 -0.70% $16,290 2.07% $14,937 -2.81% $10,348
11/30/1993 -6.21% $15,279 -0.95% $14,795 -4.36% $9,897
12/31/1993 2.59% $15,675 1.21% $14,974 -0.12% $9,885
01/31/1994 1.80% $15,957 3.40% $15,483 3.00% $10,182
02/28/1994 4.11% $16,613 -2.71% $15,063 4.09% $10,598
03/31/1994 -3.51% $16,030 -4.36% $14,407 -4.63% $10,107
04/30/1994 1.63% $16,290 1.28% $14,591 1.12% $10,221
05/31/1994 1.54% $16,540 1.64% $14,830 2.08% $10,433
06/30/1994 -2.13% $16,188 -2.45% $14,467 -1.97% $10,228
07/31/1994 -0.20% $16,156 3.28% $14,941 0.23% $10,251
08/31/1994 -0.33% $16,103 4.10% $15,554 -0.07% $10,244
09/30/1994 -1.64% $15,840 -2.44% $15,174 -1.67% $10,073
10/31/1994 -3.56% $15,276 2.25% $15,516 -3.66% $9,704
11/30/1994 -3.59% $14,728 -3.64% $14,951 -3.91% $9,325
12/31/1994 9.51% $16,129 1.48% $15,172 7.75% $10,047
01/31/1995 -3.66% $15,539 2.59% $15,565 -3.23% $9,723
02/28/1995 1.76% $15,813 3.90% $16,172 3.13% $10,027
03/31/1995 0.73% $15,929 2.95% $16,650 0.58% $10,085
04/30/1995 -0.26% $15,887 2.94% $17,139 -0.72% $10,013
05/31/1995 4.05% $16,529 4.00% $17,825 3.31% $10,344
06/30/1995 1.69% $16,809 2.32% $18,238 1.74% $10,524
07/31/1995 2.07% $17,158 3.32% $18,844 1.61% $10,694
08/31/1995 2.16% $17,528 0.25% $18,891 1.22% $10,824
09/30/1995 2.86% $18,029 4.22% $19,688 1.84% $11,023
10/31/1995 -2.05% $17,659 -0.36% $19,617 -3.10% $10,682
11/30/1995 1.67% $17,953 4.39% $20,478 1.04% $10,793
12/31/1995 5.58% $18,955 1.93% $20,873 5.80% $11,419
01/31/1996 2.24% $19,380 3.40% $21,583 1.38% $11,576
02/29/1996 1.29% $19,631 0.93% $21,784 1.98% $11,805
03/31/1996 0.11% $19,653 0.96% $21,993 0.81% $11,901
04/30/1996 0.28% $19,707 1.47% $22,316 0.45% $11,955
05/31/1996 1.99% $20,099 2.58% $22,892 2.23% $12,221
06/30/1996 1.08% $20,316 0.38% $22,979 2.00% $12,466
07/31/1996 -0.78% $20,157 -4.42% $21,963 -0.89% $12,355
08/31/1996 4.79% $21,121 2.11% $22,427 4.25% $12,880
09/30/1996 3.16% $21,789 5.63% $23,689 2.50% $13,202
10/31/1996 1.98% $22,221 2.76% $24,343 2.71% $13,559
11/30/1996 3.27% $22,949 7.56% $26,184 4.15% $14,122
12/31/1996 9.71% $25,176 -1.98% $25,665 10.67% $15,629
01/31/1997 1.26% $25,495 6.25% $27,269 1.43% $15,852
02/28/1997 -0.13% $25,461 0.78% $27,482 0.06% $15,862
03/31/1997 0.76% $25,654 -4.11% $26,352 0.34% $15,916
04/30/1997 -2.57% $24,995 5.97% $27,926 -3.23% $15,402
05/31/1997 3.64% $25,904 6.09% $29,626 2.98% $15,861
06/30/1997 4.57% $27,088 4.48% $30,954 4.96% $16,647
07/31/1997 2.72% $27,824 7.96% $33,417 3.29% $17,195
08/31/1997 -0.13% $27,788 -5.60% $31,546 -0.74% $17,068
09/30/1997 9.74% $30,494 5.48% $33,275 9.86% $18,751
10/31/1997 -3.74% $29,355 -3.34% $32,163 -4.25% $17,954
11/30/1997 1.78% $29,877 4.63% $33,653 2.01% $18,315
12/31/1997 1.71% $30,388 1.72% $34,231 2.23% $18,723
01/31/1998 -1.09% $30,055 1.11% $34,611 -1.41% $18,459
02/28/1998 -0.51% $29,901 7.21% $37,107 -1.28% $18,223
03/31/1998 2.14% $30,542 5.12% $39,007 1.97% $18,582
04/30/1998 -2.72% $29,711 1.01% $39,401 -3.15% $17,997
05/31/1998 -1.00% $29,414 -1.72% $38,723 -0.96% $17,824
06/30/1998 -1.34% $29,019 4.06% $40,295 -0.53% $17,729
07/31/1998 -6.91% $27,015 -1.07% $39,864 -6.96% $16,495
08/31/1998 -10.52% $24,174 -14.46% $34,100 -10.39% $14,782
09/30/1998 5.35% $25,468 6.41% $36,285 5.60% $15,609
10/31/1998 -1.59% $25,062 8.13% $39,236 -1.37% $15,395
11/30/1998 1.47% $25,430 6.06% $41,613 1.88% $15,685
12/31/1998 -0.60% $25,278 5.76% $44,010 -1.43% $15,461
01/31/1999 -3.16% $24,479 4.18% $45,850 -2.17% $15,125
02/28/1999 -1.40% $24,136 -3.11% $44,424 -0.79% $15,006
03/31/1999 -0.11% $24,110 4.00% $46,201 -0.60% $14,916
04/30/1999 11.10% $26,786 3.87% $47,989 10.66% $16,506
05/31/1999 1.37% $27,153 -2.36% $46,856 1.69% $16,785
06/30/1999 -1.77% $26,672 5.55% $49,457 -1.70% $16,499
07/31/1999 -4.67% $25,427 -3.12% $47,914 -3.83% $15,867
08/31/1999 -1.94% $24,933 -0.50% $47,674 -1.50% $15,629
09/30/1999 -4.08% $23,916 -2.74% $46,368 -4.51% $14,924
10/31/1999 -2.59% $23,297 6.33% $49,303 -1.86% $14,647
11/30/1999 -2.12% $22,803 2.03% $50,304 -1.52% $14,424
12/31/1999 4.04% $23,725 5.89% $53,267 3.76% $14,967
</TABLE>
FRANKLIN RISING DIVIDENDS SECURITIES FUND
During the year ended December 31, 1999, the domestic economy exhibited solid
growth with only modest inflation. We believe that deflationary fears, prevalent
during the first few months of the reporting period, almost completely
disappeared. The Federal Reserve Board (the Fed) apparently grew increasingly
concerned that the strengthening economy would accelerate inflation. The Fed
reversed last year's cuts in the federal funds target rate, raising it to 5.50%
during the period. U.S. Treasury bond yields rose steadily during the
portfolio's fiscal year, and the 30-year Treasury hit a two-year high of 6.49%
on December 23, 1999.
The stock market continued to be characterized by the strength of a small number
of stocks, particularly technology issues, while most other equities lagged far
behind the major indexes. After struggling early in 1999, the average stock's
performance rose in the spring as investors apparently became more confident of
a global economic recovery. When the Fed increased the federal funds target rate
during the summer, the broader market once again faltered. As a result, the
best-performing stocks over the past year tended to be technology stocks that
were considered to have exciting growth prospects and certain commodity-related
stocks that reacted positively to stronger commodity prices.
We base our investment strategy on our belief that companies with consistently
rising dividends should, over time, also realize appreciation in their stock
prices. We select securities that have had consistent and substantial dividend
increases, strong balance sheets and relatively low price-to-earnings ratios. We
seek fundamentally sound companies that meet our standards and attempt to
acquire them at attractive prices, often when they are out of favor with other
investors.
In their enthusiasm for technology stocks in 1999, investors generally
overlooked or even punished a number of solid, small- and mid-sized companies in
other sectors, despite favorable operating results. Many of these companies'
valuations are modest by historical standards and exceptionally low relative to
the Standard & Poor's 500
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -6.14%
5-Year +8.02%
10-Year +9.02%
Since Inception (1/24/89) +8.69%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
39
<PAGE>
TOP 10 STOCK HOLDINGS
Franklin Rising Dividends Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Family Dollar Stores Inc. 5.6%
Retail Trade
West Pharmaceutical
Services Inc. 5.0%
Health Technology
Cohu Inc. 4.6%
Electronic Technology
Leggett & Platt Inc. 4.2%
Consumer Durables
Pall Corp. 3.5%
Process Industries
Reynolds & Reynolds Co. 3.2%
Technology Services
Alberto-Culver Co. 3.1%
Consumer Non-Durables
National Commerce Bancorp. 3.0%
Finance
Bemis Co. Inc. 2.7%
Process Industries
Kaydon Corp. 2.7%
Producer Manufacturing
</TABLE>
(S&P 500) Index's valuation. We believe that many of the stocks in Franklin
Rising Dividends Securities Fund fit this profile. One such example is the
portfolio's largest position, Family Dollar Stores Inc., a leading participant
in the growing "convenience discounter" format. Family Dollar Stores has
increased its dividend for 23 consecutive years and has no long-term debt. The
company's earnings growth has accelerated in recent years, as low- and
middle-income consumers responded positively to their attractively priced and
conveniently located basic merchandise offering. The company recently completed
its second consecutive year of 30%+ earnings-per-share growth, and appears quite
capable of delivering strong earnings growth on a sustained basis. Nevertheless,
Family Dollar Stores' share price fell 26% in 1999.
Two other companies, Leggett & Platt Inc. and Teleflex Inc., also exemplified
the portfolio's strategy. Leggett manufactures a wide range of engineered
components for residential, office and institutional furnishings, as well as
retail store fixtures. It has increased its dividend for 28 years at a 15%
compound annual rate. In the ten-year period through 1998, Leggett achieved
compound annual growth rates of 15% in revenues, 21% in net earnings and 17% in
earnings per share. Leggett appears to be on track to deliver similar results in
1999. Its stock price, however, fell 2.6% in 1999.
Teleflex is a diversified manufacturer that supplies the aerospace, automotive,
medical and other industrial markets. As of the end of the reporting period,
Teleflex appeared likely to report its 25th consecutive year of increasing
revenues and earnings, following 22 years of dividend increases. For the 20-year
period ended in 1998, Teleflex averaged 18% in annual revenue increases, 17% in
earnings per share and 18% in dividends per share. Despite this enviable record,
Teleflex's share price fell 31% in 1999. Looking forward, the company should
benefit from increased shipments of its popular, adjustable foot pedals,
currently featured on a variety of Ford vehicles. Family Dollar Stores', Legget
& Platt's and Teleflex's share prices all reflected far lower price-to-earnings
ratios than the S&P 500 average.
The portfolio's top-performing stock during the period was Cohu Inc., a
semiconductor test-handling equipment manufacturer. Cohu benefited from a sharp
sales pickup after a slowdown in the last quarter of 1998. Strong order growth
indicates that semiconductor capital equipment purchases should continue to
increase in the coming quarters. Hewlett-Packard Co., which recently had a
highly successful initial public offering of its electronics subsidiary, Agilent
Technologies, Inc., was also popular with investors. Several other portfolio
holdings also performed well, including perennial large-cap favorites, General
Electric Co. and Wal-Mart Stores Inc.
The most significant new position we added to the portfolio during the year was
Lancaster Colony Corp., which appears ready to return to its historical earnings
growth rate after several flat quarters. Each of the company's three business
segments, automotive, specialty foods, and glassware and candles, reported
positive developments.
40
<PAGE>
Lancaster recently increased its dividend for the 37th consecutive year. We made
two other meaningful additions to the portfolio -- Teleflex Inc., discussed
above, and Reynolds & Reynolds Co. Reynolds is a leading information-management
systems provider to the automobile dealership market. Recently, they expanded
their focus to Internet-based solutions.
During the year under review, we eliminated several positions from the
portfolio, including Avery Dennison Corp. and First Union Corp. We sold Avery
Dennison when we felt its valuation became less attractive than those of
alternative investments. First Union's earnings disappointed investors, as the
expense savings and revenue enhancements anticipated from its acquisition of
CoreStates Financial apparently did not live up to expectations.
Notable year-over-year dividend increases during reporting period came from
Graco, Inc. (+27%), Baldor Electric Co. (+20%), Mercury General Corp. (+20%),
Washington Mutual, Inc. (+18%), General Electric Co. (+17%), and National
Commerce Bancorp. (+17%).
As the table on page 40 shows, our ten largest positions on December 31, 1999,
comprised 37.6% of the portfolio's total net assets. It is interesting to note
how these ten companies would, in the aggregate, respond to the portfolio's
screening criteria based on a simple average of statistical measures. On
average, these 10 companies have raised their dividends 17 years in a row and by
274% in the last ten years. Their most recent dividend increases averaged 9.5%,
for a yield of 1.8% on December 31, 1999, and a dividend payout ratio of 30%.
Long-term debt averaged 17% of capitalization, and the average price-to-earnings
ratio was 17.5 versus 28.8 for that of the unmanaged S&P 500 on the same date.
It is our opinion that these companies are representative of the portfolio's
fundamentally high quality. We also believe that, over the long term, companies
that increase cash payments to shareholders, year after year, will be superior
builders of wealth.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Rising Dividends Securities Fund - Class 1
$10,000 Investments (1/27/92 - 12/31/99)
This graph compares the performance of Franklin Rising Dividends Securities Fund
- - Class 1, as tracked by the growth in value of a $10,000 investment, to that of
Wilshire Target Mid Cap Growth Index and Russell Midcap Value Index from 1/27/92
- -12/31/99.
We are replacing the Wilshire Target Mid Cap Growth Index with the Russell
Midcap Value Index. The Wilshire Index has changed composition, and now has
relatively little exposure to financial stocks, which often increase their
dividends annually, and relatively heavy exposure to technology stocks, which
often do not pay dividends. The new index is more closely aligned with the
universe of rising dividends qualifiers, and we believe it more closely matches
the portfolio's investments. Performance shown reflects all fund operating
expenses but does not include any fees, charges or expenses imposed by the
variable annuity or life insurance contracts that use the Franklin Templeton
Variable Insurance Products Trust. If they had been included, performance would
have been 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Russell
Mid Cap
Rising Dividends Wilshire Target Mid Value
Fund - Class 1 Cap Growth Index Index
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/27/1992 $10,000 $10,000 $10,000
01/31/1992 0.00% $10,000 0.39% $10,039 0.33% $10,033
02/29/1992 0.00% $10,000 1.69% $10,208 3.73% $10,407
03/31/1992 -0.70% $9,930 -3.99% $9,801 -1.52% $10,249
04/30/1992 0.50% $9,980 -2.38% $9,568 2.55% $10,511
05/31/1992 1.50% $10,130 -1.25% $9,448 0.93% $10,608
06/30/1992 -1.38% $9,990 -4.54% $9,019 -0.77% $10,527
07/31/1992 3.60% $10,350 5.48% $9,513 4.01% $10,949
08/31/1992 -1.06% $10,240 -2.09% $9,315 -2.92% $10,629
09/30/1992 1.66% $10,410 1.75% $9,478 2.00% $10,842
10/31/1992 1.25% $10,540 4.08% $9,864 2.09% $11,068
11/30/1992 3.04% $10,860 7.66% $10,620 4.21% $11,534
12/31/1992 1.10% $10,980 3.06% $10,945 3.19% $11,902
01/31/1993 -1.09% $10,860 2.26% $11,192 2.53% $12,203
02/28/1993 -1.75% $10,670 -3.37% $10,815 2.16% $12,467
03/31/1993 0.84% $10,760 3.07% $11,147 3.47% $12,899
04/30/1993 -3.44% $10,390 -4.18% $10,681 -1.76% $12,672
05/31/1993 1.35% $10,530 5.70% $11,290 2.25% $12,958
06/30/1993 -1.07% $10,418 0.66% $11,364 2.08% $13,227
07/31/1993 0.00% $10,418 -0.89% $11,263 1.10% $13,373
08/31/1993 1.64% $10,588 5.07% $11,834 3.41% $13,829
09/30/1993 0.00% $10,588 2.51% $12,131 -0.26% $13,793
10/31/1993 1.52% $10,749 0.53% $12,196 -1.13% $13,637
11/30/1993 -2.52% $10,478 -1.56% $12,005 -2.31% $13,322
12/31/1993 1.15% $10,598 5.53% $12,669 3.30% $13,761
01/31/1994 1.32% $10,739 3.53% $13,116 2.91% $14,162
02/28/1994 -3.36% $10,378 0.53% $13,186 -1.78% $13,910
03/31/1994 -4.44% $9,916 -5.95% $12,401 -3.87% $13,371
04/30/1994 0.20% $9,936 0.40% $12,451 1.47% $13,568
05/31/1994 1.41% $10,077 -1.53% $12,261 0.13% $13,586
06/30/1994 -0.27% $10,050 -5.04% $11,643 -1.84% $13,336
07/31/1994 1.01% $10,152 2.44% $11,927 4.00% $13,869
08/31/1994 4.22% $10,580 8.56% $12,948 3.71% $14,384
09/30/1994 -2.31% $10,335 -0.79% $12,845 -3.13% $13,933
10/31/1994 -0.26% $10,309 2.44% $13,159 -0.09% $13,921
11/30/1994 -2.37% $10,064 -4.43% $12,576 -4.41% $13,307
12/31/1994 1.01% $10,166 1.66% $12,785 1.21% $13,468
01/31/1995 2.71% $10,441 0.02% $12,787 2.82% $13,848
02/28/1995 2.93% $10,747 6.00% $13,554 5.05% $14,547
03/31/1995 2.18% $10,982 3.69% $14,055 1.88% $14,821
04/30/1995 0.74% $11,063 1.49% $14,264 2.12% $15,135
05/31/1995 3.41% $11,441 1.64% $14,498 4.02% $15,743
06/30/1995 1.08% $11,564 6.29% $15,410 2.31% $16,107
07/31/1995 2.16% $11,814 8.40% $16,704 3.49% $16,669
08/31/1995 1.68% $12,012 1.53% $16,960 1.96% $16,996
09/30/1995 3.30% $12,408 2.79% $17,433 2.29% $17,385
10/31/1995 -0.84% $12,304 -3.52% $16,819 -1.95% $17,046
11/30/1995 5.17% $12,939 5.25% $17,702 5.47% $17,978
12/31/1995 1.93% $13,190 0.36% $17,766 1.09% $18,174
01/31/1996 1.97% $13,450 1.73% $18,073 2.43% $18,616
02/29/1996 1.47% $13,648 3.74% $18,749 0.95% $18,793
03/31/1996 0.00% $13,648 1.21% $18,976 2.11% $19,189
04/30/1996 -0.23% $13,617 5.93% $20,102 0.85% $19,352
05/31/1996 2.75% $13,992 2.99% $20,703 0.96% $19,538
06/30/1996 1.10% $14,145 -5.45% $19,574 0.11% $19,560
07/31/1996 -2.93% $13,731 -8.56% $17,899 -4.76% $18,629
08/31/1996 2.01% $14,007 7.29% $19,204 4.20% $19,411
09/30/1996 5.16% $14,730 4.73% $20,112 3.67% $20,123
10/31/1996 2.96% $15,166 -2.83% $19,543 2.63% $20,653
11/30/1996 6.94% $16,219 5.63% $20,643 6.28% $21,950
12/31/1996 0.98% $16,379 -1.32% $20,370 -0.42% $21,857
01/31/1997 2.01% $16,709 2.90% $20,961 3.14% $22,544
02/28/1997 2.80% $17,177 -1.89% $20,565 1.69% $22,925
03/31/1997 -3.10% $16,645 -6.11% $19,309 -3.04% $22,228
04/30/1997 2.56% $17,070 3.42% $19,969 2.52% $22,788
05/31/1997 7.73% $18,389 8.27% $21,620 5.89% $24,130
06/30/1997 3.62% $19,054 3.47% $22,371 3.71% $25,025
07/31/1997 8.48% $20,670 7.07% $23,952 7.42% $26,882
08/31/1997 -2.04% $20,250 -0.77% $23,768 -1.17% $26,568
09/30/1997 5.25% $21,312 6.58% $25,332 6.20% $28,215
10/31/1997 -2.44% $20,792 -4.77% $24,123 -3.04% $27,357
11/30/1997 2.40% $21,290 0.59% $24,266 3.37% $28,279
12/31/1997 2.34% $21,789 0.85% $24,472 3.83% $29,362
01/31/1998 -0.46% $21,689 -0.70% $24,301 -1.94% $28,793
02/28/1998 8.07% $23,438 8.24% $26,303 6.68% $30,716
03/31/1998 2.88% $24,113 1.60% $26,724 5.15% $32,298
04/30/1998 -0.32% $24,036 0.70% $26,911 -0.56% $32,117
05/31/1998 -3.64% $23,161 -5.62% $25,398 -2.33% $31,369
06/30/1998 -1.14% $22,898 -0.60% $25,246 0.32% $31,469
07/31/1998 -3.43% $22,113 -5.94% $23,746 -5.07% $29,874
08/31/1998 -15.94% $18,589 -20.29% $18,928 -14.06% $25,673
09/30/1998 4.98% $19,515 4.95% $19,865 5.84% $27,173
10/31/1998 10.68% $21,599 7.91% $21,437 6.48% $28,933
11/30/1998 3.63% $22,383 5.78% $22,676 3.51% $29,949
12/31/1998 4.08% $23,297 6.76% $24,208 3.04% $30,859
01/31/1999 -5.19% $22,088 -2.35% $23,640 -2.33% $30,140
02/28/1999 -3.55% $21,304 -7.98% $21,753 -2.20% $29,477
03/31/1999 -0.66% $21,163 1.77% $22,138 1.43% $29,899
04/30/1999 7.90% $22,835 8.93% $24,115 9.47% $32,730
05/31/1999 1.13% $23,093 1.97% $24,590 0.42% $32,868
06/30/1999 3.73% $23,954 5.09% $25,842 1.14% $33,242
07/31/1999 -1.53% $23,588 -0.55% $25,700 -2.50% $32,411
08/31/1999 -4.13% $22,614 -3.95% $24,685 -3.46% $31,290
09/30/1999 -5.81% $21,300 -1.35% $24,351 -5.06% $29,707
10/31/1999 0.80% $21,470 3.39% $25,177 2.95% $30,583
11/30/1999 -1.22% $21,208 3.82% $26,139 -1.83% $30,023
12/31/1999 -0.80% $21,036 7.34% $28,057 2.68% $30,828
</TABLE>
We are replacing the Wilshire Target Mid Cap Growth Index with the Russell
Midcap Value Index. The Wilshire Index has changed composition, and now has
relatively little exposure to financial stocks, which often increase their
dividends annually, and relatively heavy exposure to technology stocks, which
often do not pay dividends. The new index is more closely aligned with the
universe of rising dividends qualifiers, and we believe it more closely matches
the portfolio's investments. PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING
EXPENSES BUT DOES NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year -9.70%
5-Year +15.65%
Since Inception (1/27/92) +9.83%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
41
<PAGE>
TOP 10 HOLDINGS
Franklin Value Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
JLG Industries Inc. 4.3%
Producer Manufacturing
The Timberland Co., A 4.2%
Consumer Non-Durables
Presidential Life Corp. 3.1%
Finance
Robert Half International Inc. 3.0%
Commercial Services
Tidewater Inc. 2.7%
Transportation
Lancaster Colony Corp. 2.6%
Process Industries
Rowan Cos. Inc. 2.6%
Industrial Services
Professionals Group Inc. 2.6%
Finance
ENSCO International Inc. 2.4%
Industrial Services
Wolverine World Wide Inc. 2.2%
Consumer Non-Durables
</TABLE>
FRANKLIN VALUE SECURITIES FUND
Franklin Value Securities Fund seeks to profit by buying securities the managers
believe are undervalued in the market. These potential bargains present
themselves in various forms. Many sell at low prices relative to earnings, book
value or cash flow, while others may have understated assets such as land or
intangibles, patents and distribution networks, and some may have significant
tax loss carry forwards. We also search for "fallen angels" -- former growth
companies suffering short-term setbacks and sharp price declines, but which we
believe still have significant long-term potential. Value securities have one
characteristic in common -- they are generally out of favor with Wall Street. In
many instances, the company's recent earnings results missed analysts'
estimates, and sometimes they are just too small to reach analysts' radar
screens. However, if we believe their balance sheets are strong and their
managements honest and effective, we are willing to wait for these bargains to
flourish.
During the period under review, the domestic economy remained strong, as
unemployment continued at a 29-year low, inflation remained in check and the
Federal Reserve Board raised interest rates three times during the period,
increasing the federal funds target rate to 5.50%. The major U.S. stock market
news during the reporting period was the unabated flow of capital into equity
securities -- mostly Internet, Internet-related and larger-capitalization brand
name stocks -- while many nervous investors headed for the security of cash
pending the outcome of the millennium bug.
These are trying times for value investors as evidenced by the Wilshire Target
Small Value Index, and the Russell 2000 Value Index, the portfolio's benchmark,
which declined 12.32% and 1.48%, respectively for the year. The 1998 divergence
between growth and value continued during 1999. A handful of large-cap stocks
drove the Standard & Poor's 500 (S&P 500) Index to new highs for the year ended
December 31, 1999, up 21.0% over 1998, while the Nasdaq, led by Internet and
technology stocks, also achieved all-time highs -- ending the year up 85.9% over
the previous year. We are disappointed that the turnaround in small-cap value
stocks witnessed during the May-to-July period fizzled during the third quarter.
Yet, we believe that the market at some point will again discover these
compelling bargains.
During the year under review, we reduced the number of positions held in the
portfolio and redirected those assets into larger, more liquid names. We sold
many holdings that were too small to have an impact on the portfolio and several
where we felt the reasons for owning them had changed. We found what we believed
to be exceptional values in the depressed financial sector including such
fundamentally sound companies as Manulife Financial Corp., a $6 billion life and
health insurer selling at only 1.4 times tangible book value, and Washington
Mutual Inc., a $15 billion diversified financial services provider that has
raised its dividend every quarter since 1995
42
<PAGE>
and every year since 1990. We also added to an existing classic value position
in the consumer-durables sector, D.R. Horton, Inc., a homebuilder with
operations in 24 states. The company has registered 84 consecutive quarters of
earnings growth year over year, increased annual sales growth over the last six
years by an average of 67% and produced earnings-per-share growth of 44% for the
same period, and traded at only 1.1 times book value and about 5 times 2000
estimated earnings at the end of the period.
Although value investing was clearly out of favor during the reporting period,
we feel there were a number of signs that strategic buyers or market investors
recognized a number of our bargain holdings. Five of our portfolio holdings
benefited from announcements of corporate takeovers, all at premiums. Also, the
portfolio's oil drilling and oil services holdings continued to perform well as
oil prices resumed their climb during the second half of the fund's fiscal year.
We continue to stay the course and follow our value investment philosophy.
Patience is an essential ingredient for success in value investing and we remain
confident that our approach has the potential to serve our shareholders well
over the long term.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Value Securities Fund - Class 1
$10,000 Investment (5/1/98 - 12/31/99)
This graph compares the performance of Franklin Value Securities Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the
Wilshire Target Small Company Value Index and Russell 2000 Value Index from
5/1/98 - 12/31/99.
We are replacing the Wilshire Target Small Value Index with the Russell 2000
Value Index because the sponsors of the Wilshire Target Small Value Index
decided not to publish the holdings that comprise the index, which would make it
difficult to determine whether the index is an appropriate comparison for the
portfolio's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the Index are either held by the portfolio or are similar to the portfolio's
holdings. The Russell 2000 Value Index is widely used as a benchmark in the
mutual fund industry and information regarding the index is readily available.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Wilshire Target Russell
Value Securities Smaller Companies 2000 Value
Fund - Class 1 Value Index Index
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1998 $10,000 $10,000 $10,000
05/31/1998 -2.40% $9,760 -2.70% $9,730 -3.54% $9,646
06/30/1998 -6.35% $9,140 -1.71% $9,564 -0.56% $9,592
07/31/1998 -9.85% $8,240 -7.28% $8,867 -7.83% $8,841
08/31/1998 -15.41% $6,970 -11.93% $7,810 -15.66% $7,456
09/30/1998 3.87% $7,240 2.97% $8,041 5.65% $7,878
10/31/1998 5.94% $7,670 3.63% $8,333 2.97% $8,112
11/30/1998 0.26% $7,690 2.87% $8,573 2.71% $8,332
12/31/1998 1.30% $7,790 2.95% $8,825 3.14% $8,593
01/31/1999 -1.80% $7,650 -4.77% $8,404 -2.27% $8,398
02/28/1999 -8.37% $7,009 -5.74% $7,922 -6.83% $7,824
03/31/1999 2.00% $7,150 -1.88% $7,773 -0.82% $7,760
04/30/1999 10.49% $7,900 8.18% $8,409 9.13% $8,469
05/31/1999 3.16% $8,149 2.77% $8,642 3.07% $8,729
06/30/1999 6.01% $8,639 1.74% $8,792 3.62% $9,045
07/31/1999 -2.55% $8,419 -1.06% $8,699 -2.37% $8,830
08/31/1999 -3.57% $8,118 -3.88% $8,362 -3.66% $8,507
09/30/1999 -6.79% $7,567 -4.44% $7,990 -2.00% $8,337
10/31/1999 0.13% $7,577 -3.04% $7,747 -2.00% $8,170
11/30/1999 0.93% $7,647 0.05% $7,751 0.52% $8,213
12/31/1999 3.54% $7,919 -0.17% $7,738 3.07% $8,465
</TABLE>
MUTUAL SHARES SECURITIES FUND
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. A select group of
about 40 companies achieved over-the-top success, while the majority of publicly
traded equities languished. Share prices for a majority of companies listed on
the New York Stock Exchange actually declined in 1999, while a few hundred
white-hot technology stocks pushed most of the indexes, especially the Nasdaq,
to new highs.
We are replacing the Wilshire Target Small Company Value Index with the Russell
2000 Value Index because the sponsors of the Wilshire Target Small Value Index
decided not to publish the holdings that comprise the index, which would make it
difficult to determine whether the index is an appropriate comparison for the
portfolio's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the index are either held by the portfolio or are similar to the portfolio's
holdings. The Russell 2000 Value Index is widely used as a benchmark in the
mutual fund industry and information regarding the index is readily available.
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +1.65%
Since Inception (5/1/98) -13.03%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
43
<PAGE>
TOP 10 HOLDINGS
Mutual Shares Securities Fund
12/31/99
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Telephone & Data
Systems Inc. 3.2%
Telecommunications, U.S.
MediaOne Group Inc. 2.4%
Broadcasting & Publishing,
U.S.
Investor AB, A 2.1%
Multi-Industry, Sweden
Investor AB, B 2.0%
Multi-Industry, Sweden
General Motors Corp. 1.6%
Automobiles, U.S.
Bear Stearns Co. Inc. 1.6%
Financial Services, U.S.
Delphi Automotive
Systems Corp. 1.5%
Automobiles, U.S.
Washington Post Co. 1.5%
Broadcasting & Publishing,
U.S.
United Asset
Management Corp. 1.5%
Financial Services, U.S.
Lagardere SCA 1.5%
Multi-Industry, France
</TABLE>
We achieved our positive 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 portfolio's strong performance.
Telephone & Data Systems Inc., a wireless and wireline telephone company, almost
tripled during the 12 months under review, mainly due to fast growth and the
announced merger of one of its affiliates. In addition, one of the portfolio's
largest holdings, Compagnie Financiere Richemont AG, a Swiss holding company
primarily involved in luxury goods, increased 71% in price in 1999 as the market
value of its strong brand names appreciated.
The year did have its disappointments, 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 were not, including Bank One Corp. and First Union Corp.,
which we sold during the period. Despite these setbacks, the portfolio's overall
performance was strong for a value portfolio 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
Securities Fund. We believe that a number of industries feature attractive
companies trading at low multiples and big discounts to their intrinsic value.
We will 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.
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 wild optimism built into the recent prices does not
allow for error or disappointment. We will not engage in this type of
speculative investing. Instead, we will seek
44
<PAGE>
to determine the true present value of a business while attempting to purchase
its securities at a meaningful discount. Of course, past results do not
guarantee future performance. As always, we are mindful of each investment's
risks as we focus on the downside as well as the upside potential, while
striving to provide shareholders with the best risk-adjusted returns possible.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Mutual Shares Securities Fund - Class 1
$10,000 Investment (11/8/96 - 12/31/99)
This graph compares the performance of Mutual Shares Securities Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of Lipper
Annuity Growth & Income Funds Average and Lipper Growth & Income Funds Average
from 11/8/96 - 12/31/99.
We are replacing the Lipper Growth & Income Funds Objective Average with the
Lipper Annuity Growth & Income Funds Objective Average because the former is
based on a peer group of mutual funds, while the latter is based on a peer group
of annuity sub-accounts and better reflects the portfolio's performance.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Lipper
Annuity Lipper
Mutual Shares Growth & Growth &
Securities Fund - Income Funds Income Funds
Class 1 S&P 500 Average Average
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/08/1996 $10,000 $10,000 $10,000 $10,000
11/30/1996 $10,110 $10,554 $10,470 $10,490
12/31/1996 $10,350 $10,345 $10,373 $10,381
01/31/1997 $10,620 $10,992 $10,823 $10,835
02/28/1997 $10,730 $11,078 $10,898 $10,892
03/31/1997 $10,420 $10,622 $10,517 $10,502
04/30/1997 $10,510 $11,257 $10,900 $10,891
05/31/1997 $10,890 $11,942 $11,564 $11,571
06/30/1997 $11,145 $12,477 $12,006 $12,018
07/31/1997 $11,685 $13,470 $12,866 $12,909
08/31/1997 $11,625 $12,716 $12,451 $12,467
09/30/1997 $12,115 $13,413 $13,075 $13,100
10/31/1997 $11,805 $12,965 $12,629 $12,636
11/30/1997 $11,915 $13,565 $12,962 $12,982
12/31/1997 $12,185 $13,798 $13,177 $13,201
01/31/1998 $12,135 $13,952 $13,202 $13,215
02/28/1998 $12,786 $14,958 $14,100 $14,124
03/31/1998 $13,196 $15,723 $14,752 $14,750
04/30/1998 $13,316 $15,882 $14,858 $14,849
05/31/1998 $13,196 $15,609 $14,565 $14,541
06/30/1998 $13,114 $16,243 $14,797 $14,784
07/31/1998 $12,655 $16,069 $14,413 $14,403
08/31/1998 $10,840 $13,745 $12,355 $12,281
09/30/1998 $10,799 $14,626 $13,016 $12,935
10/31/1998 $11,513 $15,816 $13,977 $13,884
11/30/1998 $12,105 $16,774 $14,681 $14,594
12/31/1998 $12,196 $17,740 $15,327 $15,244
01/31/1999 $12,319 $18,482 $15,606 $15,501
02/28/1999 $12,206 $17,907 $15,141 $15,025
03/31/1999 $12,594 $18,623 $15,662 $15,515
04/30/1999 $13,563 $19,344 $16,644 $16,431
05/31/1999 $13,583 $18,887 $16,454 $16,219
06/30/1999 $13,971 $19,936 $17,137 $16,922
07/31/1999 $13,612 $19,314 $16,654 $16,434
08/31/1999 $13,110 $19,217 $16,331 $16,093
09/30/1999 $12,775 $18,691 $15,797 $15,578
10/31/1999 $13,340 $19,874 $16,454 $16,282
11/30/1999 $13,507 $20,277 $16,668 $16,503
12/31/1999 $13,831 $21,471 $17,363 $17,251
</TABLE>
TEMPLETON GLOBAL ASSET ALLOCATION FUND
At the close of the year under review, U.S. equity markets were in record
territory. Much of the performance came in the year's final two months and was
concentrated in a small number of technology and telecommunications equipment
names. Recent data showed that the U.S. economy grew at a robust annualized rate
of 5.7% in the third quarter of 1999 while the price index for gross domestic
purchases, a measure of inflation, increased only 1.7% for the quarter.
However, the Federal Reserve Board (the Fed) kept a careful eye on the economy's
heady growth. In November 1999, the Fed raised the federal funds target rate a
third time for the year by 0.25%, to 5.5%, reversing their three interest rate
cuts in the second half of 1998 and pushing the 30-year Treasury bond yield to
more than 6.48% on December 31, 1999. Most likely as a result of the rising bond
yields, the portfolio's U.S. insurance and health care stock holdings posted
negative returns for the year, but on the flip side, they also were selling at
valuations we believed were extremely inexpensive at the end of the period. In
addition, we managed to find what we felt were some undervalued U.S. technology
names such as 3Com Corp., Motorola Inc. and Compaq Computer Corp., and we expect
to continue holding these for the foreseeable future.
In Europe, the Bloomberg 500 Index, a measure of European large-company stock
performance, was up 40.7% for the year in local currency terms, but only 21.0%
in U.S.-dollar terms, due to the euro's weakness. Despite such weakness, the
euro's launch in January 1999 appeared to stimulate a massive increase in merger
and
We are replacing the Lipper Income Funds Objective Average with the Lipper
Annuity Income Funds Objective Average because the former is based on a peer
group of mutual funds, while the latter is based on a peer group of annuity
sub-accounts and better reflects the portfolio's performance. PERFORMANCE SHOWN
REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY FEES, CHARGES OR
EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE CONTRACTS THAT USE
THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable sales
charges. Indexes' sources are Standard & Poor's Micropal and Lipper, Inc.
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.
<TABLE>
<CAPTION>
Average Annual Total Return - Class 1
- --------------------------------------------------------------------------------
<S> <C>
1-Year +13.40%
3-Year +10.15%
Since Inception (11/8/96) +10.86%
</TABLE>
[PIE CHART]
ASSET ALLOCATION
Templeton Global Asset Allocation Fund
Based on Total Net Assets
12/31/99
Equity Securities 72.0%
Fixed-Income Securities 24.1%
Short-Term Investments & Other Net Assets 3.9%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
45
<PAGE>
TOP FIVE COUNTRY HOLDINGS
Templeton Global Asset Allocation Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
TOP FIVE COUNTRIES NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
U.S. 18.1%
U.K. 14.0%
Hong Kong 6.2%
Japan 5.9%
Netherlands 5.5%
</TABLE>
TOP FIVE INDUSTRY BREAKDOWN
Templeton Global Asset Allocation Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Multi-Industry 8.8%
Metals & Mining 5.5%
Electrical & Electronics 5.4%
Insurance 5.1%
Financial Services 4.7%
</TABLE>
acquisition activity, which increased 50% in 1999 to $1.5 trillion, and possibly
will lead to improved corporate profitability as companies restructure to cut
excess capacity and lower costs.
We remain positive about the prospects for European economic growth and
corporate profits in 2000. However, we are somewhat cautious because European
companies will need to operate in a more competitive environment as the euro
creates price transparency and as markets continue to be deregulated and
privatized. Yet, we expect some of the portfolio's top holdings including
Koninklijke Philips Electronics NV, Invensys PLC, Akzo Nobel NV and Aventis SA
to benefit from corporate restructurings in the year ahead.
Latin American markets came back strongly during the period, as the region
benefited from the pickup in global economic growth and commodity prices' sharp
rebound. Latin America's largest markets, as measured by the Mexican Bolsa and
Brazilian Bovespa indexes, were up 90.4% and 76.6%, respectively, in U.S.-dollar
terms for the year under review. Mexico benefited from oil-price strength as
well as a robust U.S. economy, while lower domestic interest rates in Brazil
apparently started to turn the economy around and stimulate flows into equities.
In our opinion, the main risk to Latin American countries remained higher U.S.
interest rates, which could take liquidity out of the equity markets. We
therefore took some profits in holdings such as Brazilian bank Banco Bradesco SA
and leading Mexican telephone services provider Telefonos de Mexico SA.
Finally in Japan, the Nikkei 225 Index posted a strong performance for the year
under review, up more than 54.5% in U.S.-dollar terms. Perceptions that the
Japanese economy finally had bottomed, evidence of real corporate restructuring
and progress in the banking sector seemed to drive the market's results. In the
Japanese banking sector, Fuji Bank, Dai-ichi Kangyo Bank and Industrial Bank of
Japan agreed to merge, forming the world's largest bank by assets, and possibly
beginning a series of much needed consolidation. In the near term, we feel that
corporate downsizing and the yen's ongoing strength will hamper Japan's economic
recovery. Accordingly, we stayed focused on those sectors we believed had the
brightest outlooks, including retailers like Best Denki Co. Ltd. and Laox Co.
Ltd. and companies focused on the domestic economy such as Makita Corp. and
Seino Transportation Co. Ltd.
Due to the stronger world economy, global bond markets generally performed
poorly during the 12 months under review, and the J.P. Morgan Global Government
Bond Index declined 5.08% in U.S.-dollar terms.(1)
1. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc. The
J.P. Morgan Global Government Bond Index tracks the performance of government
securities in several countries. The J.P. Morgan U.S. Government Bond Index
tracks the performance of U.S. government securities. Indexes are unmanaged and
include reinvested interest. One cannot invest directly in an index, nor is an
index representative of the portfolio.
46
<PAGE>
U.S. bonds led the overall decline in prices, as the domestic economy expanded
for an eighth consecutive year -- the longest expansion in the nation's history.
In response, the Fed raised interest rates three times, causing the 30-year
Treasury bond to produce a 12.98% loss for the year, the biggest slump since
regular bond sales began in 1977. For the period, the J.P. Morgan U.S.
Government Bond Index posted a return of -2.88%.(1)
European bond markets fell throughout most of the reporting period as
deregulation, restructuring and economic expansion took hold in much of the
region. As a result of slumping bond prices, yields generally trended higher.
The European Monetary Union Bond Index fell 16.89% and the U.K. 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 in U.S.-dollar terms.
Most Asian bonds offered dismal returns in 1999, although Japan bucked the
trend, returning 5.01% apparently as a result of investor expectations of an
economic recovery, stable interest rates and a stronger yen. 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 the disappointing 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, with
Mexico's performing best, mainly due to its high level of trade and connections
with the U.S. Latin American bonds, and emerging debt in general, fared
relatively well, and the J.P. Morgan Emerging Market Bond Index Plus rose 26.0%
in 1999.(2)
During the 12 months under review, we focused the portfolio's bond portion on
intermediate- and long-term bonds in developed industrial markets, with a small
amount in what we believed were the highest quality and most liquid bonds
available in emerging markets. In our opinion, this combination offered the
opportunity for higher long-term returns at the cost of modestly increased
short-term volatility.
We trimmed our North American exposure during the second half of the year based
on the belief there would be better opportunities for total return in emerging
markets and Europe. In Europe, we added to our Italian holdings and initiated
several Spanish holdings, while decreasing the portfolio's exposure to Belgium
and Germany. We also reduced our stake in the Pacific Rim dollar-bloc countries
(Australia and New Zealand) and added to Japan. The fixed-income assets
allocated to emerging markets added
2. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc. The
J.P. Morgan Emerging Markets Bond Index tracks the performance of fixed income
securities in several emerging markets. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the portfolio.
47
<PAGE>
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and J.P. Morgan.
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.
<TABLE>
<CAPTION>
Average Annual Total Return -- Class 1
- --------------------------------------
<S> <C>
1-Year -7.53%
3-Year +6.29%
Since Inception (5/1/95) +9.68%
</TABLE>
positively to its 1999 performance, and our Latin American stake nearly doubled
over the year, most of which was invested in Mexico. Most of the portfolio's
Latin American bonds were U.S. dollar-denominated sovereign Eurobonds with fixed
coupons, issued by countries with strong repayment capacity.
Looking forward, the critical issue for global interest rates will be the
balance between global growth and inflation, as we believe the world economic
growth trend 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 in the intermediate term.
We expect emerging markets bonds to continue to outperform into the first half
of 2000, with some volatility, and feel these positions should offer superior
returns during the next two to five years.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Templeton Global Asset Allocation Fund - Class 1
$10,000 Investments (5/1/95 - 12/31/99)
This graph compares the performance of Templeton Global Asset Allocation Fund -
Class 1, as tracked by the growth in value of a $10,000 investment, to that of
the MSCI World Index and the J.P. Morgan Global Government Bond Index from
5/1/95 - 12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index sources are MSCI and J.P. Morgan.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton
Global Asset JP Morgan
Allocation Global
Fund - MSCI World Government
Class 1 Index Bond Index
--------------------------------------------------------------
<S> <C> <C> <C>
05/01/1995 $10,000 $10,000 $10,000
05/31/1995 $10,060 $10,085 $10,279
06/30/1995 $10,120 $10,083 $10,343
07/31/1995 $10,330 $10,590 $10,392
08/31/1995 $10,280 $10,356 $10,103
09/30/1995 $10,380 $10,660 $10,331
10/31/1995 $10,310 $10,494 $10,432
11/30/1995 $10,420 $10,860 $10,548
12/31/1995 $10,690 $11,180 $10,679
01/31/1996 $11,066 $11,384 $10,569
02/29/1996 $11,137 $11,455 $10,508
03/31/1996 $11,208 $11,648 $10,491
04/30/1996 $11,411 $11,924 $10,453
05/31/1996 $11,513 $11,936 $10,463
06/30/1996 $11,569 $11,999 $10,555
07/31/1996 $11,396 $11,577 $10,749
08/31/1996 $11,640 $11,713 $10,794
09/30/1996 $11,915 $12,173 $10,853
10/31/1996 $12,047 $12,260 $11,069
11/30/1996 $12,587 $12,950 $11,227
12/31/1996 $12,810 $12,745 $11,148
01/31/1997 $13,024 $12,900 $10,870
02/28/1997 $13,136 $13,051 $10,794
03/31/1997 $13,055 $12,795 $10,712
04/30/1997 $13,085 $13,215 $10,652
05/31/1997 $13,502 $14,034 $10,903
06/30/1997 $14,009 $14,735 $11,027
07/31/1997 $14,760 $15,416 $10,987
08/31/1997 $14,655 $14,388 $10,973
09/30/1997 $15,396 $15,171 $11,217
10/31/1997 $14,342 $14,375 $11,455
11/30/1997 $14,228 $14,632 $11,317
12/31/1997 $14,311 $14,812 $11,305
01/31/1998 $14,228 $15,228 $11,418
02/28/1998 $15,020 $16,260 $11,503
03/31/1998 $15,531 $16,949 $11,417
04/30/1998 $15,563 $17,117 $11,592
05/31/1998 $15,072 $16,905 $11,642
06/30/1998 $14,712 $17,309 $11,674
07/31/1998 $14,802 $17,283 $11,706
08/31/1998 $12,510 $14,981 $12,030
09/30/1998 $12,781 $15,249 $12,658
10/31/1998 $13,662 $16,630 $12,941
11/30/1998 $14,192 $17,622 $12,795
12/31/1998 $14,305 $18,486 $13,036
01/31/1999 $13,933 $18,893 $12,929
02/28/1999 $13,413 $18,392 $12,497
03/31/1999 $13,910 $19,161 $12,528
04/30/1999 $14,983 $19,919 $12,524
05/31/1999 $14,475 $19,194 $12,304
06/30/1999 $15,039 $20,092 $12,098
07/31/1999 $14,918 $20,035 $12,364
08/31/1999 $14,842 $20,002 $12,396
09/30/1999 $14,384 $19,811 $12,574
10/31/1999 $14,321 $20,843 $12,559
11/30/1999 $14,702 $21,432 $12,410
12/31/1999 $15,397 $23,170 $12,374
</TABLE>
PORTFOLIOS SEEKING INCOME
FRANKLIN HIGH INCOME FUND
The past year brought difficult conditions to the fixed-income markets. Strong
U.S. economic growth, signs of recovery in most of the overseas financial
markets and a weaker dollar characterized the period under review. In the U.S.,
stronger-than-anticipated growth renewed inflation fears, as the 30-year
Treasury bond's yield rose from 5.10% at the beginning of the period to 6.48% on
December 31, 1999. Within this environment, the corporate high yield market
outperformed most other fixed-income asset classes. This resulted from high
yield securities' lower correlation with interest-rate changes, compared with
most other fixed-income asset classes. During the year, the fund underperformed
its benchmark, the C.S. First Boston Global High Yield Index.
Our most significant sector allocation adjustment for the reporting period was
an increase in the portfolio's telecommunications industry weighting. We made
this
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
48
<PAGE>
decision based on what we believed were the industry's solid fundamentals, as
represented by global deregulation, technological convergence and consolidation.
The portfolio benefited as telecommunications proceeded to outperform the
overall high yield market for 1999. We focused on telecommunications companies
with high quality networks, strong management teams and ready access to capital
markets. Solid performers during the period included Intermedia Communications
Inc. and Northeast Optic Network Inc.
Additionally, we maintained a significant weighting in the wireless
communications industry, as increased usage drove industry revenues higher,
despite pricing pressures. Notable industry performers during the period
included Nextel Communications Inc., Rogers Cantel Mobile Inc. and Dobson/Sygnet
Communications Co. We also initiated positions in VoiceStream Wireless Corp., a
leading national provider, and Omnipoint Corp., which will be merged into
VoiceStream in the first quarter of 2000.
We did not significantly alter other industry weightings within the portfolio.
In cable television, we increased our weighting somewhat to take advantage of
the potentially positive merger and acquisition environment, initiating new
positions in Charter Communications Holdings LLC and United Pan-Europe
Communications NV. We slightly reduced our allocation to the industrial segment,
taking profits in such solid performers as Simonds Industries Inc. In industries
such as media, which we feel offer firm growth potential and insulation from
economic cycle volatility, we maintained comfortable weightings.
We focused on securities that we believe will benefit from positive corporate
events and improving credit profiles. This philosophy translated into gains
during the review period for several fund positions, among them Outdoor Systems
Inc., RJR Nabisco Inc., RC/Arby's Corp., Ascent Entertainment Group Inc.,
Diamond Cable Communications Co., and Shoppers Food Warehouse Corp.
Looking forward, we maintain a positive outlook for both the high yield
corporate bond market in general, and the portfolio in particular. We believe
the Federal Reserve Board's (the Fed's) ability to successfully alleviate
recessionary pressures will largely determine the financial markets' performance
in 2000. Specifically, investors are looking to the Fed to engineer "soft
landings." This means slowing the growth rate enough to prevent high inflation
and interest rates, while, at the same time, maintaining enough momentum to
prevent a recession. In our opinion, high yield securities should perform well
going forward, despite recent inflationary data. We believe that in addition to
solid economic fundamentals, high yield securities' attractive valuations and
higher-than-average yield spreads compared to U.S. Treasury bonds should bolster
their performance in the months ahead.
INDUSTRY BREAKDOWN
Franklin High Income Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Telecommunications 29.7%
Consumer Services 21.5%
Process Industries 8.7%
Transportation 5.9%
Producer Manufacturing 4.6%
Energy Minerals 4.3%
Industrial Services 4.2%
Consumer Non-Durables 3.6%
Consumer Durables 2.7%
Technology Services 2.5%
Commercial Services 2.3%
Electronic Technology 2.1%
Finance 2.0%
Health Services 1.3%
Utilities 1.2%
Retail Trade 1.2%
Cash & Equivalents 2.2%
</TABLE>
49
<PAGE>
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Miropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-Year -0.07%
5-Year +8.94%
10-Year +9.14%
Since Inception (1/24/89) +8.45%
</TABLE>
[PIE CHART]
INVESTMENT HOLDINGS
Franklin U.S. Government Fund
Based on Total Net Assets
12/31/99
Mortgage-Backed Securities 75.7%
Agency Notes & Bonds 21.5%
Cash & Equivalents 2.8%
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin High Income Fund -- Class 1
$10,000 Investment (1/1/90 -- 12/31/99)
This graph compares the performance of Franklin High Income Fund - Class 1, as
tracked by the growth in value of a $10,000 investment, to that of the C.S.
First Boston Global High Yield Index and the Consumer Price Index from 1/1/90
- -12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin CS First
High Income Boston Global
Fund - High Yield
Class 1 Index CPI
------------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,793 $9,648 $10,103
02/28/1990 $9,645 $9,470 $10,150
03/31/1990 $9,797 $9,742 $10,206
04/30/1990 $9,705 $9,783 $10,223
05/31/1990 $9,766 $9,987 $10,246
06/30/1990 $10,021 $10,301 $10,301
07/31/1990 $10,246 $10,634 $10,341
08/31/1990 $9,766 $10,143 $10,436
09/30/1990 $9,133 $9,369 $10,523
10/31/1990 $8,765 $9,134 $10,587
11/30/1990 $8,959 $9,317 $10,610
12/31/1990 $9,133 $9,362 $10,610
01/31/1991 $9,225 $9,618 $10,674
02/28/1991 $9,807 $10,449 $10,690
03/31/1991 $10,154 $11,096 $10,706
04/30/1991 $10,430 $11,557 $10,722
05/31/1991 $10,522 $11,615 $10,754
06/30/1991 $10,767 $11,919 $10,785
07/31/1991 $11,024 $12,322 $10,801
08/31/1991 $11,226 $12,546 $10,832
09/30/1991 $11,371 $12,831 $10,880
10/31/1991 $11,651 $13,256 $10,896
11/30/1991 $11,786 $13,362 $10,928
12/31/1991 $11,853 $13,459 $10,936
01/31/1992 $12,233 $14,007 $10,952
02/29/1992 $12,446 $14,347 $10,992
03/31/1992 $12,614 $14,561 $11,048
04/30/1992 $12,692 $14,573 $11,063
05/31/1992 $12,871 $14,771 $11,079
06/30/1992 $12,992 $14,917 $11,118
07/31/1992 $13,239 $15,147 $11,142
08/31/1992 $13,462 $15,356 $11,173
09/30/1992 $13,567 $15,456 $11,204
10/31/1992 $13,403 $15,295 $11,243
11/30/1992 $13,661 $15,524 $11,259
12/31/1992 $13,814 $15,700 $11,251
01/31/1993 $14,072 $16,128 $11,306
02/28/1993 $14,295 $16,448 $11,346
03/31/1993 $14,506 $16,795 $11,386
04/30/1993 $14,565 $16,890 $11,418
05/31/1993 $14,706 $17,137 $11,434
06/30/1993 $15,010 $17,447 $11,450
07/31/1993 $15,120 $17,629 $11,450
08/31/1993 $15,205 $17,779 $11,482
09/30/1993 $15,205 $17,880 $11,506
10/31/1993 $15,717 $18,207 $11,553
11/30/1993 $15,814 $18,437 $11,561
12/31/1993 $15,984 $18,669 $11,561
01/31/1994 $16,325 $19,001 $11,592
02/28/1994 $16,204 $19,030 $11,632
03/31/1994 $15,437 $18,470 $11,671
04/30/1994 $15,217 $18,223 $11,688
05/31/1994 $15,266 $18,327 $11,696
06/30/1994 $15,387 $18,204 $11,736
07/31/1994 $15,362 $18,289 $11,767
08/31/1994 $15,477 $18,421 $11,814
09/30/1994 $15,528 $18,495 $11,846
10/31/1994 $15,560 $18,508 $11,854
11/30/1994 $15,457 $18,293 $11,870
12/31/1994 $15,624 $18,487 $11,870
01/31/1995 $15,880 $18,681 $11,917
02/28/1995 $16,494 $19,140 $11,965
03/31/1995 $16,660 $19,357 $12,005
04/30/1995 $17,147 $19,786 $12,044
05/31/1995 $17,620 $20,344 $12,068
06/30/1995 $17,711 $20,479 $12,092
07/31/1995 $17,958 $20,796 $12,092
08/31/1995 $18,013 $20,854 $12,124
09/30/1995 $18,205 $21,094 $12,148
10/31/1995 $18,451 $21,328 $12,188
11/30/1995 $18,396 $21,429 $12,180
12/31/1995 $18,711 $21,701 $12,171
01/31/1996 $19,068 $22,113 $12,243
02/29/1996 $19,259 $22,230 $12,282
03/31/1996 $19,122 $22,170 $12,346
04/30/1996 $19,218 $22,290 $12,394
05/31/1996 $19,369 $22,471 $12,418
06/30/1996 $19,416 $22,520 $12,425
07/31/1996 $19,612 $22,723 $12,449
08/31/1996 $19,958 $22,970 $12,472
09/30/1996 $20,440 $23,365 $12,512
10/31/1996 $20,635 $23,562 $12,552
11/30/1996 $21,012 $23,929 $12,576
12/31/1996 $21,313 $24,396 $12,576
01/31/1997 $21,448 $24,574 $12,616
02/28/1997 $21,824 $25,036 $12,655
03/31/1997 $21,283 $24,756 $12,687
04/30/1997 $21,539 $24,976 $12,702
05/31/1997 $22,035 $25,478 $12,695
06/30/1997 $22,343 $25,824 $12,710
07/31/1997 $22,935 $26,372 $12,725
08/31/1997 $22,985 $26,514 $12,749
09/30/1997 $23,445 $27,039 $12,781
10/31/1997 $23,264 $27,037 $12,813
11/30/1997 $23,544 $27,228 $12,806
12/31/1997 $23,757 $27,476 $12,790
01/31/1998 $24,086 $27,943 $12,814
02/28/1998 $24,234 $28,161 $12,839
03/31/1998 $24,514 $28,302 $12,863
04/30/1998 $24,662 $28,514 $12,886
05/31/1998 $24,645 $28,600 $12,910
06/30/1998 $24,697 $28,660 $12,925
07/31/1998 $24,860 $28,861 $12,941
08/31/1998 $23,179 $26,901 $12,956
09/30/1998 $23,161 $26,898 $12,972
10/31/1998 $22,583 $26,363 $13,003
11/30/1998 $24,047 $27,700 $13,003
12/31/1998 $23,992 $27,636 $12,995
01/31/1999 $24,263 $27,896 $13,026
02/28/1999 $24,048 $27,837 $13,042
03/31/1999 $24,283 $28,090 $13,081
04/30/1999 $24,771 $28,711 $13,176
05/31/1999 $24,246 $28,401 $13,176
06/30/1999 $24,299 $28,415 $13,176
07/31/1999 $24,282 $28,430 $13,216
08/31/1999 $24,006 $28,177 $13,248
09/30/1999 $23,749 $27,960 $13,311
10/31/1999 $23,471 $27,823 $13,335
11/30/1999 $23,983 $28,201 $13,343
12/31/1999 $23,977 $28,542 $13,343
</TABLE>
FRANKLIN U.S. GOVERNMENT FUND
The year 1999 saw rapid economic growth and a tight labor market, conditions in
which inflation rose slightly, but still remained subdued by historical
standards. For fixed-income investors, several factors combined to drive bond
prices lower during the reporting period. In addition to strong U.S. economic
growth, recovering international markets and rising commodity prices led to
higher interest rates. For example, the 30-year Treasury bond yield increased
from 5.10% at the beginning of the year under review, to 6.48% on December 31,
1999. Interest rates and bond prices move in an inverse relationship, so as
interest rates rise, bond prices fall.
With improved national and international financial market conditions, the
Federal Reserve Board (the Fed) feared that a labor shortage, reflected by
December's unemployment rate decline to 4.1%, would put upward pressure on
prices. In a pre-emptive measure to contain long-term inflation, the Fed raised
the federal funds target rate three times during the year. This fully reversed
all 75 basis points of 1998's easing, returning the federal funds rate to 5.5%.
Higher interest rates worked their way through the economy over the course of
the year. For instance, the Federal Home Loan Mortgage Association (FHLMC or
Freddie Mac) conforming 30-year fixed mortgage rate rose from 6.77% to 8.06%
during the one-year period ended December 31, 1999. As mortgage rates rose, the
incentive for homeowners to refinance their loans declined. This helped
Government National Mortgage Association (GNMA or Ginnie Mae) mortgage
pass-through securities to significantly outperform Treasury and U.S. government
agency securities in 1999.
Going forward, we expect GNMA pass-through securities to continue to perform
well. We also believe bond yields may fall again once the Fed completes its
current interest-rate raising cycle. As of the end of the reporting period, the
market was discounting 0.5% of Fed tightening by the middle of 2000. We will
continue to manage Franklin U.S. Government Fund primarily as a mortgage income
fund, emphasizing
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
50
<PAGE>
GNMA and other agency mortgage pass-through securities for their potentially
attractive income advantages compared with U.S. Treasury securities.
Furthermore, the fund will continue to invest in non-mortgage securities, such
as Treasury and U.S. government agency securities, for diversification purposes.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin U.S. Government Fund - Class 1
$10,000 Investment (1/1/90 - 12/31/99)
This graph compares the performance of Franklin U.S. Government Fund - Class 1,
as tracked by the growth in value of a $10,000 investment, to that of the Lehman
Brothers Intermediate Government Bond Index and the Consumer Price Index from
1/1/90 - 12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin U.S. Lehman Brothers CPI
Government Fund - Intermediate Government
Class 1 Bond Index
---------------------------------------------------------------
<S> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,886 $9,938 $10,103
02/28/1990 $9,943 $9,975 $10,150
03/31/1990 $9,971 $9,987 $10,206
04/30/1990 $9,866 $9,953 $10,223
05/31/1990 $10,125 $10,166 $10,246
06/30/1990 $10,240 $10,299 $10,301
07/31/1990 $10,403 $10,443 $10,341
08/31/1990 $10,336 $10,406 $10,436
09/30/1990 $10,412 $10,498 $10,523
10/31/1990 $10,527 $10,644 $10,587
11/30/1990 $10,738 $10,805 $10,610
12/31/1990 $10,892 $10,954 $10,610
01/31/1991 $11,055 $11,067 $10,674
02/28/1991 $11,150 $11,134 $10,690
03/31/1991 $11,208 $11,195 $10,706
04/30/1991 $11,294 $11,311 $10,722
05/31/1991 $11,381 $11,374 $10,754
06/30/1991 $11,395 $11,383 $10,785
07/31/1991 $11,554 $11,506 $10,801
08/31/1991 $11,763 $11,725 $10,832
09/30/1991 $12,001 $11,924 $10,880
10/31/1991 $12,150 $12,060 $10,896
11/30/1991 $12,229 $12,201 $10,928
12/31/1991 $12,557 $12,498 $10,936
01/31/1992 $12,378 $12,378 $10,952
02/29/1992 $12,487 $12,416 $10,992
03/31/1992 $12,398 $12,366 $11,048
04/30/1992 $12,497 $12,478 $11,063
05/31/1992 $12,775 $12,664 $11,079
06/30/1992 $12,971 $12,846 $11,118
07/31/1992 $13,238 $13,093 $11,142
08/31/1992 $13,392 $13,226 $11,173
09/30/1992 $13,546 $13,409 $11,204
10/31/1992 $13,321 $13,248 $11,243
11/30/1992 $13,351 $13,193 $11,259
12/31/1992 $13,598 $13,364 $11,251
01/31/1993 $13,885 $13,612 $11,306
02/28/1993 $14,132 $13,812 $11,346
03/31/1993 $14,204 $13,863 $11,386
04/30/1993 $14,286 $13,972 $11,418
05/31/1993 $14,327 $13,934 $11,434
06/30/1993 $14,586 $14,136 $11,450
07/31/1993 $14,683 $14,164 $11,450
08/31/1993 $14,897 $14,375 $11,482
09/30/1993 $14,897 $14,434 $11,506
10/31/1993 $14,972 $14,469 $11,553
11/30/1993 $14,779 $14,396 $11,561
12/31/1993 $14,919 $14,455 $11,561
01/31/1994 $15,112 $14,599 $11,592
02/28/1994 $14,811 $14,399 $11,632
03/31/1994 $14,286 $14,188 $11,671
04/30/1994 $14,147 $14,096 $11,688
05/31/1994 $14,168 $14,106 $11,696
06/30/1994 $14,079 $14,109 $11,736
07/31/1994 $14,430 $14,294 $11,767
08/31/1994 $14,418 $14,335 $11,814
09/30/1994 $14,124 $14,216 $11,846
10/31/1994 $14,059 $14,219 $11,854
11/30/1994 $14,059 $14,155 $11,870
12/31/1994 $14,240 $14,202 $11,870
01/31/1995 $14,557 $14,433 $11,917
02/28/1995 $14,954 $14,712 $11,965
03/31/1995 $15,033 $14,793 $12,005
04/30/1995 $15,260 $14,964 $12,044
05/31/1995 $15,928 $15,386 $12,068
06/30/1995 $16,014 $15,485 $12,092
07/31/1995 $15,966 $15,492 $12,092
08/31/1995 $16,172 $15,621 $12,124
09/30/1995 $16,342 $15,726 $12,148
10/31/1995 $16,561 $15,899 $12,188
11/30/1995 $16,780 $16,093 $12,180
12/31/1995 $17,011 $16,252 $12,171
01/31/1996 $17,120 $16,388 $12,243
02/29/1996 $16,828 $16,215 $12,282
03/31/1996 $16,707 $16,140 $12,346
04/30/1996 $16,598 $16,093 $12,394
05/31/1996 $16,525 $16,085 $12,418
06/30/1996 $16,762 $16,249 $12,425
07/31/1996 $16,801 $16,300 $12,449
08/31/1996 $16,775 $16,318 $12,472
09/30/1996 $17,102 $16,528 $12,512
10/31/1996 $17,469 $16,799 $12,552
11/30/1996 $17,730 $17,002 $12,576
12/31/1996 $17,626 $16,911 $12,576
01/31/1997 $17,704 $16,975 $12,616
02/28/1997 $17,743 $17,002 $12,655
03/31/1997 $17,652 $16,905 $12,687
04/30/1997 $17,914 $17,096 $12,702
05/31/1997 $18,084 $17,230 $12,695
06/30/1997 $18,284 $17,378 $12,710
07/31/1997 $18,685 $17,699 $12,725
08/31/1997 $18,561 $17,632 $12,749
09/30/1997 $18,810 $17,824 $12,781
10/31/1997 $19,031 $18,033 $12,813
11/30/1997 $19,087 $18,072 $12,806
12/31/1997 $19,267 $18,219 $12,790
01/31/1998 $19,474 $18,456 $12,814
02/28/1998 $19,502 $18,435 $12,839
03/31/1998 $19,571 $18,492 $12,863
04/30/1998 $19,668 $18,581 $12,886
05/31/1998 $19,834 $18,709 $12,910
06/30/1998 $19,955 $18,835 $12,925
07/31/1998 $20,014 $18,906 $12,941
08/31/1998 $20,298 $19,264 $12,956
09/30/1998 $20,670 $19,712 $12,972
10/31/1998 $20,551 $19,746 $13,003
11/30/1998 $20,625 $19,685 $13,003
12/31/1998 $20,700 $19,762 $12,995
01/31/1999 $20,835 $19,850 $13,026
02/28/1999 $20,580 $19,579 $13,042
03/31/1999 $20,685 $19,708 $13,081
04/30/1999 $20,760 $19,761 $13,176
05/31/1999 $20,567 $19,640 $13,176
06/30/1999 $20,433 $19,668 $13,176
07/31/1999 $20,276 $19,670 $13,216
08/31/1999 $20,243 $19,697 $13,248
09/30/1999 $20,551 $19,867 $13,311
10/31/1999 $20,615 $19,907 $13,335
11/30/1999 $20,598 $19,920 $13,343
12/31/1999 $20,506 $19,859 $13,343
</TABLE>
FRANKLIN ZERO COUPON 2000 FUND
FRANKLIN ZERO COUPON 2005 FUND
FRANKLIN ZERO COUPON 2010 FUND
Many challenges faced fixed-income investors in 1999. Several factors combined
to push bond prices lower during the year. Strong U.S. economic growth,
recovering international markets and rising commodity prices led to higher
interest rates during the period under review. For example, yield on the 10-year
Treasury note, a good proxy for securities in the Zero Coupon 2010 Fund,
increased from 4.69% at the beginning of the period under review, to 6.44% on
December 31, 1999. Interest rates and bond prices move in an inverse
relationship, so as interest rates rise, bond prices fall.
The U.S. economic expansion brought with it low unemployment and inflation,
which although restrained by historical standards, was still slightly higher
than 1998's. In an effort to prevent inflationary pressures from developing, the
Federal Reserve Board took back all of late 1998's 0.75% easing, raising the
federal funds target rate three times to 5.50% during the reporting period.
Franklin Zero Coupon Funds invest primarily in securities issued by government
sponsored agencies. In our opinion, there is only the slightest amount of
additional risk in these securities relative to direct obligations of the U.S.
government. Due to the inverse relationship zero coupon bond prices have with
interest rates, all three portfolios suffered from the rising interest rates
during the year. Keep in mind that, with less than one year to target maturity,
the Zero Coupon 2000 portfolio will become
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, 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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-YEAR -0.94%
5-YEAR +7.57%
10-YEAR +7.45%
SINCE INCEPTION (3/14/89) +7.40%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
51
<PAGE>
The graph shows the Merrill Lynch Zero Coupon 5- and 1-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2000 target date. PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT
DOES NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY
OR LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any
applicable sales charges. Index source is Standard & Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-YEAR +3.07%
5-YEAR +7.96%
10-YEAR +8.23%
SINCE INCEPTION (3/14/89) +8.62%
</TABLE>
The graph shows the Merrill Lynch Zero Coupon 5- and 1-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2005 target date. PERFORMANCES SHOWN IN THE GRAPHS REFLECT ALL FUND OPERATING
EXPENSES BUT DO NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-YEAR -5.88%
5-YEAR +9.11%
10-YEAR +8.88%
SINCE INCEPTION (3/14/89) +9.63%
</TABLE>
increasingly less sensitive to interest-rate changes, which will reduce the
portfolio's risk but also diminish any chances for capital appreciation.
Normally, individual zero coupon bonds will return a fixed rate, if held to
maturity. Zero coupon investments, therefore, can be attractive for relatively
short-term investors and risk-averse, long-term investors. Of course, a managed
portfolio of zero coupon bonds will fluctuate with cash flow into or out of the
portfolio, or vary with market conditions. We do not try to time the market;
instead, our portfolio activity mirrors shareholder activity.
Looking ahead, we believe inflation should remain subdued, making fixed-income
investments attractive. Zero coupon bonds and our zero coupon portfolios, while
subject to price fluctuation as a result of interest-rate volatility, can offer
investors relatively certain returns if held to maturity. For each portfolio, we
strive to maintain the weighted average maturity as close to the target maturity
as possible so that the portfolio will mirror the features of a zero coupon
bond.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Zero Coupon Fund - 2000
$10,000 Investment (1/1/90 - 12/31/99)
This graph compares the performance of Franklin Zero Coupon Fund - 2000, as
tracked by the growth in value of a $10,000 investment, to that of the Merrill
Lynch Zero Coupon 1-Year Bond Total Return Index, Merrill Lynch Zero Coupon
5-Year Bond Total Return Index and the Consumer Price Index from 1/1/90 -
12/31/99.
The graph shows the Merrill Lynch Zero Coupon 5- and 1-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2000 target date. Performance shown reflects all fund operating expenses but
does not include any fees, charges or expenses imposed by the variable annuity
or life insurance contracts that use the Franklin Templeton Variable Insurance
Products Trust. If they had been included, performance would have been 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 the contract expenses, including any
applicable sales charges. Index source is Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Zero Merrill Lynch Merrill Lynch CPI
Coupon Fund - Zero Coupon Zero Coupon
2000 1-Year Bond Total 5-Year Bond
Return Index Total Return
Index
----------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,576 $10,044 $9,829 $10,103
02/28/1990 $9,567 $10,105 $9,839 $10,150
03/31/1990 $9,559 $10,164 $9,838 $10,206
04/30/1990 $9,179 $10,215 $9,738 $10,223
05/31/1990 $9,624 $10,332 $10,034 $10,246
06/30/1990 $9,866 $10,415 $10,198 $10,301
07/31/1990 $9,996 $10,523 $10,378 $10,341
08/31/1990 $9,550 $10,592 $10,242 $10,436
09/30/1990 $9,671 $10,660 $10,340 $10,523
10/31/1990 $9,903 $10,763 $10,552 $10,587
11/30/1990 $10,396 $10,849 $10,834 $10,610
12/31/1990 $10,591 $10,954 $11,022 $10,610
01/31/1991 $10,711 $11,052 $11,134 $10,674
02/28/1991 $10,730 $11,126 $11,173 $10,690
03/31/1991 $10,711 $11,207 $11,214 $10,706
04/30/1991 $10,888 $11,297 $11,391 $10,722
05/31/1991 $10,879 $11,363 $11,427 $10,754
06/30/1991 $10,819 $11,406 $11,403 $10,785
07/31/1991 $10,963 $11,494 $11,566 $10,801
08/31/1991 $11,385 $11,606 $11,911 $10,832
09/30/1991 $11,798 $11,696 $12,215 $10,880
10/31/1991 $11,875 $11,793 $12,407 $10,896
11/30/1991 $12,038 $11,906 $12,619 $10,928
12/31/1991 $12,575 $12,041 $12,921 $10,936
01/31/1992 $12,172 $12,083 $12,707 $10,952
02/29/1992 $12,249 $12,123 $12,728 $10,992
03/31/1992 $12,153 $12,136 $12,601 $11,048
04/30/1992 $12,201 $12,247 $12,708 $11,063
05/31/1992 $12,499 $12,311 $13,024 $11,079
06/30/1992 $12,860 $12,389 $13,309 $11,118
07/31/1992 $13,430 $12,492 $13,689 $11,142
08/31/1992 $13,610 $12,536 $13,913 $11,173
09/30/1992 $13,990 $12,623 $14,219 $11,204
10/31/1992 $13,630 $12,604 $13,906 $11,243
11/30/1992 $13,490 $12,620 $13,750 $11,259
12/31/1992 $13,880 $12,706 $14,006 $11,251
01/31/1993 $14,250 $12,796 $14,435 $11,306
02/28/1993 $14,790 $12,845 $14,774 $11,346
03/31/1993 $14,970 $12,879 $14,838 $11,386
04/30/1993 $15,040 $12,935 $15,015 $11,418
05/31/1993 $15,030 $12,930 $14,938 $11,434
06/30/1993 $15,621 $12,993 $15,277 $11,450
07/31/1993 $15,715 $13,031 $15,289 $11,450
08/31/1993 $16,122 $13,093 $15,648 $11,482
09/30/1993 $16,226 $13,130 $15,725 $11,506
10/31/1993 $16,362 $13,160 $15,733 $11,553
11/30/1993 $15,976 $13,186 $15,574 $11,561
12/31/1993 $16,122 $13,240 $15,656 $11,561
01/31/1994 $16,404 $13,299 $15,877 $11,592
02/28/1994 $15,819 $13,276 $15,506 $11,632
03/31/1994 $15,287 $13,276 $15,107 $11,671
04/30/1994 $15,099 $13,266 $14,923 $11,688
05/31/1994 $15,099 $13,300 $14,933 $11,696
06/30/1994 $15,090 $13,351 $14,902 $11,736
07/31/1994 $15,388 $13,438 $15,176 $11,767
08/31/1994 $15,388 $13,494 $15,226 $11,814
09/30/1994 $15,090 $13,509 $14,966 $11,846
10/31/1994 $15,012 $13,557 $14,935 $11,854
11/30/1994 $14,935 $13,543 $14,818 $11,870
12/31/1994 $15,034 $13,588 $14,951 $11,870
01/31/1995 $15,332 $13,736 $15,240 $11,917
02/28/1995 $15,807 $13,875 $15,529 $11,965
03/31/1995 $15,895 $13,967 $15,592 $12,005
04/30/1995 $16,127 $14,058 $15,835 $12,044
05/31/1995 $16,966 $14,216 $16,589 $12,068
06/30/1995 $17,104 $14,295 $16,726 $12,092
07/31/1995 $16,988 $14,349 $16,644 $12,092
08/31/1995 $17,184 $14,452 $16,804 $12,124
09/30/1995 $17,311 $14,490 $16,933 $12,148
10/31/1995 $17,623 $14,578 $17,199 $12,188
11/30/1995 $17,922 $14,677 $17,519 $12,180
12/31/1995 $18,142 $14,769 $17,740 $12,171
01/31/1996 $18,349 $14,863 $17,933 $12,243
02/29/1996 $17,992 $14,887 $17,593 $12,282
03/31/1996 $17,773 $14,919 $17,370 $12,346
04/30/1996 $17,634 $14,961 $17,174 $12,394
05/31/1996 $17,553 $15,027 $17,091 $12,418
06/30/1996 $17,762 $15,106 $17,343 $12,425
07/31/1996 $17,811 $15,176 $17,344 $12,449
08/31/1996 $17,787 $15,260 $17,298 $12,472
09/30/1996 $18,080 $15,359 $17,618 $12,512
10/31/1996 $18,484 $15,476 $18,046 $12,552
11/30/1996 $18,765 $15,567 $18,385 $12,576
12/31/1996 $18,582 $15,596 $18,122 $12,576
01/31/1997 $18,643 $15,675 $18,168 $12,616
02/28/1997 $18,643 $15,731 $18,157 $12,655
03/31/1997 $18,496 $15,764 $17,925 $12,687
04/30/1997 $18,704 $15,866 $18,200 $12,702
05/31/1997 $18,863 $15,972 $18,365 $12,695
06/30/1997 $19,021 $16,054 $18,563 $12,710
07/31/1997 $19,416 $16,176 $19,134 $12,725
08/31/1997 $19,310 $16,224 $18,899 $12,749
09/30/1997 $19,521 $16,315 $19,187 $12,781
10/31/1997 $19,744 $16,413 $19,525 $12,813
11/30/1997 $19,757 $16,453 $19,526 $12,806
12/31/1997 $19,902 $16,545 $19,754 $12,790
01/31/1998 $20,191 $16,654 $20,115 $12,814
02/28/1998 $20,152 $16,683 $20,031 $12,839
03/31/1998 $20,204 $16,754 $20,066 $12,863
04/30/1998 $20,310 $16,840 $20,151 $12,886
05/31/1998 $20,441 $16,916 $20,317 $12,910
06/30/1998 $20,557 $16,994 $20,486 $12,925
07/31/1998 $20,658 $17,072 $20,533 $12,941
08/31/1998 $20,962 $17,216 $21,196 $12,956
09/30/1998 $21,294 $17,373 $21,923 $12,972
10/31/1998 $21,380 $17,463 $21,887 $13,003
11/30/1998 $21,337 $17,506 $21,729 $13,003
12/31/1998 $21,395 $17,577 $21,845 $12,995
01/31/1999 $21,468 $17,639 $22,047 $13,026
02/28/1999 $21,367 $17,654 $21,386 $13,042
03/31/1999 $21,497 $17,746 $21,519 $13,081
04/30/1999 $21,555 $17,806 $21,602 $13,176
05/31/1999 $21,540 $17,856 $21,254 $13,176
06/30/1999 $21,613 $17,920 $21,268 $13,176
07/31/1999 $21,665 $17,977 $21,143 $13,216
08/31/1999 $21,730 $18,052 $21,160 $13,248
09/30/1999 $21,843 $18,155 $21,386 $13,311
10/31/1999 $21,909 $18,228 $21,384 $13,335
11/30/1999 $21,974 $18,282 $21,348 $13,343
12/31/1999 $22,051 $18,340 $21,187 $13,343
</TABLE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Zero Coupon Fund - 2005
$10,000 Investment (1/1/90 - 12/31/99)
This graph compares the performance of Franklin Zero Coupon Fund - 2005, as
tracked by the growth in value of a $10,000 investment, to that of the Merrill
Lynch Zero Coupon 5-Year Bond Total Return Index, the Merrill Lynch Zero Coupon
10-Year Bond Total Return Index and the Consumer Price Index from 1/1/90 -
12/31/99.
The graph shows the Merrill Lynch Zero Coupon 5- and 10-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2005 target date. Performances shown in the graphs reflect all fund operating
expenses but do not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts that use the Franklin Templeton
Variable Insurance Products Trust. If they had been included, performance would
have been lower. See the contract prospectus for a complete description of the
contract expenses, including any applicable sales charges. Index source is
Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Merrill Lynch Merrill Lynch CPI
Zero Coupon Zero Coupon Zero Coupon
Fund - 2005 5-Year Bond Total 10-Year Bond
Return Index Total Return
Index
--------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,219 $9,829 $9,594 $10,103
02/28/1990 $9,228 $9,839 $9,573 $10,150
03/31/1990 $9,191 $9,838 $9,566 $10,206
04/30/1990 $8,694 $9,738 $9,298 $10,223
05/31/1990 $9,320 $10,034 $9,742 $10,246
06/30/1990 $9,597 $10,198 $9,974 $10,301
07/31/1990 $9,689 $10,378 $10,082 $10,341
08/31/1990 $8,924 $10,242 $9,606 $10,436
09/30/1990 $9,108 $10,340 $9,715 $10,523
10/31/1990 $9,320 $10,552 $10,029 $10,587
11/30/1990 $9,993 $10,834 $10,465 $10,610
12/31/1990 $10,269 $11,022 $10,701 $10,610
01/31/1991 $10,389 $11,134 $10,809 $10,674
02/28/1991 $10,389 $11,173 $10,823 $10,690
03/31/1991 $10,315 $11,214 $10,900 $10,706
04/30/1991 $10,518 $11,391 $11,077 $10,722
05/31/1991 $10,407 $11,427 $11,064 $10,754
06/30/1991 $10,283 $11,403 $10,987 $10,785
07/31/1991 $10,465 $11,566 $11,180 $10,801
08/31/1991 $10,982 $11,911 $11,624 $10,832
09/30/1991 $11,528 $12,215 $12,024 $10,880
10/31/1991 $11,480 $12,407 $12,081 $10,896
11/30/1991 $11,538 $12,619 $12,252 $10,928
12/31/1991 $12,198 $12,921 $12,922 $10,936
01/31/1992 $11,777 $12,707 $12,383 $10,952
02/29/1992 $11,806 $12,728 $12,457 $10,992
03/31/1992 $11,720 $12,601 $12,296 $11,048
04/30/1992 $11,691 $12,708 $12,245 $11,063
05/31/1992 $12,122 $13,024 $12,602 $11,079
06/30/1992 $12,329 $13,309 $12,898 $11,118
07/31/1992 $13,023 $13,689 $13,495 $11,142
08/31/1992 $13,124 $13,913 $13,648 $11,173
09/30/1992 $13,627 $14,219 $14,071 $11,204
10/31/1992 $13,134 $13,906 $13,661 $11,243
11/30/1992 $13,244 $13,750 $13,649 $11,259
12/31/1992 $13,697 $14,006 $14,121 $11,251
01/31/1993 $14,129 $14,435 $14,685 $11,306
02/28/1993 $14,914 $14,774 $15,259 $11,346
03/31/1993 $15,055 $14,838 $15,303 $11,386
04/30/1993 $15,045 $15,015 $15,516 $11,418
05/31/1993 $15,045 $14,938 $15,431 $11,434
06/30/1993 $16,063 $15,277 $16,278 $11,450
07/31/1993 $16,240 $15,289 $16,412 $11,450
08/31/1993 $16,791 $15,648 $17,039 $11,482
09/30/1993 $16,968 $15,725 $17,242 $11,506
10/31/1993 $17,208 $15,733 $17,315 $11,553
11/30/1993 $16,552 $15,574 $16,738 $11,561
12/31/1993 $16,739 $15,656 $16,886 $11,561
01/31/1994 $17,229 $15,877 $17,378 $11,592
02/28/1994 $16,260 $15,506 $16,550 $11,632
03/31/1994 $15,376 $15,107 $15,699 $11,671
04/30/1994 $15,136 $14,923 $15,453 $11,688
05/31/1994 $15,105 $14,933 $15,375 $11,696
06/30/1994 $15,005 $14,902 $15,260 $11,736
07/31/1994 $15,467 $15,176 $15,698 $11,767
08/31/1994 $15,423 $15,226 $15,724 $11,814
09/30/1994 $14,862 $14,966 $15,158 $11,846
10/31/1994 $14,774 $14,935 $15,047 $11,854
11/30/1994 $14,862 $14,818 $15,119 $11,870
12/31/1994 $15,137 $14,951 $15,381 $11,870
01/31/1995 $15,478 $15,240 $15,788 $11,917
02/28/1995 $15,995 $15,529 $16,396 $11,965
03/31/1995 $16,127 $15,592 $16,510 $12,005
04/30/1995 $16,490 $15,835 $16,832 $12,044
05/31/1995 $17,920 $16,589 $18,242 $12,068
06/30/1995 $18,051 $16,726 $18,482 $12,092
07/31/1995 $17,729 $16,644 $18,177 $12,092
08/31/1995 $18,108 $16,804 $18,536 $12,124
09/30/1995 $18,429 $16,933 $18,841 $12,148
10/31/1995 $18,934 $17,199 $19,319 $12,188
11/30/1995 $19,451 $17,519 $19,910 $12,180
12/31/1995 $19,944 $17,740 $20,396 $12,171
01/31/1996 $20,013 $17,933 $20,439 $12,243
02/29/1996 $19,060 $17,593 $19,468 $12,282
03/31/1996 $18,762 $17,370 $19,093 $12,346
04/30/1996 $18,418 $17,174 $18,644 $12,394
05/31/1996 $18,211 $17,091 $18,524 $12,418
06/30/1996 $18,618 $17,343 $18,940 $12,425
07/31/1996 $18,618 $17,344 $18,934 $12,449
08/31/1996 $18,448 $17,298 $18,730 $12,472
09/30/1996 $18,946 $17,618 $19,286 $12,512
10/31/1996 $19,698 $18,046 $20,049 $12,552
11/30/1996 $20,281 $18,385 $20,762 $12,576
12/31/1996 $19,844 $18,122 $20,192 $12,576
01/31/1997 $19,771 $18,168 $20,111 $12,616
02/28/1997 $19,747 $18,157 $20,113 $12,655
03/31/1997 $19,334 $17,925 $19,535 $12,687
04/30/1997 $19,771 $18,200 $20,060 $12,702
05/31/1997 $19,977 $18,365 $20,297 $12,695
06/30/1997 $20,273 $18,563 $20,657 $12,710
07/31/1997 $21,232 $19,134 $21,829 $12,725
08/31/1997 $20,752 $18,899 $21,182 $12,749
09/30/1997 $21,232 $19,187 $21,794 $12,781
10/31/1997 $21,763 $19,525 $22,473 $12,813
11/30/1997 $21,789 $19,526 $22,587 $12,806
12/31/1997 $22,100 $19,754 $23,028 $12,790
01/31/1998 $22,580 $20,115 $23,505 $12,814
02/28/1998 $22,450 $20,031 $23,367 $12,839
03/31/1998 $22,476 $20,066 $23,380 $12,863
04/30/1998 $22,554 $20,151 $23,462 $12,886
05/31/1998 $22,904 $20,317 $23,835 $12,910
06/30/1998 $23,173 $20,486 $24,268 $12,925
07/31/1998 $23,173 $20,533 $24,294 $12,941
08/31/1998 $24,000 $21,196 $25,515 $12,956
09/30/1998 $25,024 $21,923 $26,904 $12,972
10/31/1998 $24,897 $21,887 $26,418 $13,003
11/30/1998 $24,715 $21,729 $26,512 $13,003
12/31/1998 $24,869 $21,845 $26,603 $12,995
01/31/1999 $24,966 $22,047 $26,791 $13,026
02/28/1999 $24,040 $21,386 $25,337 $13,042
03/31/1999 $24,180 $21,519 $25,316 $13,081
04/30/1999 $24,235 $21,602 $25,476 $13,176
05/31/1999 $23,702 $21,254 $24,744 $13,176
06/30/1999 $23,631 $21,268 $24,611 $13,176
07/31/1999 $23,565 $21,143 $24,236 $13,216
08/31/1999 $23,445 $21,160 $24,179 $13,248
09/30/1999 $23,717 $21,386 $24,465 $13,311
10/31/1999 $23,657 $21,384 $24,425 $13,335
11/30/1999 $23,598 $21,348 $24,257 $13,343
12/31/1999 $23,407 $21,187 $23,851 $13,343
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
52
<PAGE>
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Franklin Zero Coupon Fund - 2010
$10,000 Investment (1/1/90 - 12/31/99)
This graph compares the performance of Franklin Zero Coupon Fund - 2010, as
tracked by the growth in value of a $10,000 investment, to that of the Merrill
Lynch Zero Coupon 10-Year Bond Total Return Index, the Merrill Lynch Zero Coupon
20-Year Bond Total Return Index and the Consumer Price Index from 1/1/90 -
12/31/99.
The graph shows the Merrill Lynch Zero Coupon 10- and 20-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2010 target date. Performances shown in the graphs reflect all fund operating
expenses but do not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts that use the Franklin Templeton
Variable Insurance Products Trust. If they had been included, performance would
have been lower. See the contract prospectus for a complete description of the
contract expenses, including any applicable sales charges. Index source is
Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Franklin Merrill Lynch Merrill Lynch CPI
Zero Coupon Zero Coupon Zero Coupon
Fund - 2010 10-Year Bond 20-Year Bond
Total Return Index Total Return
Index
-------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000 $10,000
01/31/1990 $9,113 $9,594 $9,248 $10,103
02/28/1990 $9,070 $9,573 $9,041 $10,150
03/31/1990 $8,957 $9,566 $8,955 $10,206
04/30/1990 $8,314 $9,298 $8,423 $10,223
05/31/1990 $9,145 $9,742 $9,247 $10,246
06/30/1990 $9,529 $9,974 $9,628 $10,301
07/31/1990 $9,592 $10,082 $9,588 $10,341
08/31/1990 $8,537 $9,606 $8,532 $10,436
09/30/1990 $8,743 $9,715 $8,709 $10,523
10/31/1990 $8,922 $10,029 $8,962 $10,587
11/30/1990 $9,708 $10,465 $9,769 $10,610
12/31/1990 $10,057 $10,701 $10,027 $10,610
01/31/1991 $10,209 $10,809 $10,232 $10,674
02/28/1991 $10,173 $10,823 $10,140 $10,690
03/31/1991 $10,048 $10,900 $10,214 $10,706
04/30/1991 $10,289 $11,077 $10,398 $10,722
05/31/1991 $10,066 $11,064 $10,279 $10,754
06/30/1991 $9,829 $10,987 $10,072 $10,785
07/31/1991 $10,008 $11,180 $10,283 $10,801
08/31/1991 $10,647 $11,624 $10,891 $10,832
09/30/1991 $11,249 $12,024 $11,453 $10,880
10/31/1991 $11,080 $12,081 $11,273 $10,896
11/30/1991 $10,977 $12,252 $11,367 $10,928
12/31/1991 $11,842 $12,922 $12,285 $10,936
01/31/1992 $11,409 $12,383 $11,750 $10,952
02/29/1992 $11,447 $12,457 $11,803 $10,992
03/31/1992 $11,400 $12,296 $11,611 $11,048
04/30/1992 $11,240 $12,245 $11,402 $11,063
05/31/1992 $11,851 $12,602 $11,884 $11,079
06/30/1992 $11,865 $12,898 $11,917 $11,118
07/31/1992 $12,574 $13,495 $12,719 $11,142
08/31/1992 $12,644 $13,648 $12,676 $11,173
09/30/1992 $12,853 $14,071 $12,782 $11,204
10/31/1992 $12,384 $13,661 $12,516 $11,243
11/30/1992 $12,724 $13,649 $12,809 $11,259
12/31/1992 $13,322 $14,121 $13,352 $11,251
01/31/1993 $13,602 $14,685 $13,791 $11,306
02/28/1993 $14,390 $15,259 $14,639 $11,346
03/31/1993 $14,689 $15,303 $14,536 $11,386
04/30/1993 $14,540 $15,516 $14,715 $11,418
05/31/1993 $14,630 $15,431 $14,858 $11,434
06/30/1993 $15,554 $16,278 $16,023 $11,450
07/31/1993 $16,076 $16,412 $16,724 $11,450
08/31/1993 $16,897 $17,039 $17,801 $11,482
09/30/1993 $17,035 $17,242 $17,744 $11,506
10/31/1993 $17,366 $17,315 $18,070 $11,553
11/30/1993 $16,652 $16,738 $17,342 $11,561
12/31/1993 $16,715 $16,886 $17,281 $11,561
01/31/1994 $17,387 $17,378 $17,972 $11,592
02/28/1994 $16,182 $16,550 $16,739 $11,632
03/31/1994 $15,212 $15,699 $15,686 $11,671
04/30/1994 $14,957 $15,453 $15,281 $11,688
05/31/1994 $14,722 $15,375 $14,813 $11,696
06/30/1994 $14,532 $15,260 $14,578 $11,736
07/31/1994 $15,286 $15,698 $15,502 $11,767
08/31/1994 $14,978 $15,724 $15,033 $11,814
09/30/1994 $14,281 $15,158 $14,187 $11,846
10/31/1994 $14,184 $15,047 $14,105 $11,854
11/30/1994 $14,435 $15,119 $14,449 $11,870
12/31/1994 $14,881 $15,381 $14,986 $11,870
01/31/1995 $15,270 $15,788 $15,564 $11,917
02/28/1995 $15,727 $16,396 $16,052 $11,965
03/31/1995 $15,887 $16,510 $16,251 $12,005
04/30/1995 $16,321 $16,832 $16,611 $12,044
05/31/1995 $18,344 $18,242 $19,020 $12,068
06/30/1995 $18,434 $18,482 $19,277 $12,092
07/31/1995 $17,951 $18,177 $18,733 $12,092
08/31/1995 $18,481 $18,536 $19,474 $12,124
09/30/1995 $18,929 $18,841 $20,037 $12,148
10/31/1995 $19,812 $19,319 $21,152 $12,188
11/30/1995 $20,483 $19,910 $21,947 $12,180
12/31/1995 $21,249 $20,396 $22,964 $12,171
01/31/1996 $21,202 $20,439 $22,743 $12,243
02/29/1996 $19,576 $19,468 $20,647 $12,282
03/31/1996 $19,105 $19,093 $19,858 $12,346
04/30/1996 $18,599 $18,644 $19,139 $12,394
05/31/1996 $18,422 $18,524 $19,141 $12,418
06/30/1996 $18,990 $18,940 $19,807 $12,425
07/31/1996 $18,952 $18,934 $19,756 $12,449
08/31/1996 $18,533 $18,730 $19,102 $12,472
09/30/1996 $19,282 $19,286 $20,054 $12,512
10/31/1996 $20,361 $20,049 $21,373 $12,552
11/30/1996 $21,300 $20,762 $22,699 $12,576
12/31/1996 $20,678 $20,192 $21,649 $12,576
01/31/1997 $20,373 $20,111 $21,256 $12,616
02/28/1997 $20,335 $20,113 $21,201 $12,655
03/31/1997 $19,726 $19,535 $20,204 $12,687
04/30/1997 $20,361 $20,060 $21,028 $12,702
05/31/1997 $20,614 $20,297 $21,300 $12,695
06/30/1997 $21,062 $20,657 $22,000 $12,710
07/31/1997 $22,685 $21,829 $24,513 $12,725
08/31/1997 $21,752 $21,182 $23,109 $12,749
09/30/1997 $22,549 $21,794 $24,305 $12,781
10/31/1997 $23,428 $22,473 $25,757 $12,813
11/30/1997 $23,617 $22,587 $26,483 $12,806
12/31/1997 $24,104 $23,028 $27,205 $12,790
01/31/1998 $24,699 $23,505 $27,824 $12,814
02/28/1998 $24,469 $23,367 $27,405 $12,839
03/31/1998 $24,483 $23,380 $27,543 $12,863
04/30/1998 $24,537 $23,462 $27,538 $12,886
05/31/1998 $25,118 $23,835 $28,425 $12,910
06/30/1998 $25,718 $24,268 $29,645 $12,925
07/31/1998 $25,588 $24,294 $29,208 $12,941
08/31/1998 $26,862 $25,515 $31,162 $12,956
09/30/1998 $28,224 $26,904 $32,103 $12,972
10/31/1998 $27,514 $26,418 $30,776 $13,003
11/30/1998 $27,615 $26,512 $31,959 $13,003
12/31/1998 $27,587 $26,603 $31,552 $12,995
01/31/1999 $27,747 $26,791 $31,961 $13,026
02/28/1999 $26,154 $25,337 $29,437 $13,042
03/31/1999 $26,211 $25,316 $29,110 $13,081
04/30/1999 $26,240 $25,476 $29,178 $13,176
05/31/1999 $25,429 $24,744 $28,500 $13,176
06/30/1999 $25,155 $24,611 $27,789 $13,176
07/31/1999 $25,019 $24,236 $27,378 $13,216
08/31/1999 $24,731 $24,179 $27,101 $13,248
09/30/1999 $25,033 $24,465 $27,219 $13,311
10/31/1999 $24,795 $24,425 $27,231 $13,335
11/30/1999 $24,651 $24,257 $27,012 $13,343
12/31/1999 $24,211 $23,851 $26,139 $13,343
</TABLE>
TEMPLETON GLOBAL INCOME SECURITIES FUND
During the year under review, a booming U.S. economy, renewed European economic
growth, a surprising strengthening of Asian economies -- especially Japan's --
and an upswing in the economies of many Latin American nations all contributed
to concerns about inflation and rising interest rates. Global bond markets
generally performed poorly, and the J.P. Morgan Global Government Bond Index
declined 5.08% in U.S. dollar terms.(1)
The U.S. led the overall decline in bond prices, as the domestic economy
expanded for an eighth consecutive year -- the longest expansion in the nation's
history. Although the Consumer Price Index (CPI), a commonly used inflation
gauge, was not 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 maneuvers, the economy,
as measured by gross domestic product (GDP), continued at a blistering 5.70%
annualized rate through the third quarter. The 30-year Treasury bond produced a
- -12.98% total return for the year, and the J.P. Morgan U.S. Government Bond
Index posted a return of -2.88% for the one-year period.(1)
European bond markets fell throughout most of the reporting period as
deregulation, restructuring and economic expansion took hold in much of the
region. The European Monetary Union's (EMU) new currency, the euro, plummeted
14% against the U.S. dollar when it was introduced, but regained the lost ground
and by the end of
The graph shows the Merrill Lynch Zero Coupon 10- and 20-Year Bond Total Return
Indexes, reflecting the portfolio's changing composition as it moves toward its
2010 target date. PERFORMANCES SHOWN IN THE GRAPHS REFLECT ALL FUND OPERATING
EXPENSES BUT DO NOT INCLUDE ANY FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN TEMPLETON
VARIABLE INSURANCE PRODUCTS TRUST. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN 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 the contract
expenses, including any applicable sales charges. Index source is Standard &
Poor's Micropal.
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.
shares.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-YEAR -12.24%
5-YEAR +10.22%
10-YEAR +9.25%
SINCE INCEPTION (3/14/89) +10.04%
</TABLE>
(1). Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Global Government Bond Index tracks the performance of
government securities in several countries. The J.P. Morgan U.S. Government Bond
Index tracks the performance of U.S. government securities. Indexes are
unmanaged and include reinvested interest. One cannot invest directly in an
index, nor is an index representative of the portfolio.
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
53
<PAGE>
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton Global Income Securities Fund
Based on Total Net Assets 12/31/99
Europe 47.8%
North America 23.8%
Latin America 14.6%
Australia/New Zealand 7.0%
Asia 5.4%
Short-Term Investments &
Other Net Assets 1.4%
the year, was being hailed as a catalyst that would harmonize European
markets.(2) As a result of slumping bond prices, yields generally trended
higher. The EMU Bond Index fell 16.84% and the U.K. 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.
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.
Although most foreign bonds offered dismal returns in 1999, Japan's bucked the
trend, returning 5.01% apparently as a result of investor expectations of an
economic recovery, stable interest rates and a stronger yen. For the year under
review, 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 independent credit rating agency, 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 disappointing 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, with
Mexico's, due to its high level of trade and connections with the U.S.,
performing best. Latin American bonds, and emerging debt in general, fared
relatively well and the J.P. Morgan Emerging Market Bond Index Plus rose 26.0%
in 1999.(3)
During the 12 months under review, we attempted to maximize the portfolio's
return by allocating about 80%-90% of total net assets to intermediate- and
long-term bonds in developed markets, and about 10%-20% to what we believed to
be the highest quality and most liquid bonds available in emerging markets. In
our opinion, this combination offered the opportunity for higher long-term
returns at the cost of modestly increased short-term volatility.
At the beginning of the reporting period, 42.9% of the portfolio's total net
assets were dedicated to North American issues. By the end of the year, we
trimmed our position
2. European Union countries which have formed a single market during the 1990s
include: Germany, France, Britain, Italy, Spain, Netherlands, Belgium, Sweden,
Austria, Portugal, Greece, Denmark, Finland, Ireland and Luxembourg. In
principle, the deciding issues for gaining entry into Europe's common market are
whether a country has adopted the institutions and laws to support both
democracy and an open market economy. The common currency, the euro, has yet to
be adopted by the following members: Britain, Sweden, Denmark and Greece.
3. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
The J.P. Morgan Emerging Markets Bond Index tracks the performance of fixed
income securities in several emerging markets. Indexes are unmanaged and include
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the portfolio.
54
<PAGE>
to just under 23.8% because we believed there would be better opportunities for
total return in emerging markets and Europe. In Europe, we added to our German,
Italian and Spanish holdings and decreased the portfolio's exposure to Belgium.
We also reduced the portfolio's stake in the Pacific Rim dollar-bloc countries
(Australia and New Zealand) by 1.1% of total net assets and initiated
approximately 4.8% in Japan. Our Latin American stake nearly doubled over the
year, from 8.7% to 14.6% of total net assets, most of which was invested in
Mexico. Most Latin American bonds in the portfolio were U.S. dollar-denominated
sovereign Eurobonds with fixed coupons, issued by countries with strong
repayment capacity. The portfolio's allocation to emerging markets added
positively to its 1999 performance.
Looking forward, the critical issue for global interest rates will be the
balance between global growth and inflation. Although U.S. economic growth may
decrease slightly, we believe that the trend in world economic growth is clearly
positive, and global inflation may pick up somewhat in the near future. While
not considered an ideal environment for high-quality bonds, the management team
believes a diversified global fixed-income portfolio should still perform
positively in the intermediate term. We expect emerging markets bonds to
outperform into the first half of 2000, despite some volatility, and find these
positions should offer superior returns during the next two to five years.
[LINE GRAPH]
TOTAL RETURN INDEX COMPARISON
Templeton Global Income Securities Fund - Class 1
$10,000 Investment (1/1/90-12/31/99)
This graph compares the performance of the Templeton Global Income Securities
Fund - Class 1, as tracked by the growth in value of a $10,000 investment, to
that of the J.P. Morgan Global Government Bond Index and the Consumer Price
Index from 1/1/90 -12/31/99.
Performance shown reflects all fund operating expenses but does not include any
fees, charges or expenses imposed by the variable annuity or life insurance
contracts that use the Franklin Templeton Variable Insurance Products Trust. If
they had been included, performance would have been 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 the contract expenses, including any applicable
sales charges.
Index sources are J.P. Morgan and Standard & Poor's Micropal.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, you may have a gain or loss when you sell
your shares.
<TABLE>
<CAPTION>
Templeton Global J.P. Morgan Global Government CPI
Income Securities Bond Index
Fund - Class 1
--------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,991 $9,851 1.03% $10,103
02/28/1990 $9,927 $9,744 0.47% $10,150
03/31/1990 $10,032 $9,685 0.55% $10,206
04/30/1990 $10,013 $9,647 0.16% $10,223
05/31/1990 $10,190 $9,955 0.23% $10,246
06/30/1990 $10,479 $10,135 0.54% $10,301
07/31/1990 $10,731 $10,433 0.38% $10,341
08/31/1990 $10,638 $10,352 0.92% $10,436
09/30/1990 $10,629 $10,449 0.84% $10,523
10/31/1990 $10,694 $10,861 0.60% $10,587
11/30/1990 $10,871 $11,053 0.22% $10,610
12/31/1990 $10,983 $11,176 0.00% $10,610
01/31/1991 $11,113 $11,429 0.60% $10,674
02/28/1991 $11,356 $11,440 0.15% $10,690
03/31/1991 $11,113 $11,083 0.15% $10,706
04/30/1991 $11,272 $11,217 0.15% $10,722
05/31/1991 $11,402 $11,226 0.30% $10,754
06/30/1991 $11,307 $11,076 0.29% $10,785
07/31/1991 $11,532 $11,311 0.15% $10,801
08/31/1991 $11,572 $11,546 0.29% $10,832
09/30/1991 $11,878 $11,967 0.44% $10,880
10/31/1991 $12,035 $12,085 0.15% $10,896
11/30/1991 $12,015 $12,282 0.29% $10,928
12/31/1991 $12,338 $12,902 0.07% $10,936
01/31/1992 $12,315 $12,649 0.15% $10,952
02/29/1992 $12,319 $12,613 0.36% $10,992
03/31/1992 $12,329 $12,496 0.51% $11,048
04/30/1992 $12,446 $12,600 0.14% $11,063
05/31/1992 $12,691 $12,958 0.14% $11,079
06/30/1992 $12,688 $13,311 0.36% $11,118
07/31/1992 $12,821 $13,605 0.21% $11,142
08/31/1992 $12,668 $13,967 0.28% $11,173
09/30/1992 $12,074 $13,953 0.28% $11,204
10/31/1992 $12,330 $13,605 0.35% $11,243
11/30/1992 $12,125 $13,363 0.14% $11,259
12/31/1992 $12,289 $13,490 -0.07% $11,251
01/31/1993 $12,381 $13,718 0.49% $11,306
02/28/1993 $12,565 $13,939 0.35% $11,346
03/31/1993 $12,944 $14,154 0.35% $11,386
04/30/1993 $13,334 $14,411 0.28% $11,418
05/31/1993 $13,549 $14,503 0.14% $11,434
06/30/1993 $13,520 $14,515 0.14% $11,450
07/31/1993 $13,563 $14,521 0.00% $11,450
08/31/1993 $13,865 $14,951 0.28% $11,482
09/30/1993 $13,822 $15,109 0.21% $11,506
10/31/1993 $14,145 $15,101 0.41% $11,553
11/30/1993 $13,865 $14,991 0.07% $11,561
12/31/1993 $14,339 $15,144 0.00% $11,561
01/31/1994 $14,608 $15,287 0.27% $11,592
02/28/1994 $14,275 $15,119 0.34% $11,632
03/31/1994 $13,844 $15,050 0.34% $11,671
04/30/1994 $13,833 $15,038 0.14% $11,688
05/31/1994 $13,887 $14,914 0.07% $11,696
06/30/1994 $13,332 $15,091 0.34% $11,736
07/31/1994 $13,544 $15,233 0.27% $11,767
08/31/1994 $13,656 $15,194 0.40% $11,814
09/30/1994 $13,645 $15,269 0.27% $11,846
10/31/1994 $13,725 $15,497 0.07% $11,854
11/30/1994 $13,725 $15,302 0.13% $11,870
12/31/1994 $13,624 $15,338 0.00% $11,870
01/31/1995 $13,535 $15,648 0.40% $11,917
02/28/1995 $13,747 $16,051 0.40% $11,965
03/31/1995 $13,993 $16,868 0.33% $12,005
04/30/1995 $14,306 $17,137 0.33% $12,044
05/31/1995 $14,652 $17,615 0.20% $12,068
06/30/1995 $14,718 $17,725 0.20% $12,092
07/31/1995 $14,811 $17,809 0.00% $12,092
08/31/1995 $14,625 $17,314 0.26% $12,124
09/30/1995 $14,950 $17,704 0.20% $12,148
10/31/1995 $15,194 $17,877 0.33% $12,188
11/30/1995 $15,322 $18,076 -0.07% $12,180
12/31/1995 $15,624 $18,300 -0.07% $12,171
01/31/1996 $15,554 $18,112 0.59% $12,243
02/29/1996 $15,368 $18,007 0.32% $12,282
03/31/1996 $15,415 $17,979 0.52% $12,346
04/30/1996 $15,531 $17,913 0.39% $12,394
05/31/1996 $15,612 $17,931 0.19% $12,418
06/30/1996 $15,822 $18,088 0.06% $12,425
07/31/1996 $15,885 $18,420 0.19% $12,449
08/31/1996 $16,086 $18,497 0.19% $12,472
09/30/1996 $16,338 $18,599 0.32% $12,512
10/31/1996 $16,665 $18,968 0.32% $12,552
11/30/1996 $17,067 $19,239 0.19% $12,576
12/31/1996 $17,130 $19,105 0.00% $12,576
01/31/1997 $16,916 $18,627 0.32% $12,616
02/28/1997 $16,841 $18,498 0.31% $12,655
03/31/1997 $16,778 $18,358 0.25% $12,687
04/30/1997 $16,866 $18,254 0.12% $12,702
05/31/1997 $17,004 $18,685 -0.06% $12,695
06/30/1997 $17,188 $18,897 0.12% $12,710
07/31/1997 $17,310 $18,828 0.12% $12,725
08/31/1997 $17,256 $18,805 0.19% $12,749
09/30/1997 $17,581 $19,222 0.25% $12,781
10/31/1997 $17,364 $19,630 0.25% $12,813
11/30/1997 $17,432 $19,394 -0.06% $12,806
12/31/1997 $17,554 $19,373 -0.12% $12,790
01/31/1998 $17,757 $19,567 0.19% $12,814
02/28/1998 $17,933 $19,712 0.19% $12,839
03/31/1998 $18,014 $19,564 0.19% $12,863
04/30/1998 $18,055 $19,865 0.18% $12,886
05/31/1998 $18,028 $19,951 0.18% $12,910
06/30/1998 $18,023 $20,006 0.12% $12,925
07/31/1998 $18,067 $20,061 0.12% $12,941
08/31/1998 $17,293 $20,615 0.12% $12,956
09/30/1998 $18,213 $21,691 0.12% $12,972
10/31/1998 $18,593 $22,177 0.24% $13,003
11/30/1998 $18,753 $21,927 0.00% $13,003
12/31/1998 $18,797 $22,340 -0.06% $12,995
01/31/1999 $18,841 $22,156 0.24% $13,026
02/28/1999 $18,169 $21,416 0.12% $13,042
03/31/1999 $18,271 $21,469 0.30% $13,081
04/30/1999 $18,388 $21,463 0.73% $13,176
05/31/1999 $17,994 $21,086 0.00% $13,176
06/30/1999 $17,818 $20,733 0.00% $13,176
07/31/1999 $17,898 $21,188 0.30% $13,216
08/31/1999 $17,712 $21,243 0.24% $13,248
09/30/1999 $17,851 $21,549 0.48% $13,311
10/31/1999 $17,774 $21,522 0.18% $13,335
11/30/1999 $17,603 $21,266 0.06% $13,343
12/31/1999 $17,710 $21,205 0.00% $13,343
</TABLE>
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
FRANKLIN MONEY MARKET FUND
During the year under review, the domestic economy expanded at a very strong
pace. Real gross domestic product (GDP) growth for the first three quarters of
the portfolio's fiscal year averaged 3.8%, and most projections for the final
quarter ended in December were also well above the Federal Reserve Board's (the
Fed's) long-term target of 3.0%. Increasing wages, tight labor markets and
higher equity and real estate prices apparently helped spur consumer spending
during the period. A manufacturing
PERFORMANCE SHOWN REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT INCLUDE ANY
FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE ANNUITY OR LIFE INSURANCE
CONTRACTS THAT USE THE FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN 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 the contract expenses, including any applicable
sales charges. Index sources are J.P. Morgan and Standard & Poor's Micropal.
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.
Average Annual Total Return - Class 1
<TABLE>
<S> <C>
1-Year -5.79%
5-Year +5.39%
10-Year +5.88%
Since Inception (1/24/89) +6.23%
</TABLE>
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 57.
55
<PAGE>
TOP 10 HOLDINGS
Franklin Money Market Fund
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
SECURITY NAME NET ASSETS
- ------------- ----------
<S> <C>
U.S. Treasury Repo 9.9%
Federal Home Loan
Mortgage Corp. 6.7%
Bank of Montreal,
Chicago Branch 4.0%
General Mills 4.0%
Bellsouth
Telecommunications Inc. 4.0%
Walt Disney Co. 4.0%
Chevron U.K
Investment PLC 4.0%
Morgan Stanley
Dean Witter & Co. 4.0%
Minnesota Mining &
Manufacturing Co. 4.0%
General Electric Capital Corp. 4.0%
</TABLE>
sector rebound and an improving international environment also contributed to
the stronger economy.
The combination of robust domestic and overseas growth caused the inflation rate
to increase during the period. Inflation as measured by the change in the
Consumer Price Index (CPI) rose from 1.7% in January to 2.7% in December.
Probably in response to the strong growth and higher inflation, the Fed
increased the federal funds target rate 0.75% between June and November,
bringing the rate from 4.75% to 5.50%. In turn, bond prices fell but their
yields rose, a positive outcome for money market investors.
Robust domestic demand coupled with stronger international economies and the
potential for higher inflation will likely keep the Fed on alert for further
tightening. Despite three short-term interest rate increases engineered by the
Fed, the U.S. economy showed no signs of weakening as it entered the new
millennium. Until the economy begins to slow, more Fed tightening is possible.
We continue to invest the portfolio's assets in only the highest quality money
market securities. For example, at the end of the reporting period more than 75%
of the portfolio's positions carried long-term credit ratings of AA or higher by
Standard & Poor's and Moody's, two independent credit rating agencies, with the
balance rated A. Consistent with the portfolio's objective of providing
shareholders with a higher quality and conservative investment vehicle, we do
not invest the portfolio's cash in derivatives or other potentially volatile
securities that we believe involve undue risk.
56
<PAGE>
IMPORTANT ENDNOTES TO
PERFORMANCE INFORMATION
Total return of the portfolio is the percentage change in value of a
hypothetical $10,000 investment over the indicated periods and includes
reinvestment of dividends and capital gains. Inception dates of the portfolios
may have preceded the effective dates of the subaccounts, contracts, or their
availability in all states. Performance data is historical and cannot predict or
guarantee future results. Principal value and investment return will fluctuate
with market conditions, and you may have a gain or loss when you withdraw your
money.
When reviewing the index comparisons, please keep in mind that indexes have a
number of inherent performance differentials over the portfolios. First, unlike
the portfolios, which must hold a minimum amount of cash to maintain liquidity,
indexes do not have a cash component. Second, the portfolios are actively
managed and, thus, are subject to management fees to cover salaries of
securities analysts or portfolio managers in addition to other expenses. Indexes
are unmanaged and do not include any commissions or other expenses typically
associated with investing in securities. Third, indexes often contain a
different mix of securities than the portfolio to which they are compared.
Additionally, please remember that indexes are simply a measure of performance
and cannot be invested in directly.
57
<PAGE>
REPORT OF SPECIAL MEETINGS OF SHAREHOLDERS
At Special Meetings on February 8, 2000, the shareholders of Franklin Small Cap,
Templeton Developing Markets Equity, Templeton Global Asset Allocation, and
Templeton International Equity Funds, each a series of Franklin Templeton
Variable Insurance Products Trust (VIP), approved new investment advisory
agreements, and changes to, and elimination of, certain of the fundamental
investment restrictions, to be effective as of May 1, 2000.
In addition, shareholders of Franklin Rising Dividends Securities Fund, a series
of VIP, approved a modification of the fund's current criteria for the selection
of portfolio companies related to debt as part of the issuer's capital
structure, and changes to, and elimination of, certain of the fund's other
fundamental investment restrictions, to be effective as of May 1, 2000.
The VIP Board of Trustees approved name changes for several of the VIP funds
which will also take effect, as of May 1, 2000.
<TABLE>
<CAPTION>
YOUR CURRENT VIP FUND NAME NEW VIP FUND NAME AS OF MAY 1, 2000
<S> <C>
Templeton Global Asset Allocation Fund Templeton Asset Strategy Fund
Templeton Developing Markets Equity Fund Templeton Developing Markets Securities Fund
Templeton International Equity Fund Templeton International Securities Fund
Templeton Pacific Growth Fund Templeton Pacific Growth Securities Fund
</TABLE>
At the Special Meeting of Shareholders of the Franklin Rising Dividends
Securities Fund, a series of Franklin Templeton Variable Insurance Products
Trust (VIP), held on February 8, 2000, shareholders voted as follows:
1. Regarding the approval of a modification of the Fund's current criteria for
the selection of portfolio companies related to debt as part of the issuer's
capital structure:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
34,642,325.865 31,187,926.239 90.028% 1,310,140.114 3.782% 2,144,259.512 6.190%
</TABLE>
58
<PAGE>
2. Regarding the approval of changes in the following fundamental investments
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
------ --------- ------ ------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) Borrowing 34,642,325.865 30,364,960.448 87.653% 2,004,812.041 5.787% 2,272,553.376 6.560%
(b) Underwriting 34,642,325.865 30,937,738.640 89.306% 1,351,902.686 3.903% 2,352,684.539 6.791%
(c) Lending 34,642,325.865 30,627,603.069 88.411% 1,665,004.505 4.806% 2,349,718.291 6.783%
(d) Real Estate and Commodities 34,642,325.865 30,491,288.755 88.017% 1,824,505.657 5.267% 2,326,531.453 6.716%
(e) Senior Securities 34,642,325.865 30,790,380.970 88.881% 1,583,482.434 4.571% 2,268,462.461 6.548%
(f) Concentration 34,642,325.865 30,873,386.121 89.120% 1,467,482.510 4.237% 2,301,457.234 6.643%
(g) Diversification 34,642,325.865 31,270,378.920 90.266% 1,130,744.766 3.264% 2,241,202.179 6.470%
</TABLE>
3. Regarding the approval to eliminate certain fundamental investment
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
34,642,325.865 31,018,266.640 89.539% 1,407,621.475 4.063% 2,216,437.750 6.398%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
At the Special Meeting of Shareholders of the Franklin Small Cap Fund, a series
of Franklin Templeton Variable Insurance Products Trust (VIP), held on February
8, 2000, shareholders voted as follows:
1. Regarding the approval of a new investment advisory agreement:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
18,422,356.898 15,924,198.742 86.440% 1,460,550.545 7.928% 1,037,607.611 5.632%
</TABLE>
59
<PAGE>
2. Regarding the approval of changes in the following fundamental investments
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) Diversification 18,422,356.898 16,477,970.342 89.446% 913,778.609 4.960% 1,030,607.947 5.594%
(b) Borrowing 18,422,356.898 15,584,213.385 84.594% 1,689,334.485 9.170% 1,148,809.028 6.236%
(c) Lending 18,422,356.898 15,851,672.166 86.046% 1,428,899.473 7.756% 1,141,785.259 6.198%
(d) Underwriting 18,422,356.898 16,015,154.413 86.933% 1,206,200.983 6.548% 1,201,001.502 6.519%
(e) Concentration 18,422,356.898 15,978,912.676 86.737% 1,254,405.961 6.809% 1,189,038.261 6.454%
(f) Senior Securities 18,422,356.898 16,012,931.423 86.921% 1,247,669.028 6.773% 1,161,756.447 6.306%
(g) Real Estate and
Commodities 18,422,356.898 15,872,028.601 86.156% 1,405,639.367 7.630% 1,144,688.930 6.214%
</TABLE>
3. Regarding the approval to eliminate certain fundamental investment
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
18,422,356.898 16,089,736.890 87.338% 1,231,178.818 6.683% 1,101,441.190 5.979%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
At the Special Meeting of Shareholders of the Templeton Developing Markets
Equity (Developing Markets), Templeton Global Asset Allocation (Global Asset
Allocation), and Templeton International Equity Funds (International), each a
series of Franklin Templeton Variable Insurance Products Trust (VIP), held on
February 8, 2000, shareholders voted as follows:
1. Regarding the approval of a new investment advisory agreement:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,643,113.339 91.093% 316,569.083 1.732% 1,310,869.326 7.175%
Global Asset
Allocation 5,290,722.024 4,876,674.848 92.174% 96,681.269 1.827% 317,365.907 5.999%
International 44,149,844.645 40,368,795.570 91.436% 824,499.311 1.867% 2,956,549.764 6.697%
</TABLE>
60
<PAGE>
2. Regarding the approval of changes in the following fundamental investments
restrictions:
(a) Diversification
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,710,277.009 91.460% 251,266.325 1.375% 1,309,008.414 7.165%
Global Asset
Allocation 5,290,722.024 4,655,162.142 87.987% 95,308.429 1.802% 540,251.453 10.211%
International 44,149,844.645 40,132,799.935 90.901% 748,361.204 1.695% 3,268,683.506 7.404%
</TABLE>
(b) Borrowing
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,028,768.210 87.730% 773,840.545 4.236% 1,467,942.993 8.034%
Global Asset
Allocation 5,290,722.024 4,475,809.527 84.597% 256,928.404 4.857% 557,984.093 10.546%
International 44,149,844.645 37,918,778.113 85.887% 2,465,639.919 5.584% 3,765,426.613 8.529%
</TABLE>
(c) Lending
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,248,486.259 88.933% 558,650.236 3.057% 1,463,415.253 8.010%
Global Asset
Allocation 5,290,722.024 4,515,526.810 85.348% 209,939.770 3.968% 565,255.444 10.684%
International 44,149,844.645 38,527,292.561 87.265% 1,884,118.568 4.267% 3,738,433.516 8.468%
</TABLE>
(d) Underwriting
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,284,157.533 89.128% 523,157.546 2.863% 1,463,236.669 8.009%
Global Asset
Allocation 5,290,722.024 4,602,118.027 86.985% 114,619.431 2.166% 573,984.566 10.849%
International 44,149,844.645 39,034,888.689 88.415% 1,426,651.417 3.231% 3,688,304.539 8.354%
</TABLE>
61
<PAGE>
(e) Concentration
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,426,194.875 89.905% 393,199.573 2.152% 1,451,157.300 7.943%
Global Asset
Allocation 5,290,722.024 4,558,580.736 86.162% 131,923.214 2.493% 600,218.074 11.345%
International 44,149,844.645 39,112,258.974 88.590% 1,309,365.688 2.966% 3,728,219.983 8.444%
</TABLE>
(f) Senior Securities
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,409,980.428 89.817% 410,401.607 2.246% 1,450,169.713 7.937%
Global Asset
Allocation 5,290,722.024 4,581,468.769 86.594% 137,363.380 2.597% 571,889.875 10.809%
International 44,149,844.645 39,288,852.525 88.990% 1,276,504.755 2.891% 3,584,487.365 8.119%
</TABLE>
(g) Real Estate and Commodities
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,207,115.077 88.706% 622,804.971 3.409% 1,440,631.700 7.885%
Global Asset
Allocation 5,290,722.024 4,520,220.922 85.437% 185,790.635 3.511% 584,710.467 11.052%
International 44,149,844.645 38,784,297.831 87.847% 1,607,358.554 3.641% 3,758,188.260 8.512%
</TABLE>
3. Regarding the approval to eliminate certain fundamental investment
restrictions:
<TABLE>
<CAPTION>
% OF % OF % OF
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
VOTED VOTED FOR VOTED VOTED AGAINST VOTED VOTED ABSTAIN VOTED
----- --------- ----- -------------- ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Developing Markets 18,270,551.748 16,271,220.422 89.057% 527,502.539 2.887% 1,471,828.787 8.056%
Global Asset
Allocation 5,290,722.024 4,582,110.985 86.607% 178,528.088 3.374% 530,082.951 10.019%
International 44,149,844.645 38,965,505.675 88.257% 1,740,541.099 3.943% 3,443,797.871 7.800%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
62
<PAGE>
INDEX DEFINITIONS
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
CONSUMER PRICE INDEX Measure of the average change in prices for
a fixed basket of goods and services
regularly bought by consumers in the United
States, published by the Bureau of Labor
Statistics.
CREDIT SUISSE FIRST BOSTON The index is an unmanaged, trader-priced
GLOBAL HIGH YIELD portfolio constructed to mirror the high
(CSFB HY) INDEX yield debt market. The index has several
modules representing different sectors of
the high yield market including a cash
paying module, a zerofix module, a
pay-in-kind module, and a defaulted module.
The modular nature of the index allows
customization of data to meet client needs.
The index is divided into other categories
including industry, rating, seniority,
liquidity, market value, security price
range, yield range and other sector
divisions. The CSFB HY Index follows a total
of 250 sectors. CS First Boston has
maintained the index since January 1986.
While the index is priced and run weekly,
monthly returns are typically used for
performance attribution.
FINANCIAL TIMES/ Franklin Templeton customizes this index
S&P ACTUARIES WORLD using 50% of the Financial Times/S&P
(ENERGY 50%/ Actuaries World Energy Index and 50% of the
BASIC INDUSTRIES 50%) Financial Times/S&P Actuaries World Basic
COMPOSITE INDEX Industries Index. Both indexes are compiled
FRANKLIN TEMPLETON by the Financial Times, Goldman Sachs & Co.
CUSTOMIZES THIS INDEX. and Wood Mackenzie & Co., Ltd. in
conjunction with the Institute of Actuaries
and the Faculty of Actuaries. The index
includes electric utilities, waterworks
supply and telephone utilities. The indexes
are weighted arithmetic averages of the
market prices of the elements that make them
up. They also adjust for the intervening
price changes of these elements.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
FINANCIAL TIMES/ This index is compiled by the Financial Times,
S&P ACTUARIES WORLD Goldman Sachs & Co. and Wood Mackenzie & Co.,
UTILITIES INDEX Ltd. in conjunction with the Institute of
Actuaries and the Faculty of Actuaries. The
utilities sector includes electric utilities,
waterworks supply, natural gas utilities and
telephone com- panies. The indexes are weighted
arithmetic averages of the market prices of the
elements that make them up. They also adjust for
the intervening price changes of these elements.
This is a total return index in $U.S.
INTERNATIONAL FINANCE The index tracks the emerging stock markets of
CORPORATION'S (IFC) three world regions based on market
INVESTABLE COMPOSITE INDEX capitalization weighting. Those regions are Latin
America, Asia and Europe/Mideast/Africa. As of
November 1999, the regional weights of the IFC
Composite Index were distributed accordingly:
Asia, 43.5%; Latin America, 24.9%; and
Europe/Mideast/Africa, 31.6%.
J.P. MORGAN GLOBAL GOVERNMENT The index comprises 13 markets, including
BOND INDEX (UNHEDGED) Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, Netherlands, Spain,
Sweden, the U.K. and the U.S. Each country's
weight is determined by the total market
capitalization in $U.S. of all the bonds in that
country's traded index. The J.P. Morgan Global
Government Bond Total Return Index includes only
actively traded, fixed-rate bonds with a
remaining maturity of one year or longer. The
index is unhedged and expressed in terms of $U.S.
LEHMAN BROTHERS The index includes securities in the Lehman
GOVERNMENT/CORPORATE Brothers Government and Corporate indexes. These
BOND INDEX securities must have at least $100 million par
amount outstanding and must be rated investment
grade (Baa3 or better) by Moody's Investors
Service. If a Moody's rating is not available,
the Standard & Poor's or Fitch rating is used.
These must be fixed-rate securities, although
they can carry a coupon that steps up or changes
according to a predetermined schedule, and they
must be dollar-denominated and non-convertible.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
LEHMAN BROTHERS This index includes securities issued by the U.S.
INTERMEDIATE GOVERNMENT government or its agencies with maturities from
BOND INDEX one up to, but not including, 10 years. These
securities must have at least $100 million par
amount outstanding and must be rated investment
grade (Baa3 or better) by Moody's Investors
Service. If a Moody's rating is not available,
the Standard and Poor's or Fitch rating is used.
These must be fixed-rate securities, although
they can carry a coupon that steps up or changes
according to a predetermined schedule, and they
must be dollar-demonimated and non-convertible.
LIPPER GROWTH & INCOME This is an equally weighted average calculation
FUNDS OBJECTIVE AVERAGE of performance figures for all funds within the
Lipper Growth and Income Funds Objective
Category, which is defined as all mutual funds
that combine a growth of earnings orientation and
an income requirement for level and/or rising
dividends. As of September 23, 1998, there were
30 funds in this category.
LIPPER INCOME FUNDS This is an equally weighted average calculation
OBJECTIVE AVERAGE of performance figures for all funds within the
Lipper Income Funds Objective Category, which is
defined as all mutual funds that normally seek a
high level of current income through investing in
income-producing stocks, bonds, and money market
instruments. As of September 23, 1998, there were
10 funds in this category.
MERRILL LYNCH TREASURY The indexes include zero coupon bonds that pay no
ZERO COUPON 1-, 5-, 10-, interest and are issued at a discount from
20-YEAR BOND redemption price.
TOTAL RETURN INDEXES
MORGAN STANLEY CAPITAL This index represents both developed and emerging
INTERNATIONAL (MSCI) markets around the world. "Free" in the title
ALL COUNTRIES - WORLD reflects the actual buying opportunities for
FREE INDEX global investors by taking into account local
market restrictions on share ownership by
foreigners. The MSCI indexes define the local
market for each country by constructing a matrix
of all listed securities, sorting the matrix by
industry, and seeking to capture 60% of the
market capitalization for each group by selecting
the most investable stocks in each industry. The
index applies full market capitalization weights
to each included stock.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
MORGAN STANLEY CAPITAL The index comprises 48 countries around the world, both developed and emerging markets,
INTERNATIONAL (MSCI) except the U. S. "Free" in the title reflects the actual buying opportunities for global
ALL COUNTRIES - WORLD investors by taking into account local market restrictions on share ownership by
EX-U.S. FREE INDEX foreigners. The MSCI indexes define the local market for each country by constructing a
matrix of all listed securities, sorting the matrix by industry, and seeking to capture
60% of the market capitalization for each group by selecting the most investable stocks
in each industry. The index applies full market capitalization weights to each included
stock.
MORGAN STANLEY CAPITAL This index represents 20 developed market countries for Europe, Australasia and the
INTERNATIONAL (MSCI) Far East: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
EUROPE, AUSTRALASIA, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
FAR EAST (EAFE) INDEX Sweden, Switzerland and the U. K. The MSCI indexes define the local market for each
country by constructing a matrix of all listed securities, sort the matrix by industry,
and seek to capture 60% of the market capitalization for each group by selecting the most
investable stocks in each industry. The index applies full market capitalization weights
to each included stock.
MORGAN STANLEY CAPITAL This is a market capitalization-weighted equity index comprising 26 of the 48 countries
INTERNATIONAL (MSCI) in the MSCI universe. "Free" denotes investment opportunities in the developing world
EMERGING MARKETS FREE INDEX available to foreign investors. EMF performance data is calculated in $US and local
currency. The MSCI indexes define the local market for each country by constructing a
matrix of all listed securities, sorting the matrix by industry, and seeking to capture
60% of the market cap for each group by selecting the most investable stocks in each
industry. The index applies full market cap weights to each included stock.
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
MORGAN STANLEY CAPITAL The index comprises five developed market countries or regions in the
INTERNATIONAL (MSCI) Pacific: Australia, Hong Kong, Japan, New Zealand and Singapore. The MSCI
PACIFIC INDEX indexes define the local market for each country by constructing a matrix of
all listed securities, sorting the matrix by industry, and seeking to capture
60% of the market capitalization for each group by selecting the most
investable stocks in each industry. The index applies full market
capitalization weights to each included stock.
MORGAN STANLEY CAPITAL The index comprises the developed markets of 22 countries around the world.
INTERNATIONAL (MSCI) The MSCI indexes define the local market for each country by constructing a
WORLD INDEX matrix of all listed securities, sorting the matrix by industry, and seeking
to capture 60% of the market cap for each group by selecting the most investable
stocks in each industry. The index applies full market cap weights to each
included stock.
RUSSELL MIDCAP VALUE INDEX This index measures the performance of those Russell Midcap companies with lower
price-to-book ratios and lower forecasted growth values. The stocks are also
members of the Russell 1000 Value index.
RUSSELL 1000(R) INDEX Published by Frank Russell Company, the index measures the performance of the 1000
largest companies in the Russell 3000 Index, representing 92% of the market
capitalization of the Russell 3000. The Russell 3000 contains the 3000 largest
companies incorporated in the U.S. and its territories. As of the latest
reconstitution, the average market capitalization of the companies in the
Russell 1000 was approximately $12.1 billion; the median market capitalization
was approximately $3.8 billion. The smallest company in the index had an approximate
market capitalization of $1,350.8 million.
RUSSELL 2000 INDEX The index measures the performance of the 2,000 smallest companies in the Russell
3000 Index, which represents approximately 8% of the total market capitalization
of the Russell 3000 Index. As of the latest reconstitution, the average market
capitalization was approximately $526.4 million; the median market capitalization
was approximately $428.0 million. The largest company in the index had an
approximate market capitalization of $1,349.8 million.
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
RUSSELL 2000 GROWTH INDEX This index measures the performance of those Russell 2000 companies with higher
price-to-book ratios and higher forecasted growth values.
RUSSELL 2000 VALUE INDEX This index measures the performance of those Russell 2000 companies with lower
price-to-book ratios and lower forecasted growth values.
RUSSELL 2500 INDEX Published by Frank Russell Company, the index measures the performance of the
2,500 smallest companies in the Russell 3000 Index, representing approximately
23% of the total market capitalization of the companies in the Russell 3000.
The Russell 3000 contains the 3000 largest companies incorporated in the U.S.
and its territories. As of the latest reconstitution, the average market
capitalization of the Russell 2500 was approximately $876.2 million; the median
market capitalization was approximately $553.5 million. The largest company
in the index had an approximate market capitalization of $3.8 billion.
RUSSELL 3000 VALUE INDEX The index measures the performance of those Russell 3000 Index companies with
lower price-to-book ratios and lower forecasted growth values. The stocks
in this index are also members of either the Russell 1000 Value or the Russell
2000 Value indexes.
SALOMON GLOBAL EX-U.S. This is a total-capitalization weighted index that includes all developed and
LESS THAN $1 BILLION INDEX emerging countries, except the U.S., and includes companies with a total market
capitalization below U.S. $1 billion.
STANDARD & POOR'S 500 The S&P 500 consists of 500 widely held domestic common stocks, consisting of four
(S&P 500) broad sectors: industrials, utilities, financials and transportation. It is a market
value-weighted index, where the stock price is multiplied by the number of shares
outstanding, with each stock affecting the index in proportion to its market value.
This index, calculated by Standard & Poor's, is a total return index with dividends
reinvested.
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
INDEX DEFINITION
- ----- ----------
<S> <C>
STANDARD & POOR'S 500 This is a capitalization-weighted index of all of the stocks in
HEALTH CARE COMPOSITE INDEX the Standard & Poor's 500 that are involved in the business of health
care related products or services. The index was developed with a
base of 100 as of January 14, 1987.
WILSHIRE MIDCAP COMPANY This index overlaps the top 750 and the next 1,750 of Wilshire Asset
GROWTH INDEX Management's Wilshire 2500 universe (the top 2,500 companies and 99%
of the market capitalization of the Wilshire 5000). Wilshire includes
companies that have market capitalizations ranging from $645 million
to $4.3 billion.
WILSHIRE REAL ESTATE This is a market capitalization-weighted index of publicly traded
SECURITIES INDEX real estate securities, such as real estate investment trusts
(REITs), Real Estate Operating Companies (REOCs) and partnerships.
The index is composed of companies whose charter is the equity
ownership and operation of commercial real estate. The index
rebalances monthly and returns are calculated on a buy-and-hold
basis.
WILSHIRE SMALL COMPANY The index is created by screening the bottom 1,750 large
VALUE INDEX companies of Wilshire Asset Management's Wilshire 2500 universe
(the top companies and 99% of the market capitalization of the
Wilshire 5000). These companies have market capitalizations ranging
from $190 million to $1.9 billion. Wilshire excludes companies with
high price/earnings ratios, low yields, or high price/book ratios.
</TABLE>
69
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------
NET NET NET
ASSET INVEST- REALIZED & TOTAL DISTRIBUTIONS
VALUE, MENT UNREALIZED FROM FROM NET
YEAR BEGINNING INCOME GAINS INVESTMENT INVESTMENT
ENDED OF YEAR (LOSS) (LOSSES) OPERATIONS INCOME
<S> <C> <C> <C> <C> <C>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
Class 1
1995 $14.42 $.84 $3.54 $4.38 $(.90)
1996 17.90 .91 .29 1.20 (.92)
1997 18.18 .90 3.54 4.44 (.96)
1998 20.33 .76 1.41 2.17 (.83)
1999(7) 20.45 .37 6.91 7.28 (.84)
Class 2
1999(6),(7) 21.02 .26 6.37 6.63 (.84)
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(5) 10.00 .03 .68 .71 --
1999(7) 10.71 .01 (.88) (.87) (.02)
Class 2
1999(6),(7) 10.77 (.03) (.93) (.96) (.02)
FRANKLIN GROWTH AND INCOME FUND
Class 1
1995 13.42 .41 3.92 4.33 (.20)
1996 17.14 .62 1.64 2.26 (.41)
1997 17.55 .67 4.05 4.72 (.64)
1998 21.01 .69 .99 1.68 (.69)
1999(7) 20.36 .57 (.16) .41 (.79)
Class 2
1999(6),(7) 20.71 .47 (.46) .01 (.79)
FRANKLIN HIGH INCOME FUND
Class 1
1995 12.21 1.06 1.30 2.36 (.91)
1996 13.66 1.20 .56 1.76 (1.20)
1997 14.16 1.33 .22 1.55 (1.22)
1998 14.45 1.43 (1.25) .18 (1.27)
1999(7) 13.28 1.24 (1.19) .05 (3.03)
Class 2
1999(6),(7) 13.36 1.11 (1.18) (.07) (3.02)
FRANKLIN INCOME SECURITIES FUND
Class 1
1995 14.31 1.16 1.96 3.12 (.89)
1996 16.47 1.32 .44 1.76 (.87)
1997 17.21 1.40 1.38 2.78 (1.33)
1998 18.37 1.37 (1.07) .30 (1.42)
1999(7) 16.92 1.19 (1.43) (.24) (1.46)
Class 2
1999(6),(7) 17.07 1.10 (1.53) (.43) (1.46)
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
----------------------------------------------
DISTRI-
BUTIONS
FROM NET TOTAL NET ASSET
YEAR REALIZED DISTRI- VALUE, END TOTAL
ENDED GAINS BUTIONS OF YEAR RETURN(+)
<S> <C> <C> <C> <C>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
Class 1
1995 $ -- $(.90) $17.90 31.35%
1996 -- (.92) 18.18 7.07
1997 (1.33) (2.29) 20.33 26.76
1998 (1.22) (2.05) 20.45 11.19
1999(7) (2.03) (2.87) 24.86 39.42
Class 2
1999(6),(7) (2.03) (2.87) 24.78 35.17
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(5) -- -- 10.71 7.10
1999(7) -- (.02) 9.82 (8.10)
Class 2
1999(6),(7) -- (.02) 9.79 (8.89)
FRANKLIN GROWTH AND INCOME FUND
Class 1
1995 (.41) (.61) 17.14 32.83
1996 (1.44) (1.85) 17.55 14.19
1997 (.62) (1.26) 21.01 27.74
1998 (1.64) (2.33) 20.36 8.33
1999(7) (2.20) (2.99) 17.78 1.10
Class 2
1999(6),(7) (2.20) (2.99) 17.73 (.86)
FRANKLIN HIGH INCOME FUND
Class 1
1995 -- (.91) 13.66 19.76
1996 (.06) (1.26) 14.16 13.90
1997 (.04) (1.26) 14.45 11.47
1998 (.08) (1.35) 13.28 .99
1999(7) (.44) (3.47) 9.86 (.07)
Class 2
1999(6),(7) (.44) (3.46) 9.83 (.96)
FRANKLIN INCOME SECURITIES FUND
Class 1
1995 (.07) (.96) 16.47 22.40
1996 (.15) (1.02) 17.21 11.28
1997 (.29) (1.62) 18.37 17.09
1998 (.33) (1.75) 16.92 1.64
1999(7) (.53) (1.99) 14.69 (1.82)
Class 2
1999(6),(7) (.53) (1.99) 14.65 (2.93)
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSET, END EXPENSES INCOME(LOSS) PORTFOLIO
YEAR OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND
Class 1
1995 $1,423,446 .50% 5.14% 13.27%
1996 1,202,290 .50 4.20 29.69
1997 1,129,904 .50 3.91 17.00
1998 986,755 .50 3.15 33.85
1999(7) 987,011 .51 1.81 87.53
Class 2
1999(6),(7) 491 .77* 1.24* 87.53
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(5) 8,990 .84* .84* 40.80
1999(7) 11,307 .82 .09 188.22
Class 2
1999(6),(7) 83 1.07* (.30)* 188.22
FRANKLIN GROWTH AND INCOME FUND
Class 1
1995 889,487 .52 3.30 116.54
1996 1,077,989 .50 4.06 23.01
1997 1,338,476 .49 3.53 36.71
1998 1,318,743 .49 3.27 27.32
1999(7) 964,553 .49 2.94 39.80
Class 2
1999(6),(7) 789 .75* 2.55* 39.80
FRANKLIN HIGH INCOME FUND
Class 1
1995 360,904 .56 9.63 20.65
1996 446,096 .54 9.63 27.16
1997 496,036 .53 9.64 36.38
1998 446,609 .53 9.96 41.71
1999(7) 314,131 .54 9.97 22.17
Class 2
1999(6),(7) 448 .80* 9.51* 22.17
FRANKLIN INCOME SECURITIES FUND
Class 1
1995 1,266,538 .51 8.05 33.14
1996 1,350,659 .50 7.96 15.28
1997 1,406,787 .50 7.53 14.68
1998 1,185,840 .49 6.94 12.22
1999(7) 775,116 .50 7.41 11.89
Class 2
1999(6),(7) 1,302 .75* 7.36* 11.89
</TABLE>
70
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------------
NET NET
ASSET NET REALIZED & TOTAL DISTRIBUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET
YEAR BEGINNING MENT GAINS INVESTMENT INVESTMENT
ENDED OF YEAR INCOME (LOSSES) OPERATIONS INCOME
<S> <C> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
Class 1
1996(3) $10.00 $.03 $1.33 $1.36 $ --
1997 11.36 .06 2.02 2.08 (.02)
1998 13.42 .10 2.62 2.72 (.06)
1999 16.08 .11 4.96 5.07 (.08)
Class 2
1999(6) 16.47 .04 4.58 4.62 (.08)
FRANKLIN MONEY MARKET FUND
Class 1
1995 1.00 .06 -- .06 (.06)
1996 1.00 .05 -- .05 (.05)
1997 1.00 .05 -- .05 (.05)
1998 1.00 .05 -- .05 (.05)
1999 1.00 .05 -- .05 (.05)
Class 2
1999(6) 1.00 .04 -- .04 (.04)
FRANKLIN NATURAL RESOURCES SECURITIES FUND
Class 1
1995 14.09 .22 .12 .34 (.20)
1996 14.08 .15 .44 .59 (.20)
1997 14.29 .15 (2.83) (2.68) (.20)
1998 11.41 .15 (3.02) (2.87) (.15)
1999(7) 8.39 .06 2.64 2.70 (.16)
Class 2
1999(6),(7) 8.70 .02 2.35 2.37 (.16)
FRANKLIN REAL ESTATE FUND
Class 1
1995 15.31 .78 1.83 2.61 (.52)
1996 17.40 .79 4.74 5.53 (.78)
1997 22.15 .72 3.72 4.44 (.67)
1998 25.60 1.45 (5.60) (4.15) (.94)
1999(7) 19.93 .88 (1.77) (.89) (1.73)
Class 2
1999(6),(7) 20.21 1.29 (2.50) (1.21) (1.73)
FRANKLIN RISING DIVIDENDS FUND
Class 1
1995 9.97 .27 2.66 2.93 (.24)
1996 12.66 .25 2.77 3.02 (.28)
1997 15.40 .22 4.77 4.99 (.26)
1998 19.68 .23 1.07 1.30 (.22)
1999(7) 18.11 .22 (1.57) (1.35) (.29)
Class 2
1999(6),(7) 18.28 .17 (1.74) (1.57) (.29)
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------
DISTRI-
BUTIONS
FROM NET TOTAL NET ASSET
YEAR REALIZED DISTRI- VALUE, END TOTAL
ENDED GAINS BUTIONS OF YEAR RETURN(+)
<S> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
Class 1
1996(3) $ -- $ -- $11.36 13.60%
1997 -- (.02) 13.42 18.31
1998 -- (.06) 16.08 20.29
1999 -- (.08) 21.07 31.65
Class 2
1999(6) -- (.08) 21.01 28.11
FRANKLIN MONEY MARKET FUND
Class 1
1995 -- (.06) 1.00 5.74
1996 -- (.05) 1.00 5.16
1997 -- (.05) 1.00 5.24
1998 -- (.05) 1.00 5.22
1999 -- (.05) 1.00 4.76
Class 2
1999(6) -- (.04) 1.00 4.39
FRANKLIN NATURAL RESOURCES SECURITIES FUND
Class 1
1995 (.15) (.35) 14.08 2.35
1996 (.18) (.38) 14.29 4.00
1997 -- (.20) 11.41 (18.98)
1998 -- (.15) 8.39 (25.38)
1999(7) -- (.16) 10.93 32.25
Class 2
1999(6),(7) -- (.16) 10.91 27.30
FRANKLIN REAL ESTATE FUND
Class 1
1995 -- (.52) 17.40 17.53
1996 -- (.78) 22.15 32.82
1997 (.32) (.99) 25.60 20.70
1998 (.58) (1.52) 19.93 (16.82)
1999(7) (2.39) (4.12) 14.92 (6.14)
Class 2
1999(6),(7) (2.39) (4.12) 14.88 (7.66)
FRANKLIN RISING DIVIDENDS FUND
Class 1
1995 -- (.24) 12.66 29.74
1996 -- (.28) 15.40 24.18
1997 (.45) (.71) 19.68 33.03
1998 (2.65) (2.87) 18.11 6.92
1999(7) (2.86) (3.15) 13.61 (9.70)
Class 2
1999(6),(7) (2.86) (3.15) 13.56 (10.84)
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------
RATIO OF
NET RATIO OF INVESTMENT
ASSET, END EXPENSES INCOME PORTFOLIO
YEAR OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND
Class 1
1996(3) $44,667 .77%* .96%* 3.91%
1997 109,355 .77 .72 19.90
1998 220,952 .77 1.00 12.17
1999 407,515 .77 .63 41.78
Class 2
1999(6) 542 1.02* .22* 41.78
FRANKLIN MONEY MARKET FUND
Class 1
1995 429,547 .408 5.58 --
1996 408,930 .438 5.04 --
1997 367,449 .458 5.11 --
1998 414,341 .458 5.08 --
1999 364,028 .53 4.64 --
Class 2
1999(6) 8,602 .79* 4.51* --
FRANKLIN NATURAL RESOURCES SECURITIES FUND
Class 1
1995 105,109 .66 1.40 15.66
1996 109,579 .65 1.00 21.77
1997 74,924 .69 1.00 85.22
1998 45,927 .64 1.21 64.68
1999(7) 42,861 .66 .64 51.19
Class 2
1999(6),(7) 68 .92* .23* 51.19
FRANKLIN REAL ESTATE FUND
Class 1
1995 213,473 .59 4.74 22.15
1996 322,721 .57 4.80 10.32
1997 440,554 .54 3.59 11.62
1998 282,290 .54 5.44 13.21
1999(7) 158,553 .58 4.83 10.27
Class 2
1999(6),(7) 2,449 .83* 8.84* 10.27
FRANKLIN RISING DIVIDENDS FUND
Class 1
1995 463,253 .78 2.72 18.72
1996 597,424 .76 1.96 27.97
1997 780,298 .74 1.24 37.04
1998 751,869 .72 1.20 26.44
1999(7) 450,549 .75 1.35 5.32
Class 2
1999(6),(7) 549 1.01* 1.15* 5.32
</TABLE>
71
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
-----------------------------------------------------------------------------------------
NET NET NET
ASSET INVEST- REALIZED & TOTAL DISTRIBUTIONS
VALUE, BEGINNING MENT UNREALIZED FROM FROM NET
YEAR BEGINNING INCOME GAINS INVESTMENT INVESTMENT
ENDED OF YEAR (LOSS) (LOSSES) OPERATIONS INCOME
<S> <C> <C> <C> <C> <C>
FRANKLIN SMALL CAP FUND
Class(1)
1995(2) $10.00 $.03 $.21 $.24 $ --
1996 10.24 .02 2.95 2.97 (.01)
1997 13.20 .01 2.24 2.25 (.03)
1998 15.05 .07 (.20) (.13) (.01)
1999(7) 13.72 (.01) 13.25 13.24 (.08)
Class 2
1999(6),(7) 14.25 (.04) 12.68 12.64 (.08)
FRANKLIN U.S. GOVERNMENT FUND
Class 1
1995 12.57 .93 1.46 2.39 (.96)
1996 14.00 .75 (.31) .44 (.97)
1997 13.47 1.00 .21 1.21 (.76)
1998 13.92 .99 .01 1.00 (1.03)
1999(7) 13.89 .83 (.96) (.13) (1.98)
Class 2
1999(6),(7) 13.89 .77 (.92) (.15) (1.96)
FRANKLIN VALUE SECURITIES FUND
Class 1
1998(5) 10.00 .02 (2.23) (2.21) --
1999(7) 7.79 .05 .08 .13 (.02)
Class 2
1999(6),(7) 7.97 .05 (.12) (.07) (.02)
FRANKLIN ZERO COUPON FUND - 2000
1995 13.62 .75 2.03 2.78 (.67)
1996 15.73 .98 (.65) .33 (.86)
1997 15.19 1.15 (.12) 1.03 (1.06)
1998 15.14 1.22 (.15) 1.07 (1.21)
1999(7) 14.81 .98 (.55) .43 (2.33)
FRANKLIN ZERO COUPON FUND - 2005
1995 13.76 .78 3.53 4.31 (.69)
1996 17.38 .96 (1.13) (.17) (.86)
1997 16.35 1.14 .63 1.77 (1.06)
1998 17.05 1.01 1.03 2.04 (1.10)
1999(7) 17.74 .98 (2.01) (1.03) (2.10)
FRANKLIN ZERO COUPON FUND - 2010
1995 13.02 .76 4.75 5.51 (.49)
1996 18.04 1.02 (1.65) (.63) (.88)
1997 16.29 1.02 1.54 2.56 (1.01)
1998 17.83 1.09 1.39 2.48 (1.11)
1999(7) 19.05 .99 (3.24) (2.25) (2.14)
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------
DISTRI-
BUTIONS
FROM NET TOTAL NET ASSET
YEAR REALIZED DISTRI- VALUE, END TOTAL
ENDED GAINS BUTIONS OF YEAR RETURN(+)
<S> <C> <C> <C> <C>
FRANKLIN SMALL CAP FUND
Class(1)
1995(2) $ -- $ -- $10.24 2.30%
1996 -- (.01) 13.20 28.95
1997 (.37) (.40) 15.05 17.42
1998 (1.19) (1.20) 13.72 (.98)
1999(7) (.01) (.09) 26.87 96.94
Class 2
1999(6),(7) (.01) (.09) 26.80 89.05
FRANKLIN U.S. GOVERNMENT FUND
Class 1
1995 -- (.96) 14.00 19.46
1996 -- (.97) 13.47 3.62
1997 -- (.76) 13.92 9.31
1998 -- (1.03) 13.89 7.44
1999(7) -- (1.98) 11.78 (.94)
Class 2
1999(6),(7) -- (1.96) 11.78 (1.10)
FRANKLIN VALUE SECURITIES FUND
Class 1
1998(5) -- -- 7.79 (22.10)
1999(7) -- (.02) 7.90 1.65
Class 2
1999(6),(7) -- (.02) 7.88 (.90)
FRANKLIN ZERO COUPON FUND - 2000
1995 -- (.67) 15.73 20.67
1996 (.01) (.87) 15.19 2.43
1997 (.02) (1.08) 15.14 7.11
1998 (.19) (1.40) 14.81 7.50
1999(7) (.34) (2.67) 12.57 3.07
FRANKLIN ZERO COUPON FUND - 2005
1995 -- (.69) 17.38 31.76
1996 -- (.86) 16.35 (.50)
1997 (.01) (1.07) 17.05 11.37
1998 (.25) (1.35) 17.74 12.53
1999(7) (.10) (2.20) 14.51 (5.88)
FRANKLIN ZERO COUPON FUND - 2010
1995 -- (.49) 18.04 42.79
1996 (.24) (1.12) 16.29 (2.69)
1997 (.01) (1.02) 17.83 16.57
1998 (.15) (1.26) 19.05 14.45
1999(7) (.51) (2.65) 14.15 (12.24)
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME(LOSS) PORTFOLIO
YEAR OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C>
FRANKLIN SMALL CAP FUND
Class 1
1995(2) $13,301 .90%* 2.70%* 16.04%
1996 170,969 .77 .63 63.72
1997 313,462 .77 .06 64.07
1998 315,460 .77 .51 53.01
1999(7) 488,062 .77 (.05) 39.49
Class 2
1999(6),(7) 6,156 1.02* (.18)* 39.49
FRANKLIN U.S. GOVERNMENT FUND
Class 1
1995 643,165 .52 6.72 18.68**
1996 843,858 .51 6.66 12.93***
1997 765,084 .50 6.49 16.84
1998 710,832 .50 6.22 31.34
1999(7) 515,033 .51 6.25 7.90
Class 2
1999(6),(7) 1,877 .77* 5.95* 7.90
FRANKLIN VALUE SECURITIES FUND
Class 1
1998(5) 9,013 .83* .95* 22.79
1999(7) 11,320 .81 .65 61.23
Class 2
1999(6),(7) 1,263 1.06* .62* 61.23
FRANKLIN ZERO COUPON FUND - 2000
1995 137,357 .408 6.14 1.63
1996 129,601 .408 6.14 .58
1997 111,650 .408 6.47 6.16
1998 93,543 .408 6.67 17.70
1999(7) 70,918 .65 6.85 10.42
FRANKLIN ZERO COUPON FUND - 2005
1995 83,222 .408 6.19 1.72
1996 82,603 .408 6.15 2.06
1997 77,296 .408 6.16 4.52
1998 84,487 .408 5.82 3.87
1999(7) 65,895 .65 5.93 15.87
FRANKLIN ZERO COUPON FUND - 2010
1995 85,633 .408 6.41 31.45
1996 78,816 .408 6.24 16.10
1997 85,515 .408 6.21 12.20
1998 93,515 .408 5.55 15.92
1999(7) 66,049 .65 5.83 19.30
</TABLE>
72
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------
NET NET
ASSET NET REALIZED & TOTAL
VALUE, INVEST- UNREALIZED FROM
YEAR BEGINNING MENT GAINS INVESTMENT
ENDED OF YEAR INCOME (LOSSES) OPERATIONS
<S> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(4) $10.00 $.02 $.19 $.21
1997 10.21 .13 1.84 1.97
1998 12.17 .20 (.76) (.56)
1999(7) 11.29 .17 2.48 2.65
Class 2
1999(6),(7) 11.65 .11 2.15 2.26
MUTUAL SHARES SECURITIES FUND
Class 1
1996(4) 10.00 .02 .33 .35
1997 10.35 .13 1.71 1.84
1998 12.18 .28 (.25) .03
1999(7) 11.96 .20 1.41 1.61
Class 2
1999(6),(7) 12.36 .16 1.07 1.23
TEMPLETON DEVELOPING MARKETS EQUITY FUND
Class 1
1995 9.56 .09 .18 .27
1996 9.78 .12 1.97 2.09
1997 11.59 .18 (1.10) (.92)
1998 10.29 .20 (2.35) (2.15)
1999(7) 6.91 .09 3.66 3.75
Class 2
1999(6),(7) 7.22 .02 3.39 3.41
TEMPLETON GLOBAL ASSET ALLOCATION FUND
Class 1
1995(1) 10.00 .18 .52 .70
1996 10.52 .34 1.75 2.09
1997 12.59 .42 1.04 1.46
1998 13.72 .61 (.59) .02
1999(7) 12.67 .39 .53 .92
Class 2
1999(6),(7) 12.94 .32 .29 .61
TEMPLETON GLOBAL GROWTH FUND
Class 1
1995 10.48 .16 1.17 1.33
1996 11.75 .25 2.22 2.47
1997 13.80 .33 1.53 1.86
1998 15.34 .35 .98 1.33
1999(7) 14.77 .28 2.66 2.94
Class 2
1999(6),(7) 15.34 .17 2.17 2.34
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------
DISTRI-
DISTRIBUTIONS BUTIONS
FROM NET FROM NET TOTAL NET ASSET
YEAR INVESTMENT REALIZED DISTRI- VALUE, END
ENDED INCOME GAINS BUTIONS OF YEAR
<S> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(4) $ $ -- $ -- $ -- $10.21
1997 (.01) -- (.01) 12.17
1998 (.17) (.15) (.32) 11.29
1999(7) (.37) -- (.37) 13.57
Class 2
1999(6),(7) (.37) -- (.37) 13.54
MUTUAL SHARES SECURITIES FUND
Class 1
1996(4) -- -- -- 10.35
1997 (.01) -- (.01) 12.18
1998 (.13) (.12) (.25) 11.96
1999(7) (.34) -- (.34) 13.23
Class 2
1999(6),(7) (.34) -- (.34) 13.25
TEMPLETON DEVELOPING MARKETS EQUITY FUND
Class 1
1995 (.04) (.01) (.05) 9.78
1996 (.10) (.18) (.28) 11.59
1997 (.15) (.23) (.38) 10.29
1998 (.29) (.94) (1.23) 6.91
1999(7) (.17) -- (.17) 10.49
Class 2
1999(6),(7) (.17) -- (.17) 10.46
TEMPLETON GLOBAL ASSET ALLOCATION FUND
Class 1
1995(1) (.18) -- (.18) 10.52
1996 (.01) (.01) (.02) 12.59
1997 (.26) (.07) (.33) 13.72
1998 (.49) (.58) (1.07) 12.67
1999(7) (.90) (.88) (1.78) 11.81
Class 2
1999(6),(7) (.88) (.88) (1.76) 11.79
TEMPLETON GLOBAL GROWTH FUND
Class 1
1995 (.06) -- (.06) 11.75
1996 (.21) (.21) (.42) 13.80
1997 (.24) (.08) (.32) 15.34
1998 (.41) (1.49) (1.90) 14.77
1999(7) (.36) (1.72) (2.08) 15.63
Class 2
1999(6),(7) (.36) (1.72) (2.08) 15.60
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME TO PORTFOLIO
YEAR TOTAL OF YEAR TO AVERAGE AVERAGE NET TURNOVER
ENDED RETURN(+) (000'S) NET ASSETS ASSETS RATE
<S> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(4) 2.10% $15,418 1.37%* 2.11%* .14%
1997 19.25 198,653 1.06 1.19 55.93
1998 (5.00) 224,656 1.019 1.94 93.99
1999(7) 23.76 202,777 1.019 1.42 104.69
Class 2
1999(6),(7) 19.68 413 1.27* .94* 104.69
MUTUAL SHARES SECURITIES FUND
Class 1
1996(4) 3.50 27,677 1.00* 2.56* 1.31
1997 17.73 387,787 .80 2.10 49.01
1998 .09 482,444 .7910 2.60 70.19
1999(7) 13.40 448,278 .7910 1.59 80.02
Class 2
1999(6),(7) 9.91 5,716 1.04* 1.26* 80.02
TEMPLETON DEVELOPING MARKETS EQUITY FUND
Class 1
1995 2.77 158,084 1.41 2.01 19.96
1996 21.59 272,098 1.49 1.68 12.42
1997 (8.72) 279,680 1.42 1.57 20.59
1998 (21.61) 162,433 1.41 2.04 36.58
1999(7) 54.64 189,029 1.39 1.03 31.82
Class 2
1999(6),(7) 47.58 346 1.67* .18* 31.82
TEMPLETON GLOBAL ASSET ALLOCATION FUND
Class 1
1995(1) 7.01 14,729 .90* 3.84* 30.00
1996 19.84 56,274 .86 4.21 52.35
1997 11.71 93,402 .94 4.22 61.93
1998 (.04) 81,670 .84 4.32 59.03
1999(7) 7.53 61,588 .82 3.22 36.08
Class 2
1999(6),(7) 4.94 52 1.07* 2.73* 36.08
TEMPLETON GLOBAL GROWTH FUND
Class 1
1995 12.72 338,755 .97 2.46 30.92
1996 21.28 579,877 .93 2.20 12.32
1997 13.50 758,445 .88 2.49 24.81
1998 8.98 747,080 .88 2.27 32.30
1999(7) 21.04 708,310 .88 1.87 46.54
Class 2
1999(6),(7) 16.35 4,483 1.14* 1.17* 46.54
</TABLE>
73
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------
NET NET
ASSET NET REALIZED & TOTAL
VALUE, INVEST- UNREALIZED FROM
YEAR BEGINNING MENT GAINS INVESTMENT
ENDED OF YEAR INCOME (LOSSES) OPERATIONS
<S> <C> <C> <C> <C>
TEMPLETON GLOBAL INCOME SECURITIES FUND
Class 1
1995 $12.19 $ .29 $ 1.47 $ 1.76
1996 13.46 1.02 .17 1.19
1997 13.61 1.05 (.73) .32
1998 12.97 1.07 (.19) .88
1999(7) 12.87 .68 (1.42) (.74)
Class 2
1999(6),(7) 12.93 .60 (1.44) (.84)
TEMPLETON INTERNATIONAL EQUITY FUND
Class 1
1995 12.51 .37 .94 1.31
1996 13.32 .40 2.58 2.98
1997 15.45 .30 1.51 1.81
1998 16.12 .56 .42 .98
1999(7) 15.52 .36 3.62 3.98
Class 2
1999(6),(7) 16.24 .28 2.89 3.17
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Class 1
1996(3) 10.00 .10 1.15 1.25
1997 11.25 .23 (.39) (.16)
1998 11.02 .25 (1.52) (1.27)
1999(7) 9.20 .26 1.93 2.19
Class 2
1999(6),(7) 9.44 .13 1.82 1.95
TEMPLETON PACIFIC GROWTH FUND
Class 1
1995 13.24 .33 .71 1.04
1996 13.91 .21 1.34 1.55
1997 14.76 .29 (5.49) (5.20)
1998 9.28 .21 (1.52) (1.31)
1999(7) 7.51 .08 2.70 2.78
Class 2
1999(6),(7) 7.63 .06 2.59 2.65
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------
DISTRI-
DISTRIBUTIONS BUTIONS
FROM NET FROM NET TOTAL NET ASSET
YEAR INVESTMENT REALIZED DISTRI- VALUE, END TOTAL
ENDED INCOME GAINS BUTIONS OF YEAR RETURN+
<S> <C> <C> <C> <C> <C>
TEMPLETON GLOBAL INCOME SECURITIES FUND
Class 1
1995 $ (.49) $ -- $ (.49) $13.46 14.68%
1996 (1.04) -- (1.04) 13.61 9.56
1997 (.96) -- (.96) 12.97 2.55
1998 (.98) -- (.98) 12.87 7.08
1999(7) (1.06) -- (1.06) 11.07 (5.79)
Class 2
1999(6),(7) (1.05) -- (1.05) 11.04 (6.53)
TEMPLETON INTERNATIONAL EQUITY FUND
Class 1
1995 (.22) (.28) (.50) 13.32 10.59
1996 (.38) (.47) (.85) 15.45 22.98
1997 (.45) (.69) (1.14) 16.12 11.69
1998 (.53) (1.05) (1.58) 15.52 5.56
1999(7) (1.03)(11) (.52) (1.55) 17.95 26.63
Class 2
1999(6),(7) (.99)(11) (.52) (1.51) 17.90 20.45
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Class 1
1996(3) -- -- -- 11.25 12.50
1997 (.07) -- (.07) 11.02 (1.50)
1998 (.25) (.30) (.55) 9.20 (12.27)
1999(7) (.32) -- (.32) 11.07 23.90
Class 2
1999(6),(7) (.32) -- (.32) 11.07 20.75
TEMPLETON PACIFIC GROWTH FUND
Class 1
1995 (.26) (.11) (.37) 13.91 7.97
1996 (.44) (.26) (.70) 14.76 11.10
1997 (.28) -- (.28) 9.28 (35.95)
1998 (.35) (.11) (.46) 7.51 (13.13)
1999(7) (.10) -- (.10) 10.19 37.02
Class 2
1999(6),(7) (.08) -- (.08) 10.20 34.74
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
YEAR OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C>
TEMPLETON GLOBAL INCOME SECURITIES FUND
Class 1
1995 $ 243,194 .64% 7.59% 152.89%
1996 221,722 .61 7.30 140.96
1997 185,016 .62 7.03 181.61
1998 150,941 .63 6.86 84.17
1999(7) 90,537 .65 5.65 80.76
Class 2
1999(6),(7) 443 .91* 5.36* 80.76
TEMPLETON INTERNATIONAL EQUITY FUND
Class 1
1995 850,117 .92 2.87 16.42
1996 1,108,099 .89 3.07 27.52
1997 1,161,430 .89 3.01 26.96
1998 955,900 .88 2.90 5.98
1999(7) 777,037 .90 2.21 33.74
Class 2
1999(6),(7) 3,232 1.17* 1.73* 33.74
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Class 1
1996(3) 16,255 1.16* 2.51* --
1997 32,201 1.06 2.74 21.38
1998 24,999 1.10 2.26 18.45
1999(7) 23,541 1.11 2.52 15.80
Class 2
1999(6),(7) 2,049 1.38* 1.21* 15.80
TEMPLETON PACIFIC GROWTH FUND
Class 1
1995 331,936 1.01 2.08 36.06
1996 356,759 .99 1.51 12.85
1997 165,404 1.03 1.97 11.87
1998 98,769 1.10 2.60 12.55
1999(7) 96,738 1.08 .93 12.45
Class 2
1999(6),(7) 112 1.36* .68* 12.45
</TABLE>
* Annualized
** The portfolio turnover rate excludes mortgage dollar roll transactions.
*** The portfolio turnover rate excludes transactions related to the liquidation
of the Investment Grade Intermediate Bond Fund and the Adjustable U.S.
Government Fund and mortgage dollar roll transactions.
(+) Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin Templeton
Variable Insurance Products Trust serves as an underlying investment vehicle.
Total return is not annualized for periods less than one year.
(1) For the period April 19, 1995 (effective date) to December 31, 1995.
(2) For the period November 1, 1995 (effective date) to December 31, 1995.
(3) For the period May 1, 1996 (effective date) to December 31, 1996.
(4) For the period November 8, 1996 (effective date) to December 31, 1996.
(5) For the period May 1, 1998 (effective date) to December 31, 1998.
(6) For the period January 6, 1999 (effective date) to December 31, 1999.
(7) Based on average shares outstanding.
74
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FINANCIAL HIGHLIGHTS (continued)
(8) During the years indicated below, Franklin Advisers, Inc., the investment
manager, agreed in advance to waive a portion of its management fees
incurred by certain Funds in the Trust. Had such action not been taken, the
ratio of expenses to average net assets would have been as follows:
<TABLE>
<CAPTION>
Franklin Money Market Fund Franklin Zero Coupon Fund - 2000 Franklin Zero Coupon Fund - 2005 Franklin Zero Coupon Fund 2010
<S> <C> <C> <C> <C> <C> <C> <C>
1995 .............. .53% 1995 ....... .63% 1995 ...... .66% 1995 ....... .66%
1996 .............. .53 1996 ....... .62 1996 ...... .65 1996 ....... .65
1997 .............. .53 1997 ....... .63 1997 ...... .65 1997 ....... .65
1998 .............. .53 1998 ....... .66 1998 ...... .66 1998 ....... .66
</TABLE>
(9) Excluding dividend expense on securities sold short, the ratio of expenses
to average net assets for Mutual Discovery Securities Fund was 0.99% and
1.00% for the years ended December 31, 1999 and December 31, 1998,
respectively.
(10) Excluding dividend expense on securities sold short, the ratio of expenses
to average net assets for Mutual Shares Securities Fund was 0.77% for the
years ended December 31, 1999 and December 31, 1998.
(11) Includes distributions in excess of net investment income in the amount of
$.013.
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Statement of Investments, December 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND COUNTRY SHARES VALUE
- ----------------------------------------------- --------------- -------- ------------
COMMON STOCKS 88.8%
CELLULAR TELEPHONE 12.6%
<S> <C> <C> <C>
(a) Nextel Communications Inc., A ................ United States 130,000 $ 13,406,250
NTT Mobile Communications Network Inc. ....... Japan 420 16,153,056
(a) Sprint Corp. (PCS Group) ..................... United States 250,000 25,625,000
(a) Stet Hellas Telecommunications SA, ADR ....... Greece 418,900 12,776,450
Vodafone AirTouch PLC, ADR ................... United Kingdom 590,000 29,205,000
(a) VoiceStream Wireless Corp. ................... United States 189,000 26,897,063
------------
124,062,819
------------
(a) COMPUTER COMMUNICATIONS 1.4%
Cisco Systems Inc. ........................... United States 130,000 13,926,250
(a) EDP SERVICES 3.2% ------------
Equant NV, N.Y. shs. ......................... Netherlands 230,000 25,760,000
Infonet Services Corp., B .................... United States 235,100 6,171,375
------------
31,931,375
------------
ELECTRIC UTILITIES 6.5%
CMS Energy Corp. ............................. United States 140,000 4,366,250
Edison International ......................... United States 670,000 17,545,625
Illinova Corp. ............................... United States 200,000 6,950,000
Montana Power Co. ............................ United States 160,000 5,770,000
Northwestern Corp. ........................... United States 363,000 7,986,000
PECO Energy Co. .............................. United States 307,000 10,668,250
Pinnacle West Capital Corp. .................. United States 213,800 6,534,263
TECO Energy Inc. ............................. United States 247,700 4,597,931
------------
64,418,319
------------
ELECTRICAL PRODUCTS .7%
Furukawa Electric Co. Ltd. ................... Japan 425,000 6,446,641
------------
(a) ELECTRONIC COMPONENTS 1.0%
CTS Corp. .................................... United States 125,000 9,421,875
------------
MAJOR U.S. TELECOMMUNICATIONS 13.0%
AT&T Corp. ................................... United States 570,000 28,927,500
Bell Atlantic Corp. .......................... United States 260,000 16,006,250
GTE Corp. .................................... United States 320,000 22,580,000
(a) MCI WorldCom Inc. ............................ United States 510,000 27,061,873
SBC Communications Inc. ...................... United States 400,000 19,500,000
U.S. West Inc. ............................... United States 200,000 14,400,000
------------
128,475,623
------------
NATURAL GAS DISTRIBUTION .9%
(a) Gas Authority of India Ltd., GDR, 144A ....... India 584,100 5,519,745
MDU Resources Group Inc. ..................... United States 184,900 3,698,000
------------
9,217,745
------------
NON-U.S. UTILITIES .6%
ScottishPower PLC ............................ United Kingdom 840,000 6,353,249
------------
OIL/GAS TRANSMISSION 1.1%
Enron Corp. .................................. United States 245,000 10,871,875
------------
OTHER TELECOMMUNICATIONS 40.4%
(a) Alaska Communications Systems Holdings Inc. .. United States 99,400 1,230,075
(a) Broadwing Inc. ............................... United States 400,000 14,750,000
(a) Citizens Utilities Co., B .................... United States 760,000 10,782,500
City Telecom (HK) Ltd. ....................... Hong Kong 772,000 749,804
(a) Clearnet Communications Inc., A .............. Canada 441,200 15,166,250
(a) EIRCOM PLC ................................... Irish Republic 2,396,000 10,251,686
(a) FirstCom Corp. ............................... United States 96,600 3,550,050
(a) Global Crossing Ltd. ......................... Bermuda 810,000 40,500,000
(a) Global TeleSystems Group Inc. ................ United States 790,000 27,353,750
</TABLE>
76
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Statement of Investments, December 31, 1999 (cont.)
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------ ------------- ------------- ------------
COMMON STOCKS (CONT.)
OTHER TELECOMMUNICATIONS (CONT.)
<S> <C> <C> <C>
(a) GST Telecommunications Inc. .................. Canada 1,425,000 $ 12,914,063
Hellenic Telecommunications Organization SA... Greece 532,110 12,593,167
(a) ICG Communications Inc. ...................... United States 408,000 7,650,000
(a) Intermedia Communications Inc. ............... United States 330,400 12,823,650
Korea Telecom Corp. .......................... South Korea 140,000 22,069,573
(a) KPNQwest NV................................... Netherlands 136,200 8,682,750
(a) McLeodUSA Inc. ............................... United States 190,000 11,186,250
(a) NEXTLINK Communications Inc., ................ United States 210,000 17,443,125
Nippon Telegraph & Telephone Corp. ........... Japan 900 15,413,221
(a) Pacific Gateway Exchange Inc. ................ United States 87,500 1,492,969
Portugal Telecom SA........................... Portugal 1,250,000 13,704,319
(a) Primus Telecommunications Group Inc. ......... United States 390,000 14,917,500
(a) Qwest Communications International Inc. ...... United States 470,000 20,210,000
Swisscom AG................................... Switzerland 47,700 19,289,670
Telecom Italia SpA............................ Italy 4,000,000 24,379,342
(a) Telecomunicacoes Brasileiras SA, ADR.......... Brazil 42,000 655
Telefonica SA, ADR............................ Spain 270,000 21,279,375
(a) Telstra Corp Ltd. ............................ Australia 1,180,500 4,161,739
(a) Time Warner Telecom Inc., .................... United States 300,000 14,981,250
(a) Versatel Telecom International NV............. Netherlands 160,000 5,637,773
(a) Williams Communications Group Inc. ........... United States 458,400 13,264,950
------------
398,429,456
------------
(a) SEMICONDUCTORS 1.1%
SDL Inc. ..................................... United States 50,000 10,900,000
------------
TELECOMMUNICATIONS EQUIPMENT 4.6%
(a) Catapult Communications Corp. ................ United States 300,000 2,981,250
(a) C-COR.ne Corp. ............................... United States 20,000 1,532,500
(a) Ciena Corp. .................................. United States 130,000 7,475,000
Lucent Technologies Inc. ..................... United States 120,000 8,977,500
(a) NICE Systems Ltd., DR......................... Israel 88,500 4,353,094
Nokia Corp., ADR.............................. Finland 55,000 10,450,000
(a) Tellabs Inc. ................................. United States 150,000 9,628,125
------------
45,397,469
------------
(a) UNREGULATED POWER GENERATION 1.7%
AES Corp. .................................... United States 150,000 11,212,500
Calpine Corp. ................................ United States 83,000 5,312,000
------------
16,524,500
------------
TOTAL COMMON STOCKS (COST $577,894,593)........ 876,377,196
CONVERTIBLE PREFERRED STOCKS .8%
CMS Energy Trust I, 7.75%, cvt. pfd.
(COST $8,750,000).............................. United States 175,000 8,137,500
------------
TOTAL LONG TERM INVESTMENTS
(COST $586,644,594)............................ 884,514,696
------------
</TABLE>
77
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GLOBAL COMMUNICATIONS SECURITIES FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(g) REPURCHASE AGREEMENT 8.3%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity Value $81,786,809)
(COST $81,769,208) ........................................................... United States $81,769,208 $ 81,769,208
Banc of America Securities LLC ..................................................
Barclays Capital Inc. ...........................................................
Bear, Stearns & Co. Inc. ........................................................
Chase Securities Inc. ...........................................................
Donaldson, Lufkin & Jenrette Securities Corp. ...................................
Dresdner Kleinwort Benson, North America LLC ....................................
Paribas Corp. ...................................................................
Warburg Dillon Read LLC .........................................................
Collateralized by U.S. Treasury Bills and Notes ................................
------------
TOTAL INVESTMENTS (COST $668,413,801) 97.9% ...................................... 966,283,904
OTHER ASSETS, LESS LIABILITIES 2.1% .............................................. 21,217,547
------------
NET ASSETS 100.0% ................................................................ $987,501,451
------------
</TABLE>
(a) Non-income producing.
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
78
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 93.3%
(a) CONSUMER SERVICES .7%
drkoop.com Inc. ........................................................ 7,00 $ 83,125
---------
(a) ELECTRONIC TECHNOLOGY .1%
Caliper Technologies Corp. ............................................. 20 13,350
---------
HEALTH SERVICES 21.2%
(a) Beverly Enterprises Inc. ............................................... 13,60 59,500
(a) CareInsite Inc. ........................................................ 2,00 161,000
Columbia/HCA Healthcare Corp. .......................................... 6,60 193,463
(a) eBenX Inc. ............................................................. 10 4,525
(a) Express Scripts Inc., A ................................................ 1,80 115,200
(a) Foundation Health Systems Inc., A ...................................... 7,00 69,563
(a) Lincare Holdings Inc. .................................................. 3,50 121,406
(a) MedicaLogic Inc. ....................................................... 3,30 69,300
(a) NovaMed Eyecare Inc. ................................................... 2,30 15,525
Omnicare Inc. .......................................................... 18,10 217,200
(a) Pharmaceutical Product Development Inc. ................................ 10,00 118,750
(a) Renal Care Group Inc. .................................................. 10,30 240,763
(a) SciQuest.com Inc. ...................................................... 3,30 262,350
(a) Tenet Healthcare Corp. ................................................. 3,10 72,850
United HealthCare Corp. ................................................ 3,30 175,313
Universal Health Services Inc., B ...................................... 7,90 284,400
(a) Wellpoint Health Networks Inc. ......................................... 3,50 230,781
---------
2,411,889
---------
HEALTH TECHNOLOGY 71.3%
(a) Abgenix Inc. ........................................................... 3,30 437,250
American Home Products Corp. ........................................... 7,70 303,669
(a) Amgen Inc. ............................................................. 4,60 276,288
Baxter International Inc. .............................................. 8,20 515,063
(a) Biogen Inc. ............................................................ 1,40 118,300
Bristol-Myers Squibb Co. ............................................... 4,20 269,588
(a) Cell Genesys Inc. ...................................................... 16,50 211,406
(a) CIMA Labs Inc. ......................................................... 25,00 326,563
(a) COR Therapeutics Inc. .................................................. 5,20 139,750
Eli Lilly & Co. ........................................................ 6,10 405,650
(a) Genentech Inc. ......................................................... 2,10 282,450
(a) Gilead Sciences Inc. ................................................... 2,30 124,488
Glaxo Wellcome PLC, ADR (United Kingdom) ............................... 4,40 245,850
(a) INAMED Corp. ........................................................... 2,80 122,850
(a) Inhale Therapeutic Systems Inc. ........................................ 13,00 553,313
Johnson & Johnson ...................................................... 1,00 93,125
(a) MedImmune Inc. ......................................................... 1,70 281,988
Merck & Co. Inc. ....................................................... 1,50 100,594
(a) MGI Pharma Inc. ........................................................ 3,00 35,813
(a) Molecular Devices Corp. ................................................ 5,10 265,200
(a) Noven Pharmaceuticals Inc. ............................................. 12,00 217,500
(a) Novoste Corp. .......................................................... 11,20 184,800
(a) Ocular Sciences Inc. ................................................... 11,50 217,063
Pharmacia & Upjohn Inc. ................................................ 5,00 225,000
Roche Holding AG (Switzerland) ......................................... 1 189,890
Schering-Plough Corp. .................................................. 9,20 388,125
(a) Serologicals Corp. ..................................................... 30,00 180,000
(a) Shire Pharmaceuticals Group PLC, ADR (United Kingdom) .................. 10,73 312,786
</TABLE>
79
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN GLOBAL HEALTH CARE SECURITIES FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
(a) SonoSite Inc. ................................................................... 3,900 $ 123,338
(a) Vertex Pharmaceuticals Inc. ..................................................... 9,000 314,993
Warner-Lambert Co. .............................................................. 5,300 434,269
(a) Watson Pharmaceuticals Inc. ..................................................... 6,200 222,038
------------
8,119,000
------------
TOTAL LONG TERM INVESTMENTS (COST $9,099,212) ................................... 10,627,364
------------
SHORT TERM INVESTMENTS 7.5%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $855,059) ... 855,059 855,059
------------
TOTAL INVESTMENTS (COST $9,954,271) 100.8% ...................................... 11,482,423
OTHER ASSETS, LESS LIABILITIES (.8%) ............................................ (91,944)
------------
NET ASSETS 100.0% ............................................................... $ 11,390,479
------------
</TABLE>
(a) Non-income producing.
(b) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers, Inc.
See notes to financial statements.
80
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN GROWTH AND INCOME FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 94.6%
COMMERCIAL SERVICES 1.1%
Dun & Bradstreet Corp. ............................... United States 375,200 $11,068,400
-----------
CONSUMER DURABLES 3.5%
Eastman Kodak Co. .................................... United States 168,000 11,130,000
Ford Motor Co. ....................................... United States 242,000 12,931,875
General Motors Corp. ................................. United States 135,500 9,849,156
-----------
33,911,031
-----------
CONSUMER NON-DURABLES 7.0%
Bestfoods ............................................ United States 250,000 13,140,625
General Mills Inc. ................................... United States 547,000 19,555,250
Gillette Co. ......................................... United States 30,000 1,235,625
H.J. Heinz Co. ....................................... United States 343,000 13,655,688
PepsiCo Inc. ......................................... United States 240,000 8,460,000
Philip Morris Cos. Inc. .............................. United States 507,800 11,774,613
-----------
67,821,801
-----------
CONSUMER SERVICES 1.0%
Harcourt General Inc. ................................ United States 251,700 10,130,925
-----------
ELECTRONIC TECHNOLOGY 4.9%
Hewlett-Packard Co. .................................. United States 101,500 11,564,656
International Business Machines Corp. ................ United States 85,000 9,180,000
Motorola Inc. ........................................ United States 88,000 12,958,000
Perkinelmer Inc. ..................................... United States 159,400 6,644,988
Raytheon Co., B ...................................... United States 255,700 6,792,031
-----------
47,139,675
-----------
ENERGY MINERALS 8.0%
Atlantic Richfield Co. ............................... United States 112,500 9,731,250
Chevron Corp. ........................................ United States 109,000 9,442,125
Conoco Inc., B ....................................... United States 480,830 11,960,646
Exxon Mobil Corp. .................................... United States 241,572 19,461,681
Texaco Inc. .......................................... United States 311,400 16,912,913
Ultramar Diamond Shamrock Corp. ...................... United States 447,800 10,159,463
-----------
77,668,078
-----------
FINANCE 8.4%
Bank of America Corp. ................................ United States 195,000 9,786,563
Bank One Corp. ....................................... United States 276,210 8,855,983
Fannie Mae ........................................... United States 140,000 8,741,250
First Union Corp. .................................... United States 223,000 7,317,188
Fleet Boston Financial Corp. ......................... United States 348,468 12,131,042
J.P. Morgan & Co. Inc. ............................... United States 82,100 10,395,913
National City Corp. .................................. United States 415,000 9,830,313
Union Planters Corp. ................................. United States 119,000 4,693,063
Washington Mutual Inc. ............................... United States 361,000 9,386,000
-----------
81,137,315
-----------
HEALTH TECHNOLOGY 7.1%
Abbott Laboratories .................................. United States 335,000 12,164,688
American Home Products Corp. ......................... United States 217,000 8,557,938
Baxter International Inc. ............................ United States 215,000 13,504,688
Glaxo Wellcome PLC, ADR .............................. United Kingdom 280,800 15,689,700
Pharmacia & Upjohn Inc. .............................. United States 403,500 18,157,500
-----------
68,074,514
-----------
INSURANCE 4.3%
Allstate Corp. ....................................... United States 280,000 6,720,000
Lincoln National Corp. ............................... United States 366,800 14,672,000
St. Paul Cos. Inc. ................................... United States 592,000 19,943,000
-----------
41,335,000
-----------
</TABLE>
81
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN GROWTH AND INCOME FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
NON-ENERGY MINERALS 3.9%
Corus Group PLC, ADR ...................................... United Kingdom 330,000 $ 8,538,750
De Beers Consolidated Mines AG, ADR ....................... South Africa 443,000 12,819,313
Weyerhaeuser Co. .......................................... United States 230,500 16,552,781
------------
37,910,844
------------
PROCESS INDUSTRIES 6.0%
Dow Chemical Co. .......................................... United States 76,800 10,262,400
E. I. du Pont de Nemours and Co. .......................... United States 99,210 6,535,459
General Electric Co. ...................................... United States 130,700 20,225,825
Imperial Chemical Industries PLC, ADR ..................... United Kingdom 249,400 10,615,088
Pall Corp. ................................................ United States 483,600 10,427,625
------------
58,066,397
------------
PRODUCER MANUFACTURING 8.8%
Avery Dennison Corp. ...................................... United States 174,000 12,680,250
Dana Corp. ................................................ United States 359,600 10,765,525
Deere & Co. ............................................... United States 270,000 11,711,250
Delphi Automotive Systems Corp. ........................... United States 94,705 1,491,604
Diebold Inc. .............................................. United States 389,500 9,153,250
Emerson Electric Co. ...................................... United States 220,000 12,622,500
Minnesota Mining & Manufacturing Co. ...................... United States 137,500 13,457,813
Pitney Bowes Inc. ......................................... United States 265,000 12,802,813
------------
84,685,005
------------
REAL ESTATE 4.9%
Arden Realty Inc. ......................................... United States 479,200 9,613,950
Equity Office Properties Trust ............................ United States 225,000 5,540,625
Equity Residential Properties Trust ....................... United States 325,300 13,886,244
Glenborough Realty Trust Inc. ............................. United States 400,000 5,350,000
Simon Property Group Inc. ................................. United States 544,700 12,494,056
------------
46,884,875
------------
RETAIL TRADE 1.8%
J.C. Penney Co. Inc. ...................................... United States 381,900 7,614,131
May Department Stores Co. ................................. United States 300,000 9,675,000
------------
17,289,131
------------
TECHNOLOGY SERVICES 1.3%
(a)Acclaim Entertainment Inc., wts., 4/04/02 ................. United States 1,900 3,002
Automatic Data Processing Inc. ............................ United States 226,500 12,202,688
------------
12,205,690
------------
TELECOMMUNICATIONS 13.3%
AT&T Corp. ................................................ United States 457,500 23,218,125
Bell Atlantic Corp. ....................................... United States 504,632 31,066,408
GTE Corp. ................................................. United States 389,500 27,484,094
SBC Communications Inc. ................................... United States 318,472 15,525,510
U.S. West Inc. ............................................ United States 433,100 31,183,200
------------
128,477,337
------------
TRANSPORTATION .7%
United Parcel Service Inc., B ............................. United States 101,100 6,975,900
------------
UTILITIES 8.6%
Consolidated Natural Gas Co. .............................. United States 162,000 10,519,875
Constellation Energy Group Inc. ........................... United States 423,000 12,267,000
Dominion Resources Inc. ................................... United States 169,500 6,652,875
GPU Inc. .................................................. United States 308,300 9,229,731
Kansas City Power & Light Co. ............................. United States 471,000 10,391,438
MCN Energy Group Inc. ..................................... United States 355,000 8,431,250
National Fuel Gas Co. ..................................... United States 303,800 14,126,700
Sempra Energy ............................................. United States 636,585 11,060,655
------------
82,679,524
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $784,271,545) ...... 913,461,442
------------
</TABLE>
82
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GROWTH AND INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS 3.8%
FHLMC, 1/20/00 (COST $36,893,573) .................................... United States $ 37,000,000 $ 36,908,462
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $821,165,118) .... 950,369,904
------------
(g)REPURCHASE AGREEMENT 1.6%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $14,971,954) (COST $14,968,732) ................... United States 14,968,732 14,968,732
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $836,133,850) 100.0% ......................... 965,338,636
OTHER ASSETS, LESS LIABILITIES ....................................... 3,266
------------
NET ASSETS 100.0% .................................................... $965,341,902
------------
------------
</TABLE>
(a) Non-income producing.
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
83
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
WARRANTS &
FRANKLIN HIGH INCOME FUND COUNTRY RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) COMMON STOCKS, WARRANTS AND RIGHTS .2%
CONSUMER SERVICES
Jack in the Box Inc. .................................................. United States 210 $ 4,344
----------
ENERGY MINERALS .1%
Abraxas Petroleum Corp. ............................................... United States 256,359 240,337
Abraxas Petroleum Corp., rts., 11/01/04 ............................... United States 256,359 --
----------
240,337
----------
INDUSTRIAL SERVICES .1%
R&B Falcon Corp. 144A, wts., 5/01/09 .................................. United States 1,500 375,000
----------
NON-ENERGY MINERALS
Gulf States Steel Inc., wts., 4/15/03 ................................. United States 5,000 5
----------
PRODUCER MANUFACTURING
Goss Holdings Inc., B ................................................. United States 44,604 89,208
----------
TELECOMMUNICATIONS
International Wire Holding Co., wts., 8/15/01 ......................... United States 7,800 8
Loral Space & Communications Ltd., wts., 1/15/07 ...................... United States 1,500 17,295
McCaw International Ltd., wts., 4/15/07 ............................... United States 7,000 56,000
Poland Telecom Finance, 144A, wts., 12/01/07 .......................... Poland 8,000 24,400
----------
97,703
----------
UTILITIES
Empire Gas Corp., wts., 7/15/04 ....................................... United States 6,900 1,725
----------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $661,499) .............. 808,322
----------
PREFERRED STOCKS 1.5%
INDUSTRIAL SERVICES .5%
R&B Falcon Corp., 13.875%, pfd., PIK .................................. United States 1,611 1,691,812
----------
PROCESS INDUSTRIES 1.0%
Asia Pulp & Paper Co. Ltd., 12.00%, pfd ............................... Indonesia 4,500 2,947,500
----------
TOTAL PREFERRED STOCKS (COST $6,037,972) .............................. 4,639,312
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 96.1%
COMMERCIAL SERVICES 2.3%
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ............. United States $2,000,000 1,845,000
Fleming Cos. Inc., senior sub. note, B, 10.625%, 7/31/07 ............. United States 2,000,000 1,815,000
Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 .......... United Kingdom 3,700,000 3,422,500
----------
7,082,500
----------
CONSUMER DURABLES 2.7%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 ........... United States 3,000,000 1,065,000
Pillowtex Corp., senior sub. note, B, 9.00%, 12/15/07 ................ United States 2,900,000 1,261,500
Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02,
10.875% thereafter, 12/15/07 ..................................... United States 1,500,000 1,057,500
True Temper Sports Inc., B, 10.875%, 12/01/08 ........................ United States 4,000,000 3,840,000
Windmere-Durable Holdings Inc., senior sub. note, 10.00%, 7/31/08 .... United States 1,200,000 1,188,000
----------
8,412,000
----------
CONSUMER NON-DURABLES 3.6%
Compania De Alimentos Fargo SA, 13.25%, 8/01/08 ...................... Argentina 1,250,000 1,081,250
Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07 ................. United States 2,197,000 2,202,492
Packaged Ice Inc., senior sub. note, B, 9.75%, 2/01/05 ............... United States 2,600,000 2,392,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 ................ United States 8,500,000 1,785,000
Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 ......... United States 3,000,000 1,065,000
United Industries Corp., senior sub. note, 9.875%, 4/01/09 ........... United States 3,000,000 2,760,000
----------
11,285,742
----------
</TABLE>
84
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
CONSUMER SERVICES 21.5%
Advanstar Communications, senior sub. note, 9.25%, 5/01/08 .............. United States $ 5,000,000 $ 4,725,000
AMFM Inc., 9.00%, 10/01/08 .............................................. United States 4,500,000 4,702,500
AMFM Inc., senior note, 8.00%, 11/01/08 ................................. United States 3,500,000 3,500,000
Ascent Entertainment Group Inc., senior disc. note, zero cpn. to
12/15/02, 11.875% thereafter, 12/15/04 ............................... United States 3,000,000 2,250,000
Aztar Corp., senior sub. note, 8.875%, 5/15/07 .......................... United States 4,500,000 4,331,250
Charter Communications Holdings LLC, senior disc. note, zero cpn. to
4/01/04, 9.92% thereafter, 4/01/11 ................................... United States 5,750,000 3,399,688
CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 .................... United States 3,000,000 3,330,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 .................... United States 4,500,000 4,770,000
Diamond Cable Communication Co., senior disc. note, zero cpn. to 2/15/02,
10.75% thereafter, 2/15/07 ........................................... United Kingdom 1,500,000 1,237,500
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ...................... United Kingdom 3,000,000 2,985,000
Granite Broadcasting Corp., senior sub. note, A, 10.375%, 5/15/05 ....... United States 4,500,000 4,612,500
Hollinger International Publishing Inc., senior sub. note, 9.25%,
3/15/07............................................................... United States 4,500,000 4,477,500
La Petite Academy Inc., senior note, B, 10.00%, 5/15/08 ................. United States 5,000,000 3,700,000
LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00%
thereafter, 3/01/08 .................................................. United States 2,600,000 1,768,000
LIN Television Corp., senior sub. note, 8.375%, 3/01/08 ................. United States 2,800,000 2,639,000
Protection One Alarm Monitoring Inc., senior sub. note, 144A, 8.125%,
1/15/09 .............................................................. United States 5,000,000 2,525,000
Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 .................... United States 3,800,000 2,888,000
Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 ........ United States 2,500,000 2,500,000
Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 ............. United States 2,700,000 2,649,375
Telewest Communications PLC, senior disc. note, 144A, zero cpn. to
4/15/04, 9.25% thereafter, 4/15/09 ................................... United Kingdom 1,750,000 1,111,250
United Pan-Europe Communications NV, zero cpn. to 8/01/04, 12.50%
thereafter, 8/01/09 .................................................. Netherlands 6,250,000 3,562,500
----------
67,664,063
----------
ELECTRONIC TECHNOLOGY 2.1%
Exide Electronics Group Inc., senior sub. note, B, 11.50%, 3/15/06 ...... United States 2,000,000 2,165,538
L-3 Communications Holdings Inc., B, 8.00%, 8/01/08 ..................... United States 750,000 691,875
L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 .... United States 3,500,000 3,622,500
----------
6,479,913
----------
ENERGY MINERALS 4.2%
Abraxas Petroleum Corp., 11.50%, 11/01/04 ............................... United States 3,010,000 2,754,150
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 ...................... United States 5,000,000 2,625,000
Mesa Operating Co., zero cpn. to 7/01/01, 11.625% thereafter, 7/01/06 ... United States 1,800,000 1,588,500
P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ................ United States 1,000,000 982,500
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ........... United States 4,500,000 4,455,000
Pogo Producing Co., senior sub. note, B, 8.75%, 5/15/07 ................. United States 1,000,000 955,000
----------
13,360,150
----------
FINANCE 2.0%
Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ................... United States 2,000,000 2,040,000
Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 .................. United States 5,000,000 4,187,500
----------
6,227,500
----------
HEALTH SERVICES 1.3%
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ....... United States 2,750,000 2,241,250
Pharmerica Inc., senior sub. note, 8.375%, 4/01/08 .................... United States 1,250,000 943,750
(c) Vencor Operating Inc., senior sub note, 9.875%, 5/01/05 ............... United States 4,200,000 871,500
----------
4,056,500
----------
INDUSTRIAL SERVICES 3.6%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ........ United States 5,500,000 4,867,500
R&B Falcon Corp., senior note, 12.25%, 3/15/06 .......................... United States 1,750,000 1,933,750
RBF Finance Co., senior note, 11.375%, 3/15/09 .......................... United States 1,500,000 1,612,500
Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03,
9.875% thereafter, 2/15/08 ............................................ United States 4,650,000 2,888,813
----------
11,302,563
----------
PROCESS INDUSTRIES 7.7%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 ........... United States 2,350,000 2,402,875
Climachen Inc., senior sub. note, B, 10.75%, 12/01/07 ................... United States 1,200,000 306,000
Consolidated Container Co. LLC, senior sub. note, 144A, 10.125%, 7/15/09 United States 2,500,000 2,543,750
Four M Corp., senior note, B, 12.00%, 6/01/06 ........................... United States 7,700,000 7,218,750
</TABLE>
85
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
PROCESS INDUSTRIES (CONT.)
Lyondell Chemical Co., 9.875%, 5/01/07 ................................. United States $ 1,750,000 $ 1,785,000
(c) Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 .. Indonesia 4,250,000 765,000
(c) Purina Mills Inc., senior sub. note, 9.00%, 3/15/10 .................... United States 4,000,000 1,020,000
Radnor Holdings Inc., senior note, 10.00%, 12/01/03 .................... United States 5,000,000 5,025,000
Repap New Brunswick, senior note, 9.00%, 6/01/04 ....................... Canada 2,000,000 1,960,000
Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 ............ Indonesia 2,000,000 1,455,000
-----------
24,481,375
-----------
PRODUCER MANUFACTURING 4.6%
Goss Graphic Systems Inc., senior sub. note, PIK, 12.25%, 11/19/05 ..... United States 1,600,000 504,000
Nortek Inc., senior sub. note, 9.875%, 3/01/04 ......................... United States 5,500,000 5,472,500
Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 .................. United States 2,000,000 1,950,000
Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ...... United States 2,900,000 1,812,500
Terex Corp., 8.875%, 4/01/08 ........................................... United States 1,000,000 950,000
Terex Corp., senior sub. note, 8.875%, 4/01/08 ......................... United States 3,550,000 3,372,500
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 ...... Canada 750,000 558,750
-----------
14,620,250
-----------
RETAIL TRADE 1.2%
Hollywood Entertainment Corp., senior sub. note, B, 10.625%, 8/15/04 ... United States 4,000,000 3,720,000
-----------
TECHNOLOGY SERVICES 2.5%
Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 .................... United States 4,000,000 4,010,000
PSINet Inc., 11.00%, 8/01/09 ........................................... United States 2,900,000 2,987,000
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 ....................... United States 1,000,000 1,012,500
-----------
8,009,500
-----------
TELECOMMUNICATIONS 29.7%
Arch Communications Group Inc., senior disc. note, zero cpn. to
3/15/01, 10.875% thereafter, 3/15/08 ................................. United States 6,000,000 2,730,000
Arch Escrow Corp., 13.75%, 4/15/08 ..................................... United States 1,500,000 1,222,500
Call-Net Enterprises Inc., senior note, 9.375%, 5/15/09 ................ Canada 4,250,000 3,442,500
Clearnet Communications Inc., senior disc. note, zero cpn. to 5/01/04,
10.125% thereafter, 5/01/09 .......................................... Canada 6,500,000 3,900,000
Dobson/Sygnet Communications Co., 12.25%, 12/15/08 ..................... United States 4,500,000 4,961,250
Global Crossing Holdings Ltd., senior sub. note, 144A, 9.50%, 11/15/09 . Bermuda 5,000,000 4,943,750
Hermes Europe Railtel BV, senior note, 11.50%, 8/15/07 ................. Netherlands 2,000,000 2,070,000
(c,d) ICO Global Communications Holdings Ltd., 15.00%, 8/01/05 ............... Bermuda 5,000,000 2,300,000
IntelCom Group Inc., senior secured disc. note, zero cpn. to 5/01/01,
12.50% thereafter, 5/01/06 ........................................... United States 3,250,000 2,445,625
Intermedia Communications Inc., senior disc. note, B, zero cpn. to
7/15/02, 11.25% thereafter, 7/15/07 .................................. United States 5,000,000 3,725,000
Intermedia Communications Inc., senior note, 9.50%, 3/01/09 ............ United States 2,000,000 1,935,000
(c) International Wireless Communications, senior disc. note,
zero cpn., 8/15/01 ................................................... United States 7,800,000 780,000
Level 3 Communications Inc., senior note, 9.125%, 5/01/08 .............. United States 5,000,000 4,737,500
Level 3 Communications Inc., zero cpn. to 12/01/03, 10.50% thereafter,
12/01/08 ........................................................... United States 3,000,000 1,837,500
Loral Space and Communications Ltd., senior disc. note, zero cpn. to
1/15/02, 12.50% thereafter, 1/15/07 ................................ United States 1,500,000 712,500
McCaw International Ltd., senior disc. note,
zero cpn. to 4/15/02, 13.00% thereafter, 4/15/07 ..................... United States 7,000,000 4,927,720
McLeodUSA Inc., 8.125%, 2/15/09 ........................................ United States 4,000,000 3,730,000
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ...................... United States 5,000,000 3,175,000
Millicom International Cellular SA, senior disc. note, zero cpn. to
6/01/01, 13.50% thereafter, 6/01/06 .................................. Luxembourg 9,300,000 7,719,000
Nextel Communications Inc., senior disc. note, zero cpn. to 9/15/02,
10.65% thereafter, 9/15/07 ........................................... United States 7,000,000 5,250,000
Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02,
9.75% thereafter, 10/31/07 ........................................... United States 3,000,000 2,182,500
NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ............ United States 1,400,000 1,372,000
NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 .............. United States 3,600,000 3,447,000
Northeast Optic Network Inc., senior note, 12.75%, 8/15/08 ............. United States 3,500,000 3,727,500
Omnipoint Corp., senior note, 144A, 11.50%, 9/15/09 .................... United States 4,000,000 4,360,000
Poland Telecom Finance, senior note, B, 14.00%, 12/01/07 ............... Poland 8,000,000 5,350,000
Rogers Cantel Mobile Inc., senior secured deb., 9.75%, 6/01/16 ......... Canada 2,000,000 2,240,000
RSL Communications PLC, senior note, 12.00%, 11/01/08 .................. United Kingdom 1,500,000 1,518,750
Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04,
11.25% thereafter, 4/15/09 ........................................... United States 2,500,000 1,350,000
VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn. to
11/15/04, 11.875% thereafter, 11/15/09 ............................... United States 2,000,000 1,200,000
-----------
93,292,595
-----------
</TABLE>
86
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
Transportation 5.9%
American Commercial Lines LLC, senior note, 10.25%, 6/30/08 ........... United States $ 3,100,000 $ 2,991,500
Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 .................. Bermuda 4,500,000 4,646,250
GS Superhighway (Holdings) Ltd., senior note, 10.25%, 8/15/07 ......... China 6,000,000 3,241,800
Holt Group, senior note, 9.75%, 1/15/06 ............................... United States 5,250,000 3,478,125
MRS Logistica SA, B, 144A, 10.625%, 8/15/05 ........................... Brazil 5,000,000 4,075,000
------------
18,432,675
------------
Utilities 1.2%
AES Corp., senior note, 9.50%, 6/01/09 ................................ United States 1,000,000 1,020,000
Empire Gas Corp., senior secured note, 12.875%, 7/15/04 ............... United States 5,000,000 2,925,000
------------
3,945,000
------------
Total Bonds (Cost $362,876,262) ....................................... 302,372,326
------------
Total Long Term Investments ($369,575,733) ............................ 307,819,960
------------
(g) Repurchase Agreement .3%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity Value $831,865)
(Cost $831,686) .................................................... United States 831,686 831,686
Banc of America Securities LLC
Barclays Capital Inc. ................................................
Bear, Stearns & Co. Inc. .............................................
Chase Securities Inc. ................................................
Donaldson, Lufkin & Jenrette Securities Corp. ........................
Dresdner Kleinwort Benson, North America LLC
Paribas Corp. ........................................................
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes ------------
Total Investments (Cost $370,407,419) 98.1% ........................... 308,651,646
Other Assets, less Liabilities 1.9% ................................... 5,927,545
------------
Net Assets 100.0% ..................................................... $314,579,191
============
</TABLE>
(a) Non-income producing.
(c) See Note 7 regarding defaulted securities.
(d) See Note 8 regarding restricted securities.
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
87
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN INCOME SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 33.8%
<S> <C> <C> <C>
CONSUMER DURABLES .6%
General Motors Corp. ................................... United States 60,000 $ 4,361,250
-----------
CONSUMER NON-DURABLES 2.1%
Nabisco Group Holdings Corp. ........................... United States 60,000 637,500
Philip Morris Cos. Inc. ................................ United States 650,000 15,071,875
R.J. Reynolds Tobacco Holdings Inc. .................... United States 30,000 528,750
-----------
16,238,125
-----------
(a) ELECTRONIC TECHNOLOGY
Anacomp Inc. ........................................... United States 4,100 74,566
-----------
ENERGY MINERALS 2.6%
Athabasca Oil Sands Trust .............................. Canada 300,000 5,166,332
BP Prudhoe Bay Royalty Trust ........................... United States 50,000 453,125
Canadian Oil Sands Trust Units ......................... Canada 350,000 6,233,142
EOG Resources Inc. ..................................... United States 240,000 4,215,000
(a) Santa Fe Snyder Corp. .................................. United States 189,842 1,518,736
Ultramar Diamond Shamrock Corp. ........................ United States 125,000 2,835,938
-----------
20,422,273
-----------
NON-ENERGY MINERALS 3.1%
Anglo American Platinum Corp. Ltd., ADR ................ South Africa 200,000 6,076,361
Anglogold Ltd., ADR .................................... South Africa 325,000 8,348,438
De Beers Consolidated Mines AG, ADR .................... South Africa 40,000 1,157,500
Impala Platinum Holdings Ltd., ADR ..................... South Africa 216,500 8,758,489
-----------
24,340,788
-----------
PROCESS INDUSTRIES .5%
(a) Dan River Inc., A ...................................... United States 102,600 525,825
Lyondell Chemical Co. .................................. United States 100,000 1,275,000
McDermott International Inc. ........................... United States 260,000 2,356,250
-----------
4,157,075
-----------
REAL ESTATE .6%
FelCor Lodging Trust Inc. .............................. United States 275,000 4,812,500
-----------
TELECOMMUNICATIONS .6%
U.S. West Inc. ......................................... United States 60,000 4,320,000
-----------
UTILITIES 23.7%
American Electric Power Co. Inc. ....................... United States 255,000 8,191,875
Central & South West Corp. ............................. United States 350,000 7,000,000
Cinergy Corp. .......................................... United States 230,000 5,548,750
Conectiv Inc. .......................................... United States 212,800 3,577,700
Dominion Resources Inc. ................................ United States 250,000 9,812,500
Edison International ................................... United States 360,000 9,427,500
Energy East Corp. ...................................... United States 210,000 4,370,625
Entergy Corp. .......................................... United States 390,000 10,042,500
FirstEnergy Corp. ...................................... United States 235,000 5,331,563
Florida Progress Corp. ................................. United States 295,000 12,482,188
FPL Group Inc. ......................................... United States 155,000 6,635,938
GPU Inc. ............................................... United States 200,000 5,987,500
Hawaiian Electric Industries Inc. ...................... United States 70,000 2,021,250
KeySpan Corp. .......................................... United States 190,000 4,405,625
New Century Energies Inc. .............................. United States 200,000 6,075,000
New England Electric System ............................ United States 190,000 9,832,500
Northern States Power Co. .............................. United States 210,000 4,095,000
PECO Energy Co. ........................................ United States 259,500 9,017,625
PG&E Corp. ............................................. United States 345,000 7,072,500
Potomac Electric Power Co. ............................. United States 225,000 5,160,938
Public Service Enterprise Group Inc. ................... United States 250,000 8,703,125
Reliant Energy Inc. .................................... United States 225,000 5,146,875
Scana Corp. ............................................ United States 90,000 2,418,750
</TABLE>
88
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN INCOME SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
UTILITIES (CONT.)
ScottishPower PLC, ADR ................................................ United Kingdom 37,700 $ 1,055,600
Sempra Energy ......................................................... United States 425,000 7,384,375
Sierra Pacific Resources .............................................. United States 100,000 1,731,250
Southern Co. .......................................................... United States 300,000 7,050,000
Texas Utilities Co. ................................................... United States 290,000 10,313,125
Western Resources Inc. ................................................ United States 215,000 3,655,000
-----------
183,547,177
-----------
TOTAL COMMON STOCKS (COST $249,866,680) ............................... 262,273,754
-----------
PREFERRED STOCKS .8%
PROCESS INDUSTRIES .8%
Asia Pulp & Paper Co. Ltd., 12.00%, 2/15/04 ........................... Indonesia 6,000,000 3,930,000
Freeport-McMoran Copper & Gold Inc., 0.00%, pfd., Gold ................ United States 108,800 2,148,800
-----------
TOTAL PREFERRED STOCKS (COST $9,353,095) .............................. 6,078,800
-----------
CONVERTIBLE PREFERRED STOCKS 10.1%
ENERGY MINERALS 2.3%
(a) Chesapeake Energy Corp., 7.00%, cvt. pfd., 144A ....................... United States 85,000 2,220,625
Kerr-McGee Corp., 5.50%, cvt. pfd ..................................... United States 151,300 4,992,900
Lomak Financing Trust, 5.75%, cvt. pfd ................................ United States 140,000 2,870,000
Newfield Financial Trust I, 6.50%, cvt. pfd ........................... United States 75,000 3,506,250
Nuevo Financing I, 5.75%, cvt. pfd., A ................................ United States 140,000 3,815,000
-----------
17,404,775
-----------
INDUSTRIAL SERVICES .6%
Weatherford International Inc., 5.00%, cvt. pfd., 144A ................ United States 125,000 4,687,500
-----------
NON-ENERGY MINERALS .9%
Battle Mountain Gold Co., $3.25, cvt. pfd ............................. United States 66,300 1,703,081
Hecla Mining Co., 7.00%, cvt. pfd., B ................................. United States 70,000 1,671,250
Kinam Gold Inc., $3.75, cvt. pfd., B .................................. United States 150,000 3,956,250
-----------
7,330,581
-----------
REAL ESTATE 4.0%
Apartment Investment & Management Co., 8.00%, cvt. pfd., K ............ United States 160,000 3,960,000
Archstone Communities Trust, $1.75, cvt. pfd., A ...................... United States 200,000 5,625,000
Glenborough Realty Trust Inc., 7.75%, cvt. pfd., A .................... United States 365,000 5,087,188
Host Marriott Corp., 6.75%, cvt. pfd .................................. United States 110,000 3,575,000
Innkeepers USA Trust, 8.625%, cvt. pfd., A ............................ United States 175,000 3,128,125
ProLogis Trust, 7.00%, cvt. pfd., B ................................... United States 135,000 3,341,250
Reckson Associates Realty Corp., 7.625%, cvt. pfd., A ................. United States 180,000 3,577,500
Vornado Realty Trust, 6.50%, cvt. pfd., A ............................. United States 60,000 2,797,500
-----------
31,091,563
-----------
TELECOMMUNICATIONS 1.2%
Nortel Inversora SA, 10.00%, cvt. pfd ................................. Argentina 150,000 9,168,750
-----------
TRANSPORTATION .2%
Union Pacific Capital Trust, 6.25%, cvt. pfd .......................... United States 40,000 1,640,000
-----------
UTILITIES .9%
(a) CMS Energy Trust I, 7.75%, cvt. pfd ................................... United States 160,000 7,440,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $99,730,077) ................. 78,763,169
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-----------
<S> <C> <C> <C>
BONDS 19.8%
COMMERCIAL SERVICES
AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 United States $ 1,000,000 345,000
-----------
</TABLE>
89
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS (CONT.)
<S> <C> <C> <C>
CONSUMER DURABLES .2%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 ............... United States $ 3,750,000 $ 1,331,250
CONSUMER NON-DURABLES 3.8%
Compania De Alimentos Fargo SA, 13.25%, 8/01/08 .......................... Argentina 2,000,000 1,730,000
Del Monte Corp., senior sub. note, B, 12.25%, 4/15/07 .................... United States 2,000,000 2,230,000
Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07 ..................... United States 2,197,000 2,202,493
Evenflo Company Inc., B, 11.75%, 8/15/06 ................................. United States 2,000,000 1,970,000
Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ....................... United States 8,300,000 8,237,750
Playtex Family Products Corp., senior sub. note, 9.00%, 12/15/03 ......... United States 8,000,000 7,980,000
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ........ United States 2,000,000 1,010,000
SFC New Holdings Inc., senior note, 11.25%, 8/15/01 ...................... United States 4,000,000 3,720,000
The William Carter Co., senior sub. note, A, 10.375%, 12/01/06 ........... United States 500,000 452,500
----------
29,532,743
----------
CONSUMER SERVICES 2.4%
AMF Bowling Worldwide Inc., senior sub. note, B, 10.875%, 3/15/06 ........ United States 650,000 276,250
Cablevision SA, 144A, 13.75%, 5/01/09 .................................... United States 3,000,000 2,940,000
Coast Hotel & Casino Inc., senior sub. note, 9.50%, 4/01/09 .............. United States 1,000,000 970,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ..................... United States 4,000,000 4,240,000
Eldorado Resorts LLC, senior sub. note, 10.50%, 8/15/06 .................. United States 500,000 512,500
Hard Rock Hotel Inc., senior sub. note, B, 9.25%, 4/01/05 ................ United States 1,000,000 735,000
Harveys Casino Resorts, senior sub. note, 10.625%, 6/01/06 ............... United States 2,200,000 2,277,000
Lone Cypress Co., sub. note, 144A, 11.50%, 8/01/09 ....................... United States 4,703,000 4,703,000
Protection One Alarm Monitoring Inc., senior sub. note,
144A, 8.125%, 1/15/09 ................................................ United States 2,500,000 1,262,500
Venetian Casino/Las Vegas Sands, mortgage note,
12.25%, 11/15/04 ..................................................... United States 1,000,000 877,500
----------
18,793,750
----------
ELECTRONIC TECHNOLOGY 1.4%
Anacomp Inc., senior sub. note, B, 10.875%, 4/01/04 ...................... United States 6,000,000 6,015,000
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 ......................... United States 2,000,000 2,025,000
Samsung Electronics America Inc., A, 9.75%, 5/01/03 ...................... United States 3,000,000 3,135,000
----------
11,175,000
----------
ENERGY MINERALS 2.4%
Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 ........... United States 3,000,000 2,670,000
Chesapeake Energy Corp., senior note, B, 7.875%, 3/15/04 ................. United States 500,000 455,000
Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ............ Mexico 9,000,000 9,090,000
Denbury Management Inc., senior sub. note, 9.00%, 3/01/08 ................ United States 4,000,000 3,685,000
Plains Resources Inc., senior sub. note, B, 10.25%, 3/15/06 .............. United States 1,000,000 975,000
R&B Falcon Corp., senior note, B, 6.50%, 4/15/03 ......................... United States 2,000,000 1,830,000
----------
18,705,000
----------
FINANCE .4%
IBJ Preferred Capital Co. LLC, A, 8.79%, 12/29/49 ........................ United States 3,000,000 2,820,000
----------
HEALTH TECHNOLOGY .8%
Dade International Inc., senior sub. note, B, 11.125%, 5/01/06 ........... United States 3,000,000 2,955,000
ICN Pharmaceuticals Inc., senior note, B, 9.25%, 8/15/05 ................. United States 3,000,000 2,970,000
----------
5,925,000
----------
INDUSTRIAL SERVICES .7%
Allied Waste North America Inc., senior sub. note, 144A, 10.00%, 8/01/09 . United States 4,000,000 3,580,000
First Wave Marine Inc., senior note, 11.00%, 2/01/08 ..................... United States 1,000,000 695,000
Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 ....... United States 1,000,000 1,050,000
----------
5,325,000
----------
NON-ENERGY MINERALS .1%
Mesa Operating Co., senior sub. note, 10.625%, 7/01/06 ................... United States 950,000 952,375
----------
PROCESS INDUSTRIES 4.8%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 ............. United States 6,000,000 6,135,000
Consoltex Group Inc., senior sub. note, B, 11.00%, 10/01/03 .............. United States 10,000,000 10,050,000
</TABLE>
90
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
PROCESS INDUSTRIES (CONT.)
Four M Corp., senior note, B, 12.00%, 6/01/06 ..................... United States $ 2,000,000 $ 1,875,000
Packaging Resources Inc., senior note, 11.625%, 5/01/03 ........... United States 3,000,000 3,015,000
Printpack Inc., senior sub. note, B, 10.625%, 8/15/06 ............. United States 4,000,000 3,860,000
RBX Corp., senior sub. note, B, 11.25%, 10/15/05 .................. United States 10,000,000 2,050,000
Riverwood International, senior sub. note, 10.875%, 4/01/08 ....... United States 4,500,000 4,477,500
Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 ....... Indonesia 7,400,000 5,383,500
------------
36,846,000
------------
PRODUCER MANUFACTURING 1.6%
Collins & Aikman Products, senior sub. note, 11.50%, 4/15/06 ...... United States 4,000,000 3,980,000
Nortek Inc., senior sub. note, 9.875%, 3/01/04 .................... United States 2,000,000 1,990,000
Outsourcing Services Group Inc., senior sub. note, 10.875%, 3/01/06 United States 2,000,000 1,790,000
Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03 ........... United States 2,696,000 2,500,540
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 . Canada 2,350,000 1,750,750
------------
12,011,290
------------
TELECOMMUNICATIONS 1.2%
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ................. United States 3,000,000 1,905,000
NEXTLINK Communications Inc., senior note, 144A, 10.75%, 6/01/09 .. United States 4,000,000 4,120,000
Paging Network Inc., senior sub. note, 10.125%, 8/01/07 ........... United States 3,000,000 945,000
Voicestream Wireless Corp., senior note, 144A, 10.375%, 11/15/09 .. United States 1,000,000 1,030,000
Williams Communications Group Inc., senior note, 10.875%, 10/01/09 United States 1,490,000 1,568,225
------------
9,568,225
------------
TOTAL BONDS (COST $170,960,594) ................................... 153,330,633
------------
CONVERTIBLE BONDS 5.2%
ELECTRONIC TECHNOLOGY .9%
Trans-Lux Corp., cvt. sub. note, 7.50%, 12/01/06 .................. United States 8,000,000 7,000,000
------------
ENERGY MINERALS .7%
Kerr McGee Corp., cvt., 7.50%, 5/15/14 ............................ United States 1,315,000 1,231,169
Swift Energy Co., cvt. sub. note, 6.25%, 11/15/06 ................. United States 5,500,000 4,276,250
------------
5,507,419
------------
HEALTH SERVICES .1%
(c)Continucare Corp., cvt. sub. note, 144A, 8.00%, 10/31/02 .......... United States 9,500,000 475,000
------------
INDUSTRIAL SERVICES .4%
Key Energy Services Inc., cvt., 5.00%, 9/15/04 .................... United States 4,000,000 2,755,000
Parker Drilling Co., cvt. sub. note, 5.50%, 8/01/04 ............... United States 1,000,000 700,000
------------
3,455,000
------------
NON-ENERGY MINERALS 1.5%
Ashanti Capital Ltd., cvt., 5.50%, 3/15/03 ........................ Ghana 5,000,000 3,625,000
Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 6/10/02 .. United Kingdom 100,000 61,000
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04 ........ United States 6,000,000 3,210,000
Trizec Hahn Corp., cvt. senior deb., 3.00%, 1/29/21 ............... Canada 7,000,000 4,523,190
------------
11,419,190
------------
PRODUCER MANUFACTURING .3%
Exide Corp., cvt. senior sub. note, 144A, 2.90%, 12/15/05 ......... United States 5,000,000 2,650,000
------------
REAL ESTATE 1.3%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 ............... United States 6,000,000 4,980,000
Meristar Hospitality Corp., cvt. sub. note, 4.75%, 10/15/04 ....... United States 6,500,000 5,078,125
------------
10,058,125
------------
TOTAL CONVERTIBLE BONDS (COST $56,862,522) ........................ 40,564,734
------------
ZERO COUPON/STEP-UP BONDS 4.2%
AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn ........
to 3/15/01, 12.25% thereafter, 3/15/06 .......................... United States 2,438,000 816,730
APP Finance VI Mauritius Ltd., cvt., zero cpn., 11/18/12 .......... Indonesia 11,500,000 2,084,375
Charter Communications Holdings LLC, senior disc. note,
zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ................. United States 5,000,000 2,956,250
</TABLE>
91
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ZERO COUPON/STEP-UP BONDS (CONT.)
Crown Castle International Corp., senior disc. note,
144A, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 United States $ 5,000,000 3,150,000
Huntsman ICI Chemicals LLC, senior disc. note, 144A,
zero cpn., 12/31/09 .................................. United States 7,500,000 $ 2,296,875
Level 3 Communications Inc., zero cpn. to 12/01/03,
10.50% thereafter, 12/01/08 .......................... United States 4,000,000 2,450,000
Mesa Operating Co., zero cpn. to 7/01/01, 11.625%
thereafter, 7/01/06 .................................. United States 1,300,000 1,147,250
Microcell Telecommunications Inc., zero cpn. to 6/01/04,
12.00% thereafter, 6/01/09 ........................... United States 3,000,000 1,946,250
Nextel Communications Inc., senior disc. note, zero
cpn. to 2/15/03, 9.95% thereafter, 2/15/08 ........... United States 8,500,000 6,077,500
Nextel International Inc., senior disc. note, zero
cpn. to 4/15/03, 12.125% thereafter, 4/15/08 ......... United States 5,000,000 2,825,000
NEXTLINK Communications Inc., 144A, zero cpn. to
6/01/04, 12.25% thereafter, 6/01/09 .................. United States 4,000,000 2,460,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 .. United States 4,200,000 882,000
SFC New Holdings Inc., zero cpn. to 6/15/05, 11.00%
thereafter, 12/15/09 ................................. United States 191,574 --
Spectrasite Holdings Inc., senior disc. note, zero
cpn. to 4/15/04, 11.25% thereafter, 4/15/09 .......... United States 1,750,000 945,000
United Pan-Europe Communications NV, 144A, zero cpn
to 8/01/04, 12.50% thereafter, 8/01/09 ............... Netherlands 2,500,000 1,425,000
VoiceStream Wireless Corp., senior disc. note, 144A,
zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 .. United States 1,750,000 1,050,000
------------
TOTAL ZERO COUPON/STEP-UP BONDS (COST $38,309,471) ..... 32,512,230
------------
U.S. GOVERNMENT SECURITIES 9.7%
U.S. Treasury Bond, 6.25%, 8/15/23 ..................... United States 57,000,000 53,775,966
U.S. Treasury Bond, 6.00%, 2/15/26 ..................... United States 13,000,000 11,895,000
U.S. Treasury Bond, 6.125%, 11/15/27 ................... United States 10,000,000 9,303,130
------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $76,688,354) .... 74,974,096
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 15.0%
ESCOM, E168, utility deb., 11.00%, 6/01/08 ............. South Africa 27,000,000 ZAR 3,706,742
Republic of Argentina, L, FRN, 6.00%, 3/31/23 .......... Argentina 50,000,000 33,125,000
Republic of Brazil, 11.625%, 4/15/04 ................... Brazil 2,000,000 1,990,500
Republic of Brazil, 14.50%, 10/15/09 ................... Brazil 5,907,000 6,556,770
Republic of Brazil, A, FRN, 1/01/01 .................... Brazil 3,690,000 3,653,100
Republic of Brazil, FRN, 5.75%, 4/15/24 ................ Brazil 29,000,000 18,777,500
Republic of Brazil, L, FRN, 5.875%, 4/15/06 ............ Brazil 15,040,000 13,263,400
Republic of Korea, 8.875%, 4/15/08 ..................... South Korea 19,000,000 20,045,000
Republic of South Africa, 12.00%, 2/28/05 .............. South Africa 23,000,000 ZAR 3,573,314
Republic of Turkey, 12.375%, 6/15/09 ................... Turkey 5,000,000 5,375,000
Russia Ministry of Finance, 11.75%, 6/10/03 ............ Russia 5,500,000 4,111,250
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 ..... Russia 4,000,000 2,440,000
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES
(COST $103,709,598) ................................... 116,617,576
------------
TOTAL LONG TERM INVESTMENTS (COST $805,480,391) ........ 765,114,992
------------
(g)REPURCHASE AGREEMENT
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $361,018) (COST $360,940) ............ United States 360,940 360,940
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $805,841,331) 98.6% ............ 765,475,932
OTHER ASSETS, LESS LIABILITIES 1.4% .................... 10,942,528
------------
NET ASSETS 100.0% ...................................... $776,418,460
============
</TABLE>
- ----------
See glossary of currency abbreviations on page 157.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(c)See Note 7 regarding defaulted securities.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
92 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.2%
COMMERCIAL SERVICES 2.7%
(a)Concord EFS Inc. ................................. 185,000 $ 4,763,750
Equifax Inc. ..................................... 120,000 2,827,500
(a)Robert Half International Inc. ................... 120,000 3,427,500
------------
11,018,750
------------
CONSUMER DURABLES 2.4%
(a)Electronic Arts Inc. ............................. 53,000 4,452,000
Mattel Inc. ...................................... 180,000 2,362,500
Maytag Corp. ..................................... 65,000 3,120,000
------------
9,934,500
------------
CONSUMER NON-DURABLES 2.9%
Coca-Cola Co. .................................... 37,000 2,155,250
Hershey Foods Corp. .............................. 85,000 4,037,500
Philip Morris Cos. Inc. .......................... 105,000 2,434,688
Procter & Gamble Co. ............................. 30,000 3,286,875
------------
11,914,313
------------
CONSUMER SERVICES 2.6%
McDonald's Corp. ................................. 100,000 4,031,250
Time Warner Inc. ................................. 89,000 6,446,938
------------
10,478,188
------------
ELECTRONIC TECHNOLOGY 24.5%
(a)3Com Corp. ....................................... 89,400 4,201,800
(a)Applied Materials Inc. ........................... 55,000 6,967,813
(a)Cisco Systems Inc. ............................... 110,000 11,783,750
Compaq Computer Corp. ............................ 100,000 2,706,250
(a)EMC Corp. ........................................ 55,000 6,008,750
Hewlett-Packard Co. .............................. 45,000 5,127,188
Intel Corp. ...................................... 45,000 3,704,063
International Business Machines Corp. ............ 40,000 4,320,000
(a)JDS Uniphase Corp. ............................... 110,000 17,744,375
(a)KLA-Tencor Corp. ................................. 50,000 5,568,750
Linear Technology Corp. .......................... 65,000 4,651,563
Lucent Technologies Inc. ......................... 75,000 5,610,938
Motorola Inc. .................................... 10,000 1,472,500
Nokia Corp., ADR (Finland) ....................... 8,000 1,520,000
Nortel Networks Corp. (Canada) ................... 20,000 2,020,000
(a)Synopsys Inc. .................................... 70,000 4,672,500
(a)Tellabs Inc. ..................................... 40,000 2,567,500
United Technologies Corp. ........................ 60,000 3,900,000
(a)Xilinx Inc. ...................................... 120,000 5,456,250
------------
100,003,990
------------
ENERGY MINERALS 1.6%
(a)Barrett Resources Corp. .......................... 58,200 1,713,263
Royal Dutch Petroleum Co., N.Y. shs. (Netherlands) 80,000 4,835,000
------------
6,548,263
------------
FINANCE 6.2%
American International Group Inc. ................ 41,937 4,534,438
Associates First Capital Corp., A ................ 95,000 2,606,563
Bank One Corp. ................................... 125,000 4,007,813
Charles Schwab Corp. ............................. 35,000 1,343,125
Citigroup Inc. ................................... 87,500 4,861,719
Fifth Third Bancorp .............................. 55,000 4,035,625
Providian Financial Corp. ........................ 28,000 2,549,750
(a)TD Waterhouse Group Inc. ......................... 89,900 1,477,731
------------
25,416,764
------------
</TABLE>
93
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH SERVICES 1.0%
McKesson HBOC Inc. .................................. 109,000 $ 2,459,313
Omnicare Inc. ....................................... 140,000 1,680,000
-----------
4,139,313
-----------
HEALTH TECHNOLOGY 12.1%
Abbott Laboratories ................................. 130,000 4,720,625
American Home Products Corp. ........................ 70,000 2,760,625
(a)Amgen Inc. .......................................... 100,000 6,006,250
Baxter International Inc. ........................... 70,000 4,396,875
Eli Lilly & Co. ..................................... 50,000 3,325,000
(a)Genentech Inc. ...................................... 61,600 8,285,200
Johnson & Johnson ................................... 68,419 6,371,519
Medtronic Inc. ...................................... 180,000 6,558,750
Schering-Plough Corp. ............................... 115,000 4,851,563
Warner-Lambert Co. .................................. 25,000 2,048,438
-----------
49,324,845
-----------
INDUSTRIAL SERVICES 4.2%
(a)AES Corp. ........................................... 75,000 5,606,250
(a)Republic Services Inc. .............................. 309,500 4,449,063
Schlumberger Ltd. ................................... 75,000 4,218,750
Transocean Sedco Forex Inc. ......................... 14,520 489,143
Waste Management Inc. ............................... 130,000 2,234,375
-----------
16,997,581
-----------
NON-ENERGY MINERALS .6%
De Beers Consolidated Mines AG, ADR (South Africa) .. 90,000 2,604,375
-----------
PRODUCER MANUFACTURING 2.7%
(a)Gentex Corp. ........................................ 75,000 2,081,250
Minnesota Mining & Manufacturing Co. ................ 25,000 2,446,875
Molex Inc. .......................................... 63,437 3,596,085
Tyco International Ltd. (Bermuda) ................... 71,000 2,760,125
-----------
10,884,335
-----------
RETAIL TRADE 4.9%
Albertson's Inc. .................................... 155,000 4,998,750
(a)Costco Wholesale Corp. .............................. 45,000 4,106,250
GAP Inc. ............................................ 60,000 2,760,000
Wal-Mart Stores Inc. ................................ 120,000 8,295,000
-----------
20,160,000
-----------
TECHNOLOGY SERVICES 9.6%
Automatic Data Processing Inc. ...................... 120,000 6,465,000
(a)Commerce One Inc. ................................... 3,000 589,500
(a)Computer Sciences Corp. ............................. 50,000 4,731,250
(a)Entrust Technologies Inc. ........................... 40,000 2,397,500
(a)i2 Technologies Inc. ................................ 13,000 2,535,000
(a)Infonet Services Corp., B ........................... 96,800 2,541,000
(a)InfoSpace.com Inc. .................................. 10,000 2,140,000
(a)Microsoft Corp. ..................................... 80,000 9,340,000
(a)Oracle Corp. ........................................ 60,000 6,723,750
(a)VERITAS Software Corp. .............................. 13,000 1,860,625
-----------
39,323,625
-----------
TRANSPORTATION 3.7%
Air Express International Corp. ..................... 150,000 4,846,875
Expeditors International of Washington Inc. ......... 120,000 5,257,500
Southwest Airlines Co. .............................. 105,000 1,699,688
United Parcel Service Inc., B ....................... 46,200 3,187,800
-----------
14,991,863
-----------
</TABLE>
94
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH SECURITIES FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES 13.5%
AT&T Corp. ...................................... 80,000 $ 4,060,000
CMS Energy Corp. ................................ 117,000 3,648,938
Dominion Resources Inc. ......................... 72,000 2,826,000
Enron Corp. ..................................... 135,000 5,990,625
(a)Global Crossing Ltd. (Bermuda) .................. 40,000 2,000,000
GPU Inc. ........................................ 120,000 3,592,500
GTE Corp. ....................................... 50,000 3,528,125
(a)KPNQwest NV (Netherlands) ....................... 57,200 3,646,500
(a)MCI WorldCom Inc. ............................... 60,000 3,183,750
PECO Energy Co. ................................. 155,000 5,386,250
(a)Qwest Communications International Inc. ......... 150,000 6,450,000
SBC Communications Inc. ......................... 60,000 2,925,000
Vodafone AirTouch PLC, ADR (United Kingdom) ..... 125,000 6,187,500
(a)VoiceStream Wireless Corp. ...................... 10,000 1,423,117
------------
54,848,305
------------
TOTAL LONG TERM INVESTMENTS (COST $275,530,987) . 388,589,010
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
(g)REPURCHASE AGREEMENT 5.2%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $21,065,454) (COST $21,060,921) $21,060,921 21,060,921
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $296,591,908) 100.4% .... 409,649,931
OTHER ASSETS, LESS LIABILITIES (.4%) ............ (1,593,464)
------------
NET ASSETS 100.0% ............................... $408,056,467
============
</TABLE>
- ----------
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements. 95
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MONEY MARKET FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANK NOTES 2.7%
Bank of America NA, 5.70% - 6.03%, 2/01/00 - 2/14/00 (COST $10,000,000) ........... $10,000,000 $ 10,000,000
------------
CERTIFICATES OF DEPOSIT 16.1%
ABN Amro Bank NV, Chicago Branch, 5.10%, 4/07/00 .................................. 5,000,000 4,999,616
Bank of Montreal, Chicago Branch, 5.12% - 6.03%, 4/10/00 - 4/12/00 ................ 15,000,000 15,000,034
Bayerische Landesbank, New York Branch, 5.89%, 3/17/00 ............................ 5,000,000 5,000,000
Bayerische Vereinsbank, New York Branch, 5.55% - 5.56%, 1/21/00 - 1/24/00 ......... 10,000,000 10,000,042
Deutsche Bank AG, New York Branch, 5.27% - 5.285%, 3/03/00 - 5/22/00 .............. 10,000,000 9,997,329
Lloyds Bank PLC, New York Branch, 5.99%, 3/27/00 .................................. 5,000,000 5,000,117
Rabobank Nederland NV, New York Branch, 5.41%, 6/01/00 ............................ 5,000,000 4,999,200
Toronto Dominion Bank, New York Branch, 5.10%, 2/22/00 ............................ 5,000,000 4,999,760
------------
TOTAL CERTIFICATES OF DEPOSIT (COST $59,996,098) .................................. 59,996,098
------------
(e)COMMERCIAL PAPER 65.0%
Abbey National North America Corp., 5.92%, 3/13/00 ................................ 5,000,000 4,940,800
American Express Credit Corp., 5.94%, 1/31/00 ..................................... 5,000,000 4,975,250
Archer Daniels Midland Co., 5.97% - 5.98%, 1/28/00 - 2/01/00 ...................... 10,000,000 9,951,871
Associates Corp. of North America, 5.90%, 3/08/00 - 3/10/00 ....................... 15,000,000 14,832,833
Bellsouth Telecommunications Inc., 5.62% - 5.81%, 1/20/00 - 2/15/00 ............... 15,000,000 14,930,176
Chevron U.K. Investment PLC, 5.90% - 5.96%, 1/19/00 - 2/09/00 ..................... 15,000,000 14,921,511
CIESCO LP, 5.90%, 2/10/00 - 2/11/00 ............................................... 10,000,000 9,933,625
CocaCola Co., 5.86%, 3/28/00 - 3/30/00 ............................................ 15,000,000 14,785,134
Commonwealth Bank of Australia, 5.90%, 2/23/00 .................................... 5,000,000 4,956,569
Dupont de Nemours & Co., 5.71%, 2/25/00 ........................................... 5,000,000 4,956,382
Ford Motor Credit Co., 5.71%, 1/10/00 - 1/11/00 ................................... 10,000,000 9,984,932
General Electric Capital Corp, 5.83% - 5.90%, 2/24/00 - 3/06/00 ................... 15,000,000 14,855,967
General Mills, 5.67%, 1/12/00 - 1/14/00 ........................................... 15,000,000 14,971,651
Internationale Ned. U.S. Funding Corp., 5.88%, 4/03/00 ............................ 5,000,000 4,924,050
Merrill Lynch & Co. Inc., 5.84% - 5.85%, 2/29/00 - 3/02/00 ........................ 15,000,000 14,853,918
Minnesota Mining & Manufacturing Co., 5.60%, 2/16/00 - 2/18/00 .................... 15,000,000 14,890,333
Morgan Stanley Dean Witter & Co., 5.95%, 2/03/00 - 2/07/00 ........................ 15,000,000 14,914,056
National Rural Utilities Cooperative Finance Corp., 5.68 - 5.75%, 1/18/00 - 1/27/00 14,000,000 13,948,785
Province of British Columbia, 5.60%, 2/22/00 ...................................... 5,000,000 4,959,556
Salomon Smith Barney Holdings Inc., 5.95%, 3/07/00 - 3/15/00 ...................... 15,000,000 14,823,979
Schering Corp., 5.92%, 1/18/00 .................................................... 5,000,000 4,986,022
Walt Disney Co., 5.72% - 5.88%, 1/28/00 - 2/02/00 ................................. 15,000,000 14,927,915
------------
TOTAL COMMERCIAL PAPER (COST $242,225,315) ........................................ 242,225,315
------------
U.S. GOVERNMENT AGENCY SECURITIES 6.7%
Federal Home Loan Mortgage Corp., 4.50%, 1/05/00 (COST $24,987,500) ............... 25,000,000 24,987,500
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $337,208,913) ................. 337,208,913
------------
(h)REPURCHASE AGREEMENT 9.9%
Dresdner Kleinwort Benson, North America LLC, 2.50%, 1/03/00,
(Maturity Value $37,222,753) (COST $37,215,000)
Collateralized by U.S. Treasury Notes ........................................... 37,215,000 37,215,000
------------
TOTAL INVESTMENTS (COST $374,423,913) 100.4% ...................................... 374,423,913
OTHER ASSETS, LESS LIABILITIES (.4%) .............................................. (1,794,570)
------------
NET ASSETS 100.0% ................................................................. $372,629,343
============
</TABLE>
- ----------
(e)Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
(h)At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
96 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN NATURAL RESOURCES SECURITIES FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 98.8%
ENERGY MINERALS 37.2%
Apache Corp. ........................... United States 27,800 $ 1,026,863
Ashland Inc. ........................... United States 19,700 648,869
(a)Barrett Resources Corp. ................ United States 44,600 1,312,913
(a)Basin Exploration Inc. ................. United States 47,100 830,138
(a)Chesapeake Energy Corp. ................ United States 210,000 498,750
Conoco Inc., B ......................... United States 61,338 1,525,783
Devon Energy Corp. ..................... United States 10,000 328,750
EOG Resources Inc. ..................... United States 48,500 851,781
Exxon Mobil Corp. ...................... United States 6,600 531,713
(a)Gulf Indonesia Resources Ltd. .......... Indonesia 77,000 625,625
(a)Houston Exploration Co. ................ United States 27,000 534,938
(a)Newfield Exploration Co. ............... United States 51,700 1,382,975
(a)Nuevo Energy Co. ....................... United States 54,500 1,021,875
(a)Pennaco Energy Inc. .................... United States 72,000 576,000
(a)Santa Fe Snyder Corp. .................. United States 61,900 495,200
Texaco Inc. ............................ United States 10,300 559,419
Tosco Corp. ............................ United States 38,250 1,039,922
Ultramar Diamond Shamrock Corp. ........ United States 33,500 760,031
Unocal Corp. ........................... United States 18,000 604,125
Valero Energy Corp. .................... United States 42,000 834,750
-----------
15,990,420
-----------
INDUSTRIAL SERVICES 27.7%
(a)AES Corp. .............................. United States 9,000 672,750
(a)Atwood Oceanics Inc. ................... United States 15,600 602,550
Baker Hughes Inc. ...................... United States 25,100 528,669
(a)BJ Services Co. ........................ United States 16,450 687,816
(a)Cal Dive International Inc. ............ United States 23,400 775,125
(a)Casella Waste Systems Inc., A .......... United States 25,800 486,975
Diamond Offshore Drilling Inc. ......... United States 35,500 1,084,969
ENSCO International Inc. ............... United States 18,500 423,188
(a)Grey Wolf Inc. ......................... United States 120,000 345,000
Halliburton Co. ........................ United States 6,400 257,600
(a)Marine Drilling Cos. Inc. .............. United States 20,000 448,750
(a)Nabors Industries Inc. ................. United States 16,500 510,469
(a)Petroleum Geo-Services, ADR ............ Norway 3,100 55,219
(a)Safety-Kleen Corp. ..................... United States 30,000 339,375
(a)TETRA Technologies Inc. ................ United States 35,000 253,750
Transocean Sedco Forex Inc. ............ United States 41,500 1,398,031
(a)Tuboscope Inc. ......................... United States 54,000 857,250
(a)Varco International Inc. ............... United States 77,000 784,438
(a)Weatherford International Inc. ......... United States 34,500 1,377,844
-----------
11,889,768
-----------
NON-ENERGY MINERALS 18.3%
Aluminum Co. of America ................ United States 10,200 846,600
Barrick Gold Corp. ..................... Canada 34,195 604,824
De Beers Consolidated Mines AG, ADR .... South Africa 34,250 991,109
(a)Franco-Nevada Mining Corp. Ltd. ........ Canada 37,400 572,937
Freeport-McMoRan Copper & Gold Inc., A . United States 13,718 254,640
Georgia-Pacific Corp. .................. United States 13,000 659,750
Ispat International NV, A, N.Y. shs .... Netherlands 70,500 1,136,813
Newmont Mining Corp. ................... United States 8,455 207,148
Pohang Iron & Steel Co. Ltd., ADR ...... South Korea 17,100 598,500
Rayonier Inc. .......................... United States 15,500 748,844
Rio Tinto PLC .......................... United Kingdom 20,929 504,986
(a)Stillwater Mining Co. .................. United States 22,750 725,156
-----------
7,851,307
-----------
</TABLE>
97
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN NATURAL RESOURCES SECURITIES FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
PROCESS INDUSTRIES 11.1%
Abitibi-Consolidated Inc. ......................... Canada 87,500 $ 1,039,063
(a)Asia Pulp & Paper Co. Ltd., ADR ................... Indonesia 82,000 645,750
(a)Asia Pulp & Paper Co. Ltd., wts., 7/27/00 ......... Indonesia 15,000 14,061
Bowater Inc. ...................................... United States 18,700 1,015,644
Ecolab Inc. ....................................... United States 3,300 129,110
Hercules Inc. ..................................... United States 9,800 273,175
Monsanto Co. ...................................... United States 5,900 210,188
Potash Corp. of Saskatchewan Inc. ................. Canada 8,400 404,775
Praxair Inc. ...................................... United States 2,200 110,685
(a)Smurfit-Stone Container Corp. ..................... United States 38,100 933,450
------------
4,775,901
------------
PRODUCER MANUFACTURING .7%
Reliance Steel & Aluminum Co. ..................... United States 12,600 295,313
------------
UTILITIES 3.8%
Enron Corp. ....................................... United States 24,000 1,065,000
Williams Cos. Inc. ................................ United States 18,500 565,406
------------
1,630,406
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $41,493,460) 42,433,115
------------
(a)CONVERTIBLE PREFERRED STOCKS .8%
Enron Corp., 7.00%, cvt. pfd. (COST $290,719) ..... United States 17,500 328,125
------------
TOTAL LONG TERM INVESTMENTS (COST $41,784,179) .... 42,761,240
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C> <C>
(g)REPURCHASE AGREEMENT .6%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $239,178) (COST $239,127) ....... $239,127 239,127
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $42,023,306) 100.2% ....... 43,000,367
OTHER ASSETS, LESS LIABILITIES (.2%) .............. (70,950)
------------
NET ASSETS 100.0% ................................. $ 42,929,417
============
</TABLE>
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
98 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN REAL ESTATE FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.7%
EQUITY REIT - APARTMENTS 15.6%
Apartment Investment & Management Co., A .......... 175,000 $ 6,967,188
Archstone Communities Trust ....................... 180,035 3,690,718
Avalonbay Communities Inc. ........................ 80,000 2,745,000
Camden Property Trust ............................. 47,273 1,294,098
Charles E. Smith Residential Realty Inc. .......... 79,000 2,794,625
Equity Residential Properties Trust ............... 177,500 7,577,031
-----------
25,068,660
-----------
EQUITY REIT - DIVERSIFIED PROPERTY TYPE 17.1%
Crescent Real Estate Equities Co. ................. 137,650 2,529,319
Duke-Weeks Realty Corp. ........................... 145,000 2,827,500
Glenborough Realty Trust Inc. ..................... 436,000 5,831,500
Liberty Property Trust ............................ 240,000 5,820,000
Reckson Associates Realty Corp., B ................ 109,000 2,479,750
Spieker Properties Inc. ........................... 130,000 4,736,875
Vornado Realty Trust .............................. 103,300 3,357,250
-----------
27,582,194
-----------
EQUITY REIT - HEALTH CARE 1.1%
OMEGA Healthcare Investors Inc. ................... 142,000 1,801,625
-----------
EQUITY REIT - HOTELS 6.8%
FelCor Lodging Trust Inc. ......................... 52,300 915,250
Host Marriott Corp. ............................... 391,590 3,230,618
MeriStar Hospitality Corp. ........................ 390,000 6,240,000
Winston Hotels Inc. ............................... 72,500 589,063
-----------
10,974,931
-----------
EQUITY REIT - INDUSTRIAL 4.3%
Cabot Industrial Trust ............................ 82,900 1,523,288
ProLogis Trust .................................... 278,400 5,359,200
-----------
6,882,488
-----------
EQUITY REIT - OFFICE 21.4%
Alexandria Real Estate Equities Inc. .............. 143,400 4,561,913
Arden Realty Inc. ................................. 235,600 4,726,725
Brandywine Realty Trust ........................... 300,700 4,923,963
CarrAmerica Realty Corp. .......................... 57,200 1,208,350
Equity Office Properties Trust .................... 370,008 9,111,447
Highwoods Properties Inc. ......................... 180,000 4,185,000
Mack-Cali Realty Corp. ............................ 130,000 3,388,125
SL Green Realty Corp. ............................. 108,400 2,357,700
-----------
34,463,223
-----------
EQUITY REIT- RESIDENTIAL COMMUNITIES 2.1%
Sun Communities Inc. .............................. 105,000 3,379,688
-----------
EQUITY REIT - RETAIL - COMMUNITY CENTERS 2.9%
Developers Diversified Realty Corp. ............... 23,000 296,125
Kimco Realty Corp. ................................ 133,000 4,505,375
-----------
4,801,500
-----------
EQUITY REIT - RETAIL - REGIONAL MALLS 6.2%
General Growth Properties Inc. .................... 90,000 2,520,000
The Macerich Co. .................................. 123,000 2,559,938
Simon Property Group Inc. ......................... 215,000 4,931,563
-----------
10,011,501
-----------
EQUITY REIT - STORAGE 3.8%
Public Storage Inc. ............................... 266,600 6,048,487
-----------
EQUITY REIT - WHOLE LOANS 2.4%
Starwood Financial Inc. ........................... 230,000 3,895,624
-----------
</TABLE>
99
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN REAL ESTATE FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
(a)DIVERSIFIED PROPERTY TYPE 6.2%
Crescent Operating Inc. ......................... 27,500 $ 75,624
Security Capital Group Inc., B .................. 530,200 6,627,500
Security Capital U.S. Realty (Luxembourg) ....... 232,300 3,266,718
------------
9,969,842
------------
HOTELS 5.8%
(a)Candlewood Hotel Co. Inc. ....................... 350,000 612,500
(a)MeriStar Hotels & Resorts Inc. .................. 170,000 605,624
Starwood Hotels & Resorts Worldwide Inc. ........ 275,000 6,462,500
(a)Wyndham International Inc., A ................... 542,038 1,592,236
------------
9,272,860
------------
TOTAL LONG TERM INVESTMENTS (COST $163,505,009) . 154,152,623
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
(g)REPURCHASE AGREEMENT 3.4%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $5,461,193) (COST $5,460,018) $5,460,018 5,460,018
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $168,965,027) 99.1% ..... 159,612,641
OTHER ASSETS, LESS LIABILITIES .9% .............. 1,389,102
------------
NET ASSETS 100.0% ............................... $161,001,743
============
</TABLE>
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
100 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
FRANKLIN RISING DIVIDENDS FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 98.0%
COMMERCIAL SERVICES 3.2%
Standard Register Co. ................................ 131,300 $ 2,543,938
Wallace Computer Services Inc. ....................... 703,800 11,700,675
-----------
14,244,613
CONSUMER DURABLES 6.0%
Leggett & Platt Inc. ................................. 887,500 19,025,781
Newell Rubbermaid Inc. ............................... 274,300 7,954,700
-----------
26,980,481
-----------
CONSUMER NON-DURABLES 7.2%
Alberto-Culver Co., A ................................ 649,500 14,126,625
Block Drug Co. Inc., A ............................... 217,885 6,754,440
DIMON Inc. ........................................... 550,600 1,789,450
Philip Morris Cos. Inc. .............................. 120,000 2,782,500
Universal Corp. ...................................... 314,300 7,169,969
-----------
32,622,984
-----------
ELECTRONIC TECHNOLOGY 6.6%
Cohu Inc. ............................................ 670,000 20,770,000
Hewlett-Packard Co. .................................. 79,900 9,103,606
-----------
29,873,606
-----------
ENERGY MINERALS 1.5%
Royal Dutch Petroleum Co., N.Y. shs. (Netherlands) ... 114,300 6,908,006
-----------
FINANCE 12.8%
Fannie Mae ........................................... 63,200 3,946,050
Mercantile Bankshares Corp. .......................... 210,525 6,723,642
National Commerce Bancorp ............................ 598,200 13,571,663
State Street Corp. ................................... 103,600 7,569,275
TrustCo Bank Corp., N.Y. shs ......................... 228,460 3,027,095
U.S. Bancorp ......................................... 278,300 6,627,019
Washington Mutual Inc. ............................... 417,400 10,852,400
Wilmington Trust Corp. ............................... 115,000 5,548,750
-----------
57,865,894
-----------
HEALTH TECHNOLOGY 6.6%
Becton, Dickinson & Co. .............................. 174,800 4,675,900
Superior Uniform Group Inc. .......................... 265,800 2,392,200
West Pharmaceutical Services Inc. .................... 726,800 22,485,375
-----------
29,553,475
-----------
INSURANCE 9.7%
American International Group Inc. .................... 83,937 9,075,688
Chubb Corp. .......................................... 78,000 4,392,375
Harleysville Group Inc. .............................. 174,600 2,488,050
Mercury General Corp. ................................ 272,700 6,067,575
MMI Cos. Inc. ........................................ 368,500 3,178,313
ReliaStar Financial Corp. ............................ 274,100 10,741,294
RLI Corp. ............................................ 230,656 7,842,304
-----------
43,785,599
-----------
NON-ENERGY MINERALS .5%
Nucor Corp. .......................................... 44,000 2,411,750
-----------
PROCESS INDUSTRIES 13.3%
Bemis Co. Inc. ....................................... 347,900 12,133,013
Brady Corp., A ....................................... 80,500 2,731,969
Donaldson Co. Inc. ................................... 98,200 2,362,938
General Electric Co. ................................. 19,400 3,002,150
Lancaster Colony Corp. ............................... 104,900 3,474,813
</TABLE>
101
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PROCESS INDUSTRIES (CONT.)
M.A. Hanna Co. .................................. 325,200 $ 3,556,875
Millipore Corp. ................................. 104,400 4,032,450
Myers Industries Inc. ........................... 531,586 8,372,480
Pall Corp. ...................................... 742,100 16,001,531
Sherwin-Williams Co. ............................ 198,900 4,176,900
------------
59,845,119
------------
PRODUCER MANUFACTURING 18.6%
Baldor Electric Co. ............................. 463,333 8,397,911
(a)CIRCOR International Inc. ....................... 255,650 2,636,391
Diebold Inc. .................................... 242,900 5,708,150
Dover Corp. ..................................... 239,100 10,849,163
Graco Inc. ...................................... 177,100 6,353,463
Hubbell Inc., B ................................. 276,500 7,534,625
Kaydon Corp. .................................... 452,500 12,132,656
Kimball International Inc., B ................... 529,300 8,733,450
Superior Industries International Inc. .......... 218,100 5,847,806
Teleflex Inc. ................................... 352,400 11,034,525
Watts Industries Inc., A ........................ 306,300 4,517,925
------------
83,746,065
------------
RETAIL TRADE 7.6%
Family Dollar Stores Inc. ....................... 1,551,300 25,305,581
The Limited Inc. ................................ 116,523 5,046,902
Schultz Sav-O Stores Inc. ....................... 227,700 2,903,175
Wal-Mart Stores Inc. ............................ 15,100 1,043,788
------------
34,299,446
------------
TECHNOLOGY SERVICES 3.2%
Reynolds & Reynolds Co., A ...................... 635,000 14,287,500
------------
TRANSPORTATION 1.2%
Circle International Group Inc. ................. 246,700 5,489,072
------------
TOTAL LONG TERM INVESTMENTS (COST $400,163,699) . 441,913,610
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
(g)REPURCHASE AGREEMENT 1.2%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $5,776,326) (COST $5,775,083) . $5,775,083 5,775,083
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $405,938,782) 99.2% ..... 447,688,693
OTHER ASSETS, LESS LIABILITIES .8% .............. 3,409,212
------------
NET ASSETS 100.0% ............................... $451,097,905
============
</TABLE>
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At Decmber 31, 1999 all repurchase agreements
had been entered into on that date.
102 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 94.3%
(a)COMMERCIAL SERVICES 1.8%
Aether Systems Inc. ............................ 4,100 $ 293,663
Answerthink Consulting Group Inc. .............. 3,400 116,450
Applied Graphics Technologies Inc. ............. 80,000 690,000
Careerbuilder Inc. ............................. 32,900 211,794
Chemdex Corp. .................................. 9,700 1,076,700
Corporate Executive Board Co. .................. 5,700 318,488
Digital Impact Inc. ............................ 1,400 70,175
Exchange Applications Inc. ..................... 12,500 698,438
Flycast Communications Corp. ................... 1,900 246,881
GetThere.com Inc. .............................. 4,100 165,025
Harris Interactive Inc. ........................ 5,400 70,538
Hotjobs.com Ltd. ............................... 28,500 1,245,094
Interep National Radio Sales Inc. .............. 22,500 300,938
Management Network Group Inc. .................. 1,700 55,463
Mediaplex Inc. ................................. 2,700 169,425
Netcentives Inc. ............................... 4,300 267,944
NetRatings Inc. ................................ 800 38,500
NOVA Corp. ..................................... 55,900 1,764,344
RemedyTemp Inc., A ............................. 29,500 560,500
Smith-Gardner & Associates Inc. ................ 4,100 69,956
SOS Staffing Services Inc. ..................... 75,500 330,313
Stamps.com Inc. ................................ 2,200 91,575
Sylvan Learning Systems Inc. ................... 19,100 248,300
----------
9,100,504
----------
(a)CONSUMER DURABLES .4%
Activision Inc. ................................ 75,700 1,159,156
Audiovox Corp., A .............................. 22,800 692,550
----------
1,851,706
----------
CONSUMER NON-DURABLES .7%
(a)Sola International Inc. ........................ 24,400 338,550
(a)Tommy Hilfiger Corp. ........................... 103,600 2,415,175
Wolverine World Wide Inc. ...................... 55,000 601,563
----------
3,355,288
----------
(a)CONSUMER SERVICES 3.5%
Acme Communications Inc. ....................... 3,500 116,375
Cumulus Media Inc., A .......................... 57,600 2,923,200
DeVry Inc. ..................................... 67,800 1,262,775
Emmis Communications Corp., A .................. 4,400 548,419
Entercom Communications Corp. .................. 1,300 85,800
E-Stamp Corp. .................................. 4,700 104,575
Harrah's Entertainment Inc. .................... 900 23,794
Homestore.com Inc. ............................. 700 51,975
Insight Communications Co. Inc., A ............. 64,100 1,898,963
Jack in the Box Inc. ........................... 64,200 1,328,138
Knot Inc. ...................................... 3,200 27,000
Martha Stewart Living Omnimedia Inc., A ........ 3,200 76,800
MeriStar Hotels & Resorts Inc. ................. 120,000 427,500
NDS Group PLC, ADR (United Kingdom) ............ 2,200 67,100
Prime Hospitality Corp. ........................ 238,000 2,097,375
Quokka Sports Inc. ............................. 33,200 435,750
Quotesmith.com Inc. ............................ 31,700 360,588
Radio One Inc. ................................. 14,400 1,324,800
SFX Entertainment Inc. ......................... 58,950 2,133,253
Spanish Broadcasting Systems Inc. .............. 17,400 700,350
TiVo Inc. ...................................... 4,200 141,750
</TABLE>
103
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a)CONSUMER SERVICES (CONT.)
Vail Resorts Inc. ............................... 31,100 $ 557,856
XM Satellite Radio Holdings Inc. ................ 22,300 850,188
-----------
17,544,324
-----------
ELECTRONIC TECHNOLOGY 22.7%
(a)Advanced Energy Industries Inc. ................. 46,000 2,265,500
(a)Airnet Communications Corp. ..................... 1,900 69,113
(a)Alpha Industries Inc. ........................... 17,000 974,313
(a)Alteon Websystems Inc. .......................... 1,300 114,075
(a)ANTEC Corp. ..................................... 5,000 182,500
(a)Apex Inc. ....................................... 10,000 322,500
(a)AVT Corp. ....................................... 51,200 2,406,400
(a)Brocade Communications Systems Inc. ............. 2,800 495,600
(a)Carrier Access Corp. ............................ 20,900 1,406,831
(a)Catapult Communications Corp. ................... 37,300 370,669
(a)C-COR.net Corp. ................................. 11,000 842,875
(a)Cirrus Logic Inc. ............................... 15,000 199,688
(a)Coherent Inc. ................................... 100,400 2,685,700
(a)Com21 Inc. ...................................... 38,300 859,356
(a)Copper Mountain Networks Inc. ................... 2,200 107,250
(a)CVC Inc. ........................................ 12,000 115,500
(a)Cymer Inc. ...................................... 10,000 460,000
(a)Digital Microwave Corp. ......................... 46,400 1,087,500
(a)DII Group Inc. .................................. 6,800 482,588
(a)Ditech Communications Corp. ..................... 5,600 523,600
(a)EMCORE Corp. .................................... 28,400 965,600
(a)Etec Systems Inc. ............................... 38,100 1,709,738
(a)Exar Corp. ...................................... 1,400 82,425
(a)Finisar Corp. ................................... 2,300 206,713
(a)Flextronics International Ltd. (Singapore) ...... 90,000 4,140,000
(a)FLIR Systems Inc. ............................... 90,000 1,462,500
(a)Foundry Networks Inc. ........................... 2,000 603,375
(a)FVC.COM Inc. .................................... 24,000 280,500
(a)Gadzoox Networks Inc. ........................... 5,000 217,813
(a)Gemstar International Group Ltd. ................ 110,800 7,894,500
(a)Harmonic Inc. ................................... 28,000 2,658,250
(a)Immersion Corp. ................................. 2,700 103,613
(a)Interspeed Inc. ................................. 1,800 31,838
(a)Itron Inc. ...................................... 62,800 384,650
(a)Jabil Circuit Inc. .............................. 40,000 2,920,000
(a)Javelin Systems Inc. ............................ 36,600 336,263
(a)JDS Uniphase Corp. .............................. 117,600 18,970,350
(a)JNI Corp. ....................................... 5,000 330,000
(a)Komag Inc. ...................................... 287,800 899,375
(a)Kopin Corp. ..................................... 4,200 176,400
(a)Ladish Co. Inc. ................................. 42,000 267,750
(a)Lattice Semiconductor Corp. ..................... 20,600 970,775
(a)LTX Corp. ....................................... 14,000 313,250
(a)MCK Communications Inc. ......................... 3,000 67,500
Methode Electronics Inc., A ..................... 17,500 562,188
(a)Mettler-Toledo International Inc. ............... 122,000 4,658,875
(a)Micrel Inc. ..................................... 16,600 945,163
(a)Natural MicroSystems Corp. ...................... 6,900 323,006
(a)NICE Systems Ltd., ADR (Israel) ................. 15,000 737,813
(a)Novellus Systems Inc. ........................... 18,400 2,254,575
(a)PC-Tel Inc. ..................................... 20,300 1,065,750
(a)Perceptron Inc. ................................. 85,000 340,000
</TABLE>
104
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
(a)Photronics Inc. .................................. 8,400 $ 240,450
(a)PMC-Sierra Inc. (Canada) ......................... 81,000 12,985,313
(a)Proxim Inc. ...................................... 6,600 726,000
(a)QuickLogic Corp. ................................. 5,100 84,150
(a)RSA Security Inc. ................................ 125,700 9,741,750
(a)Rudolph Technologies Inc. ........................ 3,700 123,950
(a)Sanmina Corp. .................................... 16,800 1,677,900
(a)Semtech Corp. .................................... 15,800 823,575
(a)Silicon Image Inc. ............................... 800 56,050
(a)SIPEX Corp. ...................................... 27,000 663,188
(a)Synopsys Inc. .................................... 62,600 4,178,550
(a)Tekelec .......................................... 96,100 2,162,250
(a)Triquint Semiconductor Inc. ...................... 4,300 478,375
(a)Varian Semiconductor Equipment Associates Inc. ... 4,000 136,000
(a)Veeco Instruments Inc. ........................... 13,200 617,925
(a)Visual Networks Inc. ............................. 10,000 792,500
(a)Vixel Corp. ...................................... 3,100 52,894
(a)Waters Corp. ..................................... 63,000 3,339,000
(a)Western Digital Corp. ............................ 60,000 251,250
(a)Xicor Inc. ....................................... 1,000 13,688
------------
111,996,864
------------
ENERGY MINERALS 2.1%
(a)Barrett Resources Corp. .......................... 83,900 2,469,806
(a)Basin Exploration Inc. ........................... 24,300 428,288
(a)Chesapeake Energy Corp. .......................... 88,200 209,475
(a)Denbury Resources Inc. ........................... 85,800 370,013
(a)Forest Oil Corp. ................................. 43,800 577,613
(a)Newfield Exploration Co. ......................... 100,000 2,675,000
(a)Pennaco Energy Inc. .............................. 83,400 667,200
Range Resources Corp. ............................ 167,500 533,906
(a)Santa Fe Snyder Corp. ............................ 57,110 456,880
(a)Titan Exploration Inc. ........................... 121,000 657,938
(a)Tom Brown Inc. ................................... 87,500 1,170,313
------------
10,216,432
------------
FINANCE 5.4%
(a)Affiliated Managers Group Inc. ................... 44,700 1,807,556
Allied Capital Corp. ............................. 85,300 1,562,056
Bank United Corp., A ............................. 50,000 1,362,500
(a)Catellus Development Corp. ....................... 27,000 345,938
Commerce Bancorp Inc. ............................ 20,000 808,750
(a)DLJdirect ........................................ 32,300 438,069
Duff & Phelps Credit Rating Co. .................. 3,600 320,175
E.W. Blanch Holdings Inc. ........................ 27,100 1,659,875
(a)eSPEED Inc. ...................................... 7,400 263,163
Federated Investors Inc., B ...................... 122,900 2,465,681
Financial Security Assurance Holdings Ltd. ....... 63,000 3,283,875
Freedom Securities Corp. ......................... 26,300 295,875
(a)Golden State Bancorp Inc. ........................ 103,000 1,776,750
HCC Insurance Holdings Inc. ...................... 32,300 425,956
(a)Knight/Trimark Group Inc., A ..................... 25,100 1,154,600
Metris Cos. Inc. ................................. 4,400 157,025
Mutual Risk Management Ltd. (Bermuda) ............ 45,200 759,925
Radian Group Inc. ................................ 31,038 1,482,065
Reinsurance Group of America Inc. ................ 59,600 1,653,900
(a)Risk Capital Holdings Inc. ....................... 68,800 868,600
</TABLE>
106
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
FINANCE (CONT.)
(a)Silicon Valley Bancshares ......................... 62,800 $ 3,108,600
Westamerica Bancorp ............................... 22,300 623,006
-----------
26,623,940
-----------
(a)HEALTH SERVICES 1.1%
American Dental Partners Inc. ..................... 20,300 142,100
Beverly Enterprises Inc. .......................... 136,900 598,938
eBenX Inc. ........................................ 2,500 113,125
PAREXEL International Corp. ....................... 65,000 767,813
Pharmaceutical Product Development Inc. ........... 85,000 1,009,375
Renal Care Group Inc. ............................. 94,650 2,212,444
SciQuest.com Inc. ................................. 6,600 524,700
Total Renal Care Holdings Inc. .................... 2,900 19,394
-----------
5,387,889
-----------
(a)HEALTH TECHNOLOGY .7%
Alexion Pharmaceuticals Inc. ...................... 17,000 512,125
Heska Corp. ....................................... 39,300 88,425
ImClone Systems Inc. .............................. 5,400 213,975
Inhale Therapeutic Systems Inc. ................... 42,300 1,800,394
Serologicals Corp. ................................ 138,750 832,500
SkyePharma PLC, ADR (United Kingdom) .............. 24,391 179,892
SkyePharma PLC, rts., 3/31/00 (United Kingdom) .... 83,600 --
Wesley Jessen Visioncare Inc. ..................... 2,000 75,750
-----------
3,703,061
-----------
(a)INDUSTRIAL SERVICES 2.6%
Atwood Oceanics Inc. .............................. 3,400 131,325
Casella Waste Systems Inc., A ..................... 12,700 239,713
Catalytica Inc. ................................... 118,733 1,610,316
Core Laboratories NV .............................. 80,400 1,613,025
Dycom Industries Inc. ............................. 11,500 506,719
Grey Wolf Inc. .................................... 215,300 618,988
Marine Drilling Cos. Inc. ......................... 72,700 1,631,206
Plug Power Inc. ................................... 5,500 155,375
Rowan Cos. Inc. ................................... 50,000 1,084,375
Tuboscope Inc. .................................... 121,300 1,925,638
US Liquids Inc. ................................... 51,000 427,125
Varco International Inc. .......................... 270,800 2,758,775
-----------
12,702,580
-----------
NON-ENERGY MINERALS .2%
Carpenter Technology Corp. ........................ 36,300 995,981
-----------
PROCESS INDUSTRIES 2.0%
ChemFirst Inc. .................................... 85,100 1,861,563
(a)CUNO Inc. ......................................... 29,000 600,391
Optical Coating Laboratory Inc. ................... 24,600 7,281,600
(a)Symyx Technologies Inc. ........................... 3,700 111,000
-----------
9,854,554
-----------
PRODUCER MANUFACTURING 2.5%
(a)Gentex Corp. ...................................... 122,200 3,391,050
Gibraltar Steel Corp. ............................. 50,000 1,168,750
JLG Industries Inc. ............................... 115,800 1,845,563
(a)Polycom Inc. ...................................... 48,500 3,088,844
(a)Power-One Inc. .................................... 4,400 201,575
Reliance Steel & Aluminum Co. ..................... 13,500 316,406
</TABLE>
106
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
PRODUCER MANUFACTURING (CONT.)
Roper Industries Inc. ............................. 57,400 $ 2,170,438
(a)Tower Automotive Inc. ............................. 8,800 135,850
-----------
12,318,476
-----------
(a)RETAIL TRADE .4%
1-800-FLOWERS.COM Inc. ............................ 57,700 616,669
Beyond.com Corp. .................................. 26,300 205,469
Liquid Audio Inc. ................................. 41,900 1,099,875
MotherNature.com Inc. ............................. 400 2,925
PlanetRx.com Inc. ................................. 3,800 55,100
-----------
1,980,038
-----------
REAL ESTATE 2.3%
Alexandria Real Estate Equities Inc. .............. 11,500 365,844
Arden Realty Inc. ................................. 70,000 1,404,375
Camden Property Trust ............................. 67,000 1,834,125
CBL & Associates Properties Inc. .................. 10,800 222,750
Colonial Properties Trust ......................... 15,400 357,088
Developers Diversified Realty Corp. ............... 47,200 607,700
FelCor Lodging Trust Inc. ......................... 50,000 875,000
Glenborough Realty Trust Inc. ..................... 51,700 691,488
Health Care Property Investors Inc. ............... 31,000 740,125
Innkeepers USA Trust .............................. 98,900 809,744
MeriStar Hospitality Corp. ........................ 130,000 2,080,000
SL Green Realty Corp. ............................. 31,900 693,825
General Growth Properties Inc. .................... 26,000 728,000
-----------
11,410,064
-----------
(a)TECHNOLOGY SERVICES 34.1%
Accrue Software Inc. .............................. 20,000 1,082,500
Active Software Inc. .............................. 4,300 395,600
Affiliated Computer Services Inc., A .............. 130,300 5,993,800
AGENCY.COM Inc. ................................... 1,100 56,100
Allaire Corp. ..................................... 6,300 913,500
Ardent Software Inc. .............................. 20,500 799,500
Art Technology Group Inc. ......................... 4,300 550,938
Aspect Communications Corp. ....................... 61,200 2,394,450
Backweb Technologies Ltd. ......................... 1,100 46,338
Bluestone Software Inc. ........................... 5,500 632,500
Breakaway Solutions Inc. .......................... 1,100 80,300
Brightpoint Inc. .................................. 10,900 143,063
Brio Technology Inc. .............................. 10,000 420,000
BroadVision Inc. .................................. 73,400 12,482,588
Check Point Software Technologies Ltd. (Israel) ... 11,700 2,325,375
Citrix Systems Inc. ............................... 37,800 4,649,400
Complete Business Solutions Inc. .................. 84,600 2,125,575
Concord Communications Inc. ....................... 30,000 1,331,250
Cybersource Corp. ................................. 18,700 967,725
Cysive Inc. ....................................... 1,600 115,300
Data Return Corp. ................................. 2,200 117,700
Deltek Systems Inc. ............................... 7,800 105,300
Digex Inc. ........................................ 5,000 343,750
Digimarc Corp. .................................... 500 25,000
Digital Insight Corp. ............................. 1,900 69,113
Documentum Inc. ................................... 28,000 1,676,500
eGain Communications Corp. ........................ 3,700 139,675
El Sitio Inc. (Argentina) ......................... 3,600 132,300
Entrust Technologies Inc. ......................... 55,200 3,308,550
</TABLE>
107
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a)TECHNOLOGY SERVICES (CONT.)
F5 Networks Inc. ................................ 4,500 $ 513,000
H.T.E. Inc. ..................................... 38,500 231,000
High Speed Access Corp. ......................... 9,600 172,800
HNC Software Inc. ............................... 85,000 8,988,750
i2 Technologies Inc. ............................ 90,000 17,550,000
Imanage Inc. .................................... 2,200 70,675
Inet Technologies Inc. .......................... 14,800 1,034,150
Integrated Systems Inc. ......................... 97,200 3,262,275
Interactive Pictures Corp. ...................... 7,400 172,513
Internap Network Services Corp. ................. 2,600 449,800
Intertrust Technologies Corp. ................... 1,800 211,725
Interwoven Inc .................................. 1,600 194,600
Intuit Inc. ..................................... 65,400 3,919,913
ISS Group Inc. .................................. 8,000 569,000
ITXC Corp. ...................................... 8,600 289,175
Keane Inc. ...................................... 30,000 952,500
Keynote Systems Inc. ............................ 5,000 368,750
Korea Thrunet Co. Ltd., A (South Korea) ......... 1,100 74,663
Legato Systems Inc. ............................. 50,000 3,440,625
Liberate Technologies Inc. ...................... 19,300 4,960,100
McAfee.com Corp. ................................ 2,600 117,000
Media Metrix Inc. ............................... 16,200 579,150
Metasolv Software Inc. .......................... 1,200 98,100
Metron Technology NV ............................ 2,700 43,369
Micromuse Inc. .................................. 40,000 6,800,000
MicroStrategy Inc. .............................. 13,000 2,730,000
Mission Critical Software Inc. .................. 16,600 1,162,000
N2H2 Inc. ....................................... 26,300 618,050
National Information Consortium Inc. ............ 14,700 470,400
Navisite Inc. ................................... 4,400 440,000
NBC Internet Inc., A ............................ 36,100 2,788,725
Netiq Corp. ..................................... 2,700 140,569
OnDisplay Inc. .................................. 1,500 136,313
OpenTV Corp., A ................................. 1,600 128,400
Predictive Systems Inc. ......................... 2,000 131,000
Proxicom Inc. ................................... 11,700 1,454,456
Quintus Corp. ................................... 1,200 55,050
Radware Ltd. .................................... 3,400 146,625
Rare Medium Group Inc. .......................... 14,000 477,750
Retek Inc. ...................................... 4,700 353,675
Sapient Corp. ................................... 51,600 7,272,375
Serena Software Inc. ............................ 22,200 686,813
Software.com Inc. ............................... 1,800 172,800
SonicWALL Inc. .................................. 1,300 52,325
SS&C Technologies Inc. .......................... 2,800 18,200
StarMedia Network Inc. .......................... 23,500 941,469
Sykes Enterprises Inc. .......................... 5,300 232,538
Tanning Technology Corp. ........................ 195,700 11,534,069
TenFold Corp. ................................... 6,100 243,619
Transaction Systems Architects Inc., A .......... 14,000 392,000
Tumbleweed Communications Corp. ................. 24,100 2,042,475
U.S. Interactive Inc. ........................... 18,600 799,800
Vantive Corp. ................................... 43,400 785,269
Verio Inc. ...................................... 92,000 4,249,250
VERITAS Software Corp. .......................... 88,500 12,666,563
Verity Inc. ..................................... 85,400 3,634,838
Vignette Corp. .................................. 27,600 4,498,800
</TABLE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a)TECHNOLOGY SERVICES (CONT.)
Vitria Technology Inc. .............................. 2,600 $ 608,400
Whittman-Hart Inc. .................................. 55,500 2,976,188
Wind River Systems Inc. ............................. 121,050 4,448,588
Women.com Networks Inc. ............................. 27,300 389,025
Xpedior Inc. ........................................ 3,100 89,125
------------
168,454,865
------------
(a)TELECOMMUNICATIONS 9.3%
365 Corp. PLC (United Kingdom) ...................... 13,100 53,033
Airgate PCS Inc. .................................... 2,400 126,600
Alaska Communications Systems Holdings Inc. ......... 44,700 553,163
AT&T Canada Inc., B (Canada) ........................ 14,600 587,650
Clearnet Communications Inc., A (Canada) ............ 28,200 969,375
DSL.net Inc. ........................................ 32,100 463,444
GRIC Communications Inc. ............................ 3,300 83,738
Ibasis Inc. ......................................... 4,800 138,000
ICG Communications Inc. ............................. 126,000 2,362,500
Illuminet Holdings Inc. ............................. 1,100 60,500
Intermedia Communications Inc. ...................... 36,900 1,432,181
ITC Deltacom Inc. ................................... 18,500 511,063
MGC Communications Inc. ............................. 22,000 1,116,500
Millicom International Cellular SA (Luxembourg) ..... 40,100 2,501,238
Pacific Gateway Exchange Inc. ....................... 54,300 926,494
Pinnacle Holdings Inc. .............................. 91,400 3,873,075
Primus Telecommunications Group Inc. ................ 136,900 5,236,425
Rhythms NetConnections Inc. ......................... 2,900 89,900
Rural Cellular Corp., A ............................. 78,900 7,140,450
Time Warner Telecom Inc., A ......................... 11,000 549,313
Triton PCS Inc., A .................................. 1,500 68,250
VoiceStream Wireless Corp. .......................... 83,100 11,826,169
Western Wireless Corp., A ........................... 83,100 5,546,890
------------
46,215,951
------------
TRANSPORTATION 2.5%
Air Express International Corp. ..................... 50,000 1,615,625
(a)Atlantic Coast Airlines Holdings Inc. ............... 121,000 2,873,750
C.H. Robinson Worldwide Inc. ........................ 72,600 2,885,850
Expeditors International of Washington Inc. ......... 109,600 4,801,850
(a)Mesaba Holdings Inc. ................................ 9,000 102,938
------------
12,280,013
------------
TOTAL COMMON STOCKS AND RIGHTS (COST $243,705,293) .. 465,992,530
------------
CONVERTIBLE PREFERRED STOCKS .2%
Bank United Corp., 8.00%, cvt. pfd. (COST $1,000,000) 20,000 785,000
------------
TOTAL LONG TERM INVESTMENTS (COST $244,705,293) ..... 466,777,530
------------
</TABLE>
109
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN SMALL CAP FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
(g)REPURCHASE AGREEMENT 5.1%
Joint Repurchase Agreement, 2.583%, 1/03/00
(Maturity Value $25,407,535)
(COST $25,402,067) ........................... $25,402,067 $ 25,402,067
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $270,107,360) 99.6% ....... 492,179,597
OTHER ASSETS, LESS LIABILITIES .4% ................ 2,039,265
------------
NET ASSETS 100.0% ................................. $494,218,862
============
</TABLE>
- ----------
(a)Non-income producing.
(g)Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
110 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN U.S. GOVERNMENT FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES 75.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - FIXED RATE 52.7%
GNMA I, SF, 5.50%, 11/15/28 - 1/15/29 ................................................. $ 6,767,763 $ 5,983,291
GNMA II, 5.50%, 9/20/28 - 1/20/29 ..................................................... 3,119,044 2,748,954
GNMA I, SF, 6.00%, 11/15/23 - 11/15/28 ................................................ 17,342,367 15,936,151
GNMA II, 6.00%, 1/20/24 - 12/20/28 .................................................... 50,954,419 46,322,294
GNMA I, SF, 6.50%, 5/15/23 - 11/15/28 ................................................. 50,399,730 47,674,781
GNMA II, 6.50%, 3/20/28 ............................................................... 22,823,812 21,394,350
GNMA I, SF, 7.00%, 3/15/22 - 5/15/28 .................................................. 60,839,492 59,075,732
GNMA I, SF, 7.25%, 11/15/25 ........................................................... 1,152,334 1,134,098
GNMA, PL, 7.25%, 5/15/22 - 8/15/22 .................................................... 2,142,118 2,111,359
GNMA I, SF, 7.50%, 2/15/17 - 5/15/28 .................................................. 24,544,884 24,423,487
GNMA II, 7.50%, 11/20/16 - 11/20/26 ................................................... 16,334,296 16,289,196
GNMA I, SF, 8.00%, 4/15/05 - 6/15/24 .................................................. 13,691,378 13,925,655
GNMA II, 8.00%, 2/20/16 - 8/20/26 ..................................................... 1,300,145 1,317,094
GNMA I, SF, 8.25%, 4/15/25 ............................................................ 547,778 559,417
GNMA I, SF, 8.50%, 8/15/21 - 12/15/24 ................................................. 3,578,078 3,695,273
GNMA I, SF, 9.00%, 4/15/16 - 2/15/21 .................................................. 1,808,730 1,902,264
GNMA I, SF, 9.50%, 7/15/16 - 12/15/21 ................................................. 3,586,632 3,824,444
GNMA II, 9.50%, 4/20/25 ............................................................... 402,878 426,662
GNMA I, SF, 10.00%, 8/15/17 - 8/15/21 ................................................. 3,387,513 3,668,287
------------
272,412,789
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FIXED RATE 9.0%
FNMA, 6.00%, 10/01/23 - 10/01/28 ...................................................... 23,897,978 21,951,941
FNMA, 6.50%, 1/01/24 - 6/01/24 ........................................................ 11,311,159 10,774,186
FNMA, 7.00%, 5/01/24 .................................................................. 1,182,422 1,150,961
FNMA, PL, 7.00%, 3/17/35 .............................................................. 3,143,213 2,933,200
FNMA, 7.50%, 4/01/23 - 8/01/25 ........................................................ 4,457,984 4,417,779
FNMA, 8.00%, 7/01/16 - 2/01/25 ........................................................ 4,727,347 4,773,997
FNMA, 8.50%, 10/01/19 - 2/01/22 ....................................................... 253,795 261,532
------------
46,263,596
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - ADJUSTABLE RATE 4.6%
FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 6.892%, 2/01/19 ................ 2,840,286 2,920,944
FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 6.986%, 9/01/18 .............. 3,212,208 3,317,483
FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 6.998%, 7/01/19 .............. 2,624,970 2,705,525
FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 6.823%, 1/01/18 .............. 8,073,459 8,303,103
FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 5.769%, 6/01/02 ............... 4,535,208 4,510,900
FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 7.938%, 3/01/20 ......... 1,951,534 1,984,271
------------
23,742,226
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - FIXED RATE 8.3%
FHLMC, 6.00%, 1/01/24 - 8/01/28 ....................................................... 9,192,402 8,436,842
FHLMC, 6.50%, 6/01/08 - 6/01/29 ....................................................... 19,802,236 18,895,323
FHLMC, 7.00%, 4/01/24 ................................................................. 10,732,841 10,437,043
FHLMC, 7.50%, 11/01/22 - 5/01/24 ...................................................... 3,018,810 3,000,836
FHLMC, 8.00%, 5/01/16 - 5/01/22 ....................................................... 1,479,006 1,496,787
FHLMC, 8.50%, 4/01/18 - 3/01/22 ....................................................... 589,828 606,758
FHLMC, 9.00%, 3/01/03 ................................................................. 247,540 251,576
------------
43,125,165
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - ADJUSTABLE RATE 1.1%
FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annually, 6.886%, 6/01/22 ............. 2,342,976 2,396,747
FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.264%, 2/01/19 ............. 3,202,783 3,265,899
------------
5,662,646
------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $401,046,867) .................................. 391,206,422
------------
</TABLE>
111
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN U.S. GOVERNMENT FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER AGENCY SECURITIES 21.5%
Federal Agriculture Mortgage Corp., 7.23%, 1/17/07 ............................. $ 5,000,000 $ 4,906,130
Federal Home Loan Bank, 0.00%, 1/23/23 ......................................... 10,000,000 1,520,080
FICO Strip, 0.00%, 12/06/14 .................................................... 13,569,000 4,470,483
FICO Strip, 0.00%, 6/06/15 ..................................................... 15,001,000 4,761,782
FICO Strip, 0.00%, 5/11/13 ..................................................... 10,000,000 3,712,370
FICO Strip, 12, 0.00%, 6/06/14 ................................................. 9,454,000 3,232,739
FICO Strip, 13, 0.00%, 6/27/09 ................................................. 11,024,000 5,517,699
FICO Strip, 16, 0.00%, 10/05/10 ................................................ 4,745,000 2,154,088
Housing Urban Development, 96-A, 7.63%, 8/01/14 ................................ 5,000,000 4,877,295
Housing Urban Development, 96-A, 7.66%, 8/01/15 ................................ 5,000,000 4,865,065
Small Business Administration, 6.00%, 9/01/18 .................................. 9,636,311 8,672,681
Small Business Administration, 6.45%, 12/01/15 ................................. 3,863,557 3,602,768
Small Business Administration, 6.70%, 12/01/16 ................................. 4,250,862 4,013,080
Small Business Administration, 6.85%, 7/01/17 .................................. 4,510,608 4,297,764
Small Business Administration, Cap 10.85%, Margin Prime -
0.40%, Resets Quarterly, 7.35%, 6/25/19 ..................................... 2,292,493 2,338,343
Small Business Administration, Cap 10.875%, Margin Prime -
0.125%, Resets Quarterly, 7.625%, 3/25/18 .................................... 3,674,965 3,771,433
Student Loan Marketing Association, 0.00%, 5/15/14 ............................. 15,000,000 4,272,930
Tennessee Valley Authority, 0.00%, 4/15/42 ..................................... 6,000,000 2,311,380
Tennessee Valley Authority, 0.00%, 7/15/43 ..................................... 7,000,000 5,221,300
Tennessee Valley Authority, 5.88%, 4/01/36 ..................................... 10,000,000 9,352,710
Tennessee Valley Authority, 6.235%, 7/15/45 .................................... 14,249,000 14,158,961
Tennessee Valley Authority, 7.25%, 7/15/43 ..................................... 10,000,000 9,304,670
------------
TOTAL OTHER AGENCY SECURITIES (COST $118,219,663) .............................. 111,335,751
------------
TOTAL LONG TERM INVESTMENTS (COST $519,266,530) ................................ 502,542,173
------------
(g)REPURCHASE AGREEMENT 2.1%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity Value
$10,883,723) (COST $10,881,381) .............................................. 10,881,381 10,881,381
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $530,147,911) 99.3% .................................... 513,423,554
OTHER ASSETS, LESS LIABILITIES .7% ............................................. 3,486,752
------------
NET ASSETS 100.0% .............................................................. $516,910,306
============
</TABLE>
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
112
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE SECURITIES FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 96.2%
(a)COMMERCIAL SERVICES 3.0%
Robert Half International Inc. ................................................ 13,000 $ 371,313
----------
CONSUMER DURABLES 2.5%
D.R. Horton Inc. .............................................................. 13,200 182,325
Engle Homes Inc. .............................................................. 6,000 72,000
Flexsteel Industries Inc. ..................................................... 2,300 30,763
M/I Schottenstein Homes Inc. .................................................. 2,300 35,794
----------
320,882
----------
CONSUMER NON-DURABLES 10.9%
Block Drug Co. Inc., A ........................................................ 6,077 188,387
DIMON Inc. .................................................................... 15,000 48,750
Standard Commercial Corp. ..................................................... 24,000 85,500
(a)The Timberland Co., A ......................................................... 10,000 528,750
(a)Tropical Sportswear International Corp. ....................................... 15,000 241,875
Wolverine World Wide Inc. ..................................................... 25,000 273,438
----------
1,366,700
----------
(a)CONSUMER SERVICES 1.4%
Aztar Corp. ................................................................... 16,000 174,000
----------
ELECTRONIC TECHNOLOGY 2.7%
B.F. Goodrich Co. ............................................................. 7,000 192,500
(a)ESCO Electronics Corp. ........................................................ 600 6,975
(a)SPACEHAB Inc. ................................................................. 13,500 72,563
United Technologies Corp. ..................................................... 1,000 65,000
----------
337,038
----------
(a)ENERGY MINERALS .9%
Nuevo Energy Co. .............................................................. 6,000 112,500
----------
FINANCE 20.9%
(a)Acceptance Insurance Cos. Inc. ................................................ 4,000 23,250
Allstate Corp. ................................................................ 10,000 240,000
American National Insurance Co. ............................................... 3,000 191,250
(a)American Safety Insurance Group Ltd. .......................................... 9,000 59,063
Harleysville Group Inc. ....................................................... 12,500 178,125
Household International Inc. .................................................. 4,500 167,625
(a)Manulife Financial Corp. (Canada) ............................................. 12,000 152,250
(a)PBOC Holdings Inc. ............................................................ 16,000 151,000
Penn-America Group Inc. ....................................................... 9,500 73,625
The PMI Group Inc. ............................................................ 4,700 229,419
Presidential Life Corp. ....................................................... 21,000 385,875
(a)Professionals Group Inc. ...................................................... 13,750 322,266
Reinsurance Group of America Inc. ............................................. 4,000 111,000
(a)StanCorp Financial Group Inc. ................................................. 9,000 226,688
Washington Mutual Inc. ........................................................ 5,000 130,000
----------
2,641,436
----------
HEALTH TECHNOLOGY 1.5%
(a)SkyePharma PLC, rts., 3/31/00 (United Kingdom) ................................ 4,900 --
West Pharmaceutical Services Inc. ............................................. 6,000 185,625
----------
185,625
----------
INDUSTRIAL SERVICES 9.8%
(a)Atwood Oceanics Inc. .......................................................... 6,800 262,650
ENSCO International Inc. ...................................................... 13,000 297,375
(a)Perini Corp. .................................................................. 2,400 9,300
</TABLE>
113
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE SECURITIES FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
INDUSTRIAL SERVICES (CONT.)
(a)R&B Falcon Corp. ............................................................ 14,500 $ 192,125
(a)Rowan Cos. Inc. ............................................................. 15,000 325,313
Santa Fe International Corp. ................................................ 5,500 142,313
----------
1,229,076
----------
NON-ENERGY MINERALS 2.5%
(a)Lone Star Technologies Inc. ................................................. 8,000 223,000
LTV Corp. ................................................................... 23,600 97,350
----------
320,350
----------
PROCESS INDUSTRIES 6.7%
Lancaster Colony Corp. ...................................................... 10,000 331,250
Myers Industries Inc. ....................................................... 12,800 201,600
RPM Inc. .................................................................... 18,500 188,469
Tuscarora Inc. .............................................................. 10,000 121,250
----------
842,569
----------
PRODUCER MANUFACTURING 18.0%
Baldor Electric Co. ......................................................... 8,200 148,625
(a)CIRCOR International Inc .................................................... 5,250 54,141
Commercial Intertech Corp. .................................................. 100 1,275
Commonwealth Industries Inc. ................................................ 6,500 84,500
Dana Corp. .................................................................. 8,000 239,500
Diebold Inc. ................................................................ 2,700 63,450
JLG Industries Inc. ......................................................... 34,000 541,875
Kaydon Corp. ................................................................ 5,300 142,106
Patrick Industries Inc. ..................................................... 2,200 20,350
Superior Industries International Inc. ...................................... 6,600 176,963
Teleflex Inc. ............................................................... 5,500 172,219
Timken Co. .................................................................. 13,000 265,688
(a)Tower Automotive Inc. ....................................................... 11,500 177,531
Watts Industries Inc., A .................................................... 12,500 184,375
----------
2,272,598
----------
RETAIL TRADE 2.9%
Family Dollar Stores Inc. ................................................... 5,000 81,563
Rite Aid Corp. .............................................................. 15,000 167,813
Schultz Sav-O Stores Inc. ................................................... 3,800 48,450
The TJX Companies Inc. ...................................................... 3,000 61,305
----------
359,131
----------
TECHNOLOGY SERVICES 2.7%
Reynolds & Reynolds Co., A .................................................. 11,000 247,500
(a)Ultrak Inc. ................................................................. 11,400 88,350
----------
335,850
----------
TRANSPORTATION 9.8%
Air Express International Corp. ............................................. 7,000 226,188
(a)Atlantic Coast Airlines Holdings Inc. ....................................... 8,600 204,250
Canadian National Railway Co. (Canada) ...................................... 6,000 157,875
(a)Fritz Cos. Inc. ............................................................. 4,500 47,250
Kenan Transport Co. ......................................................... 4,300 136,256
(a)Midwest Express Holdings .................................................... 4,000 127,500
Tidewater Inc. .............................................................. 9,300 334,800
----------
1,234,119
----------
TOTAL LONG TERM INVESTMENTS (COST $12,108,952) .............................. 12,103,187
==========
</TABLE>
114
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VALUE SECURITIES FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 3.3%
(b)Franklin Institutional Fiduciary Trust Money Market Portfolio
(COST $416,420) ............................................................. $ 416,420 $ 416,420
-----------
TOTAL INVESTMENTS (COST $12,525,372) 99.5% ........................................ 12,519,607
OTHER ASSETS, LESS LIABILITIES .5% ................................................ 63,755
-----------
NET ASSETS 100.0% ................................................................. $12,583,362
===========
</TABLE>
(a) Non-income producing.
(b) The Franklin Institutional Fiduciary Trust Money Market Portfolio is
managed by Franklin Advisors, Inc.
See notes to financial statements.
115
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ZERO COUPON FUND - 2000 AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 93.5%
FHLB, Strip, A-1, 2/25/01 ........................................................ $ 7,567,000 $ 7,037,938
FHLMC, Strip, 5/15/00 ............................................................ 13,175,000 12,899,722
FICO, Strip, 10/06/00 ............................................................ 6,200,000 5,910,950
FICO, Strip, 1, 11/11/00 ......................................................... 1,139,000 1,078,745
FICO, Strip, 12, 12/06/00 ........................................................ 17,390,000 16,390,145
FICO, Strip, 15, 9/07/00 ......................................................... 148,000 141,864
FICO, Strip, 17, 10/05/00 ........................................................ 5,875,000 5,602,100
FICO, Strip, D, 9/26/00 .......................................................... 4,965,000 4,742,652
FNMA, Strip, 2/12/00 ............................................................. 500,000 496,950
FNMA, Strip, 8/12/01 ............................................................. 3,000,000 2,706,030
Tennessee Valley Authority, Strip, 7/15/00 ....................................... 3,320,000 3,217,442
Tennessee Valley Authority, Strip, 10/15/00 ...................................... 2,500,000 2,383,105
U.S. Treasury, Strip, 11/15/00 ................................................... 40,000 38,008
U.S. Treasury, Strip, QO, 11/15/00 ............................................... 1,110,375 1,052,434
U.S. Treasury, Strip, QO, 2/15/01 ................................................ 2,778,750 2,588,850
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $65,927,482) ............................................................. 66,286,935
------------
OTHER SECURITIES - AAA RATED 2.1%
Interamerican Development Bank, Strip, 12/16/00 .................................. 220,000 207,337
International Bank for Reconstruction and Development, 2/15/00 ................... 405,000 402,344
International Bank for Reconstruction and Development, 8/15/00 ................... 945,000 910,722
------------
TOTAL OTHER SECURITIES - AAA RATED (COST $735,647) ............................... 1,520,403
------------
TOTAL LONG TERM INVESTMENTS (COST $66,663,129) ................................... 67,807,338
------------
(g)REPURCHASE AGREEMENT 4.6%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity Value
$3,242,048) (COST $3,241,350) .................................................. 3,241,350 3,241,350
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $69,904,479) 100.2% ...................................... 71,048,688
OTHER ASSETS, LESS LIABILITIES (.2%) ............................................. (131,148)
------------
NET ASSETS 100.0% ................................................................ $ 70,917,540
============
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
</TABLE>
See notes to financial statements.
116
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ZERO COUPON FUND - 2005 AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 91.5%
FHLB, Strip, A-1, 8/25/02 .......................................................... $ 1,000,000 $ 841,475
FHLB, Strip, A-1, 2/25/04 .......................................................... 9,110,000 6,894,020
FHLB, Strip, A-1P, 2/25/04 ......................................................... 800,000 605,402
FICO, Strip, 3/26/05 ............................................................... 5,000,000 3,456,690
FICO, Strip, 10/06/05 .............................................................. 11,400,000 7,584,067
FICO, Strip, 1, 5/11/05 ............................................................ 3,500,000 2,397,371
FICO, Strip, 1, 11/11/05 ........................................................... 829,000 547,930
FICO, Strip, 19, 12/06/05 .......................................................... 10,000,000 6,573,850
FICO, Strip, D, 9/26/05 ............................................................ 6,799,000 4,531,928
FICO, Strip, E, 11/02/05 ........................................................... 3,509,000 2,323,105
FNMA, Strip, 2/12/06 ............................................................... 250,000 164,419
FNMA, Strip, 1, 8/01/04 ............................................................ 450,000 330,910
FNMA, Strip, 1, 2/01/05 ............................................................ 6,000,000 4,245,402
FNMA, Strip, 1, 2/12/05 ............................................................ 1,000,000 706,088
FNMA, Strip, 1, 8/12/05 ............................................................ 875,000 596,172
FNMA, Strip, 1, 2/01/06 ............................................................ 4,307,000 2,839,248
FNMA, Strip, 1, 8/01/06 ............................................................ 530,000 337,299
FNMA, Strip, 1, 2/01/08 ............................................................ 1,730,000 987,112
FNMA, Strip, 1, 2/12/08 ............................................................ 120,000 68,270
REFCO, Strip, 1/15/06 .............................................................. 6,500,000 4,353,310
REFCO, Strip, 4/15/06 .............................................................. 3,000,000 1,974,657
Tennessee Valley Authority, Strip, 10/15/04 ........................................ 6,200,000 4,461,966
Tennessee Valley Authority, Strip, 4/15/05 ......................................... 2,260,000 1,567,701
Tennessee Valley Authority, Strip, 10/15/05 ........................................ 1,000,000 669,683
U.S. Treasury, Strip, 2/15/06 ...................................................... 1,850,600 1,241,362
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $57,673,563) ............................................................... 60,299,437
------------
OTHER SECURITIES - AAA RATED 4.8%
Exxon Capital Corp., 11/15/04 ...................................................... 1,500,000 1,081,080
International Bank for Reconstruction and Development, 2/15/07 ..................... 541,000 330,832
International Bank for Reconstruction and Development, 8/15/07 ..................... 2,500,000 1,474,158
International Bank for Reconstruction and Development, 2, 2/15/07 .................. 459,000 280,688
------------
TOTAL OTHER SECURITIES - AAA RATED (COST $3,166,996) ............................... 3,166,758
------------
OTHER SECURITIES - A+ RATED 3.7%
Diageo PLC, 1/06/04 (COST $2,474,763) .............................................. 3,250,000 2,451,670
------------
TOTAL LONG TERM INVESTMENTS (COST $63,315,322) ..................................... 65,917,865
------------
(g) REPURCHASE AGREEMENT .3%
Joint Repurchase Agreement, 2.583%, 1/03/00,
(Maturity Value $165,239) (COST $165,203) ........................................ 165,203 165,203
Banc of America Securities LLC
Barclays Capital Inc. .............................................................
Bear, Stearns & Co. Inc. ..........................................................
Chase Securities Inc. .............................................................
Donaldson, Lufkin & Jenrette Securities Corp. .....................................
Dresdner Kleinwort Benson, North America LLC
Paribas Corp. .....................................................................
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $63,480,525) 100.3% ........................................ 66,083,068
OTHER ASSETS, LESS LIABILITIES (.3%) ............................................... (188,204)
------------
NET ASSETS 100.0% .................................................................. $ 65,894,864
============
</TABLE>
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
117
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ZERO COUPON FUND - 2010 AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 92.5%
FICO, Strip, 3/26/10 ........................................................... $ 860,000 $ 406,243
FICO, Strip, 1, 11/11/10 ....................................................... 16,246,000 7,321,114
FICO, Strip, 3, 5/30/10 ........................................................ 2,000,000 931,392
FICO, Strip, 4, 10/06/10 ....................................................... 1,528,000 693,529
FICO, Strip, 8, 8/03/10 ........................................................ 3,021,000 1,388,657
FICO, Strip, 12, 6/06/09 ....................................................... 4,550,000 2,287,039
FICO, Strip, 19, 6/06/10 ....................................................... 9,800,000 4,558,235
FICO, Strip, 19, 12/06/10 ...................................................... 2,080,000 932,570
FICO, Strip, A, 8/08/10 ........................................................ 7,000,000 3,214,456
FICO, Strip, D, 9/26/10 ........................................................ 860,000 391,162
FICO, Strip, GEN, 10/06/10 ..................................................... 4,040,000 1,833,675
FNMA, Strip, 8/12/09 ........................................................... 1,975,000 1,005,553
FNMA, Strip, 2/01/10 ........................................................... 5,000,000 2,458,590
FNMA, Strip, 8/01/10 ........................................................... 8,250,000 3,907,720
FNMA, Strip, 8/12/10 ........................................................... 1,230,000 581,375
REFCO, Strip, 10/15/10 ......................................................... 20,000,000 9,517,300
Sallie Mae, zero cpn., 5/15/14 ................................................. 8,650,000 2,464,056
Tennessee Valley Authority, Strip, 1/01/10 ..................................... 412,000 194,082
Tennessee Valley Authority, Strip, 4/15/10 ..................................... 12,000,000 5,738,076
Tennessee Valley Authority, Strip, 10/15/10 .................................... 1,320,000 608,201
Tennessee Valley Authority, Strip, 4/15/11 ..................................... 9,525,000 4,229,795
Tennessee Valley Authority, Strip, 10/15/11 .................................... 7,295,000 3,117,919
U.S. Treasury, Strip, 11/15/10 ................................................. 6,920,000 3,335,758
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(COST $57,511,017) ........................................................... 61,116,497
------------
OTHER SECURITIES - AAA RATED 7.4%
International Bank for Reconstruction and Development, 2/15/11 ................. 1,392,000 631,266
International Bank for Reconstruction and Development, 2/15/12 ................. 2,800,000 1,174,345
International Bank for Reconstruction and Development, 2/15/13 ................. 3,287,000 1,278,318
International Bank for Reconstruction and Development, 8/15/13 ................. 4,100,000 1,533,072
International Bank for Reconstruction and Development, Series 2, 2/15/11 ....... 500,000 226,749
------------
TOTAL OTHER SECURITIES - AAA RATED (COST $4,681,264) ........................... 4,843,750
------------
TOTAL LONG TERM INVESTMENTS (COST $62,192,281) ................................. 65,960,247
------------
(g) REPURCHASE AGREEMENT .7%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity
Value $472,197) (COST $472,095) .............................................. 472,095 472,095
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $62,664,376) 100.6% .................................... 66,432,342
OTHER ASSETS, LESS LIABILITIES (.6%) ........................................... (383,000)
------------
NET ASSETS 100.0% .............................................................. $ 66,049,342
============
</TABLE>
(g) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 1999, all repurchase
agreements had been entered into on that date.
See notes to financial statements.
118
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 83.4%
AEROSPACE & MILITARY TECHNOLOGY .9%
(a) Finmeccanica SpA .................................... Italy 1,056,300 $ 1,303,759
Lockheed Martin Corp. ............................... United States 21,900 479,063
-----------
1,782,822
-----------
APPLIANCES & HOUSEHOLD DURABLES .1%
Maytag Corp. ........................................ United States 3,400 163,200
-----------
AUTOMOBILES 2.4%
(a) Consorcio G Grupo Dina SA de CV, L, ADR ............. Mexico 263,400 98,775
Delphi Automotive Systems Corp. ..................... United States 170,458 2,684,714
General Motors Corp. ................................ United States 11,100 806,831
(a) Lear Corp. .......................................... United States 30,500 976,000
(a) SPX Corp. ........................................... United States 3,400 274,763
-----------
4,841,083
-----------
BANKING 1.4%
Bank One Corp. ...................................... United States 27,800 891,338
Banque Nationale de Paris ........................... France 12,285 1,132,896
Chittenden Corp. .................................... United States 841 24,915
Merita AS ........................................... Finland 145,200 855,150
-----------
2,904,299
-----------
BEVERAGES & TOBACCO 3.1%
Altadis SA, A ....................................... Spain 54,207 774,931
(a) Buenos Aires Embotelladora SA, B .................... Argentina 89,474 402,689
(a Buenos Aires Embotelladora SA, B, ADR ............... Argentina 101,409 9,128
Coca-Cola West Japan Co. Ltd. ....................... Japan 32,300 1,359,201
Farmer Brothers Co. ................................. United States 7,000 1,113,000
Fraser and Neave Ltd. ............................... Singapore 53,900 199,030
Gallaher Group PLC .................................. United Kingdom 185,700 790,794
Gallaher Group PLC, ADR ............................. United Kingdom 7,100 109,163
Mikuni Coca-Cola Bottling Co. ....................... Japan 46,300 811,049
Swedish Match AB .................................... Sweden 216,300 755,333
-----------
6,324,318
-----------
BROADCASTING & PUBLISHING 8.9%
(a) AMFM Inc. ........................................... United States 15,310 1,198,008
Dun & Bradstreet Corp. .............................. United States 31,500 929,250
(a) MediaOne Group Inc. ................................. United States 30,600 2,350,463
(a) Modern Times Group AB ............................... Sweden 117,200 5,815,215
NV Holdingsmig de Telegraaf ......................... Netherlands 106,078 2,349,457
Publicis SA ......................................... France 1,900 717,306
Scripps Co., A ...................................... United States 20,900 936,581
Seat Pagine Gialle SpA, di Risp ..................... Italy 356,300 782,691
Torstar Corp., B .................................... Canada 74,900 815,876
True North Communications Inc. ...................... United States 32,400 1,447,875
Washington Post Co., B .............................. United States 1,521 845,486
-----------
18,188,208
-----------
BUSINESS & PUBLIC SERVICES 3.7%
Deluxe Corp. ........................................ United States 1,400 38,413
(a) Republic Services Inc., A ........................... United States 74,000 1,063,750
Suez Lyonnaise des Eaux SA .......................... France 24,479 3,920,879
(a) Suez Lyonnaise des Eaux SA, strip ................... France 8,300 84
Vivendi ............................................. France 27,900 2,518,106
-----------
7,541,232
-----------
CHEMICALS 2.7%
Bayer AG, Br. ....................................... Germany 21,700 1,031,149
(a) Bush Boake Allen Inc. ............................... United States 56,900 1,397,606
</TABLE>
119
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS (CONT.)
ChemFirst Inc. .......................................... United States 31,800 $ 695,625
CK Witco Corp. .......................................... United States 49,948 668,055
Laporte PLC ............................................. United Kingdom 51,700 455,363
Union Carbide Corp. ..................................... United States 18,200 1,214,850
---------
5,462,648
---------
CONSTRUCTION & HOUSING 1.0%
Groupe GTM .............................................. France 15,200 1,476,694
Grupo Ferrovial SA ...................................... Spain 32,800 475,506
---------
1,952,200
---------
DATA PROCESSING & REPRODUCTION .8%
Compaq Computer Corp. ................................... United States 24,200 654,913
(a)NCR Corp. ............................................... United States 12,000 454,500
(a)Network Associates Inc. ................................. United States 21,400 571,113
---------
1,680,526
---------
ELECTRICAL & ELECTRONICS 1.2%
Racal Electronics PLC ................................... United Kingdom 239,680 2,174,965
(a)Thomson Multimedia ...................................... France 4,870 262,302
---------
2,437,267
---------
(a)ELECTRONIC COMPONENTS & INSTRUMENTS .4%
General Instrument Corp. ................................ United States 10,200 867,000
---------
(a)ENERGY EQUIPMENT & SERVICES .7%
Cooper Cameron Corp. .................................... United States 14,900 729,169
Weatherford International Inc. .......................... United States 16,100 642,994
---------
1,372,163
---------
ENERGY SOURCES 3.6%
(a)Abraxas Petroleum Corp. ................................. United States 10,135 9,502
Atlantic Richfield Co. .................................. United States 18,800 1,626,200
Burlington Resources Inc. ............................... United States 29,500 975,344
(a)Gulf Canada Resources Ltd. .............................. Canada 155,300 524,138
(a)Gulf Canada Resources Ltd., fgn. ........................ Canada 125,500 412,286
Total Fina SA, B ........................................ France 22,097 2,947,601
Total Fina SA, B, ADR ................................... France 10,770 745,823
---------
7,240,894
---------
FINANCIAL SERVICES 2.7%
Bear Stearns Co. Inc. ................................... United States 20,612 881,163
Greenpoint Financial Corp. .............................. United States 29,264 696,849
Household International Inc. ............................ United States 17,700 659,325
Investors Group Inc. .................................... Canada 57,100 813,514
Irish Life & Permanent PLC .............................. Irish Republic 54,600 525,025
Lehman Brothers Holdings Inc. ........................... United States 5,300 448,844
Metris Cos. Inc. ........................................ United States 20,500 731,594
(a)MFN Financial Corp. ..................................... United States 20,281 131,827
Morgan Stanley, Dean Witter & Co. ....................... United States 1,300 185,575
Power Corp. of Canada ................................... Canada 15,600 267,031
Power Financial Corp. ................................... Canada 10,900 180,925
---------
5,521,672
---------
FOOD & HOUSEHOLD PRODUCTS 2.7%
Associated British Foods PLC ............................ United Kingdom 87,200 480,201
Earthgrains Company ..................................... United States 92,900 1,498,013
(a)Fine Host Corp. ......................................... United States 49,920 494,208
Flowers Industries Inc. ................................. United States 9,800 156,188
Kikkoman Corp. .......................................... Japan 154,500 1,026,623
</TABLE>
120
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS (CONT.)
(a)Pactiv Corp. ..................................... United States 67,200 $ 714,000
----------
U.S. Industries Inc. ............................. United States 81,100 1,135,400
----------
5,504,633
----------
HEALTH & PERSONAL CARE 4.1%
American Home Products Corp. ..................... United States 1,500 59,156
Aventis SA ....................................... France 112,500 6,535,035
Banyu Pharmaceutical Co. Ltd. .................... Japan 22,000 341,244
Ono Pharmaceutical Co. Ltd. ...................... Japan 19,700 528,238
Sankyo Co. Ltd. .................................. Japan 35,700 733,669
Ventas Inc. ...................................... United States 50,300 210,631
----------
8,407,973
----------
INDUSTRIAL COMPONENTS .9%
Mannesmann AG .................................... Germany 4,420 1,069,735
(a)Owens-Illinois Inc. .............................. United States 29,500 739,344
----------
1,809,079
----------
INSURANCE 2.9%
Allmerica Financial Corp. ........................ United States 19,900 1,106,938
AON Corp. ........................................ United States 19,900 796,000
Horace Mann Educators Corp. ...................... United States 34,600 679,025
Lincoln National Corp. ........................... United States 8,500 340,000
MBIA Inc. ........................................ United States 14,900 786,906
Old Republic International Corp. ................. United States 56,400 768,450
Radian Group Inc. ................................ United States 9,733 464,751
ReliaStar Financial Corp. ........................ United States 9,700 380,119
W. R. Berkley Corp. .............................. United States 25,800 538,575
----------
5,860,764
----------
LEISURE & TOURISM .3%
Hilton Hotels Corp. .............................. United States 56,231 541,223
----------
MACHINERY & ENGINEERING 4.4%
FKI PLC .......................................... United Kingdom 175,484 691,987
IMI PLC .......................................... United Kingdom 290,454 1,316,682
Invensys PLC ..................................... United Kingdom 685,908 3,691,313
NACCO Industries Inc., A ......................... United States 17,000 944,563
(a)Sulzer AG ........................................ Switzerland 1,350 877,394
United Dominion Industries Ltd. .................. Canada 72,800 1,451,450
----------
8,973,389
----------
MERCHANDISING 2.3%
(a)Borders Group Inc. ............................... United States 17,900 287,519
(a)Boyds Collection Ltd. ............................ United States 59,600 413,475
(a)Federated Department Stores Inc. ................. United States 13,600 687,650
May Department Stores Co. ........................ United States 3,400 109,650
(a)Saks Inc. ........................................ United States 62,800 977,325
Sears, Roebuck & Co. ............................. United States 2,800 85,225
Sonae SGPS SA .................................... Portugal 39,704 2,094,523
----------
4,655,367
----------
MULTI-INDUSTRY 27.1%
(a)Alleghany Corp. .................................. United States 2,460 456,330
(a)Berkshire-Hathaway Inc., A ....................... United States 24 1,346,400
(a)Brierley Investments Ltd. ........................ New Zealand 3,363,754 703,023
Cir Cie Industriali Riunite SpA Torino ........... Italy 955,600 2,517,674
Cir Cie Industriali Riunite SpA Torino, di Risp .. Italy 132,400 299,909
Compagnie Financiere Richemont AG, A, Br. ........ Switzerland 1,392 3,321,570
Compagnie Generale D'Industrie et de
Participation ................................. France 78,791 5,155,960
</TABLE>
121
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Corporacion Financiera Alba SA ...................... Spain 147,636 $ 5,047,537
Imasco Ltd. ......................................... Canada 63,000 1,740,681
Investor AB, A ...................................... Sweden 149,000 2,119,812
Investor AB, B ...................................... Sweden 417,776 5,894,547
Invik & Co. AB, B ................................... Sweden 24,256 2,880,489
Kansas City Southern Industries Inc. ................ United States 25,600 1,910,400
Kinnevik AB, B ...................................... Sweden 79,587 2,470,425
Lagardere SCA ....................................... France 154,534 8,401,124
(a) Pacific Century Regional Developments Ltd. .......... Singapore 157,600 2,261,567
Pargesa Holdings SA, Br. ............................ Switzerland 972 1,586,939
(a) Thermo Electron Corp. ............................... United States 115,100 1,726,500
Trelleborg AB, B .................................... Sweden 119,141 1,071,639
TRW Inc. ............................................ United States 36,900 1,916,494
Williams PLC ........................................ United Kingdom 494,600 2,262,097
-----------
55,091,117
-----------
REAL ESTATE .1%
Castellum AB ........................................ Sweden 7,700 75,144
(a),(d)Security Capital European Realty .................... United States 13,770 198,391
-----------
273,535
-----------
TELECOMMUNICATIONS 2.0%
Portugal Telecom SA ................................. Portugal 93,900 1,029,468
Telephone & Data Systems Inc. ....................... United States 20,000 2,520,000
U.S. West Inc. ...................................... United States 6,700 482,400
-----------
4,031,868
-----------
TRANSPORTATION 2.1%
Burlington Northern Santa Fe Corp. .................. United States 20,800 504,400
Florida East Coast Industries Inc. .................. United States 25,000 1,043,750
Railtrack Group PLC ................................. United Kingdom 164,432 2,697,262
-----------
4,245,412
-----------
UTILITIES ELECTRICAL & GAS .9%
(a) Citizens Utilities Co., B ........................... United States 60,212 854,258
(a) MidAmerican Energy Holding Co. ...................... United States 4,400 148,225
Veba AG ............................................. Germany 18,200 888,654
-----------
1,891,137
-----------
TOTAL COMMON STOCKS (COST $138,344,700) ............. 169,565,029
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 1.9%
Abraxas Petroleum Corp., Series A, 11.50%,
11/01/04 ...................................... United States $ 119,000 108,885
Consorcio G Grupo Dina SA de CV, cvt.,
8.00%, 8/08/04 ................................ Mexico 2,150,000 1,053,500
Eurotunnel Finance Ltd., Equity Note, 12/31/03 ... United Kingdom 138,008 GBP 95,906
Eurotunnel PLC:
12/31/18, Tier 2 .............................. United Kingdom 456,578 GBP 512,826
12/31/25, Tier 3 .............................. United Kingdom 403,000 GBP 367,980
12/31/50, Resettable Advance R5 ............... United Kingdom 172,449 GBP 93,362
Stabilization Advance S8, Tier 1 .............. United Kingdom 94,726 GBP 36,740
Stabilization Advance S8, Tier 2 .............. United Kingdom 85,062 GBP 27,494
Eurotunnel SA:
5.28%, 7/07/02, Tier 2 (Pibor) ................ France 18,558 EUR 12,892
6.32%, 12/31/18, Tier 2 (Libor) ............... France 103,401 EUR 71,828
Stabilization Advance S6 Tier 1 (Pibor) ....... France 25,555 EUR 6,175
Stabilization Advance S7 Tier 1 (Libor) ....... France 40,913 EUR 9,885
Stabilization Advance S6 Tier 2 ............... France 51,968 EUR 10,464
</TABLE>
122
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY SECURITIES FUND COUNTRY AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
MFN Financial Corp.:
Series A, 10.00%, 3/23/01 ............................. United States $ 83,479 $ 80,557
Series B, FRN, 10.676%, 3/23/01 ....................... United States 143,476 139,172
Rite Aid Corp.:
7.125%, 1/15/07 ....................................... United States 80,000 59,200
144A, 6.125%, 12/15/08 ................................ United States 20,000 14,200
6.875%, 8/15/13 ....................................... United States 25,000 16,750
Security Capital US Realty, cvt., 144A,
2.00%, 5/22/03 United States 190,000 141,194
Southwest Royalties Inc., B, 10.50%, 10/15/04 ........... United States 695,000 371,825
TFM SA de CV:
10.25%, 6/15/07 ....................................... Mexico 250,000 237,500
senior disc. note, zero cpn. .......................... Mexico 380,000 244,150
Tribasa Toll Road Trust I, 144A, 10.50%, 12/01/11 ....... Mexico 180,264 72,105
----------
TOTAL CORPORATE BONDS AND NOTES (COST $3,946,687) ....... 3,784,590
----------
(a) BONDS AND NOTES IN REORGANIZATION 2.5%
Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11 ..... United States 20,000 7,600
Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01 ................................. Mexico 10,000 3,400
Series A, 11.375%, 4/30/02 ............................ Mexico 40,000 15,800
Series B, 11.875%, 4/15/04 ............................ Mexico 25,000 9,875
Tranche A, Term Loan .................................. United States 47,468 19,936
Brunos Inc.:
Revolver .............................................. United States 107,300 63,307
Tranche A, Term Loan .................................. United States 190,600 112,454
Tranche B, Term Loan .................................. United States 114,500 67,555
Buenos Aires Embotelladora SA:
Series B, 12.00%, 8/03/05 ............................. Argentina 17,000 16,575
144A, 12.00%, 9/01/05 ................................. Argentina 273,000 266,175
Crown Leasing, Bank Claim ............................... Japan 41,502,615 JPY 28,106
Decision One Corp.:
Revolver .............................................. United States 22,239 9,952
Tranche A, Term Loan .................................. United States 273,512 122,397
Tranche B, Term Loan .................................. United States 47,200 21,122
Dow Corning Corp., 9.375%, 2/01/08 ...................... United States 300,000 432,000
Harnischfeger Industries Inc.:
8.90%, 3/01/22 ........................................ United States 150,000 57,000
8.70%, 6/15/22 ........................................ United States 107,000 40,660
7.25%, 12/15/25 ....................................... United States 280,000 106,400
6.875%, 2/15/27 ....................................... United States 144,000 54,720
Koninklijke Ned Vlieg Fokker NV, Trade Claim ............ Netherlands 431,091 EUR 125,860
Loewen Group Inc., Series 5, 6.10%, 10/01/02 ............ Canada 175,000 CAD 58,095
Loewen Group International Inc.:
144A, 6.70%, 10/01/99 ................................. Canada 380,000 186,200
Revolver .............................................. United States 71,983 38,151
Series 3, 7.50%, 4/15/01 .............................. Canada 105,000 51,450
Series 3, 7.75%, 10/15/01 ............................. Canada 20,000 9,800
Series 2, 8.25%, 4/15/03 .............................. Canada 75,000 36,750
Series 6, 7.20%, 6/01/03 .............................. Canada 678,000 339,000
Series 4, 8.25%, 10/15/03 ............................. Canada 265,000 129,850
Series 7, 7.60%, 6/01/08 .............................. Canada 470,000 235,000
Mariner Post-acute Network Inc.:
Revolver .............................................. United States 38,000 12,159
Tranche A, Term Loan .................................. United States 55,713 17,827
Tranche B, Term Loan .................................. United States 44,168 14,133
Tranche C, Term Loan .................................. United States 20,693 6,621
Nippon Credit Bank Ltd., Bank Claim Japan 21,126,309 JPY 33,034
Nippon Total Finance, Bank Claim Japan 21,418,136 JPY 12,469
Paging Network Inc., Revolver A United States 297,000 252,450
</TABLE>
123
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY SECURITIES FUND COUNTRY AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOND AND NOTES IN REORGANIZATION (CONT.)
Port Seattle Wash Rev Ref-Beloit Proj.,
6.00%, 12/01/17 ................................. United States $ 10,000 $ 3,800
United Companies Financial Corp., Revolver ......... United States 1,040,400 832,320
Vencor Inc.:
Revolver ........................................ United States 124,422 81,497
Term Loan A ..................................... United States 509,708 333,858
Term Loan B ..................................... United States 309,464 202,699
Tranche A, Term Loan, 3/07/00 ................... United States 73,341 72,607
Tranche B, Term Loan, 3/07/00 ................... United States 25,000 24,750
Vencor Operating Inc., 9.875%, 5/01/05 ............. United States 675,000 140,063
Ventas Inc.:
Tranche A, Bridge Loan .......................... United States 107,409 97,205
Tranche B, Revolver ............................. United States 100,542 90,990
Tranche C, Term Loan A .......................... United States 104,918 94,950
Tranche D, Term Loan B .......................... United States 74,025 68,472
------------
TOTAL BONDS AND NOTES IN REORGANIZATION
(COST $5,359,543) ............................... 5,057,094
------------
SHORT TERM INVESTMENTS 9.5%
Fannie Mae, 5.43% to 5.61%, with maturities
to 5/25/00 ...................................... United States 10,500,000 10,327,100
Federal Home Loan Bank, 1.28% to 5.51%, with
maturities to 3/15/00 ........................... United States 6,500,000 6,477,920
Federal Home Loan Mortgage Corp., 5.19% to
------------
5.20%, with maturities to 2/10/00 ............... United States 2,500,000 2,489,117
------------
TOTAL SHORT TERM INVESTMENTS
(COST $19,287,169) .............................. 19,294,137
------------
TOTAL INVESTMENTS (COST $166,938,099) 97.3% ........ 197,700,850
SECURITIES SOLD SHORT (2.5%) ....................... (5,113,253)
NET EQUITY IN FORWARD CONTRACTS .8% ................ 1,639,069
OTHER ASSETS, LESS LIABILITIES 4.4% ................ 8,963,120
------------
TOTAL NET ASSETS 100.0% ............................ $203,189,786
------------
</TABLE>
<TABLE>
<CAPTION>
(j) SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) Clear Channel Communications Inc. .................. United States 14,411 $ 1,286,182
Dow Chemical Co. ................................... United States 9,651 1,289,615
(a) DST Systems Inc. ................................... United States 5,700 434,981
Motorola Inc. ...................................... United States 5,900 868,775
BP Amoco PLC, ADR .................................. United Kingdom 20,800 1,233,700
-----------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $4,261,538) ............................ $ 5,113,253
===========
</TABLE>
<TABLE>
<CAPTION>
(k) CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
ISSUER COUNTRY SHARES 12/31/1999 GAIN/(LOSS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BP Amoco PLC, cfd., 5.18 ............................ United Kingdom 12,800 $128,978 $(21,852)
BP Amoco PLC, cfd., 5.47 ............................ United Kingdom 5,000 50,382 (6,161)
BP Amoco PLC, cfd., 5.565 ........................... United Kingdom 3,900 39,298 (4,223)
BP Amoco PLC, cfd., 5.65 ............................ United Kingdom 9,600 96,734 (9,082)
BP Amoco PLC, cfd., 5.71 ............................ United Kingdom 2,000 20,153 (1,697)
BP Amoco PLC, cfd., 6.23317 ......................... United Kingdom 13,800 139,055 (40)
-------- --------
BP Amoco PLC, cfd., 6.24797 ......................... United Kingdom 6,500 65,497 137
======== ========
$540,097 $(42,918)
======== ========
</TABLE>
See glossary of currency abbreviations on page 157.
*Securities traded in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(d) See Note 8 regarding restricted securities.
(j) See Note 1(f) regarding securities sold short.
(k) See Note 1(d) regarding contract for differences.
See notes to financial statements.
124
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 80.4%.................................
AEROSPACE & MILITARY TECHNOLOGY 1.5%
B.F. Goodrich Co. .................................. United States 234,828 $ 6,457,770
(a) Hexcel Corp. ....................................... United States 42,000 233,625
-----------
6,691,395
-----------
APPLIANCES & HOUSEHOLD DURABLES .1%
Maytag Corp. ....................................... United States 8,200 393,600
-----------
AUTOMOBILES 4.9%
Borg-Warner Automotive Inc. ........................ United States 38,800 1,571,400
(a) Consorcio G Grupo Dina SA de CV, L, ADR ............ Mexico 644,100 241,538
Delphi Automotive Systems Corp. .................... United States 442,357 6,967,123
General Motors Corp. .............................. United States 101,900 7,406,856
(a) Lear Corp. ......................................... United States 170,700 5,462,400
(a) SPX Corp. .......................................... United States 7,700 622,256
-----------
22,271,573
-----------
BANKING 4.3%
Bank One Corp. ..................................... United States 189,800 6,085,463
Banknorth Group Inc. ............................... United States 11,400 304,950
Chase Manhattan Corp. .............................. United States 55,600 4,319,425
National City Corp. ................................ United States 90,789 2,150,564
Peoples Heritage Financial Group Inc. .............. United States 147,150 2,216,447
Sovereign Bancorp Inc. ............................. United States 243,000 1,811,109
U.S. Bancorp. ...................................... United States 102,124 2,431,828
-----------
19,319,786
-----------
BEVERAGES & TOBACCO 2.0%
Brown-Forman Corp., B .............................. United States 14,000 801,500
Gallaher Group PLC ................................. United Kingdom 396,700 1,689,326
Gallaher Group PLC, ADR ............................ United Kingdom 18,200 279,825
Pepsi Bottling Group Inc. .......................... United States 213,300 3,532,781
UST Inc. ........................................... United States 111,000 2,795,813
-----------
9,099,245
-----------
BROADCASTING & PUBLISHING 9.2%
(a) AT&T Corp. - Liberty Media Group, A ................ United States 78,648 4,463,274
Central Newspapers Inc., A ......................... United States 70,200 2,764,125
Dow Jones & Co. Inc. ............................... United States 47,500 3,230,000
Dun & Bradstreet Corp. ............................. United States 61,500 1,814,250
Media General Inc., A .............................. United States 73,000 3,796,000
(a) MediaOne Group Inc. ................................ United States 142,700 10,961,144
Meredith Corp. ..................................... United States 58,359 2,432,841
Scripps Co., A ..................................... United States 124,100 5,561,231
Washington Post Co., B ............................. United States 12,413 6,900,076
-----------
41,922,941
-----------
BUILDING MATERIALS & COMPONENTS 1.4%
(a) American Standard Cos. Inc. ........................ United States 87,400 4,009,475
Armstrong World Industries Inc. .................... United States 69,900 2,332,913
-----------
6,342,388
-----------
BUSINESS & PUBLIC SERVICES 3.0%
Deluxe Corp. ....................................... United States 3,400 93,288
National Service Industries Inc. ................... United States 28,300 834,850
(a) Republic Services Inc., A .......................... United States 241,500 3,471,563
Suez Lyonnaise des Eaux SA ......................... France 35,549 5,693,996
Vivendi ............................................ France 42,750 3,858,389
-----------
13,952,086
-----------
</TABLE>
125
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)...............................
CHEMICALS 1.3%
(a)Cytec Industries Inc. .............................. United States 125,900 $ 2,911,438
Union Carbide Corp. ............................... United States 43,750 2,920,313
-----------
5,831,751
-----------
DATA PROCESSING & REPRODUCTION .5%
Compaq Computer Corp. .............................. United States 56,200 1,520,913
(a)NCR Corp. .......................................... United States 19,800 749,925
-----------
2,270,838
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS .6%
(a)General Instrument Corp. ........................... United States 25,650 2,180,250
Thomas & Betts Corp. ............................... United States 18,500 589,688
-----------
2,769,938
-----------
(a)ENERGY EQUIPMENT & SERVICES .6%
Cooper Cameron Corp. ............................... United States 25,100 1,228,331
Weatherford International Inc. ..................... United States 39,150 1,563,553
-----------
2,791,884
-----------
ENERGY SOURCES 2.2%
(a)Abraxas Petroleum Corp. ............................ United States 24,741 23,195
Atlantic Richfield Co. ............................. United States 39,700 3,434,050
Burlington Resources Inc. ......................... United States 77,700 2,568,956
Total Fina SA, B ................................... France 28,724 3,831,602
-----------
9,857,803
-----------
FINANCIAL SERVICES 9.1%
Bear Stearns Co. Inc. .............................. United States 171,753 7,342,441
CIT Group Inc., A .................................. United States 235,470 4,974,304
Dime Bancorp Inc. .................................. United States 74,300 1,123,788
Finova Group Inc. .................................. United States 148,600 5,275,300
Greenpoint Financial Corp. ......................... United States 155,730 3,708,321
Household International Inc. ....................... United States 115,630 4,307,218
Lehman Brothers Holdings Inc. ...................... United States 38,700 3,277,406
(a)MFN Financial Corp. ................................ United States 39,778 258,557
Morgan Stanley, Dean Witter & Co. .................. United States 6,600 942,150
PMI Group Inc. ..................................... United States 50,450 2,462,591
Power Corp. of Canada .............................. Canada 35,900 614,513
Power Financial Corp. .............................. Canada 24,800 411,647
United Asset Management Corp. ...................... United States 362,000 6,719,625
-----------
41,417,861
-----------
FOOD & HOUSEHOLD PRODUCTS 2.1%
(a)Fine Host Corp. .................................... United States 139,062 1,376,714
(a)Pactiv Corp. ....................................... United States 157,300 1,671,313
U.S. Industries Inc. ............................... United States 265,700 3,719,800
Van Melle NV ....................................... Netherlands 45,490 2,610,420
-----------
9,378,247
-----------
FOREST PRODUCTS & PAPER 1.1%
Rayonier Inc. ...................................... United States 75,100 3,628,269
St. Joe Co. ........................................ United States 55,400 1,346,913
-----------
4,975,182
-----------
HEALTH & PERSONAL CARE 2.6%
American Home Products Corp. ....................... United States 3,400 134,088
Aventis SA ......................................... France 112,800 6,552,461
(a)Foundation Health Systems, A ....................... United States 73,700 732,394
(a)PacifiCare Health Systems Inc. ..................... United States 16,400 869,200
</TABLE>
126
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE (CONT.)
Sankyo Co. Ltd. .................................... Japan 26,600 $ 546,656
(a)Tenet Healthcare Corp. ............................. United States 110,500 2,596,750
Ventas Inc. ........................................ United States 83,500 349,656
----------
11,781,205
----------
(a)INDUSTRIAL COMPONENTS .6%
Owens-Illinois Inc. ................................ United States 110,610 2,772,163
----------
INSURANCE 3.7%
Allmerica Financial Corp. .......................... United States 67,600 3,760,250
AON Corp. .......................................... United States 50,500 2,020,000
Lincoln National Corp. ............................. United States 25,100 1,004,000
MBIA Inc. .......................................... United States 72,400 3,823,625
Old Republic International Corp. ................... United States 254,800 3,471,650
ReliaStar Financial Corp. .......................... United States 22,300 873,881
White Mountain Insurance Group Inc. ................ United States 15,600 1,879,800
----------
16,833,206
----------
LEISURE & TOURISM 3.1%
Galileo International Inc. ......................... United States 81,500 2,439,906
Hilton Hotels Corp. ................................ United States 227,981 2,194,317
(a)Park Place Entertainment Corp. ..................... United States 277,200 3,465,000
Starwood Hotels & Resorts Worldwide Inc. ........... United States 248,700 5,844,450
----------
13,943,673
----------
MACHINERY & ENGINEERING .9%
Invensys PLC ....................................... United Kingdom 725,652 3,905,201
----------
MERCHANDISING 3.9%
(a)Federated Department Stores Inc. ................... United States 121,200 6,128,175
J.C. Penney Co. Inc. ............................... United States 101,500 2,023,656
May Department Stores Co. .......................... United States 38,100 1,228,725
(a)Payless Shoesource Inc. ............................ United States 68,100 3,200,700
(a)Saks Inc. .......................................... United States 182,300 2,837,044
Sears, Roebuck & Co. ............................... United States 75,000 2,282,813
----------
17,701,113
----------
MULTI-INDUSTRY 12.7%
(a)Alleghany Corp. .................................... United States 15,658 2,904,559
(a)Berkshire-Hathaway Inc., A ......................... United States 57 3,197,700
(a)Berkshire Hathaway Inc., B ......................... United States 22 40,260
Compagnie Financiere Richemont AG, Br., A .......... Switzerland 1,301 3,104,427
Compagnie Generale D'Industrie et de Participation . France 56,353 3,687,652
Corporacion Financiera Alba SA ..................... Spain 132,400 4,526,632
Investor AB, A ..................................... Sweden 658,360 9,366,439
Investor AB, B ..................................... Sweden 636,600 8,982,011
Kansas City Southern Industries Inc. ............... United States 85,200 6,358,050
Kinnevik AB, B ..................................... Sweden 10,200 316,614
Lagardere SCA ...................................... France 123,287 6,702,404
(a)Thermo Electron Corp. .............................. United States 227,300 3,409,500
TRW Inc. ........................................... United States 77,000 3,999,188
Williams PLC ....................................... United Kingdom 209,200 956,795
----------
57,552,231
----------
(a)REAL ESTATE .4%
Alexander's Inc. ................................... United States 8,000 632,000
Cadillac Fairview Corp. ............................ Canada 43,000 990,317
(d)Security Capital European Realty ................... United States 27,030 389,435
----------
2,011,752
----------
</TABLE>
127
<PAGE>
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 4.7%
BCE Inc. .......................................... Canada 33,150 $ 3,006,863
(a)General Motors Corp., H ............................ United States 10,000 960,000
Telephone & Data Systems Inc. ...................... United States 114,300 14,401,800
U.S. West Inc. ..................................... United States 28,400 2,044,800
(a)United States Cellular Corp. ....................... United States 8,300 837,781
-----------
21,251,244
-----------
TEXTILES & APPAREL .4%
Liz Claiborne Inc. ................................. United States 45,600 1,715,700
-----------
TRANSPORTATION 2.2%
Burlington Northern Santa Fe Corp. ................. United States 56,900 1,379,825
Florida East Coast Industries Inc. ................ United States 110,500 4,613,375
Railtrack Group PLC ................................ United Kingdom 247,752 4,064,002
-----------
10,057,202
-----------
UTILITIES ELECTRICAL & GAS 1.3%
(a)MidAmerican Energy Holding Co. ..................... United States 132,900 4,477,069
Veba AG ............................................ Germany 35,600 1,738,246
-----------
6,215,315
-----------
TOTAL COMMON STOCKS (COST $316,390,924) ............ 365,026,523
===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-----------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES 2.5%
Abraxas Petroleum Corp., Series A, 11.50%,
11/01/04 ........................................ United States $ 290,500 265,808
Consorcio G Grupo Dina SA de CV, cvt., 8.00%,
8/08/04 ......................................... Mexico 4,392,000 2,152,080
Dictaphone Corp., Revolver ......................... United States 305,800 287,452
Eurotunnel Finance Ltd.:
Equity Note 12/31/03 ............................ United Kingdom 351,406 GBP 244,202
Participating Loan Note, 4/30/40 ................ United Kingdom 58,000 GBP 39,368
Eurotunnel PLC:
12/31/18, Tier 2 ................................ United Kingdom 1,051,800 GBP 1,181,378
12/31/25, Tier 3 ................................ United Kingdom 791,758 GBP 722,956
12/31/50, Resettable Advance R5 ................. United Kingdom 342,767 GBP 185,573
Stabilization Advance S8, Tier 1 ................ United Kingdom 220,793 GBP 85,638
Stabilization Advance S8, Tier 2 ................ United Kingdom 178,767 GBP 57,781
Eurotunnel SA:
12/31/12, Tier 1 (Pibor) ........................ France 46,223 EUR 36,529
12/31/18, Tier 2 (Libor) ........................ France 441,192 EUR 306,476
12/31/18, Tier 2 (Pibor) ........................ France 133,474 EUR 92,718
12/31/25, Tier 3 (Pibor) ........................ France 242,272 EUR 135,368
12/31/25, Tier 3 (Libor) ........................ France 518,574 EUR 289,750
12/31/50, Resettable Advance R4 ................. France 297,824 EUR 98,945
Stabilization Advance S6, Tier 1 (Pibor) ........ France 109,282 EUR 26,405
Stabilization Advance S7, Tier 1 (Pibor) ........ France 74,647 EUR 18,036
Stabilization Advance S6, Tier 2 ................ France 154,538 EUR 31,116
(a)Golden Books Publishing, 7.65%, 9/15/02 ............ United States 230,000 98,900
HIH Capital Ltd., cvt., 144A, 7.50%, 9/25/06 ....... United Kingdom 1,235,000 802,750
Imperial Credit Capital Trust I, B, 10.25%, 6/15/02 United States 450,000 364,500
MFN Financial Corp.:
Series A, 10.00%, 3/23/01 ....................... United States 159,027 153,461
Series B, FRN, 10.676%, 3/23/01 ................. United States 279,024 270,650
Rite Aid Corp.:
7.125%, 1/15/07 ................................. United States 185,000 136,900
144A, 6.125%, 12/15/08 .......................... United States 45,000 31,950
6.875%, 8/15/13 ................................. United States 55,000 36,850
Security Capital US Realty, cvt., 144A, 2.00%,
5/22/03 ......................................... United States 1,053,000 782,511
</TABLE>
128
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES (CONT.)
SFC New Holdings Inc., PIK, 13.25%, 8/15/03 ........ United States $ 1,182,000 $ 851,040
Southwest Royalties Inc., B, 10.50%, 10/15/04 ...... United States 1,680,000 898,800
TFM SA de CV:
senior disc. note, zero cpn. ................... Mexico 800,000 514,000
10.25%, 6/15/07 ................................. Mexico 250,000 237,500
Tribasa Toll Road Trust I:
10.50%, 12/01/11 ............................... Mexico 54,079 21,632
144A, 10.50%, 12/01/11 ......................... Mexico 162,237 64,895
----------
TOTAL CORPORATE BONDS AND NOTES
(COST $12,099,827) ............................... 11,523,918
----------
(a) BONDS AND NOTES IN REORGANIZATION 3.7%
Aiken Cnty S C Indl Rev Ref Beloit, 6.00%, 12/01/11 United States 45,000 17,100
Altos Hornos de Mexico SA:
cvt., 5.50%, 12/15/01 ........................... Mexico 20,000 6,800
Series A, 11.375%, 4/30/02 ...................... Mexico 95,000 37,525
Series B, 11.875%, 4/30/04 ...................... Mexico 60,000 23,700
Tranche A, Term Loan ............................ United States 117,181 49,216
APS Inc., Tranche B ................................ United States 1,615,708 234,278
Brunos Inc.:
Revolver ........................................ United States 201,200 118,708
Tranche A, Term Loan ............................ United States 379,200 223,728
Tranche B, Term Loan ............................ United States 345,100 203,609
Crown Leasing, Bank Claim .......................... Japan 87,565,976 JPY 59,300
Decision One Corp.:
Revolver ........................................ United States 314,391 140,690
Tranche A, Term Loan ............................ United States 1,068,539 478,171
Tranche B, Term Loan ............................ United States 496,840 222,336
Dow Corning Corp.:
9.38%, 2/01/08 .................................. United States 550,000 792,000
Bank Debt #1 .................................... United States 100,000 137,500
Harnischfeger Industries Inc.:
8.90%, 3/01/22 .................................. United States 370,000 140,600
8.70%, 6/15/22 .................................. United States 260,000 98,800
7.25%, 12/15/25 ................................. United States 665,000 252,700
6.875%, 2/15/27 ................................. United States 353,000 134,140
Integrated Health Services Inc.:
Revolver ........................................ United States 405,000 186,300
Tranche B, Term Loan ............................ United States 515,265 237,022
Tranche C, Term Loan ............................ United States 355,083 163,338
Koninklijke Ned Vlieg Fokker NV, Trade Claim ....... Netherlands 550,119 EUR 160,610
Loewen Group Inc., Series 5, 6.10%, 10/01/02 ....... Canada 336,000 CAD 111,543
Loewen Group International Inc.:
Series 3, 7.50%, 4/15/01 ........................ Canada 290,000 142,100
Series 3, 7.75%, 10/15/01 ....................... Canada 220,000 107,800
Series 2, 8.25%, 4/15/03 ........................ Canada 225,000 110,250
Series 6, 7.20%, 6/01/03 ........................ Canada 1,685,000 842,500
Series 4, 8.25%, 10/15/03 ....................... Canada 385,000 188,650
Series 7, 7.60%, 6/01/08 ........................ Canada 1,290,000 645,000
Revolver ........................................ United States 126,691 67,146
144A, 6.70%, 10/01/99 ........................... Canada 895,000 438,550
Mariner Post-Acute Network Inc.:
Revolver ........................................ United States 67,000 21,440
Tranche A, Term Loan ............................ United States 98,928 31,657
Tranche B, Term Loan ............................ United States 83,414 26,693
Tranche C, Term Loan ............................ United States 41,241 13,197
Nippon Credit Bank Ltd., Bank Claim ................ Japan 44,574,201 JPY 69,699
Nippon Total Finance, Bank Claim ................... Japan 45,189,925 JPY 26,307
Paging Network Inc., Revolver A .................... United States 1,764,000 1,499,401
</TABLE>
129
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) BONDS AND NOTES IN REORGANIZATION (CONT.)
Peregrine Investments Holdings Ltd.,
zero coupon., 1/28/98 Hong Kong $ 5,000,000 JPY $ 7,095
Philip Services Corp.:
Revolver Canadian Operating ....................... Canada 345,533 CAD 138,213
Revolver Canadian Operating, fgn. ................. Canada 9,144 3,658
Revolver Tranche 1 ................................ United States 319,116 127,638
Revolver Tranche 2 ................................ United States 324,548 129,819
Revolver Tranche 3 ................................ United States 148,249 59,300
PIV Investment Finance (Cayman)
Ltd., cvt., 4.50%, 12/01/01 .................. Hong Kong 12,060,000 2,773,800
Port Seattle Wash Rev Ref-Beloit Proj., 6.00%,
12/01/17 ..................................... United States 20,000 7,600
Pratama Datakom Asia BV:
144A, 12.75%, 7/15/05.......................... Indonesia 665,000 119,700
Reg S, 12.75%, 7/15/05 ........................ Indonesia 140,000 25,200
United Companies Financial Corp., Revolver ........ United States 2,351,700 1,881,360
Vencor Inc.:
9.875%, 5/01/05 ............................... United States 1,635,000 339,263
Revolver ...................................... United States 298,734 195,671
Term Loan A ................................... United States 1,227,205 803,819
Term Loan B ................................... United States 738,496 483,715
Tranche A, Term Loan 3/07/00 .................. United States 183,352 181,518
Tranche B, Term Loan 3/07/00 .................. United States 62,500 61,875
Ventas Inc.:
Tranche A, Bridge Loan ......................... United States 265,066 239,885
Tranche B, Revolver ............................ United States 249,932 226,189
Tranche C, Term Loan A ......................... United States 256,310 231,960
Tranche D, Term Loan B ......................... United States 182,375 168,697
------------
TOTAL BONDS AND NOTES IN REORGANIZATION
(COST $15,908,414) ........................... 16,666,079
------------
SHORT TERM INVESTMENTS 11.9%
Fannie Mae, 5.18% to 5.60%, with maturities
to 5/25/00 ................................... United States 20,400,000 20,105,834
Federal Home Loan Bank, 5.49% to 5.55%,
with maturities to 5/17/00 ................... United States 14,000,000 13,793,661
Federal Home Loan Mortgage Corp., 5.10% to 5.52%,
with maturities to 4/07/00 ................... United States 20,329,000 20,211,374
------------
TOTAL SHORT TERM INVESTMENTS
(COST $54,089,215) ........................... 54,110,869
------------
TOTAL INVESTMENTS (COST $398,488,380) 98.5% ....... 447,327,389
NET EQUITY IN FORWARD CONTRACTS .3% ............... 1,179,517
SECURITIES SOLD SHORT (2.3%) ...................... (10,521,527)
OTHER ASSETS, LESS LIABILITIES 3.5% ............... 16,009,215
------------
TOTAL NET ASSETS 100.0% ........................... $453,994,594
============
</TABLE>
<TABLE>
<CAPTION>
(j)SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BP Amoco PLC, ADR ............................... United Kingdom 45,400 $ 2,692,788
Dow Chemical Co. ............................... United States 23,567 3,149,140
(a)DST Systems Inc. ................................ United States 6,300 480,769
Golden Books Entertainment Inc. ................. United States 3,250 13,000
Motorola Inc. .................................. United States 15,000 2,208,750
Nortel Networks Corp. ........................... Canada 19,600 1,977,080
-----------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $8,791,377) ........................ $10,521,527
===========
</TABLE>
130
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
VALUE AT UNREALIZED
MUTUAL SHARES SECURITIES FUND COUNTRY SHARES 12/31/1999 GAIN/(LOSS)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(k) CONTRACTS FOR DIFFERENCES
ISSUER
BP Amoco PLC, cfd. 5.18 .................. United Kingdom 27,200 $ 274,079 $ (46,432)
BP Amoco PLC, cfd. 5.47 .................. United Kingdom 11,000 110,841 (13,555)
BP Amoco PLC, cfd. 5.565 ................. United Kingdom 8,900 89,680 (9,637)
BP Amoco PLC, cfd. 5.65 .................. United Kingdom 20,400 205,559 (19,300)
BP Amoco PLC, cfd. 5.71 .................. United Kingdom 5,900 59,451 (5,006)
BP Amoco PLC, cfd. 6.23317 ............... United Kingdom 21,600 217,651 (63)
BP Amoco PLC, cfd. 6.24797 ............... United Kingdom 16,000 161,223 336
---------- ----------
TOTAL CONTRACTS FOR DIFFERENCES .......... $1,118,484 $ (93,657)
========== ==========
</TABLE>
See glossary of currency abbreviations on page 157.
*Securities traded in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(d) See Note 8 regarding restricted securities.
(j) See Note 1(f) regarding securities sold short.
(k) See Note 1(d) regarding contract for differences.
See notes to financial statements.
131
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS 99.2%
ARGENTINA 6.7%
Banco de Galicia y Buenos Aires SA de CV, B ............ Banking 13,789 $ 68,541
Banco Frances SA ....................................... Banking 1,290 10,192
(a) Capex SA, A ............................................ Utilities Electrical & Gas 44,674 252,443
(a) Molinos Rio de la Plata SA, B .......................... Food & Household Products 1,318,303 3,243,479
Perez Companc SA, B .................................... Energy Sources 370,495 1,897,200
Quilmes Industrial SA, ADR, pfd. ....................... Beverages & Tobacco 146,900 1,753,619
Telecom Argentina Stet-France Telecom SA, ADR .......... Telecommunications 86,033 2,946,630
Telefonica de Argentina SA, ADR ........................ Telecommunications 81,710 2,522,796
----------
12,694,900
----------
AUSTRIA 1.6%
Austria Tabak AG ....................................... Beverages & Tobacco 6,400 309,272
Bank Austria AG ........................................ Banking 31,410 1,770,825
OMV AG ................................................. Energy Sources 10,615 1,031,257
----------
3,111,354
----------
BRAZIL 13.1%
Aracruz Celulose SA, ADR ............................... Forest Products & Paper 76,400 2,005,500
Banco Bradesco SA, pfd. ................................ Banking 50,413,150 395,436
(a) Banco Bradesco SA, pfd., rts., 2/09/00 ................. Banking 3,273,532 12,993
Banco do Brasil SA ..................................... Banking 58,939,976 274,064
Brasmotor SA, pfd. ..................................... Multi-Industry 3,246,000 455,141
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. Utilities Electrical & Gas 244,274,000 5,827,960
Cia Cervejaria Brahma, pfd. ............................ Beverages & Tobacco 512,000 374,116
Cia Energetica de Minas Gerais, pfd. ................... Utilities Electrical & Gas 30,683,000 687,883
Cia Vale do Rio Doce, A, pfd. .......................... Metals & Mining 84,550 2,340,161
Copene-Petroquimica do Nordeste SA, A, pfd. ............ Chemicals 2,481,700 821,509
Duratex SA, pfd. ....................................... Forest Products & Paper 49,306,800 1,542,117
Embratel Participacoes SA, pfd. ........................ Telecommunications 22,367,000 575,735
Investimentos Itau SA .................................. Multi-Industry 89,527 89,205
Investimentos Itau SA, pfd. ............................ Multi-Industry 1,935,200 2,003,224
(a) Mannesmann SA .......................................... Machinery & Engineering 757,500 52,415
Petroleo Brasileiro SA, pfd. ........................... Energy Sources 1,212,000 308,619
Tele Centro Sul Participacoes SA, pfd. ................. Telecommunications 102,313,000 1,868,423
Tele Norte Leste Participacoes SA, pfd. ................ Telecommunications 62,911,000 1,689,003
Tele Sudeste Celular Participacoes SA, pfd. ............ Telecommunications 107,795,000 796,603
Telecomunicacoes de Sao Paulo SA, pfd., ADR ............ Telecommunications 59,400 1,451,588
Telesp Celular Participacoes SA, pfd. .................. Telecommunications 8,709,000 154,270
Unibanco Uniao de Bancos Brasileiros SA, GDR ........... Banking 34,778 1,047,687
----------
24,773,652
----------
CHILE 2.5%
Cia de Telecomunicaciones de Chile SA, ADR ............. Telecommunications 130,200 2,376,150
Empresa Nacional de Electricidad SA, ADR ............... Electrical & Electronics 103,940 1,474,649
Enersis SA, ADR ........................................ Utilities Electrical & Gas 34,791 817,589
----------
4,668,388
----------
CHINA .2%
Shandong Huaneng Power Development Co. Ltd., ADR ....... Utilities Electrical & Gas 96,500 416,156
----------
COLOMBIA .8%
Bavaria SA ............................................. Beverages & Tobacco 202,807 886,943
Cementos Argos SA ...................................... Building Materials & Components 255,000 652,800
----------
1,539,743
----------
(a) CZECH REPUBLIC 2.4%
CEZ AS ................................................. Utilities Electrical & Gas 1,408,880 3,482,359
Cesky Telecom AS ....................................... Telecommunications 62,910 1,015,556
----------
4,497,915
----------
</TABLE>
132
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C> <C>
EGYPT
Commercial International Bank Ltd. .............. Banking 800 $ 11,686
-----------
HONG KONG 5.1%
Cheung Kong Holdings Ltd. ....................... Multi-Industry 294,000 3,734,804
Citic Pacific Ltd. .............................. Multi-Industry 458,000 1,723,355
Dairy Farm International Holdings Ltd. .......... Merchandising 35,700 32,130
Hang Lung Development Co. Ltd. .................. Real Estate 716,000 810,549
Hong Kong Land Holdings Ltd. .................... Real Estate 90,800 134,384
HSBC Holdings PLC ............................... Banking 83,325 1,168,383
Hutchison Whampoa Ltd. .......................... Multi-Industry 59,000 857,657
Jardine Matheson Holdings Ltd. .................. Multi-Industry 117,257 461,993
New World Development Co. Ltd. .................. Real Estate 215,632 485,439
Shangri-La Asia Ltd. ............................ Leisure & Tourism 180,783 206,981
-----------
9,615,675
-----------
HUNGARY 2.4%
Borsodchem RT ................................... Chemicals 29,330 1,200,338
Gedeon Richter Ltd. ............................. Health & Personal Care 14,080 925,305
Mol Magyar Olay-Es Gazipari RT .................. Energy Sources 46,000 954,923
OTP Bank ........................................ Banking 7,840 458,651
Tiszai Vegyi Kombinat RT ........................ Chemicals 54,051 1,030,154
-----------
4,569,371
-----------
INDIA .3%
(a) ICICI Ltd., ADR ................................. Financial Services 2,100 29,138
(a) Mahanagar Telephone Nigam Ltd. .................. Telecommunications 38,000 168,598
(a) NIIT Ltd. ....................................... Data Processing & Reproduction 380 28,963
Reliance Industries Ltd. ........................ Chemicals 77,500 416,362
-----------
643,061
-----------
INDONESIA 5.7%
(a) Asia Pulp & Paper Co. Ltd., ADR ................. Forest Products & Paper 93,560 736,785
PT Gudang Garamm ................................ Beverages & Tobacco 215,000 578,462
(a) PT Indah Kiat Pulp & Paper Corp. ................ Forest Products & Paper 4,661,000 1,834,383
(a) PT Indocement Tunggal Prakarsa .................. Building Materials & Components 1,408,500 624,880
(a) PT Indofoods Sukses Makmurr ..................... Food & Household Products 549,020 687,503
PT Indosat ...................................... Telecommunications 324,000 723,349
PT Semen Gresik (Persero) ....................... Building Materials & Components 279,117 442,393
PT Tambang Timah ................................ Metals & Mining 864,000 602,791
PT Telekomunikasi Indonesia (Persero), B ........ Telecommunications 6,976,760 3,968,890
(a) PT Tjiwi Kimia .................................. Forest Products & Paper 1,520,926 495,185
-----------
10,694,621
-----------
ISRAEL .4%
Discount Investment Corp. ....................... Financial Services 400 20,314
(a) Formula Systems Ltd. ............................ Data Processing & Reproduction 7,280 306,984
Koor Industries Ltd. ............................ Multi-Industry 2,386 238,324
Teva Pharmaceutical Industries Ltd., ADR ........ Health & Personal Care 2,350 168,466
-----------
734,088
-----------
MALAYSIA .1%
Resorts World Berhad ............................ Leisure & Tourism 41,000 117,605
-----------
MEXICO 15.1%
Cemex SA ........................................ Building Materials & Components 1,556,291 8,705,374
(a) Cifra SA de CV, V ............................... Merchandising 140,000 280,739
Coca Cola Femsa SA de CV, L, ADR ................ Beverages & Tobacco 6,650 116,791
(a) DESC SA de CV DESC, B ........................... Multi-Industry 167,670 138,029
Fomento Economico Mexicano SA de CV Femsa ....... Beverages & Tobacco 4,000 178,000
(a) Grupo Carso SA de CV ............................ Multi-Industry 16,500 82,195
</TABLE>
133
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MEXICO (CONT.)
(a) Grupo Financiero Banamex Accival SA de CV .......... Banking 1,224,885 $ 4,912,468
(a) Grupo Financiero Bancomer SA de CV ................. Banking 233,500 97,589
Panamerican Beverages Inc., A ...................... Food & Household Products 200 4,113
Telefonos de Mexico SA (Telmex), ADR ............... Telecommunications 116,200 13,072,500
Tubos de Acero de Mexico SA ........................ Machinery & Engineering 100 1,318
Vitro SA de CV, A .................................. Food & Household Products 577,349 1,090,717
------------
28,679,833
------------
PAKISTAN .2%
Pakistan Telecommunications Corp., A ............... Telecommunications 1,098,000 459,840
------------
PERU .5%
Telefonica del Peru SA, ADR ........................ Telecommunications 75,400 1,008,475
------------
PHILIPPINES 1.3%
Philippine Long Distance Telephone Co., ADR ........ Telecommunications 68,200 1,764,675
(a) Philippine National Bank ........................... Banking 2,160 5,092
San Miguel Corp., B ................................ Food & Household Products 465,100 657,834
------------
2,427,601
------------
POLAND 1.5%
Bank Slaski SA W Katowicach ........................ Banking 3,600 244,643
Prokom Software SA ................................. Data Processing & Reproduction 6,100 188,827
Telekomunikacja Polska SA .......................... Telecommunications 224,401 1,470,681
Warta SA ........................................... Insurance 28,395 817,172
------------
2,721,323
------------
RUSSIA .8%
GAZ Auto Works ..................................... Automobiles 1,310 45,850
Irkutskenergo ...................................... Utilities Electrical & Gas 395,550 39,555
Lukoil Holdings, ADR ............................... Energy Sources 8,240 428,480
(a) Mosenergo .......................................... Utilities Electrical & Gas 19,900 51,388
(a) Rostelecom, ADR .................................... Telecommunications 22,720 383,400
Unified Energy Systems ............................. Utilities Electrical & Gas 610,600 73,272
Unified Energy Systems, ADR ........................ Utilities Electrical & Gas 10,800 121,662
(a) Vimpel Communications, ADR ......................... Telecommunications 9,655 430,854
------------
1,574,461
------------
SINGAPORE 8.2%
City Developments Ltd. ............................. Real Estate 205,500 1,203,017
Creative Technology Ltd. ........................... Electrical & Electronics 2,300 41,705
Cycle & Carriage Ltd. .............................. Automobiles 13,000 40,198
DBS Group Holdings Ltd. ............................ Banking 18,978 311,077
First Capital Corp. Ltd. ........................... Real Estate 247,000 329,234
Fraser and Neave Ltd. .............................. Beverages & Tobacco 402,000 1,484,419
Jurong Shipyard Ltd. ............................... Machinery & Engineering 223,000 1,118,013
Keppel Corp., Ltd. ................................. Transportation 628,000 1,643,999
Natsteel Ltd. ...................................... Metals & Mining 955,000 1,903,693
Oversea Chinese Banking Corp. Ltd., fgn. ........... Banking 207,900 1,909,859
Overseas Union Enterprise Ltd. ..................... Leisure & Tourism 173,400 583,032
Sembcorp Industries Ltd. ........................... Multi-Industry 889,769 1,212,714
Singapore Telecommunications Ltd. .................. Telecommunications 158,000 326,340
United Industrial Corporation Ltd. ................. Multi-Industry 1,301,000 734,278
United Overseas Bank Ltd., fgn. .................... Banking 305,184 2,693,608
------------
15,535,186
------------
SLOVAK REPUBLIC .3%
Nafta Gbely AS ..................................... Utilities Electrical & Gas 4,800 41,229
(a) Slovnaft AS ........................................ Chemicals 28,010 398,761
(a) Vychodoslovenske Zeleziarne AS ..................... Metals & Mining 8,400 28,701
------------
468,691
------------
</TABLE>
134
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
SOUTH AFRICA 13.5%
Anglo American PLC ..................................... Metals & Mining 70,895 $ 4,572,756
Barlow Ltd. ............................................ Multi-Industry 325,800 2,344,913
BOE Ltd. ............................................... Financial Services 378,000 368,481
CG Smith Ltd. .......................................... Multi-Industry 703,200 2,827,652
Comparex Holdings Ltd. ................................. Data Processing & Reproduction 10,500 73,526
De Beers Centenary AG .................................. Misc Materials & Commodities 32,140 934,697
Firstrand Ltd. ......................................... Insurance 188,000 268,790
Iscor Ltd. ............................................. Metals & Mining 389,851 1,475,797
Johnnies Industrial Corporation Ltd. ................... Multi-Industry 41,700 487,799
Liberty Life Association of Africa Ltd. ................ Insurance 109,070 1,258,165
Palabora Mining Co. Ltd. ............................... Metals & Mining 77,500 563,465
Rembrandt Group Ltd. ................................... Multi-Industry 158,170 1,505,891
Sanlam Ltd. ............................................ Financial Services 4,200 5,868
Sappi Ltd. ............................................. Forest Products & Paper 148,151 1,463,457
Sasol Ltd. ............................................. Energy Sources 373,800 3,103,360
South African Breweries PLC ............................ Beverages & Tobacco 326,344 3,319,112
Standard Bank Investment Corp. Ltd. .................... Financial Services 64,532 267,880
Tongaat-Hulett Group Ltd. .............................. Multi-Industry 82,543 697,358
------------
25,538,967
------------
SOUTH KOREA 4.2%
Hana Bank .............................................. Banking 77,564 604,528
Korea Electric Power Corp. ............................. Utilities Electrical & Gas 77,100 2,390,066
Samsung Display Devices Ltd. ........................... Electrical & Electronics 23,686 984,570
Samsung Electronics Co. Ltd. ........................... Electrical & Electronics 13,311 3,118,209
(a)Samsung Heavy Industries Co. Ltd. ...................... Machinery & Engineering 190,502 921,053
------------
8,018,426
------------
TAIWAN .3%
Mitac International Corp. .............................. Data Processing & Reproduction 74,000 113,411
(a)Silicon Integrated Systems Co. Ltd. .................... Electrical & Electronics 38,000 128,342
(a)Siliconware Precision Industries Co. Ltd. .............. Electronic Components & Instruments 112,000 285,487
(a)Sunplus Technology Company Ltd. ........................ Electrical & Electronics 9,000 43,014
------------
570,254
------------
THAILAND 5.8%
Advanced Info Service Public Co. Ltd., fgn ............. Telecommunications 40,200 676,962
American Standard Sanitaryware Public Co. Ltd., fgn .... Building Materials & Components 24,500 130,562
(a)Bangkok Bank Public Co. Ltd. ........................... Banking 265,400 431,372
(a)Bangkok Bank Public Co. Ltd., fgn ...................... Banking 6,300 15,947
BEC World Public Co Ltd., fgn .......................... Telecommunications 10,800 76,547
(a)Charoen Pokphand Feedmill Public Co. Ltd., fgn ......... Food & Household Products 547,350 1,604,277
(a)Hana Microelectronics Co. Ltd., fgn .................... Electrical & Electronics 142,400 690,562
(a)Land and House Public Co. Ltd., fgn .................... Real Estate 97,493 92,869
(a)Shin Corporations Public Company Ltd., fgn ............. Electrical & Electronics 58,600 555,865
(a)Siam Cement Public Co. Ltd. ............................ Building Materials & Components 52,350 1,032,214
Siam Cement Public Co. Ltd., fgn ....................... Building Materials & Components 11,350 378,636
(a)Siam Commercial Bank, 5.25%, 144A, cvt. pfd., fgn ...... Banking 331,000 405,702
Siam Makro Public Company Ltd., fgn .................... Merchandising 360,000 508,393
(a)Telecomasia Corp. Public Co. Ltd., fgn ................. Telecommunications 199,500 260,472
(a)Thai Airways International Public Co. Ltd., fgn ........ Transportation 396,700 602,502
(a)Thai Farmers Bank Public Co. Ltd., fgn ................. Banking 819,600 1,375,825
(a)Total Access Communication Public Co. Ltd. ............. Telecommunications 420,800 1,657,952
(a)United Communications Industries, fgn .................. Telecommunications 467,700 467,326
------------
10,963,985
------------
</TABLE>
135
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY RIGHTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TURKEY 4.5%
Akbank ................................................. Banking 227,162,112 $ 6,700,949
Arcelik AS, Br ......................................... Appliances & Household Durables 20,490,799 1,341,115
(a)Dogan Sirketler Grubu Holding AS ....................... Multi-Industry 17,953,000 529,587
Yapi Ve Kredi Bankasi AS ............................... Banking 686,000 21,185
------------
8,592,836
------------
VENEZUELA 1.7%
Compania Anonima Nacional Telefonos de Venezuela, ADR .. Telecommunications 51,050 1,257,105
Electricidad de Caracas Saica Saca, ADR ................ Utilities Electrical & Gas 96,828 1,529,845
Mavesa SA, ADR ......................................... Food & Household Products 156,900 480,506
------------
3,267,456
------------
TOTAL LONG TERM INVESTMENTS (COST $147,089,731) 99.2% .. 187,915,549
OTHER ASSETS, LESS LIABILITIES .8% ..................... 1,459,817
------------
TOTAL NET ASSETS 100.0% ................................ $189,375,366
============
</TABLE>
(a) Non-income producing
See notes to financial statements.
136
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 68.2%
AEROSPACE & MILITARY TECHNOLOGY 3.3%
Alvis PLC ................................................. United Kingdom 140,990 $ 284,819
BAE Systems PLC ........................................... United Kingdom 32,245 213,396
Hong Kong Aircraft Engineering Co. Ltd. ................... Hong Kong 363,200 602,725
Raytheon Co., A ........................................... United States 21,775 540,292
Rolls-Royce PLC ........................................... United Kingdom 121,085 417,791
----------
2,059,023
----------
APPLIANCES & HOUSEHOLD DURABLES .9%
Laox Co. Ltd. ............................................. Japan 70,000 548,711
----------
AUTOMOBILES .3%
General Motors Corp. ...................................... United States 2,700 196,256
----------
(a)BANKING 2.0%
Banca Nazionale del Lavoro SpA ............................ Italy 225,160 748,040
Bangkok Bank Public Co. Ltd., fgn ......................... Thailand 193,400 489,555
----------
1,237,595
----------
BROADCASTING & PUBLISHING 1.7%
(a)Gartner Group Inc., B ..................................... United States 32,650 450,978
Wolters Kluwer NV ......................................... Netherlands 18,150 613,953
----------
1,064,931
----------
BUILDING MATERIALS & COMPONENTS 1.6%
Caradon PLC ............................................... United Kingdom 300,952 758,739
Gujarat Ambuja Cements Ltd. ............................... India 400 2,998
Gujarat Ambuja Cements Ltd., GDR, 144A .................... India 29,200 224,110
----------
985,847
----------
BUSINESS & PUBLIC SERVICES .9%
Columbia/HCA Healthcare Corp. ............................. United States 13,600 398,650
(a)Humana Inc. ............................................... United States 18,200 149,012
----------
547,662
----------
CHEMICALS 3.1%
Akzo Nobel NV ............................................. Netherlands 18,095 907,209
BASF AG ................................................... Germany 17,150 896,089
Shanghai Petrochemical Co. Ltd., H ........................ China 834,000 130,891
----------
1,934,189
----------
DATA PROCESSING & REPRODUCTION 2.1%
(a)3Com Corp. ................................................ United States 19,310 907,570
Compaq Computer Corp. ..................................... United States 13,020 352,354
----------
1,259,924
----------
ELECTRICAL & ELECTRONICS 5.4%
Alcatel SA ................................................ France 2,230 511,870
Koninklijke Philips Electronics NV ........................ Netherlands 7,896 1,073,150
Marconi PLC ............................................... United Kingdom 63,620 1,124,817
Motorola Inc. ............................................. United States 4,310 634,648
----------
3,344,485
----------
(a)ELECTRONIC COMPONENTS & INSTRUMENTS .5%
Agilent Technologies Inc. ................................. United States 4,000 309,250
----------
ENERGY EQUIPMENT & SERVICES .7%
Sunoco Inc. ............................................... United States 17,500 411,250
----------
ENERGY SOURCES 2.6%
(a)Gazprom OAO, ADR, Reg S ................................... Russia 14,201 120,353
Lasmo PLC ................................................. United Kingdom 197,410 378,058
MOL Magyar Olay-Es Gazipari RT, GDS, 144A ................. Hungary 12,107 250,615
</TABLE>
137
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STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
ENERGY SOURCES (CONT.)
Repsol SA ....................................................... Spain 24,000 $ 556,207
Societe Elf Aquitaine SA, Br. ................................... France 1,805 278,028
----------
1,583,261
----------
FINANCIAL SERVICES 4.4%
AXA SA .......................................................... France 5,051 703,774
ING Groep NV .................................................... Netherlands 13,586 819,838
Nomura Securities Co. Ltd. ...................................... Japan 45,000 812,497
(a)Old Mutual PLC .................................................. South Africa 132,000 350,922
----------
2,687,031
----------
FOREST PRODUCTS & PAPER .6%
Mo Och Domsjoe AB, B ............................................ Sweden 9,575 345,623
----------
HEALTH & PERSONAL CARE 1.9%
Aetna Inc. ...................................................... United States 7,190 401,292
Aventis SA ...................................................... France 13,550 787,109
----------
1,188,401
----------
INDUSTRIAL COMPONENTS .5%
Goodyear Tire & Rubber Co. ...................................... United States 3,600 101,475
Madeco Manufacturera de Cobre SA, ADR ........................... Chile 18,685 207,871
----------
309,346
----------
INSURANCE 5.2%
Ace Ltd. ........................................................ Bermuda 25,200 420,525
Partnerre Ltd. .................................................. Bermuda 17,500 567,656
ReliaStar Financial Corp. ....................................... United States 18,310 717,523
Scor ............................................................ France 9,470 417,584
Unumprovident Corp. ............................................. United States 18,530 594,118
Zurich Allied AG ................................................ Switzerland 800 456,138
----------
3,173,544
----------
LEISURE & TOURISM .6%
Mandarin Oriental International Ltd. ............................ Hong Kong 524,000 366,800
----------
MACHINERY & ENGINEERING 3.4%
Invensys PLC .................................................... United Kingdom 189,439 1,019,493
Makita Corp. .................................................... Japan 59,000 531,193
Mckechnie Group PLC ............................................. United Kingdom 101,800 552,787
----------
2,103,473
----------
MERCHANDISING 2.2%
Best Denki Co. Ltd. ............................................. Japan 66,000 620,052
David Jones Ltd. ................................................ Australia 345,909 313,383
J.C. Penney Co. Inc. ............................................ United States 8,800 175,450
Marks & Spencer PLC ............................................. United Kingdom 57,370 272,817
----------
1,381,702
----------
METALS & MINING 4.2%
Anglo American Platinum Corp. Ltd. .............................. South Africa 402 12,213
Barrick Gold Corp. .............................................. Canada 37,200 662,494
Companhia Siderurgica Nacional Sid Nacional CSN ................. Brazil 16,300,000 631,608
Companhia Siderurgica Nacional Sid Nacional CSN, ADR ............ Brazil 7,700 282,975
Industrias Penoles SA ........................................... Mexico 168,200 484,629
Pohang Iron & Steel Co. Ltd. .................................... South Korea 4,450 508,649
----------
2,582,568
----------
</TABLE>
138
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY WARRANTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MULTI-INDUSTRY 8.8%
(a)Alfa SA de CV, A .............................................. Mexico 127,251 $ 597,643
Broken Hill Proprietary Co. Ltd. .............................. Australia 53,794 706,350
Cheung Kong Holdings Ltd. ..................................... Hong Kong 52,500 666,929
Elementis PLC ................................................. United Kingdom 83,789 109,007
Hunting PLC ................................................... United Kingdom 261,410 479,500
Hutchison Whampoa Ltd. ........................................ Hong Kong 61,000 886,731
Pilkington PLC ................................................ United Kingdom 469,600 633,702
Saab AB, B .................................................... Sweden 54,400 524,491
Swire Pacific Ltd., B ......................................... Hong Kong 945,000 832,733
-----------
5,437,086
-----------
REAL ESTATE 2.2%
Highwoods Properties Inc. ..................................... United States 16,600 385,950
(a)Hon Kwok Land Investment Co. Ltd. ............................. Hong Kong 1,226,456 74,943
(a)Hon Kwok Land Investment Co. Ltd, wts., 10/28/00 .............. Hong Kong 245,291 2,461
Rouse Co. ..................................................... United States 13,500 286,875
Summit Properties Inc. ........................................ United States 15,000 268,125
Union du Credit Bail Immobilier ............................... France 2,500 315,363
-----------
1,333,717
-----------
RECREATION & OTHER CONSUMER GOODS
Yue Yuen Industrial Holdings Ltd. ............................. Hong Kong 140 335
-----------
TELECOMMUNICATIONS 3.5%
Portugal Telecom SA, ADR ...................................... Portugal 41,800 454,575
(a)Rostelecom, ADR ............................................... Russia 25,300 426,938
Telecom Argentina Stet-France Telecom SA, ADR ................. Argentina 4,000 137,000
Telefonica de Argentina SA, ADR ............................... Argentina 13,120 405,080
Telefonos de Mexico SA (Telmex), ADR .......................... Mexico 6,709 754,763
-----------
2,178,356
-----------
TEXTILES & APPAREL .8%
Adidas-Salomon AG ............................................. Germany 6,510 488,266
-----------
TRANSPORTATION 2.2%
British Airways PLC ........................................... United Kingdom 71,020 462,548
Seino Transportation Co. Ltd. ................................. Japan 54,000 286,422
Singapore Airlines Ltd. ....................................... Singapore 54,000 612,789
-----------
1,361,759
-----------
UTILITIES ELECTRICAL & GAS 2.6%
Hong Kong Electric Holdings Ltd. .............................. Hong Kong 130,000 406,381
Korea Electric Power Corp. .................................... South Korea 19,280 597,672
National Grid Group PLC ....................................... United Kingdom 79,730 604,962
-----------
1,609,015
-----------
TOTAL COMMON STOCKS AND WARRANTS (COST $38,362,452) ........... 42,029,406
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
RIGHTS
-----------
<S> <C> <C> <C>
PREFERRED STOCKS AND RIGHTS 3.8%
Banco Bradesco SA, pfd. ............................................ Brazil 121,758,350 955,060
(a)Banco Bradesco SA, pfd., rts., 2/09/00 ............................. Brazil 7,906,267 31,380
Cia Vale do Rio Doce, A, pfd. ...................................... Brazil 13,400 370,883
Cia Vale do Rio Doce, ADR, A, pfd. ................................. Brazil 15,100 417,935
Cia Energetica de Minas Gerais Cemig, ADR, pfd. .................... Brazil 9,178 205,762
Coteminas Cia Tecidos Norte de Minas, pfd. ......................... Brazil 599,000 54,707
(a)Empresa Nacional de Comercio Redito Participacoe, pfd. ............. Brazil 275,000 450
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ........................ Brazil 11,810 288,607
---------
TOTAL PREFERRED STOCKS AND RIGHTS (COST $2,319,253) ................ 2,324,784
---------
</TABLE>
139
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 24.1%
Bonos y Oblig del Estado, 3.25%, 1/31/05 ......................... Spain $ 548,000 EUR $ 505,740
Buoni Poliennali del Tesoro, 7.75%, 11/01/06 ..................... Italy 723,038 EUR 824,728
Buoni Poliennali del Tesoro, 10.50%, 7/15/00 ..................... Italy 581,013 EUR 601,954
Fannie Mae, 5.25%, 1/15/09 ....................................... United States 16,000 14,113
Federal Republic of Germany:
3.25%, 2/17/04 ................................................ Germany 706,000 EUR 671,741
4.50%, 7/04/09 ................................................ Germany 1,259,000 EUR 1,188,908
Government of Canada:
8.75%, 12/01/05 ............................................... Canada 208,000 CAD 161,328
7.00%, 12/01/06 ............................................... Canada 246,000 CAD 177,073
Government of New Zealand, 7.00%, 7/15/09 ........................ New Zealand 540,000 NZD 276,067
International Bank for Recon/Dev., 5.25%, 3/20/02 ................ Japan 79,700,000 JPY 867,430
Kingdom of Belgium, 7.75%, 10/15/04 .............................. Belgium 200,000 EUR 224,193
Kingdom of Denmark, 7.00%, 12/15/04 .............................. Denmark 2,910,000 DKK 422,293
Kingdom of Sweden, 6.00%, 2/09/05 ................................ Sweden 5,500,000 SEK 661,765
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 ............. Australia 400,000 AUD 262,241
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02 .......... Mexico 69,586 53,929
PT Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07 ............ Indonesia 300,000 219,750
Queensland Treasury Corp., 6.50%, 6/14/05 ........................ Australia 164,000 AUD 105,351
Republic of Argentina, Reg S, 11.75%, 2/12/07 .................... Argentina 100,000 ARS 90,388
(c)Republic of Ecuador, 144A, 11.25%, 4/25/02 ....................... Ecuador 185,000 76,775
(c)Republic of Ecuador, Reg S, 11.25%, 4/25/02 ...................... Ecuador 390,000 161,850
Republic of Turkey, 12.375%, 6/15/09 ............................. Turkey 35,000 37,625
Republic of Venezuela, 144A, 9.125%, 6/18/07 ..................... Venezuela 100,000 78,500
Republic of Venezuela, Reg S, 9.125%, 6/18/07 .................... Venezuela 600,000 471,000
SEI Holdings IX Inc., 144A, 11.00%, 11/30/00 ..................... Trinidad and Tobago 170,000 170,000
U.S. Treasury Bond, 5.25%, 11/15/28 .............................. United States 1,065,000 877,959
U.S. Treasury Notes:
6.25%, 8/31/00 ................................................ United States 1,010,000 1,012,525
4.50%, 1/31/01 ................................................ United States 2,000,000 1,967,500
United Kingdom:
6.50%, 12/07/03 ............................................... United Kingdom 500,000 GBP 816,054
7.50%, 12/07/06 ............................................... United Kingdom 280,000 GBP 493,494
United Mexican States:
9.75%, 2/06/01 ................................................ Mexico 620,000 640,150
11.375%, 9/15/16 .............................................. Mexico 430,000 487,856
11.5%, 5/15/26 ................................................ Mexico 220,000 262,075
------------
TOTAL BONDS (COST $16,359,349) ..................................... 14,882,355
------------
TOTAL LONG TERM INVESTMENTS BEFORE
REPURCHASE AGREEMENT (COST $57,041,054) ........................ 59,236,545
------------
(h)REPURCHASE AGREEMENT (COST $2,100,000) 3.4%
Morgan Stanley Group Inc., 3.00%, 1/03/00
(Maturity Value $2,100,525)
Collateralized by U.S. Treasury Notes and Bonds .................. United States 2,100,000 2,100,000
------------
TOTAL INVESTMENTS (COST $59,141,054) 99.5% ....................... 61,336,545
NET EQUITY IN FORWARDS CONTRACTS ................................. (34,062)
OTHER ASSETS, LESS LIABILITIES .5% ............................... 337,255
------------
TOTAL NET ASSETS 100.0% .......................................... $ 61,639,738
------------
------------
</TABLE>
See glossary of currency abbreviations on page 157.
* Securities traded in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(c) See Note 7 regarding defaulted securities.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
140 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 92.7%
AEROSPACE & MILITARY TECHNOLOGY 3.1%
(a) BAE Systems PLC ........................................... United Kingdom 841,790 $ 5,570,939
Boeing Co. ................................................ United States 100,769 4,188,212
Lockheed Martin Corp. ..................................... United States 151,800 3,320,625
Raytheon Co., A ........................................... United States 222,644 5,524,354
Rolls-Royce PLC ........................................... United Kingdom 1,000,000 3,450,393
------------
22,054,523
------------
APPLIANCES & HOUSEHOLD DURABLES 2.4%
Laox Co. Ltd. ............................................. Japan 637,000 4,993,267
Sony Corp. ................................................ Japan 40,000 11,860,841
------------
16,854,108
------------
AUTOMOBILES 4.8%
Autoliv Inc., SDR ......................................... Sweden 246,100 7,205,044
Bayerische Motorenwerke AG ................................ Germany 170,000 5,211,416
Ford Motor Co. ............................................ United States 130,000 6,946,875
General Motors Corp. ...................................... United States 100,000 7,268,750
Volkswagen AG ............................................. Germany 63,000 3,551,797
Volvo AB, B ............................................... Sweden 171,900 4,446,561
------------
34,630,443
------------
BANKING 5.5%
Australia & New Zealand Banking Group Ltd. ................ Australia 854,000 6,212,571
Deutsche Bank AG .......................................... Germany 45,000 3,807,762
Foreningssparbanken AB, A ................................. Sweden 180,000 2,645,503
HSBC Holdings PLC ......................................... Hong Kong 690,789 9,686,242
(a) Merita AS ................................................. Finland 954,100 5,609,528
National Australia Bank Ltd. .............................. Australia 440,000 6,730,435
Unibanco Uniao de Bancos Brasileiros SA, GDR .............. Brazil 149,000 4,488,625
------------
39,180,666
------------
BUILDING MATERIALS & COMPONENTS 1.2%
Caradon PLC ............................................... United Kingdom 2,805,290 7,072,503
Nichiha Corp. ............................................. Japan 193,500 1,675,858
------------
8,748,361
------------
(a) BUSINESS & PUBLIC SERVICES 1.1%
Complete Business Solutions Inc. .......................... United States 222,800 5,597,850
Humana Inc. ............................................... United States 250,000 2,046,875
------------
7,644,725
------------
CHEMICALS 3.7%
Akzo Nobel NV ............................................. Netherlands 160,000 8,021,746
BASF AG ................................................... Germany 140,900 7,362,036
DSM NV, Br ................................................ Netherlands 150,000 6,010,269
Kemira OY ................................................. Finland 447,900 2,728,073
Lyondell Chemical Co. ..................................... United States 200,000 2,550,000
------------
26,672,124
------------
DATA PROCESSING & REPRODUCTION 1.6%
(a) 3Com Corp. ................................................ United States 170,600 8,018,200
Compaq Computer Corp. ..................................... United States 120,000 3,247,500
------------
11,265,700
------------
ELECTRICAL & ELECTRONICS 7.4%
(a) ABB Ltd. .................................................. Switzerland 35,975 4,386,370
Alcatel SA ................................................ France 45,000 10,329,206
Catic Shenzhen Holdings Ltd., H ........................... China 9,945,000 678,054
Fuji Photo Film Co. Ltd. .................................. Japan 200,000 7,300,484
Hitachi Ltd. .............................................. Japan 303,500 4,870,969
</TABLE>
141
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRICAL & ELECTRONICS (CONT.)
Koninklijke Philips Electronics NV ...................... Netherlands 60,000 $ 8,154,636
Marconi PLC ............................................. United Kingdom 627,100 11,087,276
Motorola Inc. ........................................... United States 40,000 5,890,000
-----------
52,696,995
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS .7%
Hewlett Packard Co. ..................................... United States 45,000 5,127,188
-----------
ENERGY EQUIPMENT & SERVICES .2%
TransCanada PipeLines Ltd. .............................. Canada 150,000 1,296,770
-----------
ENERGY SOURCES 4.3%
Amerada Hess Corp. ...................................... United States 55,000 3,121,250
Burlington Resources Inc. ............................... United States 150,000 4,959,375
Norsk Hydro ASA ......................................... Norway 97,000 4,056,044
Occidental Petroleum Corp. .............................. United States 175,000 3,784,375
(a) Ranger Oil Ltd. ......................................... Canada 273,050 849,799
(a) Renaissance Energy Ltd. ................................. Canada 254,800 2,555,225
Shell Transport & Trading Co. PLC ....................... United Kingdom 616,053 5,119,919
Societe Elf Aquitaine SA, Br ............................ France 37,072 5,710,275
Valero Energy Corp. ..................................... United States 28,500 566,437
-----------
30,722,699
-----------
FINANCIAL SERVICES 3.1%
AXA SA .................................................. France 27,702 3,859,818
ING Groep NV ............................................ Netherlands 106,397 6,420,453
Merrill Lynch & Co. Inc. ................................ United States 105,000 8,767,500
Nomura Securities Co. Ltd. .............................. Japan 180,000 3,249,988
-----------
22,297,759
-----------
FOOD & HOUSEHOLD PRODUCTS 2.6%
Archer-Daniels Midland Co. .............................. United States 656,318 7,998,876
IBP Inc. ................................................ United States 220,543 3,969,774
Northern Foods PLC ...................................... United Kingdom 2,208,797 3,516,113
Tate & Lyle PLC ......................................... United Kingdom 450,000 2,952,632
-----------
18,437,395
-----------
FOREST PRODUCTS & PAPER 2.3%
Assidoman AB ............................................ Sweden 249,730 4,066,738
Bowater Inc. ............................................ United States 100,000 5,431,250
Carter Holt Harvey Ltd. ................................. New Zealand 880,712 1,150,427
Metsa Serla OY, B ....................................... Finland 270,000 3,139,535
Stora Enso OYJ, R ....................................... Finland 159,700 2,783,053
-----------
16,571,003
-----------
HEALTH & PERSONAL CARE 2.0%
Aetna Inc. .............................................. United States 110,000 6,139,375
Aventis SA .............................................. France 60,000 3,485,352
Medeva PLC .............................................. United Kingdom 1,564,200 4,449,136
-----------
14,073,863
-----------
INDUSTRIAL COMPONENTS .5%
BAE Systems PLC ......................................... United Kingdom 107,950 171,842
Michelin SA, B .......................................... France 90,000 3,533,676
-----------
3,705,518
-----------
INSURANCE 4.8%
Ace Ltd. ................................................ Bermuda 121,500 2,027,531
Allstate Corp. .......................................... United States 195,000 4,680,000
Partnerre Ltd. .......................................... Bermuda 127,900 4,148,756
Torchmark Corp. ......................................... United States 240,000 6,975,000
</TABLE>
142
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE (CONT.)
Unumprovident Corp. ........................................... United States 81,100 $ 2,600,269
XL Capital Ltd., A ............................................ Bermuda 35,000 1,815,625
Zurich Allied AG .............................................. Switzerland 11,500 6,556,986
Zurich Allied PLC ............................................. United Kingdom 440,000 5,219,387
-----------
34,023,554
-----------
MACHINERY & ENGINEERING 4.7%
First Tractor Company Ltd., H ................................. China 6,860,000 970,734
Invensys PLC .................................................. United Kingdom 1,459,542 7,854,736
KCI Konecranes International PLC .............................. Finland 232,100 8,921,351
Laird Group PLC ............................................... United Kingdom 1,183,700 4,686,822
Makita Corp. .................................................. Japan 653,000 5,879,141
METSO OYJ ..................................................... Finland 392,800 5,101,299
-----------
33,414,083
-----------
MERCHANDISING 3.5%
Hudsons Bay Co. ............................................... Canada 276,500 3,289,162
J.C. Penney Co. Inc. .......................................... United States 80,000 1,595,000
Marks & Spencer PLC ........................................... United Kingdom 1,616,900 7,689,009
Matsuzakaya Co. Ltd. .......................................... Japan 51,000 152,224
Safeway PLC ................................................... United Kingdom 1,838,498 6,328,685
Sears, Roebuck & Co. .......................................... United States 155,900 4,745,206
Somerfield PLC ................................................ United Kingdom 1,000,000 1,446,418
-----------
25,245,704
-----------
METALS & MINING 5.7%
Anglo American Platinum Corp. Ltd. ............................ South Africa 353,665 10,744,980
Barrick Gold Corp. ............................................ Canada 250,000 4,452,244
Companhia Siderurgica Nacional Sid Nacional CSN ............... Brazil 129,100,000 5,002,491
Corus Group PLC ............................................... United Kingdom 3,500,000 9,135,058
Industrias Penoles SA ......................................... Mexico 1,875,300 5,403,239
Pohang Iron & Steel Co. Ltd. .................................. South Korea 53,400 6,103,789
-----------
40,841,801
-----------
MULTI-INDUSTRY 6.0%
Beijing Datang Power Generation Co. Ltd., H ................... China 6,860,000 1,129,581
Broken Hill Proprietary Co. Ltd. .............................. Australia 444,654 5,838,596
Cheung Kong Holdings Ltd. ..................................... Hong Kong 1,180,000 14,990,030
Hutchison Whampoa Ltd. ........................................ Hong Kong 366,600 5,329,105
Pacific Dunlop Ltd. ........................................... Australia 1,979,000 2,801,103
Saab AB, B .................................................... Sweden 296,997 2,863,463
Swire Pacific Ltd., A ......................................... Hong Kong 1,421,800 8,395,269
Swire Pacific Ltd., B ......................................... Hong Kong 1,304,000 1,149,083
-----------
42,496,230
-----------
REAL ESTATE 2.1%
China Resources Beijing Land Ltd. ............................. China 4,652,000 532,615
General Growth Properties Inc. ................................ United States 164,500 4,606,000
Hang Lung Development Co. Ltd. ................................ Hong Kong 3,624,000 4,102,554
Highwoods Properties Inc. ..................................... United States 164,900 3,833,925
National Health Investors Inc. ................................ United States 123,400 1,835,575
New World Development Co. Ltd. ................................ Hong Kong 13,457 30,295
-----------
14,940,964
-----------
TELECOMMUNICATIONS 7.9%
Cable & Wireless HKT Ltd. ..................................... Hong Kong 2,857,746 8,253,219
Embratel Participacoes SA ..................................... Brazil 375,487,000 6,277,170
(a) General Motors Corp., H ....................................... United States 66,000 6,336,000
Nippon Telegraph & Telephone Corp. ............................ Japan 458 7,843,617
</TABLE>
143
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
SK Telecom Co. Ltd., ADR ................................... South Korea 211,710 $ 8,124,371
Telecom Corp. of New Zealand Ltd. .......................... New Zealand 161,000 757,101
Telecomunicacoes de Sao Paulo SA ........................... Brazil 276,690,000 3,830,621
Telefonica de Argentina SA, ADR ............................ Argentina 167,000 5,156,125
Telefonos de Mexico SA (Telmex), ADR ....................... Mexico 85,100 9,573,750
------------
56,151,974
------------
TEXTILES & APPAREL .7%
Adidas-Salomon AG .......................................... Germany 60,000 4,500,151
Courtaulds Textiles PLC .................................... United Kingdom 271,300 287,185
------------
4,787,336
------------
TRANSPORTATION 2.9%
Airborne Freight Corp. ..................................... United States 150,000 3,300,000
British Airways PLC ........................................ United Kingdom 1,205,032 7,848,278
Singapore Airlines Ltd. .................................... Singapore 821,600 9,323,470
------------
20,471,748
------------
UTILITIES ELECTRICAL & GAS 7.9%
CLP Holdings Ltd. .......................................... Hong Kong 800,000 3,684,312
Electrabel SA .............................................. Belgium 10,500 3,435,518
Entergy Corp. .............................................. United States 183,900 4,735,425
Evn AG ..................................................... Austria 19,824 2,993,657
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 2,944,000 9,202,959
Iberdrola SA, Br ........................................... Spain 494,700 6,852,987
Korea Electric Power Corp. ................................. South Korea 106,600 3,304,553
National Grid Group PLC .................................... United Kingdom 775,100 5,881,175
National Power PLC ......................................... United Kingdom 747,800 4,302,355
Potomac Electric Power Co. ................................. United States 100,000 2,293,750
Transportadora de Gas del Sur SA, B, ADR ................... Argentina 386,900 3,554,644
Veba AG .................................................... Germany 128,400 6,269,405
------------
56,510,740
------------
TOTAL COMMON STOCKS (COST $568,225,819) .................... 660,863,974
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
RIGHTS
------------
<S> <C> <C> <C>
PREFERRED STOCKS AND RIGHTS 2.4%
Banco Bradesco SA, pfd ......................................................... Brazil 451,500,022 3,541,520
(a) Banco Bradesco SA, pfd., rts., 2/09/00 ......................................... Brazil 29,317,744 116,362
Centrais Eletricas Brasileiras SA (Electrobras), ADR, pfd ...................... Brazil 158,760 1,893,864
Centrais Geradoras do Sul do Brasil SA, ADR, pfd ............................... Brazil 17,640 96,183
Embratel Participacoes SA, ADR, pfd ............................................ Brazil 98,400 2,681,400
News Corp. Ltd., pfd ........................................................... Australia 507,513 4,348,027
Telecomunicacoes de Sao Paulo SA, ADR, pfd ..................................... Brazil 98,400 2,404,650
Telemig Celular Participacoes SA, ADR, pfd ..................................... Brazil 4,920 227,242
Telesp Celular Participacoes SA, ADR, pfd ...................................... Brazil 39,360 1,667,880
TOTAL PREFERRED STOCKS AND RIGHTS (COST $16,101,675) ........................... 16,977,128
------------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $584,327,494) .... 677,841,102
------------
</TABLE>
144
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL GROWTH FUND COUNTRY AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(h) REPURCHASE AGREEMENT (COST $34,348,000) 4.8%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $34,356,587)
Collateralized by U.S. Treasury Notes and Bonds .................... United States $ 34,348,000 $ 34,348,000
------------
TOTAL INVESTMENTS (COST $618,675,494) 99.9% ......................... 712,189,102
OTHER ASSETS, LESS LIABILITIES .1% .................................. 604,348
------------
TOTAL NET ASSETS 100.0% ............................................. $712,793,450
------------
</TABLE>
(a) Non-income producing.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements. 145
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES FUND AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.9%
ARGENTINA 1.5%
Republic of Argentina, 11.75%, 4/07/09 ..................................... $ 1,355,000 $ 1,353,306
-----------
AUSTRALIA 4.1%
New South Wales Treasury Corp., 144A, 7.00%, 4/01/04 ....................... 4,100,000 AUD 2,687,966
Queensland Treasury Corp., 6.50%, 6/14/05 .................................. 1,612,000 AUD 1,035,525
-----------
3,723,491
-----------
BELGIUM 3.4%
Kingdom of Belgium, 7.75%, 10/15/04 ........................................ 2,782,000 EUR 3,118,512
-----------
BRAZIL 1.3%
Republic of Brazil, FRN, 7.00%, 4/15/09 .................................... 1,510,000 1,216,494
-----------
BULGARIA 2.6%
Republic of Bulgaria, Series A, FRN, 6.50%, 7/28/24 ........................ 2,970,000 2,385,296
-----------
CANADA 1.9%
Government of Canada:
8.75%, 12/01/05 ........................................................... 1,037,000 CAD 804,312
7.00%, 12/01/06 ........................................................... 1,229,000 CAD 884,644
-----------
1,688,956
-----------
COLOMBIA 1.0%
Republic of Columbia, 9.75%, 4/23/09 ....................................... 960,000 919,973
-----------
DENMARK 2.4%
Kingdom of Denmark, 7.00%, 12/15/04 ........................................ 15,100,000 DKK 2,191,280
-----------
GERMANY 15.9%
Federal Republic of Germany:
3.25%, 2/17/04 .......................................................... 5,489,000 EUR 5,222,646
4.50%, 7/04/09 .......................................................... 9,796,000 EUR 9,250,627
-----------
14,473,273
-----------
ITALY 6.7%
Buoni Poliennali del Tesoro:
10.50%, 7/15/00 ......................................................... 2,272,406 EUR 2,354,308
7.75%, 11/01/06 ......................................................... 3,305,318 EUR 3,770,186
-----------
6,124,494
-----------
JAPAN 4.8%
International Bank for Recon/Dev., 5.25%, 3/20/02 .......................... 397,400,000 JPY 4,325,179
-----------
MEXICO 8.1%
United Mexican States:
9.75%, 4/06/05 .......................................................... 4,000,000 4,165,000
9.875%, 1/15/07 ......................................................... 1,700,000 1,772,250
11.50%, 5/15/26 ......................................................... 1,230,000 1,465,238
-----------
7,402,488
-----------
NEW ZEALAND 2.9%
Government of New Zealand, 7.00%, 7/15/09 .................................. 5,050,000 NZD 2,581,738
-----------
PERU 1.0%
Republic of Peru, FRN, 4.50%, 3/07/17 ...................................... 1,300,000 900,250
-----------
SPAIN 2.7%
Bonos Y Oblig Del Estado, 3.25%, 1/31/05 ................................... 2,671,000 EUR 2,465,021
-----------
SWEDEN 3.8%
Kingdom of Sweden, 6.00%, 2/09/05 .......................................... 28,700,000 SEK 3,453,212
-----------
TURKEY .6%
Republic of Turkey, 12.375%, 6/15/09 ....................................... 535,000 575,125
-----------
</TABLE>
146
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES FUND AMOUNT* VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
UNITED KINGDOM 10.3%
United Kingdom:
6.50%, 12/07/03 ................................................................. $4,100,000 GBP $ 6,691,646
7.50%, 12/07/06 ................................................................. 1,500,000 GBP 2,643,717
-----------
9,335,363
-----------
UNITED STATES 20.2%
U.S. Treasury Bond, 5.25%, 11/15/28 ................................................ 9,035,000 7,448,228
U.S. Treasury Notes:
4.50%, 1/31/01 .................................................................. 8,970,000 8,824,238
7.25%, 8/15/04 .................................................................. 2,019,000 2,083,986
-----------
18,356,452
-----------
VENEZUELA 1.7%
Republic of Venezuela, 144A, 9.125%, 6/18/07 ........................................... 1,940,000 1,522,900
-----------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $93,439,070) ............. 88,112,803
-----------
(h) REPURCHASE AGREEMENT (COST $1,568,000) 1.7%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $1,568,392)
Collateralized by Treasury Notes and Bonds ........................................ 1,568,000 1,568,000
TOTAL INVESTMENTS (COST $95,007,070) 98.6% ......................................... 89,680,803
NET EQUITY IN FORWARD CONTRACTS (.2%) .............................................. (169,791)
OTHER ASSETS, LESS LIABILITIES 1.6% ................................................ 1,468,899
-----------
TOTAL NET ASSETS 100.0% ............................................................ $ 90,979,911
===========
</TABLE>
See glossary of currency abbreviations on page 157.
* Securities traded in U.S. dollars unless otherwise indicated.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
147
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 90.3%
AEROSPACE & MILITARY TECHNOLOGY .6%
BAE Systems PLC ............................................... United Kingdom 557,125 $ 3,687,035
Hong Kong Aircraft Engineering Co. Ltd. ....................... Hong Kong 513,400 851,979
-----------
4,539,014
-----------
APPLIANCES & HOUSEHOLD DURABLES 2.5%
Sony Corp. .................................................... Japan 65,000 19,273,866
-----------
AUTOMOBILES 2.7%
Autoliv Inc., SDR ............................................. Sweden 17,000 9,280,776
Fiat SpA ...................................................... Italy 339,141 9,679,500
Volvo AB, B ................................................... Sweden 91,500 2,366,843
-----------
21,327,119
-----------
BANKING 8.6%
Australia & New Zealand Banking Group Ltd. .................... Australia 1,193,500 8,682,322
Banco Popular Espanol SA ...................................... Spain 62,400 4,067,653
BPI Socieda de Gestora de Participacoes Socias SA ............. Portugal 1,609,890 6,855,768
Foreningssparbanken AB, A ..................................... Sweden 244,500 3,593,474
Kookmin Bank .................................................. South Korea 9,710 152,213
(a)Merita AS ................................................... Finland 1,254,500 7,375,697
National Bank of Canada ....................................... Canada 447,000 5,719,275
National Westminster Bank PLC ................................. United Kingdom 641,668 13,823,286
Svenska Handelsbanken, A ...................................... Sweden 466,200 5,865,185
Unibanco Uniao de Bancos Brasileiros SA, GDR .................. Brazil 358,700 10,805,838
-----------
66,940,711
-----------
BROADCASTING & PUBLISHING 1.4%
Wolters Kluwer NV ............................................. Netherlands 331,600 11,216,913
-----------
BUILDING MATERIALS & COMPONENTS 3.2%
Anglian Group PLC ............................................. United Kingdom 2,028,800 7,377,216
Hepworth PLC .................................................. United Kingdom 1,330,100 4,094,963
Pioneer International Ltd. .................................... Australia 4,462,117 13,445,847
-----------
24,918,026
-----------
BUSINESS & PUBLIC SERVICES .7%
Lex Service PLC ............................................... United Kingdom 902,000 5,495,645
-----------
CHEMICALS 5.2%
Akzo Nobel NV ................................................. Netherlands 129,200 6,477,560
BASF AG ....................................................... Germany 200,900 10,497,040
(a)Clariant AG ................................................. Switzerland 29,800 14,202,951
Imperial Chemical Industries PLC ............................ United Kingdom 857,000 9,085,638
-----------
40,263,189
-----------
CONSTRUCTION & HOUSING 1.2%
Fletcher Challenge Building Ltd. .............................. New Zealand 6,285,000 9,260,612
-----------
ELECTRICAL & ELECTRONICS 8.9%
Alcatel SA .................................................... France 62,610 14,371,368
Hitachi Ltd. .................................................. Japan 783,000 12,566,619
Koninklijke Philips Electronics NV ............................ Netherlands 147,772 20,083,781
Marconi PLC ................................................... United Kingdom 1,213,000 21,446,126
(a)Thomson Multimedia .......................................... France 25,600 1,378,838
-----------
69,846,732
-----------
ENERGY SOURCES 2.4%
Total Fina SA, B .............................................. France 138,373 18,458,092
-----------
FINANCIAL SERVICES 4.0%
ING Groep NV .................................................. Netherlands 171,785 10,366,247
Lend Lease Corp. Ltd. ......................................... Australia 607,000 8,503,890
Nomura Securities Co. Ltd. .................................... Japan 675,000 12,187,454
-----------
31,057,591
-----------
</TABLE>
148
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 1.5%
McBride PLC ................................................ United Kingdom 1,000,000 $ 1,624,190
Tate & Lyle PLC ............................................ United Kingdom 1,540,500 10,107,843
-----------
11,732,033
-----------
FOREST PRODUCTS & PAPER 2.6%
Cartiere Burgo SpA ......................................... Italy 696,200 4,584,561
Kimberly Clark de Mexico SA de CV, A ....................... Mexico 1,115,000 4,354,090
Mayr-Melnhof Karton AG ..................................... Austria 39,400 1,824,625
(a)PT Indah Kiat Pulp & Paper Corp., wts., 4/13/01 ............ Indonesia 760,053 201,230
Stora Enso OYJ, R., fgn .................................... Finland 567,304 9,738,552
-----------
20,703,058
-----------
HEALTH & PERSONAL CARE 3.3%
Aventis SA ................................................. France 185,080 10,751,149
Internatio-Muller NV ....................................... Netherlands 240,308 5,032,122
Nycomed Amersham PLC ....................................... United Kingdom 1,575,700 9,814,321
-----------
25,597,592
-----------
INDUSTRIAL COMPONENTS .6%
(a)BAE Systems PLC ............................................ United Kingdom 164,275 261,504
Meggitt PLC ................................................ United Kingdom 1,487,610 4,664,033
-----------
4,925,537
-----------
INSURANCE 5.0%
Ace Ltd. ................................................... Bermuda 682,500 11,389,219
Muenchener Rueckversicherungs-Gesellschaft ................. Germany 66,000 16,810,631
Zurich Allied PLC .......................................... United Kingdom 920,100 10,914,450
-----------
39,114,300
-----------
LEISURE & TOURISM 3.8%
(a)Amadeus Global Travel Distribution SA, 144A ................ Spain 1,351,700 21,432,875
Kuoni Reisen Holding AG, B ................................. Switzerland 1,890 7,844,835
-----------
29,277,710
-----------
MACHINERY & ENGINEERING 3.5%
Bucher Holding AG, Br ...................................... Switzerland 12,800 10,448,980
IHC Caland NV .............................................. Netherlands 187,500 6,842,721
Invensys PLC ............................................... United Kingdom 1,820,854 9,799,188
-----------
27,090,889
-----------
MERCHANDISING 2.9%
David Jones Ltd. ........................................... Australia 2,463,527 2,231,880
Hudsons Bay Co. ............................................ Canada 357,000 4,246,767
Marks & Spencer PLC ........................................ United Kingdom 1,634,000 7,770,327
Safeway PLC ................................................ United Kingdom 1,695,778 5,837,399
Storehouse ................................................. United Kingdom 3,314,000 2,396,714
-----------
22,483,087
-----------
METALS & MINING 3.8%
Boehler-Uddeholm AG ........................................ Austria 33,000 1,521,595
Boehler-Uddeholm AG, 144A .................................. Austria 27,055 1,247,477
Companhia Siderurgica Nacional CSN, ADR .................... Brazil 244,565 8,987,764
Corus Group PLC ............................................ United Kingdom 4,033,200 10,526,719
Grupo Mexico SA de CV, B ................................... Mexico 1,291,200 6,398,083
Pohang Iron & Steel Co. Ltd. ............................... South Korea 10,450 1,194,468
-----------
29,876,106
-----------
MULTI-INDUSTRY 3.6%
Cheung Kong Holdings Ltd. .................................. Hong Kong 928,600 11,796,392
Elementis PLC .............................................. United Kingdom 3,336,000 4,340,029
</TABLE>
149
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MULTI-INDUSTRY (CONT.)
Jardine Strategic Holdings Ltd. ................................ Hong Kong 2,574,940 $ 5,124,131
Swire Pacific Ltd., B .......................................... Hong Kong 7,937,100 6,994,164
-----------
28,254,716
-----------
REAL ESTATE .1%
Hang Lung Development Co. Ltd. ................................. Hong Kong 779,000 881,868
-----------
RECREATION & OTHER CONSUMER GOODS
Yue Yuen Industrial Holdings Ltd. .............................. Hong Kong 800 1,914
-----------
TELECOMMUNICATIONS 10.6%
Korea Telecom Corp., ADR ....................................... South Korea 187,620 14,024,595
Nippon Telegraph & Telephone Corp. ............................. Japan 1,300 22,263,542
Nokia Corp., A ................................................. Finland 89,300 16,182,422
Smartone Telecommunications Holdings Ltd. ...................... Hong Kong 1,602,000 7,728,179
Telecomunicacoes Brasileiras SA, ADR ........................... Brazil 126,640 16,273,240
Telefonica del Peru SA, ADR .................................... Peru 238,700 3,192,613
Telefonica del Peru SA, B ...................................... Peru 2,365,602 3,081,317
-----------
82,745,908
-----------
TRANSPORTATION 1.9%
Air New Zealand Ltd., B ........................................ New Zealand 1,132,000 1,656,112
British Airways PLC ............................................ United Kingdom 1,175,000 7,652,682
Mayne Nickless Ltd., A ......................................... Australia 2,125,500 5,483,883
-----------
14,792,677
-----------
UTILITIES ELECTRICAL & GAS 5.7%
CLP Holdings Ltd. .............................................. Hong Kong 1,573,000 7,244,279
Iberdrola SA, Br ............................................... Spain 767,800 10,636,190
Korea Electric Power Corp. ..................................... South Korea 66,000 2,045,971
Shandong Huaneng Power Development Co. Ltd., ADR ............... China 338,300 1,458,919
Thames Water Group PLC ......................................... United Kingdom 896,939 11,067,326
Transportadora de Gas del Sur SA, B, Reg S, ADR ................ Argentina 516,300 4,743,506
Veba AG ........................................................ Germany 151,650 7,404,636
-----------
44,600,827
-----------
TOTAL COMMON STOCKS AND WARRANTS (COST $558,603,713) ........... 704,675,732
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
RIGHTS
-----------
<S> <C> <C> <C>
PREFERRED STOCKS AND RIGHTS 3.1%
Banco Bradesco SA, pfd ............................................ Brazil 525,200,000 4,119,615
(a) Banco Bradesco SA, pfd., rts., 2/09/00 ............................ Brazil 34,103,385 135,356
Banco Itau SA, pfd ................................................ Brazil 42,090,000 3,611,376
Petroleo Brasileiro SA, pfd ....................................... Brazil 30,000,000 7,639,081
Volkswagen AG, pfd ................................................ Germany 275,000 8,859,358
-----------
TOTAL PREFERRED STOCKS AND RIGHTS (COST $20,772,912) .............. 24,364,786
-----------
</TABLE>
150
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENT (COST $4,986,250) .7%
U.S. Treasury Bill, 4.95%, 1/20/00 ....................................... United States $ 5,000,000 $ 4,988,170
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $584,362,875) 734,028,688
-------------
(h) REPURCHASE AGREEMENTS 6.0%
Barclays Bank PLC, 3.00%, 1/03/00, (Maturity Value $23,759,939)
Collateralized by U.S. Treasury Notes and Bonds ........................ United States 23,754,000 23,754,000
Paribas Corp., 3.00%, 1/03/00, (Maturity Value $23,355,838)
Collateralized by U.S. Treasury Notes and Bonds ........................ United States 23,350,000 23,350,000
-------------
TOTAL REPURCHASE AGREEMENTS (COST $47,104,000) ........................... 47,104,000
-------------
TOTAL INVESTMENTS (COST $631,466,875) 100.1% ............................. 781,132,688
-------------
OTHER ASSETS, LESS LIABILITIES (.1%) ..................................... (863,696)
-------------
TOTAL NET ASSETS 100.0% .................................................. $ 780,268,992
=============
</TABLE>
(a) Non-income producing.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
151
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 88.2%
APPLIANCES & HOUSEHOLD DURABLES 1.3%
Fisher & Paykel Ltd. ...................................... New Zealand 70,222 $ 267,844
Guangdong Kelon Electrical Holdings. Ltd., H .............. China 92,000 69,827
----------
337,671
----------
AUTOMOBILES 2.1%
Bilia AB, A ............................................... Sweden 28,100 247,795
Volvo AB, B ............................................... Sweden 11,600 300,059
----------
547,854
----------
BANKING 4.1%
Banco de Valencia SA ...................................... Spain 9,816 81,528
Banco Pastor SA ........................................... Spain 8,000 326,185
Bank Austria AG, 144A ..................................... Austria 6,000 338,266
Unibanco Uniao de Bancos Brasileiros SA, GDR .............. Brazil 10,235 308,329
----------
1,054,308
----------
BROADCASTING & PUBLISHING 3.4%
GTC Transcontinental Group Ltd., B ........................ Canada 63,300 875,579
----------
BUILDING MATERIALS & COMPONENTS 8.8%
Caradon PLC ............................................... United Kingdom 117,500 296,233
Cristaleria Espanola SA, Br ............................... Spain 1,291 50,039
Danske Traelast AS ........................................ Denmark 3,752 329,866
Gujarat Ambuja Cements Ltd. ............................... India 95,000 711,954
Sarna Kunststoff Holding AG ............................... Switzerland 52 57,143
Schuttersveld NV .......................................... Netherlands 11,146 188,516
(a)Siam City Cement Public Co. Ltd., fgn ..................... Thailand 112,701 606,597
----------
2,240,348
----------
BUSINESS & PUBLIC SERVICES 4.4%
Kardex AG, Br ............................................. Switzerland 1,494 461,569
Lex Service PLC ........................................... United Kingdom 54,100 329,617
Scribona AB, B ............................................ Sweden 19,045 67,850
Sifo Group AB ............................................. Sweden 20,745 263,429
----------
1,122,465
----------
CHEMICALS 1.6%
Energia e Industrias Aragonesas Eia SA .................... Spain 34,500 159,423
Yule Catto & Company PLC .................................. United Kingdom 61,600 243,903
----------
403,326
----------
CONSTRUCTION & HOUSING 2.8%
Grupo Dragados SA ......................................... Spain 42,465 374,503
Hollandsche Beton Groep NV ................................ Netherlands 9,600 91,815
Leighton Holdings Ltd. .................................... Australia 67,050 259,708
----------
726,026
----------
ELECTRICAL & ELECTRONICS 2.8%
Techtronic Industries Co. Ltd. ............................ Hong Kong 1,706,000 278,719
Varitronix International Ltd. ............................. Hong Kong 187,500 431,755
----------
710,474
----------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.9%
Swisslog Holding AG ....................................... Switzerland 1,000 291,994
VTech Holdings Ltd. ....................................... Hong Kong 136,000 442,632
----------
734,626
----------
(a)ENERGY SOURCES 1.1%
Gas Authority of India Ltd., GDR, 144A .................... India 29,000 274,050
----------
</TABLE>
152
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 4.8%
Dah Sing Financial Holdings Ltd. ............................. Hong Kong 134,800 $ 537,570
Housing Development Finance Corp. Ltd. ....................... India 45,500 299,149
Morgan Stanley Growth Fund ................................... India 7,100 2,489
Mutual Risk Management Ltd. .................................. Bermuda 23,350 392,572
---------
1,231,780
---------
FOOD & HOUSEHOLD PRODUCTS 7.0%
(a) Charoen Pokphand Feedmill Public Co. Ltd., fgn ............... Thailand 86,273 252,865
Geest PLC .................................................... United Kingdom 44,750 296,877
Hazlewood Foods PLC .......................................... United Kingdom 111,770 162,569
Illovo Sugar Ltd. ............................................ South Africa 187,000 223,306
McBride PLC .................................................. United Kingdom 64,100 104,111
National Foods Ltd. .......................................... Australia 182,091 320,374
Perkins Foods PLC ............................................ United Kingdom 189,240 420,520
---------
1,780,622
---------
FOREST PRODUCTS & PAPER 1.0%
Crown Van Gelder Papierfabrieken NV .......................... Netherlands 6,115 72,644
(a) Empaques Ponderosa SA de CV, B ............................... Mexico 151,800 72,896
Munksjo AB ................................................... Sweden 12,995 100,843
---------
246,383
---------
HEALTH & PERSONAL CARE 3.2%
Internatio-Muller NV ......................................... Netherlands 5,844 122,375
Moulin International Holdings Ltd. ........................... Hong Kong 2,271,176 219,127
Ono Pharmaceutical Co Ltd. ................................... Japan 12,000 321,769
(a) SkyePharma PLC ............................................... United Kingdom 200,000 155,955
---------
819,226
---------
INDUSTRIAL COMPONENTS 4.4%
Granges AB ................................................... Sweden 14,679 306,352
Sylea SA ..................................................... France 4,447 217,134
Weir Group PLC ............................................... United Kingdom 120,900 429,853
Yamato Kogyo Co. Ltd. ........................................ Japan 41,000 184,968
---------
1,138,307
---------
MACHINERY & ENGINEERING 2.1%
Arcadis NV ................................................... Netherlands 37,875 299,324
Laird Group PLC .............................................. United Kingdom 62,000 245,487
---------
544,811
---------
MERCHANDISING 13.4%
Giordano International Ltd. .................................. Hong Kong 933,000 960,185
Li & Fung Ltd. ............................................... Hong Kong 482,000 1,209,108
Northwest Company Fund ....................................... Canada 31,365 276,578
SA des Galeries Lafayette .................................... France 4,300 713,420
Samas-Groep NV ............................................... Netherlands 11,125 138,881
Somerfield PLC ............................................... United Kingdom 82,800 119,763
---------
3,417,935
---------
METALS & MINING 6.4%
Arbed SA ..................................................... Luxembourg 1,448 146,360
Boehler-Uddeholm AG .......................................... Austria 4,993 230,222
Elkem ASA, A ................................................. Norway 23,850 550,740
Iluka Resources Ltd. ......................................... Australia 110,370 292,730
Pohang Iron & Steel Co. Ltd. ................................. South Korea 2,625 300,046
PT Tambang Timah ............................................. Indonesia 165,500 115,465
---------
1,635,563
---------
</TABLE>
153
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY 3.3%
Amer Group Ltd., A ........................................................ Finland 11,300 $ 229,231
Elementis PLC ............................................................. United Kingdom 142,000 184,737
Nagron Nationaal Grondbezit NV ............................................ Netherlands 7,400 168,368
Zehnder Holding AG, Br .................................................... Switzerland 465 256,954
-----------
839,290
-----------
(a) TELECOMMUNICATIONS .3%
Digital Telecommunications Philippines Inc. ............................... Philippines 2,198,000 76,357
-----------
TEXTILES & APPAREL 1.2%
Gamma Holding NV .......................................................... Netherlands 3,000 115,373
Inner Mongolia Erdos Cashmere Products Co. Ltd., B ........................ China 497,000 112,322
(a) Yizheng Chemical Fibre Co. Ltd., H ........................................ China 326,000 91,214
-----------
318,909
-----------
TRANSPORTATION 3.5%
(a) Anangel-American Shipholdings Ltd., ADR ................................... Greece 35,000 188,125
(a) Neptune Orient Lines Ltd. ................................................. Singapore 105,000 140,588
(a) Orient Overseas International Ltd. ........................................ Hong Kong 801,000 311,703
Stolt Nielsen SA, ADR ..................................................... Norway 15,000 262,500
-----------
902,916
-----------
UTILITIES ELECTRICAL & GAS 2.3%
Endesa SA ................................................................. Spain 21,090 418,488
Guangdong Electric Power Development Co Ltd., B ........................... China 338,520 157,644
-----------
576,132
-----------
TOTAL COMMON STOCKS (COST $19,652,772) .................................... 22,554,958
-----------
PREFERRED STOCKS 5.2%
Ballast Nedam NV, pfd ..................................................... Netherlands 6,700 147,045
Confab Industrial SA, pfd ................................................. Brazil 212,800 206,145
Fertilizantes Fosfatados SA, pfd .......................................... Brazil 41,995,000 181,324
Moebel Walther AG, pfd .................................................... Germany 50 393
Telemig Celular Participacoes SA, ADR, pfd ................................ Brazil 10,695 493,975
Weg SA, pfd ............................................................... Brazil 507,200 308,840
-----------
TOTAL PREFERRED STOCKS (COST $1,276,410) .................................. 1,337,722
-----------
TOTAL LONG TERM INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $20,929,182) 23,892,680
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C> <C>
(h) REPURCHASE AGREEMENTS 6.4%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $826,207)
Collateralized by U.S. Treasury Notes and Bonds ................... United States $ 826,000 826,000
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $820,205)
Collateralized by U.S. Treasury Notes and Bonds ................... United States 820,000 820,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $1,646,000) ....................... 1,646,000
-----------
TOTAL INVESTMENTS (COST $22,575,182) 99.8% .......................... 25,538,680
OTHER ASSETS, LESS LIABILITIES .2% .................................. 51,469
-----------
TOTAL NET ASSETS 100.0% ............................................. $25,590,149
===========
</TABLE>
(a) Non-income producing.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See notes to financial statements.
154
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 94.2%
BANKING 17.3%
DBS Group Holdings Ltd. .................................... Singapore 295,663 $ 4,846,352
HSBC Holdings PLC .......................................... Hong Kong 93,000 1,304,046
Overseas Union Bank Ltd. ................................... Singapore 593,629 3,475,162
(a) Philippine National Bank ................................... Philippines 1,443,750 3,403,381
(a) PT Bank Pan Indonesia TBK .................................. Indonesia 12,365,250 1,194,497
(a) Thai Farmers Bank Public Co. Ltd. .......................... Thailand 36,570 41,900
(a) Thai Farmers Bank Public Co. Ltd., fgn ..................... Thailand 1,466,880 2,462,388
-----------
16,727,726
-----------
BROADCASTING & PUBLISHING 4.3%
South China Morning Post Ltd. .............................. Hong Kong 4,888,000 4,212,981
-----------
BUILDING MATERIALS & COMPONENTS 2.0%
Gujarat Ambuja Cements Ltd., GDR, Reg S .................... India 41,600 319,280
Okumura Corp. .............................................. Japan 467,000 1,576,699
-----------
1,895,979
-----------
BUSINESS & PUBLIC SERVICES 1.5%
Kurita Water Industries Ltd. ............................... Japan 93,000 1,478,025
-----------
CONSTRUCTION & HOUSING 3.5%
Daito Trust Construction Co. Ltd. .......................... Japan 37,200 415,012
Road King Infrastructure Ltd. .............................. Hong Kong 3,831,977 2,316,883
Toda Corp. ................................................. Japan 184,000 707,658
-----------
3,439,553
-----------
ELECTRICAL & ELECTRONICS 1.1%
Fuji Photo Film Co. Ltd. ................................... Japan 28,000 1,022,068
Hitachi Ltd. ............................................... Japan 800 12,840
-----------
1,034,908
-----------
(a) ENERGY SOURCES 1.2%
Gas Authority of India Ltd., GDR, 144A ..................... India 121,500 1,148,175
-----------
FINANCIAL SERVICES 8.1%
Commerce Asset-Holding Bhd ................................. Malaysia 1,572,000 4,033,421
(a) Commerce Asset-Holding Bhd., wts., 3/16/02 ................. Malaysia 163,750 173,230
Nomura Securities Co. Ltd. ................................. Japan 143,000 2,581,935
Public Finance Bhd., fgn ................................... Malaysia 928,000 1,054,989
-----------
7,843,575
-----------
FOREST PRODUCTS & PAPER 5.5%
(a) Asia Pulp & Paper Co. Ltd., ADR ............................ Indonesia 213,000 1,677,375
Carter Holt Harvey Ltd. .................................... New Zealand 2,411,800 3,150,407
(a) PT Inti Indorayon Utama .................................... Indonesia 129,000 17,538
(a) PT Tjiwi Kimia TBK ......................................... Indonesia 1,388,741 452,148
(a) PT Tjiwi Kimia TBK, wts., 7/15/02 .......................... Indonesia 192,880 34,781
-----------
5,332,249
-----------
INDUSTRIAL COMPONENTS 5.5%
Fuji Heavy Industries Ltd. ................................. Japan 476,000 3,260,753
Mitsubishi Heavy Industries Ltd. ........................... Japan 605,000 2,018,936
-----------
5,279,689
-----------
MERCHANDISING .6%
Takashimaya Co. Ltd. ....................................... Japan 81,418 560,926
-----------
MISC MATERIALS & COMMODITIES 2.4%
Golden Hope Plantations Bhd ................................ Malaysia 2,607,000 2,346,300
-----------
MULTI-INDUSTRY 17.3%
Broken Hill Proprietary Co. Ltd. ........................... Australia 211,000 2,770,567
Cheung Kong Holdings Ltd. .................................. Hong Kong 270,000 3,429,922
</TABLE>
155
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MULTI-INDUSTRY (CONT.)
Hutchison Whampoa Ltd. ................................................... Hong Kong 188,000 $ 2,732,875
SIME Darby Bhd ........................................................... Malaysia 1,798,800 2,281,636
Swire Pacific Ltd., A .................................................... Hong Kong 435,000 2,568,534
Wheelock and Company Ltd. ................................................ Hong Kong 2,818,000 2,954,486
-----------
16,738,020
-----------
REAL ESTATE 5.4%
City Developments Ltd. ................................................... Singapore 639,600 3,744,281
New World Development Co. Ltd. ........................................... Hong Kong 658,978 1,483,517
-----------
5,227,798
-----------
TELECOMMUNICATIONS 2.7%
Cable & Wireless HKT Ltd. ................................................ Hong Kong 918,139 2,651,601
TEXTILES & APPAREL 3.4%
Nisshinbo Industries Inc. ................................................ Japan 469,000 2,120,448
Wacoal Corp. ............................................................. Japan 132,000 1,161,305
-----------
3,281,753
-----------
TRANSPORTATION 10.7%
East Japan Railway Co. ................................................... Japan 300 1,617,654
Guangshen Railway Co. Ltd., H., ADR ...................................... China 142,800 794,325
Hitachi Zosen Corp. ...................................................... Japan 843,000 635,230
Malaysian International Shipping Corp., fgn. ............................. Malaysia 1,467,267 2,413,268
Singapore Airlines Ltd. .................................................. Singapore 432,300 4,905,716
-----------
10,366,193
-----------
UTILITIES ELECTRICAL & GAS 1.7%
CLP Holdings Ltd. ........................................................ Hong Kong 363,000 1,671,757
-----------
TOTAL COMMON STOCKS AND WARRANTS (COST $105,567,445) ..................... 91,237,208
-----------
PREFERRED STOCKS (COST $233,259) .3%
Volkswagen AG, pfd ....................................................... Germany 7,240 233,243
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $105,800,704) ........ 91,470,451
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C> <C>
(h) REPURCHASE AGREEMENT (COST $1,103,000) 1.1%
Barclays Bank PLC, 3.00%, 1/03/00, (Maturity Value $1,103,276)
Collateralized by U.S. Treasury Notes and Bonds ............ United States $ 1,103,000 1,103,000
-----------
TOTAL INVESTMENTS (COST $106,903,704) 95.6% .................. 92,573,451
OTHER ASSETS, LESS LIABILITIES 4.4% .......................... 4,276,924
-----------
TOTAL NET ASSETS 100.0% .......................................... $96,850,375
-----------
</TABLE>
(a) Non-income producing.
(h) At December 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
156
See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
CURRENCY ABBREVIATIONS
- --------------------------------------------------------------------------------
ARS - Argentinian Peso
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - Eurodollar
GBP - British Pound
JPY - Japanese Yen
NZD - New Zealand Dollar
SEK - Swedish Krona
ZAR - South African Rand
157
See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost $ 668,413,801 $ 9,954,271 $ 836,133,850 $ 370,407,419 $ 805,841,331
-----------------------------------------------------------------------------------
Value 966,283,904 11,482,423 965,338,636 308,651,646 765,475,932
Cash -- -- -- 78 --
Receivables:
Investment securities sold 22,963,274 8,831 1,585,665 -- 2,722,742
Capital shares sold 9,230 6,509 500 400 1,114
Dividends and interest 657,175 2,821 2,678,085 6,681,072 10,200,768
-----------------------------------------------------------------------------------
Total assets 989,913,583 11,500,584 969,602,886 315,333,196 778,400,556
-----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 1,178,221 -- 2,930,053 -- 386,777
Capital shares redeemed 741,166 97,616 852,234 561,586 1,142,937
Affiliates 381,836 6,555 395,914 145,690 324,187
Professional fees 18,620 5,154 23,085 11,064 20,183
Custodian fees 39,058 60 2,737 900 8,130
Postage and mailing fees 19,500 134 22,147 13,866 61,600
Other liabilities 33,731 586 34,814 20,899 38,282
-----------------------------------------------------------------------------------
Total liabilities 2,412,132 110,105 4,260,984 754,005 1,982,096
-----------------------------------------------------------------------------------
Net assets, at value $ 987,501,451 $ 11,390,479 $ 965,341,902 $ 314,579,191 $ 776,418,460
===================================================================================
Net assets consist of:
Undistributed net investment income $ 14,830,361 $ 8,353 $ 34,321,327 $ 553,992 $ 66,903,760
Net unrealized appreciation (depreciation) 297,916,752 1,528,152 129,204,786 (61,755,773) (40,366,752)
Accumulated net realized gain (loss) 179,575,913 (1,815,371) 99,851,855 (7,698,408) 31,607,941
===================================================================================
Capital shares 495,178,425 11,669,345 701,963,934 383,479,380 718,273,511
===================================================================================
Net assets, at value $ 987,501,451 $ 11,390,479 $ 965,341,902 $ 314,579,191 $ 776,418,460
===================================================================================
CLASS 1:
Net assets, at value $ 987,010,844 $ 11,307,496 $ 964,552,554 $ 314,131,070 $ 775,115,984
===================================================================================
Shares outstanding 39,708,482 1,151,882 54,258,632 31,854,851 52,763,566
===================================================================================
Net asset value and offering price per
share $ 24.86 $ 9.82 $ 17.78 $ 9.86 $ 14.69
===================================================================================
CLASS 2:
Net assets, at value $ 490,607 $ 82,983 $ 789,348 $ 448,121 $ 1,302,476
===================================================================================
Shares outstanding 19,798 8,478 44,525 45,594 88,922
===================================================================================
Net asset value and offering price per share $ 24.78 $ 9.79 $ 17.73 $ 9.83 $ 14.65
===================================================================================
</TABLE>
158 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN LARGE FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CAP GROWTH MONEY MARKET NATURAL RESOURCES REAL ESTATE RISING DIVIDENDS
SECURITIES FUND FUND SECURITIES FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost $ 296,591,908 $ 374,423,913 $ 42,023,306 $ 168,965,027 $ 405,938,782
======================================================================================
Value 409,649,931 374,423,913 43,000,367 159,612,641 447,688,693
Receivables:
Investment securities sold 2,297,284 -- -- -- 3,678,852
Capital shares sold 574,585 18,606 196 22,263 --
Dividends and interest 263,902 1,670,247 17,633 1,644,788 969,559
--------------------------------------------------------------------------------------
Total assets 412,785,702 376,112,766 43,018,196 161,279,692 452,337,104
--------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 3,941,450 -- -- -- --
Capital shares redeemed 517,117 3,288,313 57,482 176,689 901,053
Affiliates 251,167 162,841 22,006 77,941 290,866
Professional fees 10,052 10,931 5,732 8,397 14,293
Custodian fees 884 928 360 888 1,342
Postage and mailing fees 3,443 7,100 1,020 7,310 14,165
Distributions to shareholders -- 3,639 -- -- --
Other liabilities 5,122 9,671 2,179 6,724 17,480
--------------------------------------------------------------------------------------
Total liabilities 4,729,235 3,483,423 88,779 277,949 1,239,199
--------------------------------------------------------------------------------------
Net assets, at value $ 408,056,467 $ 372,629,343 $ 42,929,417 $ 161,001,743 $ 451,097,905
--------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income $ 2,086,309 $ -- $ 303,873 $ 11,229,198 $ 7,986,383
Net unrealized appreciation (depreciation) 113,058,023 -- 977,144 (9,352,386) 41,749,911
Accumulated net realized gain (loss) 23,069,651 -- (21,709,873) 1,863,614 62,037,403
Capital shares 269,842,484 372,629,343 63,358,273 157,261,317 339,324,208
--------------------------------------------------------------------------------------
Net assets, at value $ 408,056,467 $ 372,629,343 $ 42,929,417 $ 161,001,743 $ 451,097,905
======================================================================================
CLASS 1:
Net assets, at value $ 407,514,949 $ 364,027,743 $ 42,860,980 $ 158,552,597 $ 450,548,979
======================================================================================
Shares outstanding 19,338,106 364,027,743 3,920,071 10,626,952 33,103,810
======================================================================================
Net asset value and offering price per
share $ 21.07 $ 1.00 $ 10.93 $ 14.92 $ 13.61
======================================================================================
CLASS 2:
Net assets, at value $ 541,518 $ 8,601,600 $ 68,437 $ 2,449,146 $ 548,926
======================================================================================
Shares outstanding 25,776 8,601,600 6,271 164,643 40,467
======================================================================================
Net asset value and offering price per
share $ 21.01 $ 1.00 $ 10.91 $ 14.88 $ 13.56
======================================================================================
</TABLE>
See notes to financial statements. 159
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
SMALL CAP U.S. GOVERNMENT VALUE ZERO COUPON ZERO COUPON
FUND FUND SECURITIES FUND FUND - 2000 FUND - 2005
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost $ 270,107,360 $ 530,147,911 $ 12,525,372 $ 69,904,479 $ 63,480,525
===================================================================================
Value 492,179,597 513,423,554 12,519,607 71,048,688 66,083,068
Receivables:
Investment securities sold 786,759 69,247 -- -- --
Capital shares sold 2,277,635 1,404 118,161 26 --
Dividends and interest 258,996 4,179,403 15,319 -- --
-----------------------------------------------------------------------------------
Total assets 495,502,987 517,673,608 12,653,087 71,048,714 66,083,068
-----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 380,813 -- 55,855 -- --
Capital shares redeemed 593,752 489,174 17 81,145 142,329
Affiliates 280,429 224,127 8,010 37,877 35,800
Professional fees 9,701 14,550 5,174 6,263 6,171
Custodian fees 795 1,575 27 213 255
Postage and mailing fees 6,180 15,000 270 1,710 1,365
Other liabilities 12,455 18,876 372 3,966 2,284
-----------------------------------------------------------------------------------
Total liabilities 1,284,125 763,302 69,725 131,174 188,204
-----------------------------------------------------------------------------------
Net assets, at value $ 494,218,862 $ 516,910,306 $ 12,583,362 $ 70,917,540 $ 65,894,864
===================================================================================
Net assets consist of:
Undistributed net investment income $ -- $ 429,066 $ 67,960 $ 68,432 $ 57,529
Accumulated net operating loss (103) -- -- -- --
Net unrealized appreciation
(depreciation) 222,072,237 (16,724,357) (5,765) 1,144,209 2,602,543
Accumulated net realized gain (loss) 35,868,908 (10,874,414) (607,950) 654,117 1,576,658
Capital shares 236,277,820 544,080,011 13,129,117 69,050,782 61,658,134
-----------------------------------------------------------------------------------
Net assets, at value $ 494,218,862 $ 516,910,306 $ 12,583,362 $ 70,917,540 $ 65,894,864
===================================================================================
CLASS 1:
Net assets, at value $ 488,062,459 $ 515,033,351 $ 11,320,426 $ 70,917,540 $ 65,894,864
===================================================================================
Shares outstanding 18,165,015 43,707,548 1,432,771 5,642,029 4,541,817
===================================================================================
Net asset value and offering price per
share $ 26.87 $ 11.78 $ 7.90 $ 12.57 $ 14.51
===================================================================================
CLASS 2:
Net assets, at value $ 6,156,403 $ 1,876,955 $ 1,262,936 -- --
===================================================================================
Shares outstanding 229,712 159,393 160,310 -- --
===================================================================================
Net asset value and offering price per
share $ 26.80 $ 11.78 $ 7.88 -- --
===================================================================================
</TABLE>
160 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON TEMPLETON
ZERO COUPON MUTUAL DISCOVERY MUTUAL SHARES DEVELOPING MARKETS GLOBAL ASSET
FUND - 2010 SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost $ 62,664,376 $166,938,099 $398,488,380 $147,089,731 $ 59,141,054
=======================================================================================
Value 66,432,342 197,700,850 447,327,389 187,915,549 61,336,545
Cash -- 1,632,574 2,419,529 -- 964
Receivables:
Investment securities sold -- 3,345,798 8,114,832 498,432 184,517
Capital shares sold -- 79,409 82,121 2,369,754 4,400
Dividends and interest -- 395,218 942,716 412,280 485,988
Unrealized gain on forward exchange
contracts (Note 6) -- 2,192,491 1,657,673 -- --
Deposits with brokers for securities
sold short -- 5,265,787 9,023,384 -- --
---------------------------------------------------------------------------------------
Total assets 66,432,342 210,612,127 469,567,644 191,196,015 62,012,414
---------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- 1,301,351 3,507,413 -- --
Capital shares redeemed 330,804 130,162 540,336 141,885 244,521
Affiliates 36,320 159,380 285,098 190,986 43,156
Professional fees 6,257 6,471 11,020 5,295 3,503
Custodian fees 120 7,186 6,937 106,327 37,101
Postage and mailing fees 4,550 13,689 8,621 12,274 6,994
Funds advanced by custodian -- -- -- 1,343,934 --
Securities sold short, at value
(proceeds $4,261,538 and $8,791,377,
respectively) -- 5,113,253 10,521,527 -- --
Due to broker, variation margin -- 124,606 203,014 -- --
Unrealized loss on forward exchange
contracts (Note 6) -- 553,422 478,156 -- 34,062
Other liabilities 4,949 12,821 10,928 19,948 3,339
---------------------------------------------------------------------------------------
Total liabilities 383,000 7,422,341 15,573,050 1,820,649 372,676
---------------------------------------------------------------------------------------
Net assets, at value $ 66,049,342 $203,189,786 $453,994,594 $189,375,366 $ 61,639,738
======================================================================================
</TABLE>
See notes to financial statements. 161
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON TEMPLETON
ZERO COUPON MUTUAL DISCOVERY MUTUAL SHARES DEVELOPING MARKETS GLOBAL ASSET
FUND - 2010 SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets consist of:
Undistributed net investment
income $ 58,754 $ 4,226,422 $ 8,337,233 $ 1,222,672 $ 103,182
Net unrealized appreciation 3,767,966 31,507,187 48,194,718 40,825,818 2,157,734
Accumulated net realized gain
(loss) 903,707 (7,818,567) 7,886,339 (71,121,088) (1,856,176)
Capital shares 61,318,915 175,274,744 389,576,304 218,447,964 61,234,998
-------------------------------------------------------------------------------------------
Net assets, at value $ 66,049,342 $ 203,189,786 $ 453,994,594 $ 189,375,366 $ 61,639,738
===========================================================================================
CLASS 1:
Net assets, at value $ 66,049,342 $ 202,776,796 $ 448,278,273 $ 189,029,214 $ 61,587,834
===========================================================================================
Shares outstanding 4,668,716 14,940,641 33,894,944 18,016,256 5,214,732
===========================================================================================
Net asset value and offering price
per share $ 14.15 $ 13.57 $ 13.23 $ 10.49 $ 11.81
===========================================================================================
CLASS 2:
Net assets, at value -- $ 412,990 $ 5,716,321 $ 346,152 $ 51,904
===========================================================================================
Shares outstanding -- 30,497 431,392 33,093 4,401
===========================================================================================
Net asset value and offering price
per share -- $ 13.54 $ 13.25 $ 10.46 $ 11.79
===========================================================================================
</TABLE>
162 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
GROWTH FUND SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost $ 618,675,494 $ 95,007,070 $ 631,466,875 $ 22,575,182 $ 106,903,704
========================================================================================
Value 712,189,102 89,680,803 781,132,688 25,538,680 92,573,451
Cash 1,048 842 -- 243 865,453
Receivables:
Investment securities sold 55,761 -- 61,059 -- 3,687,557
Capital shares sold 81,193 -- 4,141 41,346 25,000
Dividends and interest 1,526,955 1,668,566 1,852,850 58,116 45,680
----------------------------------------------------------------------------------------
Total assets 713,854,059 91,350,211 783,050,738 25,638,385 97,197,141
----------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- -- 38,774 -- --
Capital shares redeemed 363,294 123,169 1,934,454 10,007 195,707
Affiliates 498,764 45,155 538,494 21,851 103,299
Professional fees 17,057 5,160 24,843 2,176 4,016
Custodian fees 104,938 9,732 88,830 10,323 17,778
Postage and mailing fees 42,643 7,312 33,596 1,980 9,063
Funds advanced by custodian -- -- 61,484 -- --
Unrealized loss on forward exchange
contracts (Note 6) -- 169,791 -- -- --
Other liabilities 33,913 9,981 61,271 1,899 16,903
----------------------------------------------------------------------------------------
Total liabilities 1,060,609 370,300 2,781,746 48,236 346,766
----------------------------------------------------------------------------------------
Net assets, at value $ 712,793,450 $ 90,979,911 $ 780,268,992 $ 25,590,149 $ 96,850,375
========================================================================================
Net assets consist of:
Undistributed net investment income $ 11,248,397 $ 229,905 $ -- $ 502,859 $ 91,959
Accumulated distributions in excess
of net investment income -- -- (580,604) -- --
Net unrealized appreciation
(depreciation) 93,513,608 (5,517,389) 149,665,813 2,963,498 (14,330,253)
Accumulated net realized gain (loss) 73,981,403 (7,482,293) 185,159,922 (4,537,241) (51,642,014)
Capital shares 534,050,042 103,749,688 446,023,861 26,661,033 162,730,683
----------------------------------------------------------------------------------------
Net assets, at value $ 712,793,450 $ 90,979,911 $ 780,268,992 $ 25,590,149 $ 96,850,375
========================================================================================
CLASS 1:
Net assets, at value $ 708,310,592 $ 90,537,399 $ 777,036,693 $ 23,541,460 $ 96,738,284
========================================================================================
Shares outstanding 45,321,675 8,179,658 43,288,146 2,126,632 9,490,308
========================================================================================
Net asset value and offering price
per share $ 15.63 $ 11.07 $ 17.95 $ 11.07 $ 10.19
========================================================================================
CLASS 2:
Net assets, at value $ 4,482,858 $ 442,512 $ 3,232,299 $ 2,048,689 $ 112,091
========================================================================================
Shares outstanding 287,317 40,077 180,538 185,021 10,984
========================================================================================
Net asset value and offering price
per share $ 15.60 $ 11.04 $ 17.90 $ 11.07 $ 10.20
========================================================================================
</TABLE>
See notes to financial statements. 163
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:(+)
Dividends $ 19,529,589 $ 63,373 $ 36,607,257 $ 104,720 $ 24,123,563
Interest 1,138,951 27,531 3,087,666 40,581,814 52,504,261
----------------------------------------------------------------------------------------
Total investment income 20,668,540 90,904 39,694,923 40,686,534 76,627,824
----------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 4,247,909 59,620 5,454,205 1,992,885 4,605,869
Administrative fees (Note 3) -- 15,012 -- -- --
Distribution fees (Note 3)
Class 2 538 79 1,395 344 1,250
Custodian fees 163,582 232 8,910 4,176 42,728
Reports to shareholders 85,845 902 109,550 43,584 134,635
Professional fees 44,244 5,352 53,507 23,108 44,745
Trustees' fees and expenses 7,343 82 9,640 3,225 8,114
Other 18,412 607 13,189 18,344 22,791
----------------------------------------------------------------------------------------
Total expenses 4,567,873 81,886 5,650,396 2,085,666 4,860,132
----------------------------------------------------------------------------------------
Net investment income 16,100,667 9,018 34,044,527 38,600,868 71,767,692
----------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 179,577,293 (1,553,921) 99,968,490 (7,698,408) 24,923,522
Foreign currency transactions (1,270,291) (583) (237,791) (1,982) (93,012)
----------------------------------------------------------------------------------------
Net realized gain (loss) 178,307,002 (1,554,504) 99,730,699 (7,700,390) 24,830,510
Net unrealized appreciation
(depreciation) on:
Investments 100,162,131 652,159 (115,708,567) (29,388,750) (113,078,223)
Translation of assets and liabilities
denominated in foreign currencies 46,650 -- 5,820 465 (719)
----------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) 100,208,781 652,159 (115,702,747) (29,388,285) (113,078,942)
----------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 278,515,783 (902,345) (15,972,048) (37,088,675) (88,248,432)
----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 294,616,450 $ (893,327) $ 18,072,479 $ 1,512,193 $ (16,480,740)
========================================================================================
</TABLE>
(+) Net of foreign taxes and fees of $708,880, $542, $313,282, and $38,336 for
the Franklin Global Communications Securities Fund, the Franklin Global Health
Care Securities Fund, the Franklin Growth and Income Fund, and the Franklin
Income Securities Fund, respectively.
164 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN RISING
LARGE CAP GROWTH MONEY MARKET NATURAL RESOURCES REAL ESTATE DIVIDENDS
SECURITIES FUND FUND SECURITIES FUND FUND FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:(+)
Dividends $ 2,583,330 $ -- $ 542,986 $ 11,325,218 $ 11,987,239
Interest 2,058,028 19,768,523 66,359 300,341 417,263
----------------------------------------------------------------------------------------
Total investment income 4,641,358 19,768,523 609,345 11,625,559 12,404,502
----------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 2,501,063 1,971,026 293,810 1,197,913 4,308,795
Distribution fees (Note 3)
Class 2 1,056 6,301 120 844 708
Custodian fees 3,333 3,894 1,466 2,848 5,764
Reports to shareholders 22,900 34,596 4,549 23,690 60,158
Professional fees 18,418 20,932 7,120 14,001 29,748
Trustees' fees and expenses 2,766 3,287 393 1,802 4,917
Other 4,247 4,365 948 2,368 7,079
----------------------------------------------------------------------------------------
Total expenses 2,553,783 2,044,401 308,406 1,243,466 4,417,169
----------------------------------------------------------------------------------------
Net investment income 2,087,575 17,724,122 300,939 10,382,093 7,987,333
----------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments 26,589,913 208 1,696,606 2,394,868 62,450,636
Foreign currency transactions -- -- 12,610 -- --
----------------------------------------------------------------------------------------
Net realized gain 26,589,913 208 1,709,216 2,394,868 62,450,636
Net unrealized appreciation
(depreciation) on:
Investments 68,147,813 -- 11,169,592 (25,421,990) (130,647,558)
Translation of assets and liabilities
denominated in foreign currencies -- -- 83 -- --
----------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) 68,147,813 -- 11,169,675 (25,421,990) (130,647,558)
----------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 94,737,726 208 12,878,891 (23,027,122) (68,196,922)
----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 96,825,301 $ 17,724,330 $ 13,179,830 $(12,645,029) $ (60,209,589)
=======================================================================================
</TABLE>
(+) Net of foreign taxes and fees of $23,179, $14,987, and $27,887 for the
Franklin Large Cap Growth Securities Fund, the Franklin Natural Resources
Securities Fund, and the Franklin Rising Dividends Fund, respectively.
See notes to financial statements. 165
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
SMALL CAP U.S. GOVERNMENT VALUE SECURITIE SZERO COUPON ZERO COUPON
FUND FUND FUND FUND - 2000 FUND - 2005
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:(+)
Dividends $ 1,421,876 $ -- $ 126,152 $ -- $ --
Interest 850,619 41,275,425 27,280 6,070,884 4,946,023
------------------------------------------------------------------------------------
Total investment income 2,272,495 41,275,425 153,432 6,070,884 4,946,023
------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 2,375,111 3,000,062 62,295 506,237 470,096
Administrative fees (Note 3) -- -- 15,666 -- --
Distribution fees (Note 3)
Class 2 1,972 3,195 573 -- --
Custodian fees 3,187 6,255 103 854 1,066
Reports to shareholders 26,331 61,929 895 7,589 5,452
Professional fees 18,046 31,359 5,453 8,405 8,054
Trustees' fees and expenses 2,590 5,135 86 681 633
Other 6,930 4,676 336 -- --
------------------------------------------------------------------------------------
Total expenses 2,434,167 3,112,611 85,407 523,766 485,301
------------------------------------------------------------------------------------
Net investment income (loss) (161,672) 38,162,814 68,025 5,547,118 4,460,722
------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 36,534,514 2,048,000 (517,910) 654,496 1,576,953
Foreign currency transactions (103) -- -- -- --
------------------------------------------------------------------------------------
Net realized gain (loss) 36,534,411 2,048,000 (517,910) 654,496 1,576,953
Net unrealized appreciation (depreciation)
on investments 205,811,890 (45,913,508) 396,623 (3,836,376) (10,787,808)
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 242,346,301 (43,865,508) (121,287) (3,181,880) (9,210,855)
------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 242,184,629 $ (5,702,694) $ (53,262) $ 2,365,238 $ (4,750,133)
====================================================================================
</TABLE>
(+) Net of foreign taxes and fees of $152 for the Franklin Value Securities
Fund.
166 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON
FRANKLIN DEVELOPING TEMPLETON
ZERO COUPON MUTUAL DISCOVERY MUTUAL SHARES MARKETS GLOBAL ASSET
FUND - 2010 SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:(+)
Dividends $ -- $ 3,428,109 $ 5,743,802 $ 4,068,177 $ 1,320,763
Interest 5,211,404 1,464,797 5,503,121 32,409 1,474,063
-------------------------------------------------------------------------------------
Total investment income 5,211,404 4,892,906 11,246,923 4,100,586 2,794,826
-------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 502,424 1,617,147 2,833,172 2,116,025 450,496
Administrative fees (Note 3) -- 302,448 667,459 -- 103,961
Distribution fees (Note 3)
Class 2 -- 478 3,794 848 98
Custodian fees 737 30,400 28,000 203,000 --
Reports to shareholders 10,354 18,200 57,824 9,600 7,139
Professional fees 8,758 13,100 37,100 28,900 4,400
Trustees' fees and expenses 677 1,800 3,900 1,400 100
Dividends for securities sold short -- 40,701 108,548 -- --
Other 719 2,155 -- 153 --
-------------------------------------------------------------------------------------
Total expenses 523,669 2,026,429 3,739,797 2,359,926 566,194
-------------------------------------------------------------------------------------
Net investment income 4,687,735 2,866,477 7,507,126 1,740,660 2,228,632
-------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments(++) 996,100 2,136,546 10,284,316 (34,617,401) (760,254)
Short sale transactions -- (400,198) 4,016,951 -- --
Foreign currency transactions -- 5,275,927 4,802,319 (83,976) (248,788)
-------------------------------------------------------------------------------------
Net realized gain (loss) 996,100 7,012,275 19,103,586 (34,701,377) (1,009,042)
Net unrealized appreciation
(depreciation) on:
Investments (16,515,434) 29,826,229 30,546,374 107,019,557 3,381,134
Translation of assets and liabilities
denominated in foreign currencies -- 2,642,118 1,007,670 -- (43,069)
-------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) (16,515,434) 32,468,347 31,554,044 107,019,557 3,338,065
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (15,519,334) 39,480,622 50,657,630 72,318,180 2,329,023
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (10,831,599) $ 42,347,099 $ 58,164,756 $ 74,058,840 $ 4,557,655
=====================================================================================
</TABLE>
(+) Net of foreign taxes and fees of $310,558, $228,493, $401,706, and $119,197,
for the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Developing Markets Equity Fund, and the Templeton Global Asset
Allocation Fund, respectively.
(++) Net of foreign taxes of $181,680 for the Templeton Developing Markets
Equity Fund.
See notes to financial statements. 167
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
GROWTH FUND SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:(+)
Dividends $ 17,650,467 $ -- $ 23,609,099 $ 826,264 $ 1,938,963
Interest 1,839,194 7,427,021 1,793,509 32,478 60,334
------------------------------------------------------------------------------------
Total investment income 19,489,661 7,427,021 25,402,608 858,742 1,999,297
------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 5,923,920 714,454 6,729,368 201,942 995,038
Administrative fees (Note 3) -- -- -- 35,637 --
Distribution fees (Note 3)
Class 2 4,155 328 6,771 1,086 217
Custodian fees 215,000 39,100 509,300 20,200 76,600
Reports to shareholders 65,000 9,600 57,100 3,400 --
Professional fees 30,700 6,800 46,800 2,700 2,700
Trustees' fees and expenses 5,800 800 7,000 200 700
Other 4,289 864 7,534 164 444
------------------------------------------------------------------------------------
Total expenses 6,248,864 771,946 7,363,873 265,329 1,075,699
------------------------------------------------------------------------------------
Net investment income 13,240,797 6,655,075 18,038,735 593,413 923,598
------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 73,984,430 (6,186,749) 185,163,322 (1,993,271) (26,964,120)
Foreign currency transactions (990,366) 131,489 (2,364,590) (20,383) 151,613
------------------------------------------------------------------------------------
Net realized gain (loss) 72,994,064 (6,055,260) 182,798,732 (2,013,654) (26,812,507)
Net unrealized appreciation
(depreciation) on:
Investments 47,953,928 (8,129,020) (12,829,338) 6,488,119 59,369,564
Translation of assets and liabilities
denominated in foreign currencies -- (241,188) -- -- (81,252)
------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) 47,953,928 (8,370,208) (12,829,338) 6,488,119 59,288,312
------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 120,947,992 (14,425,468) 169,969,394 4,474,465 32,475,805
------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 134,188,789 $ (7,770,393) $ 188,008,129 $ 5,067,878 $ 33,399,403
====================================================================================
</TABLE>
(+) Net of foreign taxes and fees of $1,502,264, $2,441,553, $93,421, and
$162,316 for the Templeton Global Growth Fund, the Templeton International
Equity Fund, the Templeton International Smaller Companies Fund, and the
Templeton Pacific Growth Fund, respectively.
168 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL HEALTH FRANKLIN GROWTH
COMMUNICATIONS SECURITIES FUND CARE SECURITIES FUND AND INCOME FUND
----------------------------------------------------------------------------------------------
1999 1998 1999 1998(*) 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income $ 16,100,667 $ 33,039,638 $ 9,018 $ 25,087 $ 34,044,527 $ 44,009,803
Net realized gain (loss)
from investments and foreign
currency transactions 178,307,002 80,008,445 (1,554,504) (261,450) 99,730,699 119,155,296
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 100,208,781 (5,715,083) 652,159 875,993 (115,702,747) (59,404,856)
----------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 294,616,450 107,333,000 (893,327) 639,630 18,072,479 103,760,243
Distributions to shareholders
from:
Net investment income:
Class 1 (32,989,434) (42,481,848) (25,070) -- (42,738,181) (43,569,458)
Class 2 (10,171) -- (99) -- (22,072) --
Net realized gains:
Class 1 (79,892,779) (61,944,426) -- -- (119,137,890) (102,500,145)
Class 2 (24,631) -- -- -- (61,531) --
----------------------------------------------------------------------------------------------
Total distributions
to shareholders (112,917,015) (104,426,274) (25,169) -- (161,959,674) (146,069,603)
Capital share transactions:
(Note 2)
Class 1 (181,373,622) (146,055,631) 3,243,389 8,350,695 (210,389,340) 22,576,507
Class 2 420,442 -- 75,261 -- 875,164 --
----------------------------------------------------------------------------------------------
Total capital share transactions (180,953,180) (146,055,631) 3,318,650 8,350,695 (209,514,176) 22,576,507
Net increase (decrease)
in net assets 746,255 (143,148,905) 2,400,154 8,990,325 (353,401,371) (19,732,853)
Net assets
Beginning of year 986,755,196 1,129,904,101 8,990,325 -- 1,318,743,273 1,338,476,126
----------------------------------------------------------------------------------------------
End of year $ 987,501,451 $ 986,755,196 $11,390,479 $8,990,325 $ 965,341,902 $1,318,743,273
==============================================================================================
Undistributed net investment
income included in net assets:
End of year $ 14,830,361 $ 32,999,590 $ 8,353 $ 25,087 $ 34,321,327 $ 43,273,575
==============================================================================================
</TABLE>
* For the period May 1, 1998 (effective date) to December 31, 1998.
See notes to financial statements. 169
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME FUND FRANKLIN INCOME SECURITIES FUND
-------------------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 38,600,868 $ 48,463,944 $ 71,767,692 $ 90,721,586
Net realized gain (loss) from
investments and foreign
currency transactions (7,700,390) 11,863,739 24,830,510 21,750,117
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies (29,388,285) (53,325,986) (113,078,942) (93,203,950)
-------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 1,512,193 7,001,697 (16,480,740) 19,267,753
Distributions to shareholders from:
Net investment income:
Class 1 (85,622,207) (44,113,847) (80,764,333) (102,762,930)
Class 2 (105,289) -- (43,625) --
Net realized gains:
Class 1 (12,520,156) (2,617,950) (28,938,989) (24,268,308)
Class 2 (13,492) -- (15,631) --
-------------------------------------------------------------------------------------
Total distributions to shareholders (98,261,144) (46,731,797) (109,762,578) (127,031,238)
Capital share transactions: (Note 2)
Class 1 (35,847,371) (9,697,227) (284,567,490) (113,183,247)
Class 2 567,008 -- 1,389,381 --
-------------------------------------------------------------------------------------
Total capital share transactions (35,280,363) (9,697,227) (283,178,109) (113,183,247)
Net increase (decrease)
in net assets (132,029,314) (49,427,327) (409,421,427) (220,946,732)
Net assets
Beginning of year 446,608,505 496,035,832 1,185,839,887 1,406,786,619
-------------------------------------------------------------------------------------
End of year $ 314,579,191 $ 446,608,505 $ 776,418,460 $ 1,185,839,887
=====================================================================================
Undistributed net investment
income included in net assets:
End of year $ 553,992 $ 48,138,649 $ 66,903,760 $ 82,921,968
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP
GROWTH SECURITIES FUND
---------------------------------------
1999 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,087,575 $ 1,514,533
Net realized gain (loss) from
investments and foreign
currency transactions 26,589,913 (3,325,719)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 68,147,813 31,691,954
---------------------------------------
Net increase (decrease) in net
assets resulting from operations 96,825,301 29,880,768
Distributions to shareholders from:
Net investment income:
Class 1 (1,509,956) (539,187)
Class 2 (1,301) --
Net realized gains:
Class 1 -- --
Class 2 -- --
---------------------------------------
Total distributions to shareholders (1,511,257) (539,187)
Capital share transactions: (Note 2)
Class 1 91,430,051 82,255,070
Class 2 360,734 --
---------------------------------------
Total capital share transactions 91,790,785 82,255,070
Net increase (decrease)
in net assets 187,104,829 111,596,651
Net assets
Beginning of year 220,951,638 109,354,987
---------------------------------------
End of year $ 408,056,467 $ 220,951,638
=======================================
Undistributed net investment
income included in net assets:
End of year $ 2,086,309 $ 1,509,991
=======================================
</TABLE>
170 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN MONEY MARKET FUND FRANKLIN NATURAL RESOURCES SECURITIES FUND
---------------------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income $ 17,724,122 $ 19,603,887 $ 300,939 $ 751,162
Net realized gain (loss)
from investments and foreign
currency transactions 208 (371) 1,709,216 (16,988,914)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies -- -- 11,169,675 (1,662,177)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 17,724,330 19,603,516 13,179,830 (17,899,929)
Distributions to shareholders
from:
Net investment income:(*)
Class 1 (17,613,140) (19,603,516) (735,982) (946,913)
Class 2 (111,190) -- (752) --
Net realized gains:
Class 1 -- -- -- --
Class 2 -- -- -- --
---------------------------------------------------------------------------------
Total distributions to
shareholders (17,724,330) (19,603,516) (736,734) (946,913)
Capital share transactions:
(Note 2)
Class 1 (50,313,015) 46,891,619 (15,517,295) (10,150,422)
Class 2 8,601,600 -- 76,570 --
---------------------------------------------------------------------------------
Total capital share transactions (41,711,415) 46,891,619 (15,440,725) (10,150,422)
Net increase (decrease)
in net assets (41,711,415) 46,891,619 (2,997,629) (28,997,264)
Net assets
Beginning of year 414,340,758 367,449,139 45,927,046 74,924,310
---------------------------------------------------------------------------------
End of year $ 372,629,343 $ 414,340,758 $ 42,929,417 $ 45,927,046
=================================================================================
Undistributed net investment income
included in net assets:
End of year $ -- $ -- $ 303,873 $ 727,057
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN REAL ESTATE FUND
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income $ 10,382,093 $ 20,084,431
Net realized gain (loss)
from investments and foreign
currency transactions 2,394,868 24,686,332
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies (25,421,990) (114,230,527)
----------------------------------
Net increase (decrease) in net assets
resulting from operations (12,645,029) (69,459,764)
Distributions to shareholders
from:
Net investment income:(*)
Class 1 (18,056,331) (15,362,062)
Class 2 (5,537) --
Net realized gains:
Class 1 (25,020,454) (9,509,537)
Class 2 (7,673) --
----------------------------------
Total distributions to
shareholders (43,089,995) (24,871,599)
Capital share transactions:
(Note 2)
Class 1 (67,959,433) (63,932,493)
Class 2 2,405,793 --
----------------------------------
Total capital share transactions (65,553,640) (63,932,493)
Net increase (decrease)
in net assets (121,288,664) (158,263,856)
Net assets
Beginning of year 282,290,407 440,554,263
----------------------------------
End of year $ 161,001,743 $ 282,290,407
==================================
Undistributed net investment income
included in net assets:
End of year $ 11,229,198 $ 18,909,704
==================================
</TABLE>
* For the Franklin Money Market Fund, distributions were increased by net
realized gains of $208 and decreased by net realized losses of $371 from
security transactions for the years ended December 31, 1999 and 1998,
respectively.
See notes to financial statements. 171
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND FRANKLIN SMALL CAP FUND
------------------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ 7,987,333 $ 9,364,650 $ (161,672) $ 1,603,412
Net realized gain (loss) from
investments and foreign
currency transactions 62,450,636 93,670,542 36,534,411 (229,426)
Net unrealized appreciation (de-
preciation) on investments (130,647,558) (58,097,205) 205,811,890 (8,381,265)
------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting from operations (60,209,589) 44,937,987 242,184,629 (7,007,279)
Distributions to shareholders
from:
Net investment income:
Class 1 (9,355,158) (8,600,227) (1,492,353) (201,399)
Class 2 (5,248) -- (619) --
Net realized gains:
Class 1 (93,725,124) (105,391,578) (208,580) (25,854,889)
Class 2 (52,582) -- (53) --
------------------------------------------------------------------------------
Total distributions
to shareholders (103,138,112) (113,991,805) (1,701,605) (26,056,288)
Capital share transactions:
(Note 2)
Class 1 (138,053,357) 40,625,030 (66,396,634) 35,061,886
Class 2 629,967 -- 4,672,614 --
------------------------------------------------------------------------------
Total capital share transactions (137,423,390) 40,625,030 (61,724,020) 35,061,886
Net increase (decrease)
in net assets (300,771,091) (28,428,788) 178,759,004 1,998,319
Net assets
Beginning of year 751,868,996 780,297,784 315,459,858 313,461,539
------------------------------------------------------------------------------
End of year $ 451,097,905 $ 751,868,996 $ 494,218,862 $ 315,459,858
==============================================================================
Undistributed net investment income
(accumulated net operating loss)
included in net assets:
End of year $ 7,986,383 $ 9,359,456 $ (103) $ 1,532,535
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN U.S. GOVERNMENT FUND
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ 38,162,814 $ 45,349,259
Net realized gain (loss) from
investments and foreign
currency transactions 2,048,000 2,808,941
Net unrealized appreciation (de-
preciation) on investments (45,913,508) 3,506,133
-----------------------------------
Net increase (decrease)
in net assets resulting from operations (5,702,694) 51,664,333
Distributions to shareholders
from:
Net investment income:
Class 1 (82,724,494) (50,958,932)
Class 2 (257,323) --
Net realized gains:
Class 1 -- --
Class 2 -- --
-----------------------------------
Total distributions
to shareholders (82,981,817) (50,958,932)
Capital share transactions:
(Note 2)
Class 1 (107,385,179) (54,957,919)
Class 2 2,148,073 --
-----------------------------------
Total capital share transactions (105,237,106) (54,957,919)
Net increase (decrease)
in net assets (193,921,617) (54,252,518)
Net assets
Beginning of year 710,831,923 765,084,441
-----------------------------------
End of year $ 516,910,306 $ 710,831,923
==================================-
Undistributed net investment income
(accumulated net operating loss)
included in net assets:
End of year $ 429,066 $ 45,248,069
===================================
</TABLE>
172 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN VALUE SECURITIES FUND FRANKLIN ZERO COUPON FUND - 2000
------------------------------------------------------------------------------
1999 1998(*) 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 68,025 $ 28,176 $ 5,547,118 $ 6,767,257
Net realized gain (loss) from
investments (517,910) (90,040) 654,496 1,752,805
Net unrealized appreciation (de-
preciation) on investments 396,623 (402,388) (3,836,376) (1,138,823)
------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (53,262) (464,252) 2,365,238 7,381,239
Distributions to shareholders from:
Net investment income:
Class 1 (28,103) -- (12,195,607) (7,809,331)
Class 2 (138) -- -- --
Net realized gains:
Class 1 -- -- (1,752,252) (1,249,416)
------------------------------------------------------------------------------
Total distributions
to shareholders (28,241) -- (13,947,859) (9,058,747)
Capital share transactions: (Note 2)
Class 1 2,419,613 9,477,723 (11,042,665) (16,430,117)
Class 2 1,231,781 -- -- --
------------------------------------------------------------------------------
Total capital share transactions 3,651,394 9,477,723 (11,042,665) (16,430,117)
Net increase (decrease) in net assets 3,569,891 9,013,471 (22,625,286) (18,107,625)
Net assets
Beginning of year 9,013,471 -- 93,542,826 111,650,451
------------------------------------------------------------------------------
End of year $ 12,583,362 $ 9,013,471 $ 70,917,540 $ 93,542,826
==============================================================================
Undistributed net investment income
included in net assets:
End of year $ 67,960 $ 28,176 $ 68,432 $ 6,716,921
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN ZERO COUPON FUND - 2005
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,460,722 $ 4,640,880
Net realized gain (loss) from
investments 1,576,953 454,474
Net unrealized appreciation (de-
preciation) on investments (10,787,808) 4,293,862
----------------------------------
Net increase (decrease)
in net assets resulting from operations (4,750,133) 9,389,216
Distributions to shareholders from:
Net investment income:
Class 1 (9,038,860) (4,795,119)
Class 2 -- --
Net realized gains:
Class 1 (453,570) (1,109,296)
----------------------------------
Total distributions to shareholders (9,492,430) (5,904,415)
Capital share transactions: (Note 2)
Class 1 (4,349,958) 3,707,073
Class 2 -- --
----------------------------------
Total capital share transactions (4,349,958)
3,707,073
Net increase (decrease) in net assets (18,592,521) 7,191,874
Net assets
Beginning of year 84,487,385 77,295,511
----------------------------------
End of year $ 65,894,864 $ 84,487,385
==================================
Undistributed net investment income
included in net assets:
End of year $ 57,529 $ 4,635,667
==================================
</TABLE>
* For the period May 1, 1998 (effective date) to December 31, 1998.
See notes to financial statements. 173
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN ZERO COUPON FUND - 2010 MUTUAL DISCOVERY SECURITIES FUND
-----------------------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,687,735 $ 4,911,607 $ 2,866,477 $ 4,620,204
Net realized gain (loss) from
investments and foreign
currency transactions 996,100 2,320,295 7,012,275 (11,326,928)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies (16,515,434) 4,482,254 32,468,347 (12,566,983)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (10,831,599) 11,714,156 42,347,099 (19,273,707)
Distributions to shareholders from:
Net investment income:
Class 1 (9,535,103) (4,888,749) (5,872,849) (3,306,778)
Class 2 -- -- (5,671) --
Net realized gains:
Class 1 (2,318,943) (676,395) -- (3,076,305)
-----------------------------------------------------------------------------
Total distributions to shareholders (11,854,046) (5,565,144) (5,878,520) (6,383,083)
Capital share transactions: (Note 2)
Class 1 (4,780,148) 1,851,397 (58,299,042) 51,660,205
Class 2 -- -- 364,072 --
-----------------------------------------------------------------------------
Total capital share transactions (4,780,148) 1,851,397 (57,934,970) 51,660,205
Net increase (decrease)
in net assets (27,465,793) 8,000,409 (21,466,391) 26,003,415
Net assets
Beginning of year 93,515,135 85,514,726 224,656,177 198,652,762
-----------------------------------------------------------------------------
End of year $ 66,049,342 $ 93,515,135 $ 203,189,786 $ 224,656,177
=============================================================================
Undistributed net investment income
included in net assets:
End of year $ 58,754 $ 4,906,277 $ 4,226,422 $ 4,105,301
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 7,507,126 $ 12,337,999
Net realized gain (loss) from
investments and foreign
currency transactions 19,103,586 (9,502,532)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 31,554,044 (8,967,243)
-----------------------------------
Net increase (decrease) in net assets
resulting from operations 58,164,756 (6,131,776)
Distributions to shareholders from:
Net investment income:
Class 1 (12,213,087) (5,124,853)
Class 2 (45,323) --
Net realized gains:
Class 1 -- (4,478,333)
-----------------------------------
Total distributions to shareholders (12,258,410) (9,603,186)
Capital share transactions: (Note 2)
Class 1 (79,961,449) 110,391,317
Class 2 5,606,010 --
-----------------------------------
Total capital share transactions (74,355,439)
110,391,317
Net increase (decrease)
in net assets (28,449,093) 94,656,355
Net assets
Beginning of year 482,443,687 387,787,332
-----------------------------------
End of year $ 453,994,594 $ 482,443,687
===================================
Undistributed net investment income
included in net assets:
End of year $ 8,337,233 $ 11,568,707
==================================
</TABLE>
174 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
MARKETS EQUITY FUND TEMPLETON GLOBAL ASSET ALLOCATION FUND
-------------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,740,660 $ 4,306,111 $ 2,228,632 $ 3,890,233
Net realized gain (loss) from
investments and foreign
currency transactions (34,701,377) (27,689,978) (1,009,042) 2,718,229
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 107,019,557 (32,987,790) 3,338,065 (7,345,527)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 74,058,840 (56,371,657) 4,557,655 (737,065)
Distributions to shareholders from:
Net investment income:
Class 1 (3,408,057) (7,007,398) (4,646,077) (3,274,568)
Class 2 (2,002) -- (3,126) --
Net realized gains:
Class 1 -- (22,786,132) (4,576,289) (3,894,373)
Class 2 -- -- (2,855) --
-------------------------------------------------------------------------------
Total distributions to shareholders (3,410,059) (29,793,530) (9,228,347) (7,168,941)
Capital share transactions: (Note 2)
Class 1 (43,768,402) (31,081,577) (15,413,754) (3,826,198)
Class 2 61,700 -- 54,566 --
-------------------------------------------------------------------------------
Total capital share transactions (43,706,702) (31,081,577) (15,359,188) (3,826,198)
Net increase (decrease)
in net assets 26,942,079 (117,246,764) (20,029,880) (11,732,204)
Net assets
Beginning of year 162,433,287 279,680,051 81,669,618 93,401,822
-------------------------------------------------------------------------------
End of year $ 189,375,366 $ 162,433,287 $ 61,639,738 $ 81,669,618
===============================================================================
Undistributed net investment income
included in net assets:
End of year $ 1,222,672 $ 3,107,117 $ 103,182 $ 2,772,913
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 13,240,797 $ 17,620,120
Net realized gain (loss) from
investments and foreign
currency transactions 72,994,064 76,153,893
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 47,953,928 (33,429,013)
----------------------------------
Net increase (decrease) in net assets
resulting from operations 134,188,789 60,345,000
Distributions to shareholders from:
Net investment income:
Class 1 (15,661,321) (20,206,508)
Class 2 (19,742) --
Net realized gains:
Class 1 (75,768,827) (73,600,973)
Class 2 (95,513) --
----------------------------------
Total distributions to shareholders (91,545,403) (93,807,481)
Capital share transactions: (Note 2)
Class 1 (80,925,896) 22,098,260
Class 2 3,995,606 --
----------------------------------
Total capital share transactions (76,930,290) 22,098,260
Net increase (decrease)
in net assets (34,286,904) (11,364,221)
Net assets
Beginning of year 747,080,354 758,444,575
----------------------------------
End of year $ 712,793,450 $ 747,080,354
==================================
Undistributed net investment income
included in net assets:
End of year $ 11,248,397 $ 14,679,029
==================================
</TABLE>
See notes to financial statements. 175
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TEMPLETON GLOBAL INCOME TEMPLETON INTERNATIONAL
SECURITIES FUND EQUITY FUND
-----------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,655,075 $ 11,448,872 $ 18,038,735 $ 32,119,117
Net realized gain (loss) from investments and foreign
currency transactions (6,055,260) (5,620,478) 182,798,732 24,006,171
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies (8,370,208) 5,419,749 (12,829,338) 3,813,638
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (7,770,393) 11,248,143 188,008,129 59,938,926
Distributions to shareholders from:
Net investment income:
Class 1 (9,277,104) (12,370,027) (45,793,540) (34,702,026)
Class 2 (19,727) -- (143,933) --
In excess of net investment income:
Class 1 -- -- (577,524) --
Class 2 -- -- (3,081) --
Net realized gains:
Class 1 -- -- (24,017,474) (69,708,108)
Class 2 -- -- (55,641) --
-----------------------------------------------------------------
Total distributions to shareholders (9,296,831) (12,370,027) (70,591,193) (104,410,134)
Capital share transactions: (Note 2)
Class 1 (43,358,906) (32,953,553) (295,288,883) (161,058,239)
Class 2 465,304 -- 2,240,837 --
-----------------------------------------------------------------
Total capital share transactions (42,893,602) (32,953,553) (293,048,046) (161,058,239)
Net decrease in net assets (59,960,826) (34,075,437) (175,631,110) (205,529,447)
Net assets
Beginning of year 150,940,737 185,016,174 955,900,102 1,161,429,549
-----------------------------------------------------------------
End of year $ 90,979,911 $ 150,940,737 $ 780,268,992 $ 955,900,102
=================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year $ 229,905 $ 4,943,426 $ (580,604) $ 30,263,329
=================================================================
</TABLE>
176 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND TEMPLETON PACIFIC GROWTH FUND
-------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 593,413 $ 691,086 $ 923,598 $ 3,011,920
Net realized loss from investments and foreign
currency transactions (2,013,654) (2,334,096) (26,812,507) (24,149,643)
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies 6,488,119 (2,224,314) 59,288,312 (1,803,583)
-------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 5,067,878 (3,867,324) 33,399,403 (22,941,306)
Distributions to shareholders from:
Net investment income:
Class 1 (690,707) (741,651) (982,376) (5,322,439)
Class 2 (424) -- (876) --
Net realized gains:
Class 1 -- (858,571) -- (1,619,542)
-------------------------------------------------------------------
Total distributions to shareholders (691,131) (1,600,222) (983,252) (6,941,981)
Capital share transactions: (Note 2)
Class 1 (5,614,919) (1,733,715) (34,404,047) (36,751,143)
Class 2 1,828,877 -- 68,886 --
-------------------------------------------------------------------
Total capital share transactions (3,786,042) (1,733,715) (34,335,161) (36,751,143)
Net increase (decrease) in net assets 590,705 (7,201,261) (1,919,010) (66,634,430)
Net assets
Beginning of year 24,999,444 32,200,705 98,769,385 165,403,815
-------------------------------------------------------------------
End of year $25,590,149 $24,999,444 $ 96,850,375 $ 98,769,385
===================================================================
Undistributed net investment income included in net assets:
End of year $ 502,859 $ 620,960 $ 91,959 $ --
===================================================================
</TABLE>
See notes to financial statements. 177
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Variable Insurance Products Trust (the Trust) is registered
under the Investment Company Act of 1940, as an open-end investment company,
consisting of twenty-five series (the Funds). All Funds are diversified except
the Franklin Global Health Care Securities Fund, the Franklin Value Securities
Fund, and the Templeton Global Income Securities Fund. Shares of the Funds are
sold only to insurance company separate accounts to fund the benefits of
variable life insurance policies or variable annuity contracts. As of December
31, 1999, over 90% of the total Trust shares were sold through one insurance
company. The Funds and their investment objectives are:
<TABLE>
<CAPTION>
CAPITAL GROWTH GROWTH AND INCOME
- -------------------------------------------------------------------------------------------------
<S> <C>
Franklin Global Health Care Securities Fund Franklin Global Communications Securities Fund
Franklin Large Cap Growth Securities Fund Franklin Growth and Income Fund
Franklin Natural Resources Securities Fund Franklin Income Securities Fund
Franklin Small Cap Fund Franklin Real Estate Fund
Mutual Discovery Securities Fund Franklin Rising Dividends Fund
Templeton Developing Markets Equity Fund Franklin Value Securities Fund
Templeton Global Growth Fund Mutual Shares Securities Fund
Templeton International Equity Fund Templeton Global Asset Allocation Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
</TABLE>
<TABLE>
<CAPTION>
CURRENT INCOME CAPITAL PRESERVATION AND INCOME
- ---------------------------------------------------------------------------
<S> <C>
Franklin High Income Fund Franklin Money Market Fund
Franklin U.S. Government Fund
Franklin Zero Coupon Fund - 2000
Franklin Zero Coupon Fund - 2005
Franklin Zero Coupon Fund - 2010
Templeton Global Income Securities Fund
</TABLE>
Effective July 1, 1999, the name of the Trust, Franklin Valuemark Funds, changed
to Franklin Templeton Variable Insurance Products Trust. The Funds' investment
objectives and other policies did not change as a result of the name change.
Effective November 15, 1999 and December 15, 1999, the name of the Franklin
Global Utilities Securities Fund and the Franklin Capital Growth Fund changed to
Franklin Global Communications Securities Fund and Franklin Large Cap Growth
Securities Fund, respectively. The funds' investment objectives and other
policies did not change as a result of the name change.
The following summarizes the Funds' 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. Restricted securities and 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.
Securities in the Franklin Money Market Fund are valued at amortized cost which
approximates value.
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.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. FORWARD EXCHANGE CONTRACTS
The Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Global Asset Allocation Fund, and the Templeton Global Income
Securities Fund may enter into forward exchange contracts to hedge against
foreign exchange risks. These contracts are valued
178
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. FORWARD EXCHANGE CONTRACTS (CONT.)
daily and each fund's equity therein is included in the Statements of Assets and
Liabilities. Realized and unrealized gains and losses are included in the
Statements of Operations.
d. CONTRACTS FOR DIFFERENCES
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund are
engaged in short contracts for differences. Short contracts for differences are
contracts entered into between a broker and the fund under which the parties
agree to make payments to each other so as to replicate the economic
consequences that would apply had a short sale of the underlying security taken
place. Upon entering into short contracts for differences, the funds are
required to pledge to the broker an amount of cash and/or other assets equal to
a certain percentage of the contract amount ("initial margin"). Subsequent
payments known as "variation margin", are made or received by the funds
periodically, depending on fluctuations in the value of the underlying security.
When the contract is closed, the funds record a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Should market conditions move unexpectedly,
the fund may not achieve the anticipated benefits of the contracts for the
differences and may realize a loss.
e. OPTIONS
In order to produce incremental income or protect against changes in the value
of the underlying securities, the Mutual Discovery Securities Fund and the
Mutual Shares Securities Fund may write put and covered call options.
Premiums received by these funds upon writing put or covered call options are
recorded as an asset and an equivalent liability which is subsequently adjusted
daily to equal the current market value of the option written. Each fund will
realize a gain or loss upon the expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call option or
the purchase cost for a written put option is adjusted by the amount of the
premium received or paid. The risk in writing a call option is that the funds
give up the opportunity for profit if the market price of the security increases
and the option is exercised. The risk in writing a put option is that the funds
may incur a loss if the market price of the security decreases and the option is
exercised. All collateral covering written options are held in a segregated
account by the custodian bank.
f. SECURITIES SOLD SHORT
The Mutual Discovery Securities Fund and Mutual Shares Securities Fund are
engaged in selling securities short, which obligates the funds to replace a
security borrowed with the same security at the current market value. The funds
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the funds replace the borrowed security.
The funds would realize a gain if the price of the security declines between
those dates.
The funds are required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the funds must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short.
g. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
h. 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. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. For the Franklin Money Market
Fund, dividends from net investment income and capital gains or losses are
normally declared daily. Such distributions are reinvested in additional shares
of the fund.
179
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
h. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
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.
i. DEFERRED TAXES
Deferred taxes are recorded for estimated tax liabilities inherent in certain of
the funds' foreign portfolio securities which may arise from subsequent sales of
those securities and asset repatriation from countries that impose such taxes.
j. 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. SHARES OF BENEFICIAL INTEREST
Effective January 6, 1999, all funds except the Franklin Zero Coupon Fund -
2000, the Franklin Zero Coupon Fund - 2005, and the Franklin Zero Coupon Fund -
2010 offered two classes of shares: Class 1 and Class 2. Outstanding shares
before that date were designated Class 1 shares. Each class of 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 ($.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL HEALTH
COMMUNICATIONS SECURITIES FUND CARE SECURITIES FUND(2)
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 1,541,846 $ 31,772,461 1,376,672 $ 12,987,503
Shares issued in reinvestment of distributions 5,759,297 112,882,214 2,665 25,069
Shares redeemed (15,853,370) (326,028,297) (1,066,945) (9,769,183)
---------------------------------------------------------------------------
Net increase (decrease) (8,552,227) $(181,373,622) 312,392 $ 3,243,389
===========================================================================
Year ended December 31, 1998
Shares sold 2,621,862 $ 52,650,625 1,315,108 $ 12,754,095
Shares issued in reinvestment of distributions 5,388,353 104,426,274 -- --
Shares redeemed (15,318,738) (303,132,530) (475,618) (4,403,400)
---------------------------------------------------------------------------
Net increase (decrease) (7,308,523) $(146,055,631) 839,490 $ 8,350,695
===========================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 20,226 $ 430,720 10,177 $ 91,223
Shares issued in reinvestment of distributions 1,779 34,802 11 99
Shares redeemed (2,207) (45,080) (1,710) (16,061)
---------------------------------------------------------------------------
Net increase 19,798 $ 420,442 8,478 $ 75,261
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
GROWTH AND INCOME FUND
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 4,366,236 $ 86,298,047
Shares issued in reinvestment of distributions 8,533,267 161,876,071
Shares redeemed (23,423,299) (458,563,458)
---------------------------------
Net increase (decrease) (10,523,796) $(210,389,340)
=================================
Year ended December 31, 1998
Shares sold 9,617,417 $ 198,201,953
Shares issued in reinvestment of distributions 7,392,186 146,069,603
Shares redeemed (15,929,952) (321,695,049)
---------------------------------
Net increase (decrease) 1,079,651 $ 22,576,507
=================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 77,868 $ 1,487,846
Shares issued in reinvestment of distributions 4,414 83,603
Shares redeemed (37,757) (696,285)
---------------------------------
Net increase 44,525 $ 875,164
=================================
</TABLE>
180
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME FUND FRANKLIN INCOME SECURITIES FUND
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 11,859,183 $ 149,857,086 2,371,113 $ 38,308,568
Shares issued in reinvestment of distributions 9,071,907 98,142,363 7,222,075 109,703,322
Shares redeemed (22,697,184) (283,846,820) (26,903,414) (432,579,380)
---------------------------------------------------------------------------
Net increase (decrease) (1,766,094) $ (35,847,371) (17,310,226) $(284,567,490)
===========================================================================
Year ended December 31, 1998
Shares sold 12,350,296 $ 169,850,148 5,561,398 $ 97,914,458
Shares issued in reinvestment of distributions 3,423,575 46,731,797 7,512,196 127,031,238
Shares redeemed (16,477,344) (226,279,172) (19,594,845) (338,128,943)
---------------------------------------------------------------------------
Net increase (decrease) (703,473) $ (9,697,227) (6,521,251) $(113,183,247)
===========================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 135,662 $ 1,640,852 85,908 $ 1,343,308
Shares issued in reinvestment of distributions 11,129 118,780 3,906 59,256
Shares redeemed (101,197) (1,192,624) (892) (13,183)
---------------------------------------------------------------------------
Net increase 45,594 $ 567,008 88,922 $ 1,389,381
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP
GROWTH SECURITIES FUND
--------------------------------
SHARES AMOUNT
--------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 14,376,691 $ 244,620,121
Shares issued in reinvestment of distributions 84,591 1,509,956
Shares redeemed (8,863,652) (154,700,026)
--------------------------------
Net increase (decrease) 5,597,630 $ 91,430,051
================================
Year ended December 31, 1998
Shares sold 9,664,745 $ 140,653,465
Shares issued in reinvestment of distributions 37,058 539,187
Shares redeemed (4,111,363) (58,937,582)
--------------------------------
Net increase (decrease) 5,590,440 $ 82,255,070
================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 89,707 $ 1,579,229
Shares issued in reinvestment of distributions 73 1,300
Shares redeemed (64,004) (1,219,795)
--------------------------------
Net increase 25,776 $ 360,734
================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NATURAL
FRANKLIN MONEY MARKET FUND RESOURCES SECURITIES FUND
----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 705,526,809 $ 705,526,809 4,167,717 $ 40,856,708
Shares issued in reinvestment of distributions 17,609,674 17,609,674 68,783 735,982
Shares redeemed (773,449,498) (773,449,498) (5,792,628) (57,109,985)
----------------------------------------------------------------------------
Net decrease (50,313,015) $ (50,313,015) (1,556,128) $ (15,517,295)
============================================================================
Year ended December 31, 1998
Shares sold 748,602,052 $ 748,602,052 3,505,454 $ 36,314,081
Shares issued in reinvestment of distributions 19,603,629 19,603,629 91,844 946,913
Shares redeemed (721,314,062) (721,314,062) (4,685,716) (47,411,416)
----------------------------------------------------------------------------
Net increase (decrease) 46,891,619 $ 46,891,619 (1,088,418) $ (10,150,422)
============================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 219,800,400 $ 219,800,400 38,482 $ 417,911
Shares issued in reinvestment of distributions 111,092 111,092 70 752
Shares redeemed (211,309,892) (211,309,892) (32,281) (342,093)
----------------------------------------------------------------------------
Net increase 8,601,600 $ 8,601,600 6,271 $ 76,570
============================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN REAL ESTATE FUND
--------------------------------
SHARES AMOUNT
--------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 575,363 $ 10,691,098
Shares issued in reinvestment of distributions 2,652,511 43,076,785
Shares redeemed (6,765,476) (121,727,316)
--------------------------------
Net decrease (3,537,602) $ (67,959,433)
================================
Year ended December 31, 1998
Shares sold 1,938,333 $ 46,066,967
Shares issued in reinvestment of distributions 1,117,322 24,871,599
Shares redeemed (6,098,998) (134,871,059)
--------------------------------
Net increase (decrease) (3,043,343) $ (63,932,493)
================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 165,395 $ 2,415,677
Shares issued in reinvestment of distributions 815 13,209
Shares redeemed (1,567) (23,093)
--------------------------------
Net increase 164,643 $ 2,405,793
================================
</TABLE>
181
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN RISING DIVIDENDS FUND FRANKLIN SMALL CAP FUND
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 2,446,386 $ 40,314,130 5,623,402 $ 95,075,835
Shares issued in reinvestment of distributions 6,599,250 103,080,282 106,977 1,700,933
Shares redeemed (17,468,289) (281,447,769) (10,564,693) (163,173,402)
---------------------------------------------------------------------------
Net decrease (8,422,653) $(138,053,357) (4,834,314) $ (66,396,634)
===========================================================================
Year ended December 31, 1998
Shares sold 10,051,992 $ 190,031,986 10,354,452 $ 146,238,628
Shares issued in reinvestment of distributions 6,443,856 113,991,805 1,866,496 26,056,288
Shares redeemed (14,609,606) (263,398,761) (10,047,779) (137,233,030)
---------------------------------------------------------------------------
Net increase (decrease) 1,886,242 $ 40,625,030 2,173,169 $ 35,061,886
===========================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 38,839 $ 603,609 237,253 $ 4,844,539
Shares issued in reinvestment of distributions 3,710 57,830 42 673
Shares redeemed (2,082) (31,472) (7,583) (172,598)
---------------------------------------------------------------------------
Net increase 40,467 $ 629,967 229,712 $ 4,672,614
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN U.S. GOVERNMENT FUND
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 4,229,311 $ 56,773,998
Shares issued in reinvestment of distributions 6,745,264 82,724,494
Shares redeemed (18,460,763) (246,883,671)
---------------------------------
Net decrease (7,486,188) $(107,385,179)
=================================
Year ended December 31, 1998
Shares sold 10,470,243 $ 144,337,382
Shares issued in reinvestment of distributions 3,808,590 50,958,932
Shares redeemed (18,034,303) (250,254,233)
---------------------------------
Net increase (decrease) (3,755,470) $ (54,957,919)
=================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 165,968 $ 2,244,294
Shares issued in reinvestment of distributions 21,095 257,323
Shares redeemed (27,670) (353,544)
---------------------------------
Net increase 159,393 $ 2,148,073
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN ZERO
FRANKLIN VALUE SECURITIES FUND(2) COUPON FUND - 2000
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 1,587,252 $ 12,476,029 400,191 $ 5,693,223
Shares issued in reinvestment of distributions 3,306 28,103 1,068,352 13,947,859
Shares redeemed (1,314,579) (10,084,519) (2,141,833) (30,683,747)
-----------------------------------------------------------------------
Net increase (decrease) 275,979 $ 2,419,613 (673,290) $(11,042,665)
=======================================================================
Year ended December 31, 1998
Shares sold 1,367,931 $ 11,279,710 646,397 $ 9,539,377
Shares issued in reinvestment of distributions -- -- 637,042 9,058,747
Shares redeemed (211,139) (1,801,987) (2,343,411) (35,028,241)
-----------------------------------------------------------------------
Net increase (decrease) 1,156,792 $ 9,477,723 (1,059,972) $(16,430,117)
=======================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 195,613 $ 1,501,629
Shares issued in reinvestment of distributions 16 138
Shares redeemed (35,319) (269,986)
-------------------------------
Net increase 160,310 $ 1,231,781
===============================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN ZERO
COUPON FUND - 2005
-------------------------------
SHARES AMOUNT
-------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 616,940 $ 10,348,925
Shares issued in reinvestment of distributions 625,547 9,492,430
Shares redeemed (1,462,565) (24,191,313)
-------------------------------
Net increase (decrease) (220,078) $ (4,349,958)
===============================
Year ended December 31, 1998
Shares sold 977,903 $ 16,942,756
Shares issued in reinvestment of distributions 357,194 5,904,415
Shares redeemed (1,107,098) (19,140,098)
-------------------------------
Net increase (decrease) 227,999 $ 3,707,073
===============================
</TABLE>
182
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN ZERO
COUPON FUND - 2010 MUTUAL DISCOVERY SECURITIES FUND
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 1,559,718 $ 27,125,932 1,982,385 $ 23,245,306
Shares issued in reinvestment of distributions 779,588 11,854,045 476,305 5,872,849
Shares redeemed (2,579,464) (43,760,125) (7,422,698) (87,417,197)
--------------------------------------------------------------------------
Net decrease (240,158) $ (4,780,148) (4,964,008) $ (58,299,042)
==========================================================================
Year ended December 31, 1998
Shares sold 2,622,702 $ 48,365,327 7,041,503 $ 90,113,407
Shares issued in reinvestment of distributions 314,060 5,565,143 482,835 6,383,083
Shares redeemed (2,825,253) (52,079,073) (3,946,113) (44,836,285)
--------------------------------------------------------------------------
Net increase 111,509 $ 1,851,397 3,578,225 $ 51,660,205
==========================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 33,335 $ 398,375
Shares issued in reinvestment of distributions 461 5,671
Shares redeemed (3,299) (39,974)
------------------------------
Net increase 30,497 $ 364,072
==============================
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 5,163,014 $ 66,279,367
Shares issued in reinvestment of distributions 914,838 12,213,087
Shares redeemed (12,518,155) (158,453,903)
---------------------------------
Net decrease (6,440,303) $ (79,961,449)
=================================
Year ended December 31, 1998
Shares sold 12,012,852 $ 150,206,617
Shares issued in reinvestment of distributions 760,950 9,603,186
Shares redeemed (4,280,005) (49,418,486)
---------------------------------
Net increase 8,493,797 $ 110,391,317
=================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 436,840 $ 5,671,654
Shares issued in reinvestment of distributions 3,403 45,323
Shares redeemed (8,851) (110,967)
---------------------------------
Net increase 431,392 $ 5,606,010
=================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING TEMPLETON GLOBAL
MARKETS EQUITY FUND ASSET ALLOCATION FUND
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 3,881,288 $ 32,963,868 369,621 $ 4,473,677
Shares issued in reinvestment of distributions 371,653 3,408,057 779,230 9,222,366
Shares redeemed (9,742,060) (80,140,327) (2,380,619) (29,109,797)
---------------------------------------------------------------------------
Net decrease (5,489,119) $ (43,768,402) (1,231,768) $ (15,413,754)
===========================================================================
Year ended December 31, 1998
Shares sold 6,171,249 $ 49,413,698 1,163,365 $ 15,880,669
Shares issued in reinvestment of distributions 4,042,542 29,793,530 556,595 7,168,941
Shares redeemed (13,892,294) (110,288,805) (2,081,709) (26,875,808)
---------------------------------------------------------------------------
Net increase (decrease) (3,678,503) $ (31,081,577) (361,749) $ (3,826,198)
===========================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 3,208,177 $ 28,287,279 4,796 $ 59,342
Shares issued in reinvestment of distributions 218 2,002 506 5,981
Shares redeemed (3,175,302) (28,227,581) (901) (10,757)
---------------------------------------------------------------------------
Net increase 33,093 $ 61,700 4,401 $ 54,566
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 3,559,626 $ 53,423,886
Shares issued in reinvestment of distributions 6,314,237 91,430,148
Shares redeemed (15,136,586) (225,779,930)
---------------------------------
Net decrease (5,262,723) $ (80,925,896)
=================================
Year ended December 31, 1998
Shares sold 6,659,421 $ 103,474,286
Shares issued in reinvestment of distributions 6,496,363 93,807,481
Shares redeemed (12,002,187) (175,183,507)
---------------------------------
Net increase (decrease) 1,153,597 $ 22,098,260
=================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 3,228,083 $ 46,873,543
Shares issued in reinvestment of distributions 7,976 115,255
Shares redeemed (2,948,742) (42,993,192)
---------------------------------
Net increase 287,317 $ 3,995,606
=================================
</TABLE>
183
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL TEMPLETON INTERNATIONAL
INCOME SECURITIES FUND EQUITY FUND
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 755,763 $ 9,398,931 9,536,395 $ 154,330,253
Shares issued in reinvestment of distributions 815,256 9,277,104 4,250,735 70,388,538
Shares redeemed (5,116,543) (62,034,941) (32,083,168) (520,007,674)
--------------------------------------------------------------------------
Net decrease (3,545,524) $ (43,358,906) (18,296,038) $(295,288,883)
==========================================================================
Year ended December 31, 1998
Shares sold 884,521 $ 11,354,195 6,071,020 $ 98,428,488
Shares issued in reinvestment of distributions 1,004,061 12,370,027 6,374,245 104,410,134
Shares redeemed (4,428,598) (56,677,775) (22,907,488) (363,896,861)
--------------------------------------------------------------------------
Net decrease (2,540,016) $ (32,953,553) (10,462,223) $(161,058,239)
==========================================================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 40,368 $ 470,374 6,929,787 $ 113,531,523
Shares issued in reinvestment of distributions 1,764 19,727 12,090 202,655
Shares redeemed (2,055) (24,797) (6,761,339) (111,493,341)
--------------------------------------------------------------------------
Net increase 40,077 $ 465,304 180,538 $ 2,240,837
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
--------------------------------
SHARES AMOUNT
--------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 583,886 $ 6,152,029
Shares issued in reinvestment of distributions 64,794 690,707
Shares redeemed (1,240,556) (12,457,655)
--------------------------------
Net decrease (591,876) $ (5,614,919)
================================
Year ended December 31, 1998
Shares sold 1,335,385 $ 13,968,902
Shares issued in reinvestment of distributions 147,758 1,600,222
Shares redeemed (1,687,180) (17,302,839)
--------------------------------
Net decrease (204,037) $ (1,733,715)
================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 2,831,182 $ 29,929,003
Shares issued in reinvestment of distributions 40 424
Shares redeemed (2,646,201) (28,100,550)
--------------------------------
Net increase 185,021 $ 1,828,877
================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON PACIFIC GROWTH FUND
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Year ended December 31, 1999
Shares sold 37,570,852 $ 339,701,623
Shares issued in reinvestment of distributions 96,595 982,376
Shares redeemed (41,329,954) (375,088,046)
---------------------------------
Net decrease (3,662,507) $ (34,404,047)
=================================
Year ended December 31, 1998
Shares sold 12,315,500 $ 91,136,520
Shares issued in reinvestment of distributions 1,116,074 6,941,981
Shares redeemed (18,106,232) (134,829,644)
---------------------------------
Net decrease (4,674,658) $ (36,751,143)
=================================
CLASS 2 SHARES:
Year ended December 31, 1999(1)
Shares sold 494,861 $ 4,788,916
Shares issued in reinvestment of distributions 86 876
Shares redeemed (483,963) (4,720,906)
---------------------------------
Net increase 10,984 $ 68,886
=================================
</TABLE>
(1) For the period January 6, 1999 (effective date) to December 31, 1999.
(2) For the period May 1, 1998 (effective date) to December 31, 1998.
184
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
- ------------------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Advisory Services, LLC (Advisory Services) Investment manager
Franklin Mutual Advisers, LLC (Franklin Mutual) Investment manager
Templeton Asset Management Ltd. (TAML) Investment manager
Templeton Global Advisors Ltd. (TGAL) Investment manager
Templeton Investment Counsel, Inc. (TICI) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds, except the Franklin Global Health Care Securities Fund, the
Franklin Large Cap Growth Securities Fund, the Franklin Rising Dividends Fund,
the Franklin Small Cap Fund, the Franklin Value Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton
Developing Markets Equity Fund, the Templeton Global Asset Allocation Fund, the
Templeton Global Growth Fund, the Templeton International Equity Fund, the
Templeton International Smaller Companies Fund, and the Templeton Pacific Growth
Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.50% over $100 million, up to and including $250 million
.45% over $250 million, up to and including $10 billion
</TABLE>
Fees are further reduced on net assets over $10 billion.
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Income Securities Fund and receives fees from Advisers based on
the average daily net assets of the fund.
The Templeton International Equity Fund and the Templeton Pacific Growth Fund
pay an investment management fee to Advisers based on the average net assets of
each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
1.00% First $100 million
.90% over $100 million, up to and including $250 million
.80% over $250 million, up to and including $500 million
.75% over $500 million
</TABLE>
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton International Equity Fund and the Templeton Pacific Growth Fund, and
receives fees from Advisers based on the average daily net assets of each fund.
The Franklin Large Cap Growth Securities Fund and the Franklin Small Cap Fund
pay an investment management fee to Advisers based on the average net assets of
each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
.75% First $500 million
.625% over $500 million, up to and including $1 billion
.50% over $1 billion
</TABLE>
185
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin Global Health Care Securities Fund and the Franklin Value
Securities Fund pay an investment management fee to Advisers and Advisory
Services, respectively, based on the average net assets of each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
.60% First $200 million
.50% over $200 million, up to and including $1.3 billion
.40% over $1.3 billion
</TABLE>
For the Franklin Global Health Care Securities Fund and the Franklin Value
Securities Fund, management fees were reduced on assets invested in the Franklin
Institutional Fiduciary Trust Money Market Portfolio.
The Franklin Rising Dividends Fund pays an investment management fee to Advisory
Services based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
.75% First $500 million
.625% over $500 million, up to and including $1 billion
.50% over $1 billion
</TABLE>
The Templeton Global Growth Fund pays an investment management fee to TGAL based
on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
1.00% First $100 million
.90% over $100 million, up to and including $250 million
.80% over $250 million, up to and including $500 million
.75% over $500 million
</TABLE>
The Templeton Global Asset Allocation Fund pays an investment management fee to
TGAL based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
.65% First $200 million
.585% over $200 million, up to and including $1.3 billion
.52% over $1.3 billion
</TABLE>
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Asset Allocation Fund and receives from TGAL fees based on the
average daily net assets of the fund.
The Templeton International Smaller Companies Fund pays an investment management
fee to TICI based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
.85% First $200 million
.765% over $200 million, up to and including $1.3 billion
.68% over $1.3 billion
</TABLE>
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund pay
an investment management fee to Franklin Mutual of .80% and .60%, respectively,
per year of the average daily net assets of each fund.
The Templeton Developing Markets Equity Fund pays an investment management fee
to TAML of 1.25% per year of the average daily net assets of the fund.
186
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Under an agreement with their respective investment managers, FT Services
provides administrative services to the Funds, except for the Franklin Global
Health Care Securities Fund, the Franklin Value Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton
Global Asset Allocation Fund, and the Templeton International Smaller Companies
Fund. The fee is paid by each fund's respective investment managers based on the
average daily net assets, and is not an additional expense of the Funds.
The Franklin Global Health Care Securities Fund, the Franklin Value Securities
Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund,
the Templeton Global Asset Allocation Fund, and the Templeton International
Smaller Companies Fund, pay administrative fees to FT Services based on the
average net assets of each fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
.15% First $200 million
.135% over $200 million, up to and including $700 million
.10% over $700 million, up to and including $1.2 billion
</TABLE>
Fees are further reduced on net assets over $1.2 billion.
The Funds reimburse Distributors up to .25% per year of their average daily net
assets of Class 2, for costs incurred in marketing the Funds' shares. Effective
July 1, 1999, the rate changed from .30% to .25%.
Investor Services, under terms of an agreement, performs shareholder servicing
for the Funds and is not paid by the Funds for the services.
4. INCOME TAXES
At December 31, 1999, certain funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN NATURAL FRANKLIN U.S.
HEALTH CARE FRANKLIN HIGH FRANKLIN MONEY RESOURCES GOVERNMENT FRANKLIN VALUE
SECURITIES FUND INCOME FUND MARKET FUND SECURITIES FUND FUND SECURITIES FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital loss
carryovers
expiring in:
2000 ............ $ -- $ -- $ 210 $ -- $ -- $ --
2001 ............ -- -- 523 -- -- --
2002 ............ -- -- 7,568 -- 8,408,494 --
2003 ............ -- -- -- -- 826,481 --
2004 ............ -- -- -- 146,066 -- --
2005 ............ -- -- -- 3,313,053 169,754 --
2006 ............ 239,954 -- 371 14,821,804 -- 64,007
2007 ............ 1,380,953 2,294,320 -- 3,374,600 -- 382,947
------------------------------------------------------------------------------------------------------------
$ 1,620,907 $ 2,294,320 $ 8,672 $21,655,523 $ 9,404,729 $ 446,954
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
MUTUAL DEVELOPING TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
DISCOVERY MARKETS GLOBAL ASSET GLOBAL INCOME SMALLER PACIFIC
SECURITIES FUND EQUITY FUND ALLOCATION FUND SECURITIES FUND COMPANIES FUND GROWTH FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital loss
carryovers
expiring in:
2003 ............ $ -- $ -- $ -- $ 1,035,267 $ -- $ --
2006 ............ 5,888,540 21,232,197 -- -- 2,543,971 24,460,805
2007 ............ -- 46,658,065 867,232 5,093,383 1,878,044 27,181,209
------------------------------------------------------------------------------------------------------------
$ 5,888,540 $67,890,262 $ 867,232 $ 6,128,650 $ 4,422,015 $51,642,014
============================================================================================================
</TABLE>
187
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At December 31, 1999, the following funds had deferred capital losses and/or
deferred currency losses occurring subsequent to October 31, 1999. For tax
purposes, such losses will be reflected in the year ending December 31, 2000.
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN LARGE
COMMUNICATIONS HEALTH CARE FRANKLIN HIGH FRANKLIN INCOME CAP GROWTH
SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND SECURITIES FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,111,384 $165,657 $5,404,088 $799,463 $65,023
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN REAL FRANKLIN SMALL FRANKLIN U.S. FRANKLIN VALUE
ESTATE FUND CAP FUND GOVERNMENT FUND SECURITIES FUND
- ----------------------------------------------------------------
<S> <C> <C> <C>
$4,078,609 $103 $1,160,146 $27,329
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
FRANKLIN TEMPLETON TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL
ZERO COUPON DEVELOPING MARKETS GLOBAL ASSET GLOBAL INCOME INTERNATIONAL SMALLER
FUND - 2005 EQUITY FUND ALLOCATION FUND SECURITIES FUND EQUITY FUND COMPANIES FUND
- ------------------------------------------------------------------------------------------------------------------
<S> > <C> <C> <C> <C> <C>
$20,685 $1,522,503 $989,065 $1,407,836 $1,004,292 $115,743
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, and passive foreign investment company shares.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales, foreign currency
transactions, mortgage dollar rolls, and passive foreign investment company
shares.
At December 31, 1999, the net unrealized appreciation (depreciation) based on
the cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND
SECURITIES FUND SECURITIES FUND INCOME FUND
-------------------------------------------------------
<S> <C> <C> <C>
Investments at cost ...................... $ 668,413,801 $ 9,983,079 $ 837,266,947
=====================================================
Unrealized appreciation .................. $ 313,538,706 $ 2,207,409 $ 190,308,475
Unrealized depreciation .................. (15,668,603) (708,065) (62,236,786)
------------------------------------------------------
Net unrealized appreciation (depreciation) $ 297,870,103 $ 1,499,344 $ 128,071,689
======================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL FRANKLIN
FRANKLIN HIGH FRANKLIN INCOME
INCOME FUND SECURITIES FUND
------------------------------------
<S> <C> <C>
Investments at cost ...................... $ 370,407,419 $ 805,870,987
=================================
Unrealized appreciation .................. $ 4,887,920 $ 68,757,518
Unrealized depreciation .................. (66,643,693) (109,152,573)
----------------------------------
Net unrealized appreciation (depreciation) $ (61,755,773) $ (40,395,055)
==================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE FRANKLIN NATURAL
CAP GROWTH RESOURCES FRANKLIN REAL FRANKLIN RISING FRANKLIN SMALL
SECURITIES FUND SECURITIES FUND ESTATE FUND DIVIDENDS FUND CAP FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ...................... $ 296,621,987 $ 42,077,656 $ 168,965,027 $ 406,330,429 $ 270,173,246
=====================================================================================
Unrealized appreciation .................. $ 137,194,930 $ 6,719,016 $ 15,914,488 $ 102,809,592 $ 260,048,654
Unrealized depreciation .................. (24,166,986) (5,796,305) (25,266,874) (61,451,328) (38,042,303)
--------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 113,027,944 $ 922,711 $ (9,352,386) $ 41,358,264 $ 222,006,351
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
FRANKLIN U.S. FRANKLIN VALUE ZERO COUPON ZERO COUPON ZERO COUPON
GOVERNMENT FUND SECURITIES FUND FUND - 2000 FUND - 2005 FUND - 2010
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ...................... $ 530,457,451 $ 12,659,039 $ 69,904,479 $ 63,480,525 $ 62,689,444
===================================================================================
Unrealized appreciation .................. $ 5,012,097 $ 1,443,892 $ 1,148,429 $ 3,499,491 $ 4,544,862
Unrealized depreciation .................. (22,045,994) (1,583,324) (4,220) (896,948) (801,964)
------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (17,033,897) $ (139,432) $ 1,144,209 $ 2,602,543 $ 3,742,898
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
DEVELOPING TEMPLETON TEMPLETON
MUTUAL DISCOVERY MUTUAL SHARES MARKETS GLOBAL ASSET GLOBAL
SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND GROWTH FUND
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ............ $ 167,568,589 $ 399,801,882 $ 148,899,740 $ 59,141,054 $ 618,675,494
=============================================================================================
Unrealized appreciation ........ $ 39,138,423 $ 70,275,572 $ 54,120,646 $ 9,010,581 $ 154,202,623
Unrealized depreciation ........ (9,006,162) (22,750,065) (15,104,837) (6,815,090) (60,689,015)
----------------------------------------------------------------------------------------------
Net unrealized appreciation .... $ 30,132,261 $ 47,525,507 $ 39,015,809 $ 2,195,491 $ 93,513,608
==============================================================================================
</TABLE>
188
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ............................ $ 95,009,731 $ 631,466,875 $ 22,596,326 $ 106,903,704
=============================================================================
Unrealized appreciation ........................ $ 1,079,119 $ 207,364,579 $ 5,930,679 $ 17,141,287
Unrealized depreciation ........................ (6,408,047) (57,698,766) (2,988,325) (31,471,540)
-----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) ..... $ (5,328,928) $ 149,665,813 $ 2,942,354 $ (14,330,253)
=============================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $ 752,683,868 $ 21,629,912 $ 432,685,375 $ 83,262,259 $ 112,780,907
Sales ................ $1,093,589,415 $ 17,527,160 $ 736,112,176 $ 171,312,742 $ 418,601,155
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN LARGE FRANKLIN NATURAL
CAP GROWTH RESOURCES FRANKLIN REAL FRANKLIN RISING FRANKLIN SMALL
SECURITIES FUND SECURITIES FUND ESTATE FUND DIVIDENDS FUND CAP FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $228,846,076 $ 23,024,294 $ 21,466,517 $ 30,770,030 $122,071,236
Sales ................ $121,643,551 $ 35,695,966 $114,760,248 $255,295,565 $192,579,951
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
FRANKLIN U.S. FRANKLIN VALUE ZERO COUPON ZERO COUPON ZERO COUPON
GOVERNMENT FUND SECURITIES FUND FUND - 2000 FUND - 2005 FUND - 2010
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $ 47,441,883 $ 10,341,416 $ 8,326,710 $ 11,925,345 $ 15,493,910
Sales ................ $208,085,728 $ 6,082,421 $ 36,297,810 $ 25,939,091 $ 32,795,648
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
DEVELOPING TEMPLETON TEMPLETON
MUTUAL DISCOVERY MUTUAL SHARES MARKETS GLOBAL ASSET GLOBAL
SECURITIES FUND SECURITIES FUND EQUITY FUND ALLOCATION FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $184,687,953 $320,934,150 $ 53,185,619 $ 23,733,351 $314,057,492
Sales ................ $219,375,099 $351,652,090 $100,367,019 $ 42,897,139 $458,734,579
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases .................. $ 91,652,922 $256,702,244 $ 3,623,134 $ 12,174,908
Sales ...................... $133,666,738 $551,033,216 $ 7,738,628 $ 53,179,778
</TABLE>
Transactions in call options written during the year ended December 31, 1999
were as follows:
MUTUAL DISCOVERY SECURITIES FUND
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1998 ................................... 9 $ 1,346
Options written ............................................................ 14 5,776
Options expired ............................................................ (23) (7,122)
--------------------------------
Options outstanding at December 31, 1999 ................................... -- --
================================
</TABLE>
MUTUAL SHARES SECURITIES FUND
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1998 ................................... 12 $ 1,795
Options written ............................................................ 31 12,681
Options expired ............................................................ (43) (14,476)
--------------------------------
Options outstanding at December 31, 1999 ................................... -- --
================================
</TABLE>
189
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Each of the funds listed below has been a party to financial instruments with
off-balance-sheet risk, primarily forward exchange contracts, in order to
minimize the impact on the funds 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 on the
Statements 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 funds' 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. At December
31, 1999, certain funds have outstanding forward exchange contracts for the sale
or purchase of currencies as set out below. The contracts are reported in the
financial statements at each 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.
MUTUAL DISCOVERY SECURITIES FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR DATE GAINS (LOSSES)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
200,000 New Zealand Dollars U.S. $ 104,200 1/18/00 U.S. $ 337
2,875,000 British Pounds 4,623,765 1/20/00 23,000
109,060,257 Japanese Yen 1,077,646 3/24/00 4,312
472,157 British Pounds 762,156 5/22/00 759
----------- ----------
U.S. $ 6,567,767 U.S. $ 28,408
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO SELL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9,535,672 European Unit U.S. $10,085,061 1/19/00 U.S. $ 470,541
35,271,263 Swedish Krona 4,370,665 1/19/00 218,086
821,950 British Pounds 1,344,277 1/20/00 15,787
36,779,162 Swedish Krona 4,441,784 2/17/00 103,069
8,847,469 Swiss Francs 5,718,929 3/10/00 117,599
709,165 European Unit 736,933 3/10/00 19,222
993,960 Singapore Dollars 600,000 3/14/00 186
22,472,356 Swedish Krona 2,664,211 3/17/00 7,984
3,300,000 British Pounds 5,425,450 3/24/00 92,065
31,920,000 Japanese Yen 319,968 3/24/00 3,298
21,319,871 European Unit 22,660,357 4/12/00 1,032,914
2,122,302 British Pounds 3,436,644 5/22/00 7,411
6,957,425 European Unit 7,125,877 5/30/00 44,173
42,500,000 Swedish Krona 5,055,912 6/15/00 4,059
1,026,119 European Unit 1,053,509 6/19/00 7,634
---------- ----------
U.S. $75,039,577 $2,144,028
---------- ----------
Net unrealized gain on offsetting forward exchange contracts $ 20,055
----------
Unrealized gain on forward exchange contracts U.S. $2,192,491
----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO BUY
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
600,000 British Pounds U.S. $ 970,920 1/20/00 U.S. $ (1,160)
543,983 British Pounds 879,557 3/24/00 (384)
48,508,687 Japanese Yen 482,768 3/24/00 (1,526)
1,118,891 British Pounds 1,814,509 5/22/00 (6,596)
---------- ----------
U.S. $ 4,147,754 U.S. $ (9,666)
---------- ----------
</TABLE>
190
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
MUTUAL DISCOVERY SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR DATE GAINS (LOSSES)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,477,014 New Zealand Dollars U.S. $ 768,579 1/18/00 U.S. $ (3,435)
8,311,977 British Pounds 13,053,857 1/20/00 (380,510)
5,392,306 Canadian Dollars 3,668,483 1/31/00 (63,694)
129,056 British Pounds 207,148 2/17/00 (1,443)
2,662,590 Singapore Dollars 1,600,084 3/14/00 (6,680)
591,655,229 Japanese Yen 5,795,119 3/24/00 (74,535)
206,600 British Pounds 332,760 5/22/00 (1,066)
2,112,775 Swedish Krona 250,000 6/15/00 (1,140)
2,541,050 European Unit 2,584,930 6/19/00 (5,166)
---------- ----------
U.S. $28,260,960 U.S. $ (537,669)
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO BUY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
528,932 European Unit SEK 4,581,500 1/19/00 U.S. $ (6,087)
---------- ----------
Unrealized loss on forward exchange contracts (553,422)
----------
Net unrealized gain on forward exchange contracts U.S. $1,639,069
----------
</TABLE>
MUTUAL SHARES SECURITIES FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR DATE GAINS (LOSSES)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 British Pounds U.S. $ 801,235 1/20/00 U.S. $ 6,898
400,000 Canadian Dollars 275,473 1/31/00 1,379
321,344 Swiss Francs 202,805 3/10/00 638
31,144,875 Japanese Yen 306,770 3/24/00 2,210
252,546 British Pounds 406,389 5/22/00 1,676
---------- --------
U.S. $1,992,672 U.S. $ 12,801
---------- --------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO SELL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
14,663,910 European Unit U.S. $15,467,692 1/19/00 U.S. $ 682,528
19,759,585 Swedish Krona 2,448,524 1/19/00 122,176
98,706 British Pounds 160,841 2/17/00 1,305
16,550,500 Swedish Krona 2,012,364 2/17/00 59,956
1,100,000 European Unit 1,178,911 2/29/00 66,451
5,976,665 Swiss Francs 3,863,265 3/10/00 79,441
442,057 European Unit 458,091 3/10/00 10,708
31,117,386 Swedish Krona 3,689,123 3/17/00 11,055
1,200,000 British Pounds 1,965,000 3/24/00 25,587
11,262,369 European Unit 11,963,405 4/12/00 538,559
1,858,407 British Pounds 3,009,318 5/22/00 6,490
4,123,913 European Unit 4,228,944 5/30/00 31,366
58,500,000 Swedish Krona 6,959,315 6/15/00 5,587
684,044 European Unit 700,910 6/19/00 3,663
---------- ----------
U.S. $58,105,703 U.S. $1,644,872
---------- ----------
Unrealized gain on forward exchange contracts U.S. $1,657,673
----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO BUY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
697,728 Swiss Francs U.S. $ 443,297 3/10/00 U.S. $ (1,566)
865,041 British Pounds 1,422,477 5/22/00 (24,737)
---------- ----------
U.S. $ 1,865,774 U.S. $ (26,303)
---------- ----------
</TABLE>
191
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
MUTUAL SHARES SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE GAINS (LOSSES)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
117,327 British Pounds ..................................... U.S.$ 189,131 1/18/00 U.S.$ (499)
8,488,490 British Pounds ..................................... 13,336,936 1/20/00 (382,720)
4,522,798 Canadian Dollars ................................... 3,085,637 1/31/00 (44,728)
216,272 British Pounds ..................................... 347,457 2/17/00 (2,100)
240,189 European Unit ...................................... 243,072 3/10/00 (12)
78,050,315 Japanese Yen ....................................... 764,194 3/24/00 (10,123)
111,488 British Pounds ..................................... 179,562 5/22/00 (581)
2,000,000 European Unit ...................................... 2,033,600 6/19/00 (5,003)
----------- ----------
U.S.$20,179,589 U.S.$ (445,766)
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS TO BUY
- ------------------------------------------------------------------
<S> <C> <C> <C>
528,932 European Unit ...................................... SEK 4,581,500 1/19/00 U.S.$ (6,087)
--------- ----------
Unrealized loss on forward exchange contracts ............... $ (478,156)
----------
Net unrealized gain on forward exchange contracts ........ U.S.$1,179,517
==========
</TABLE>
TEMPLETON GLOBAL ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
IN NET UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE LOSS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
87,495,000 Japanese Yen ....................................... U.S. $ 832,534 3/14/00 U.S.$ (34,062)
==========
</TABLE>
TEMPLETON GLOBAL INCOME SECURITIES FUND
<TABLE>
<CAPTION>
IN NET UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE LOSS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
436,264,000 Japanese Yen ....................................... U.S.$ 4,151,194 3/14/00 U.S.$ (169,791)
==========
</TABLE>
7. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Income Fund and the Franklin Income Securities Fund have 96.1%
and 43.1%, respectively, of their portfolios invested in lower rated and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At December 31, 1999, the
Franklin High Income Fund, the Franklin Income Securities Fund, the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, and the Templeton
Global Asset Allocation Fund, held defaulted securities with a value aggregating
$5,736,500, $475,000, $5,057,094, $16,666,079, and $238,625, representing 1.8%,
.1%, 2.5%, 3.7%, and .4%, respectively, of each fund's net assets. For
information as to specific securities, see the accompanying Statement of
Investments.
For financial reporting purposes, the funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
The following funds have investments in excess of 10% of their total net assets
in the following:
Franklin High Income Fund - Consumer Services and Telecommunications
industries.
Franklin Income Securities Fund - Utilities industry.
Templeton Global Income Securities Fund - Germany and United Kingdom.
Such concentration may subject each fund more significantly to economic changes
occurring within these countries or industries.
192
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
8. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at December 31,1999 are as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ ACQUISITION
SHARES ISSUER DATE COST VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANKLIN HIGH INCOME FUND
$5,000,000 ICO Global Communications Holding Ltd.,
15.00%, 8/01/05 (.7% of Net Assets) ........................ 7/31/98 $5,000,000 $2,300,000
MUTUAL DISCOVERY SECURITIES FUND
13,770 Security Capital European Realty (.1% of Net Assets) ......... 4/08/98 $ 275,400 $ 198,391
MUTUAL SHARES SECURITIES FUND
27,030 Security Capital European Realty (.1% of Net Assets) ......... 4/08/98 $ 540,600 $ 389,435
</TABLE>
9. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies", at December 31, 1999
were as follows:
<TABLE>
<CAPTION>
NUMBER NUMBER
OF SHARES OF SHARES
HELD AT HELD VALUE AT CAPITAL
BEGINNING GROSS GROSS END OF END OF DIVIDEND GAINS
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS YEAR YEAR INCOME (LOSSES)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN REAL ESTATE FUND
Candlewood Hotel Co. Inc. .......... 650,000 -- (300,000) 350,000 * $ -- ($1,793,962)
FRANKLIN RISING DIVIDENDS FUND
West Pharmaceutical Services Inc. .. 784,300 -- (57,500) 726,800 * $369,357 $ 554,118
</TABLE>
*As of December 31, 1999, no longer an affiliate.
10. LENDING OF PORTFOLIO SECURITIES
The Franklin Small Cap Fund loans securities to certain brokers for which it
receives cash collateral against the loaned securities in an amount equal to at
least 102% of the market value of the loaned securities. Net interest income
from the investment of the cash collateral received was $172,296 for the year
ended December 31, 1999. At December 31, 1999, there were no securities on loan.
11. CREDIT FACILITY
The following funds, along with certain other Franklin Templeton Funds, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency 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 Trust had not utilized this credit facility.
<TABLE>
<S> <C> <C>
Franklin Global Communications Securities Fund Franklin Real Estate Fund Templeton Global Asset Allocation Fund
Franklin Global Health Care Securities Fund Franklin Rising Dividends Fund Templeton Global Growth Fund
Franklin Growth and Income Fund Franklin Small Cap Fund Templeton Global Income Securities Fund
Franklin High Income Fund Franklin Value Securities Fund Templeton International Equity Fund
Franklin Income Securities Fund Mutual Discovery Securities Fund Templeton International Smaller Companies Fund
Franklin Large Cap Growth Securities Fund Mutual Shares Securities Fund Templeton Pacific Growth Fund
Franklin Natural Resources Securities Fund Templeton Developing Markets
Equity Fund
</TABLE>
193
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Notes to Financial Statements (continued)
12. OTHER CONSIDERATIONS
Advisers, as the Franklin High Income Fund's Manager, may serve as a member of
various bondholder's steering committees, representing bondholder's interests in
certain corporate restructuring negotiations or on creditors committees.
Currently, the Manager serves on the Official Committee of Unsecured Creditors
of International Wireless Communications Holdings Inc. As a result of this
involvement, Advisers may be in possession of certain material non-public
information. The fund's Manager has not nor does it intend to sell any of its
holdings in these securities while in possession of such information.
13. SUBSEQUENT EVENT
On February 8, 2000, Templeton Variable Products Series Fund (TVP) shareholders
approved a proposal to merge the funds of the TVP Trust into similar
corresponding funds of the Franklin Templeton Variable Insurance Products Trust.
194
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements 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 each of the funds constituting the
Franklin Templeton Variable Insurance Products Trust, (hereafter referred to as
the "Funds") at December 31, 1999, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, 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
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with 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
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 2, 2000 except for Note 13, as to which the date is February 8, 2000.
195
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended December 31, 1999.
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN FRANKLIN LARGE
COMMUNICATIONS GROWTH AND FRANKLIN INCOME CAP GROWTH FRANKLIN REAL FRANKLIN RISING
SECURITIES FUND INCOME FUND SECURITIES FUND SECURITIES FUND ESTATE FUND DIVIDENDS FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$67,908,917 $90,915,588 $31,790,906 $15,017,938 $5,942,659 $61,087,938
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
FRANKLIN SMALL ZERO COUPON ZERO COUPON
CAP FUND FUND - 2000 FUND - 2005
- ------------------------------------------------
<S> <C> <C>
$16,776,954 $654,496 $1,597,637
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON
ZERO COUPON MUTUAL SHARES TEMPLETON GLOBAL INTERNATIONAL
FUND - 2010 SECURITIES FUND GROWTH FUND EQUITY FUND
- -------------------------------------------------------------------------
<S> <C> <C> <C>
$928,805 $10,186,671 $58,491,916 $176,558,548
</TABLE>
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate
the following percentage amounts of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended
December 31, 1999.
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN FRANKLIN LARGE
COMMUNICATIONS HEALTH CARE GROWTH AND FRANKLIN HIGH FRANKLIN INCOME CAP GROWTH
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND SECURITIES FUND SECURITIES FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
35.26% 100.00% 64.64% 0.10% 23.26% 100%
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
NATURAL RESOURCES FRANKLIN RISING FRANKLIN SMALL
SECURITIES FUND DIVIDENDS FUND CAP FUND
- ---------------------------------------------------
<S> <C> <C>
53.78% 66.31% 26.48%
</TABLE>
<TABLE>
<CAPTION>
MUTUAL TEMPLETON
FRANKLIN VALUE DISCOVERY MUTUAL SHARES GLOBAL ASSET TEMPLETON GLOBAL
SECURITIES FUND SECURITIES FUND SECURITIES FUND ALLOCATION FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
100.00% 12.07% 35.83% 3.12% 10.92%
</TABLE>
196
<PAGE>
